88th LegislatureEnergyStatewide NewsPublic Utility Commission Exceeded Authority During 2021 Blackouts, Appeals Court Rules

Texas’ main power grid — the Electric Reliability Council of Texas (ERCOT) — is an energy-only market, meaning it relies on constant price signals to gain or lose generation in response to demand.

On the morning of February 15, 2021, the state’s main power grid regulator began rolling blackout procedures after losing about 10,000 megawatts (MW) of generation in the span of a few minutes.

The load shedding, which quickly turned into prolonged blackouts rather than the expected rotating outages, was done to maintain a 60 Hertz frequency — the electrical balance needed between electricity demand and supply. According to officials, Texas was 4 minutes and 37 seconds from a “blackstart” event — a near-total shutdown of an entire grid due to an unstable frequency.

Had that happened, the blackouts could have lasted weeks or months.

The winter storm — not only in its extent across the state but in the severity of its low temperatures — caused nearly 50 percent of the state’s power generators to trip offline. Wind turbines froze, solar farms were covered in snow, natural gas and coal plants ran into cold-weather problems, and a reactor at Houston’s baseload nuclear power plant faltered.

It was a perfect storm of problems that proved nearly catastrophic.

To try and drive as much generation online as possible, the PUC ordered electricity prices to the $9,000 cap, about 300 times what it trades at during normal hours. The PUC argued that electricity prices at the time — during a point of load shedding — were not accurately reflecting the true scarcity conditions. The next day, it issued another order mirroring the first, except that it struck a retroactive repricing provision.

“Scarcity pricing” is the ERCOT mechanism by which prices rise exponentially, to a point, as the margin between supply and demand tightens. ERCOT electricity prices at the time of the order were trading around $1,200. According to then-PUC Chair Arthur D’Andrea, excess reserves had caused the inadequate prices.

“The Commission believes this outcome is inconsistent with the fundamental design of the ERCOT market,” the order read. “Energy prices should reflect scarcity of the supply. If customer load is being shed, scarcity is at its maximum, and the market price for the energy needed to serve that load should also be at its highest.”

But the directive remained in place throughout most of that week even after emergency conditions had ceased, causing large amounts of money to exchange hands in a way it would not have had the prices remained at their organic levels for a 36-hour period.

That period became the subject of a brutal legislative fight between the House and Senate last session; the Senate passed legislation ordering the “repricing” of ERCOT electricity transactions, but it stalled out in the House.

ERCOT, which is the grid’s traffic controller and de facto accountant, issued payment orders based on the capped prices rather than whatever the pricing equation would have yielded organically.

Due in large part to this, the 2021 blackouts are the subject of many lawsuits and multiple bankruptcies. The appeals court has now ruled on one of those cases.

Luminant Energy Company, LLC, a subsidiary of Vistra Corp, along with an array of other power companies, sued the agency after the dust had settled. The plaintiffs alleged the agency exceeded its authority, violated the rulemaking process, and failed to set an appropriate expiration of the order; the court concurred.

“We agree with the decision today by the Court of Appeals in Austin, but this is an ongoing legal proceeding and we cannot predict the final outcome,” a Luminant spokesman told The Texan.

The PUC declined to comment as the litigation is ongoing.

In its responses, the PUC argued that because the orders have expired, thus mooting the issue, the issue is no longer legally pertinent. The agency also asserted that the “orders” were not “rules” and thus cannot be challenged under the typical administrative rulemaking process.

The court rejected each contention.

It further argued that ERCOT, not the PUC, is the correct defendant to sue as it handles the invoicing for wholesale market transactions.

Tangential to this, the Third Court of Appeals also ruled last year that ERCOT lacks governmental immunity from lawsuits and can be sued in courts of law rather than the PUC as the sole venue — a case still before the Texas Supreme Court.

In this case, the court ruled, “[W]e are not persuaded that ERCOT must be brought before us as a party in order for us to grant the requested relief in light of the Commission’s ‘complete authority’ over ERCOT … together with ERCOT’s power to determine market clearing prices unless ‘otherwise directed by the commission.’”

Assessing the issue in its entirety, the court’s opinion states, “In extreme circumstances under extraordinary pressure, the Commission exceeded its power by eliminating competition entirely. … While the extraordinary circumstances of Winter Storm Uri may have required extraordinary modifications to the SPM to send appropriate pricing signals to prompt the necessary market response, the Commission here exceeded the Legislature’s limits on its power.”

Pulling few punches, the opinion added, “For four days under the Orders, the minimum price was the same as the maximum price by operation of executive fiat.”

The appeals court remanded the case to a lower court, but it is likely to be appealed straight to the Texas Supreme Court.

Each of the PUC commissioners in office during the blackouts have resigned and the agency now has an entirely new board.

Fallout from the 2021 blackouts lingers on not only in the Texas Legislature, which is debating a complex ERCOT market redesign this session. The show goes on in court as well, where it will likely remain for years to come.