Appeals court reverses PUCT's February 2021 orders and remands case

The following are excerpts from the Court’s decision.

Opinion

In this direct appeal, we consider a challenge to the validity of a pair of related Orders issued by the Public Utility Commission (PUC, Commission) on February 15 and 16 of 2021, respectively, governing scarcity pricing in the wholesale electricity market during Winter Storm Uri. Luminant Energy Company LLC (Luminant) and aligned intervenors[1] (collectively, Appellants) contend that the subject Orders (1) constitute de facto competition rules under Chapter 39 of the Texas Utilities Code, (2) were adopted in violation of the rulemaking provisions of the Administrative Procedure Act (APA), and (3) exceed the Commission’s statutory authority. We agree with Appellants’ first and third points and therefore do not reach the second. We reverse the Commission’s Orders and remand for further proceedings consistent with our ruling.

Procedural History

Appellant Luminant, a market participant subject to ERCOT protocols, filed its notice of direct appeal in this Court on March 2, 2021, challenging the first and second Orders as competition rules under Section 39.001(e) of the Utilities Code. Several parties intervened on either side. Generally, Appellants proceed on the theory that the subject Orders were procedurally invalid, beyond the PUC’s statutory authority to adopt, or both. Luminant has also filed administrative challenges to settlement invoices issued by ERCOT for transactions during the storm, asserting that, because the subject Orders are invalid, the price of electricity in the settlement invoices is also incorrect. See Luminant v. Public Util. Comm’n, No. 03-21-00126-CV (Tex. App.—Austin).

In their responses, the Commission and its aligned intervenors argue that (1) the subject Orders are not rules; (2) if they are rules, they were adopted in substantial compliance with emergency rulemaking provisions of the APA; (3) the PUC was expressly authorized by statute to correct the allegedly erroneous pricing by the SPM; and (4) for a variety of reasons, this Court lacks subject-matter jurisdiction.

Discussion

In extreme circumstances under extraordinary pressure, the Commission exceeded its power by eliminating competition entirely. The previously adopted rule set the system-wide offer cap at $9,000/MWh. 16 Tex. Admin. Code § 25.505(g)(6)(B). The typical market clearing price in Texas can be $30/MWh. During Winter Storm Uri, the price had risen to just above $1,200, but that rise was not having the effect the Commission desired. The Orders, which we determined above are rules, instructed that 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.” First Order, at 1; Second Order, at 1. Knowing that the First Order caused ERCOT to set the market clearing price at the market cap of $9,000/MWh, the Commission issued the Second Order with the identical language directing that the market price for energy be at its highest while there was load shed. For four days under the Orders, the minimum price was the same as the maximum price by operation of executive fiat. While the breadth of the Commission’s discretion largely resists sharp delineation, the Legislature clearly stated that the Commission’s rules must be “limited so as to impose the least impact on competition.” See Tex. Util. Code § 39.001(d) (emphasis added). Instead, the Orders had the maximum impact on competition conceivable by setting a single price for power and directing ERCOT to take all necessary steps to ensure the market cleared at that single price. While the extraordinary circumstances of Winter Storm Uri may have required extraordinary modifications to the SPM [scarcity pricing mechanism] to send appropriate pricing signals to prompt the necessary market response, the Commission here exceeded the Legislature’s limits on its power. Setting a single price at the rule-based maximum price violated the Legislature’s requirement in the Utilities Code Section 39.001(d) that the Commission use competitive methods to the greatest extent feasible and impose the least impact on competition.

Read the entire order here.