Texas court rules out PUC price fixing during Winter Storm Uri unlawful

Emergency rules established by the Texas Public Utility Commission that have escalated The wholesale price of electricity priced at $9,000 per megawatt hour during winter storm Uri was “invalid” and needs to be reviewed, a state appellate court ruled Friday.

The long-awaited opinion of the Austin Third District Court of Appeals said PUC board members issued two illegal rules – an “executive fiat operation” – that allowed the Electric Reliability Council of Texas to increase the emergency electricity price of 650% for five days.

The decision, according to legal analysts, could be a multibillion-dollar win for companies like Luminant Energy, Pattern Energy, Exelon Generation, Constellation NewEnergy and Brazos Electric Coop, which had to buy electricity wholesale during the storm and say they were charged too much. If the ruling is upheld, the PUC may have to order power-generation companies Calpine Corp., Talen Energy, TexGen Power and others that sold power at the $9,000 wholesale rate to issue rebates that could amount to billions of dollars. .

The impact of the ruling on retail electricity consumers: whether some will be reimbursed for higher charges or whether taxpayers will be hooked for any refunds whether the sentence is upheld, it probably won’t be known for years, according to lawyers familiar with the litigation.

Attorneys on both sides of the case declined to comment on details of the decision on Friday, but all agreed an appeal to the Texas Supreme Court is likely.

PUC lawyers argued in court that the companies that are suing the agency are simply angry that they lost money during the freeze, which cost more than $130 billion in overall damages, according to the state comptroller, and was responsible about 200 dead. They warned the judges against “reflexive” decisions taken by the PUC and ERCOT during the emergency. The PUC also argued that the court lacked jurisdiction to reverse the agency’s regulation.

In a 42-page opinion, Austin Court of Appeals Judge Edward Smith rejected the PUC’s arguments, writing that the Texas legislature has given the court the power of review and jurisdiction and that state law requires that the PUC sets tariffs on the basis of a “preference for reliance on competition rather than regulation”.

“Under extreme circumstances under extraordinary pressure, the commission has exceeded its power by completely eliminating the competition,” Smith wrote. “The legislator has clearly stated that the commission’s rules must be ‘limited so as to impose the least impact on competition’.

“Instead, the orders had the greatest impact on competition imaginable by setting a single price for energy and ordering ERCOT to take all necessary steps to ensure that the market was free at that single price,” the court ruled.

The typical wholesale electricity price in Texas can be $30 per megawatt hour. During Winter Storm Uri, the price moved up to just over $1,200 based on market forces and demand. But the PUC board, believing that the market-demand-based system was malfunctioning, issued rules to set the wholesale price at the legal limit of $9,000 per megawatt-hour and kept the price there for four days.

The storm hit Texas on February 14, 2021, bringing with it snow, freezing rain and freezing temperatures. While electric service has been disrupted across much of the state, particularly in the Houston area, power demand has increased in other areas, such as Dallas. At the same time, many electric generators went out of order and natural gas suppliers were also unable to supply power companies with products.

During a six-minute meeting on Feb. 15, 2021, the PUC decided to close the supply-demand gap by issuing an emergency “rule” that resets the price cap to $9,000 per megawatt-hour — from $1,200 — and made $9,000. price retroactive to February 14th. The commission met the next day and canceled the retroactive portion of his order.

Allyson Ho, a partner at Gibson, Dunn & Crutcher, which represents Luminant, said in oral arguments last April that the PUC simply “ignored the legal process.”

“He didn’t follow the law,” Ho argued. “It is not too much to ask the PUC to follow the rules, follow the law. The PUC has taken extreme and unprecedented positions in this case.

Texas Assistant Attorney General Lisa Bennett, representing the PUC, told the judges that the PUC did not violate Texas law because the agency’s actions were simply “direction for ERCOT, not regulation.” She argued that the law “gives broad discretion” to the PUC to make such decisions.

The PUC’s actions were “taken during an extreme emergency” and due to a flaw in the system, he said. “We were at negative reserves, but the price wasn’t going up,” Bennett told the judges.

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