EnergyStatewide NewsState of Texas Joins Contest Over ERCOT Governmental Immunity, Backs Grid Operator’s Exemption Claim

The long-running case holds implications for lawsuits stemming from the 2021 blackouts filed well after this dispute was originally filed.
December 22, 2022

The Office of the Attorney General has joined the fray over a lingering legal fracas challenging the Electric Reliability Council of Texas’ (ERCOT) governmental immunity from lawsuits.

On behalf of the Public Utility Commission (PUC) — the state agency tasked with overseeing ERCOT — Attorney General Ken Paxton’s office sided against an appeals court ruling from February that decided ERCOT may be sued by private entities. A trial court sided with ERCOT before the appeals court reversed the ruling, which has now been appealed to the Texas Supreme Court.

The case stems from a pre-2021 blackout dispute in which Panda Power, a Temple-based utility company, accused ERCOT of providing intentionally faulty projections a decade ago. The figures showed a generation deficit, prompting Panda Power to invest $2.2 billion in three new power plants — shortly after which the grid operator changed its projection to show a power excess. That caused the price of electricity sold by Panda Power to wane compared with their expectations at the time they broke ground on the projects.

Alleging “fraud, negligent misrepresentation, and breach of fiduciary duty,” Panda Power sued ERCOT.

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The grid operator appealed to its supposed governmental immunity from being sued in a court of law. ERCOT is a government-sanctioned non-profit that acts aslike an air traffic controller for the electricity market.

Per the grid operator’s argument, sole jurisdiction over it rests with the PUC.

This position is reiterated in the PUC’s amicus brief filing: “First, ERCOT is entitled to governmental immunity when it acts as the State’s agent in performing a governmental function, as it did here. Second, the Commission has exclusive jurisdiction over Panda’s claims.”

Objecting to the appeals court’s ruling, the state asserted, “If ERCOT is subjected to the multi-billion-dollar judgment that Panda seeks, the administrative fee paid by wholesale market participants may have to be significantly increased to cover the damages.”

“That could mean higher utility bills for millions of Texans. Therefore, it is critical that courts recognize ERCOT’s immunity.”

The state then called on the court to reverse the appeals court ruling, leading Panda Power to take its petition to the PUC’s administrative body rather than seeking a judicial venue.

“Panda alleges that ERCOT acted improperly when performing a task assigned to it by the Commission,” the state added. “But rather than complain about ERCOT to the Commission, Panda filed a lawsuit. Panda may not circumvent the administrative process and ask a court to usurp the Commission’s role of determining whether ERCOT properly carried out its function as the State’s agent and, if not, the appropriate regulatory remedy.”

The appeals court ruling hinged on a distinction it lined out between ordinary error and deliberate thumbing of the scales.

“ERCOT likewise is not liable for its ordinary negligence when it exercises its power to cause the interruption of transmission service for the purpose of maintaining the ERCOT system stability and safety, but it may be liable for ‘its gross negligence or intentional misconduct when legally due,’” the court ruled.

If the state gets its way, no such distinction is relevant in court, as everything ERCOT does related to its basic functions falls under the PUC’s purview. Panda Power rejects this argument, expressing a position along the lines of the appeals court’s ruling.

“The ultimate question here is whether ERCOT had a duty not to lie in meetings and proprietary reports about electricity supply and demand,” Panda’s filing reads. “Whatever the outcome in those other cases, Panda’s classically common-law fraud claims should be decided in the courts.”

In the wake of the February 2021 blackouts, the Texas Supreme Court punted on another segment of the same dispute, stating that the trial court’s ruling could not be usurped in such short order. But the court did assert that it “w[ould] review the court of appeals’ decision on appeal from the trial court’s final judgment.”

Oral arguments are currently set for January 9, 2023, and the outcome of this case will undoubtedly provide a ripple effect for the litany of other lawsuits that followed the blackouts. It also casts a shadow on the ongoing deliberations over the state’s ERCOT market redesign.

Editor’s NoteThis article has been update with information on the date for oral arguments, disclosed by the court on Thursday after publishing.


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Brad Johnson

Brad Johnson is a senior reporter for The Texan and an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.