Texas Utilities Continue to Deal With Aftermath of Winter Storm Uri: CPS Energy Sues the Electric Reliability Council of Texas Alleging One of the “Largest Illegal Wealth Transfers” in Texas History

In mid-February, Winter Storm Uri brought frigid air across the US from the Pacific Northwest to the Gulf Coast.  Most notably, Winter Storm Uri passed through Texas, resulting in large snowfalls and reducing temperatures to historic levels.  In advance of the storm, plants and utilities responsible for providing vital electricity and natural gas to Texas residents sought to prepare for the extreme conditions—but then, diesel fuel began to gel, generators and turbines froze, and electricity became scarce—leaving many market participants and end-user consumers with astronomical bills for power.  Some entities have since disputed the bills, while others have even declared bankruptcy or indicated the need for future bankruptcy court protection.

On Friday, March 12, 2021, CPS Energy, a gas and electric utility owned by the city of San Antonio, Texas, filed a lawsuit against the Electric Reliability Council of Texas (“ERCOT”) (which acts as the payment clearinghouse for electricity buyers and sellers in Texas) and its officers and directors, alleging that EROT improperly allowed for the issuance of excessively-large bills for power purchased, but not actually delivered, during Winter Storm Uri.  Specifically, CPS Energy is seeking an injunction, certain other declaratory relief and unspecified money damages for, among other things, excessive prices and overcharges levied against market participants like CPS Energy and its customers for electricity charges from February 15 to February 19, 2021.  As set forth in the petition,¹ which was filed in the Bexar County District Court of Texas, CPS Energy brought the action against ERCOT for, among other things, breach of contract, negligence, and violation of the Texas Constitution relating to the excessive pricing and overcharges.  CPS Energy has petitioned the court to prevent ERCOT from:  (i) advancing any effort to wrongfully declare CPS Energy in default under the parties’ market agreement; (ii) overcharging market participants like CPS Energy and its customers for the “defaults of others” in the market caused by ERCOT’s excessive prices; and (iii) extending the credit of CPS Energy to pay for the defaults of others “in violation of the Texas Constitution.”

According to the petition, ERCOT’s actions led to the run-up of $20 billion in charges from February 15 to February 19, of which more than $16 billion allegedly was an “acknowledged error caused by ERCOT’s own mistake” by not reducing electricity prices from the grid-wide cap of $9,000 per megawatt-hour, even after supply evened out and the scarcity no longer existed, as determined by ERCOT’s independent market monitor.  CPS Energy further alleges that ERCOT repeatedly delayed any effort to correct the overcharge, and instead expects CPS Energy to pay for the defaults of others in the market.  CPS Energy warns that it will not be able to recover these monies, “as 22 market participants are projected to fail and the market is in peril.”  And, even if CPS were financially able to cover such defaults, it alleges that any payment would “unlawfully extend the credit of CPS Energy in violation of the Texas Constitution.”²  To that end, the petition seeks a temporary injunction “to prevent ERCOT from extending the credit of CPS Energy to pay for the defaults of others caused by the [e]xcessive [p]rices . . . in violation of the Texas Constitution, and with no prospect of repayment.”

In addition, the petition also seeks certain monetary relief, including:  (i) damages to correct the overcharges and excessive prices assessed during Winter Storm Uri—CPS Energy contends that neither it nor its customers “should not have to pay for the insolvency of market participants” caused by ERCOT’s negligence—and (ii) “damages in the form of repricing for the [o]vercharge caused by ERCOT’s own error.”

ERCOT has yet to file any papers in response to the petition, and the court has not set any date for hearing on the matter.  Future developments in the case could also be affected by efforts by Texas Governor Greg Abbott and certain members of the Texas legislature, who reportedly have been discussing executive and legislative workarounds to the disruption that is rippling through the state’s utilities markets.  Texas Lieutenant Governor Dan Patrick has even called for Governor Abbott to use his emergency powers to roll back the highstorm power pricing issued by ERCOT and others.³

More to come . . .

¹ Plaintiff’s Original Petition and Application for Temporary Injunction and Permanent Injunction
(Mar. 12, 2021)

² See Tex. Const. Art. XI, Sec. 3 (providing that “[n]o county, city, or other municipal corporation shall hereafter become a subscriber to the capital of any private corporation or association, or make any appropriation or donation to the same, or in anywise loan its credit.”)

³ Texas Lieutenant Governor Urges Governor to Roll Back Storm Power Pricing, Reuters (Mar. 18, 2021), available at https://www.reuters.com/business/energy/