Showing posts with label nonprofits. Show all posts
Showing posts with label nonprofits. Show all posts

Monday, February 22, 2021

Sovereign immunity shields Texas power overseer from liability for now: not so privatized after all

NASA satellite image of Houston with area blackouts, Feb. 16
The cold-induced electric-power disaster in Texas is raising questions about the accountability of "ERCOT," the Electric Reliability Council of Texas.

ERCOT is responsible for about 90% of the Texas electricity market.  During the storm and record cold of last week, Texans experienced rolling outages and some prolonged blackouts.  Deaths and injuries, from hypothermia and carbon monoxide poisoning, are attributed to the cold and blackouts, as well as billions of dollars in property damage.  Governor Greg Abbott has blamed ERCOT for failure to prepare the state's electrical system for a foreseeable winter weather event and promised an investigation.

National Weather Service Tower Cam, Midland, Feb. 20
Naturally, many Texans are wondering about legal liability for ERCOT.  I noticed a tweet from Houston Chronicle business reporter Gwendolyn Wu, who said that ERCOT has "sovereign immunity."  I found that hard to believe.  Wu cited a Chronicle story (subscription), from the bygone innocent age of fall 2019, in which business writer L.M. Sixel said just that.  As it turns out, the problem of ERCOT immunity is sitting, undecided, in the Texas Supreme Court at this very moment.

Legally, ERCOT is a nonprofit corporation formed in 1970 to oversee electric power distribution in Texas.  Because Texas has its own grid that doesn't cross state lines, the power system is not regulated by the federal government.  ERCOT has been at the heart of Texas's love affair with deregulation and privatization, a push that began in earnest in 1999 and found no bounds at the threshold of critical infrastructure.  State legislation in 1999 called on the Texas Public Utility Commission (PUC) to designate an exclusive "independent system operator" to oversee the Texas power grid, and ERCOT easily got the job that it more or less already had.

Yet ERCOT is neither wholly private nor a success story.  Its near monopoly control of Texas power comes with PUC oversight.  Despite that oversight, ERCOT has posted a remarkable record of abuse and failure.  As Sixel recounted in the Chronicle, executives went to prison in the 20-aughts for a financial fraud aggravated by lack of transparency and exposed by whistleblowers.  About the same time, Texans saw rolling blackouts, even while their deregulated electricity prices shot 30% over the national average.  Then, in 2011, a winter storm with single-digit temperatures caused blackouts across Texas.  It was that event that led federal regulators to recommend that ERCOT and the PUC winterize the system, a recommendation that was never heeded.

Frmr. Gov. Rick Perry tours ERCOT on March 14, 2012.
Apparently, an embarrassing record has not dampened the mood at ERCOT.  The "nonprofit," which is run by a board majority comprising power industry heavyweights, brought in $232m in revenue in 2018, Sixel reported in 2019, and chief executive Bill Magness took home $750,000 in 2017.  Sixel described ERCOT HQ (pictured below) near real-estate-red-hot Austin: "Its sprawling, modern glass and metal building has plush interiors with on-site fitness facilities that include a gym and sport court for volleyball, basketball and pickleball."  In contrast, the PUC "operates from two floors of crammed cubicles in ... a dilapidated structure close to the campus of the University of Texas at Austin.  DeAnn Walker, the commission chairman, earns $189,500 a year."

It was also in 2011 that ERCOT set out toward the immunity question now pending.  After the rolling outages of the 20-aughts, ERCOT wanted to see new sources of power added to the system.  Enter Panda Power, which invested $2.2bn to construct three power plants.  Alas, Panda later alleged in court, ERCOT had deliberately inflated market projections to incentivize investments; the power plants delivered only a fraction of the anticipated returns.  Panda sued ERCOT for $2.7bn in damages on theories including fraud and breach of fiduciary duty.

After almost a year of defending the case, ERCOT devised a new theory of sovereign immunity in Texas common law.  ERCOT performs exclusively governmental, not private, functions, it alleged, and works wholly under the control of the PUC.  Despite its statutory role as an "independent system operator," ERCOT insisted that it is not an independent contractor.  Rather, ERCOT styled itself as "a quasi-governmental regulator, performing an essential public service."  Panda argued that ERCOT is not entitled to sovereign immunity because it is "a non-governmental, non-profit corporation that receives no taxpayer dollars and retains discretion," particularly, Panda exhorted, when it furnishes false market data to power providers. 

In April 2018, reversing the district court, the Texas Court of Appeals agreed with ERCOT.  In a functionalist analysis, the intermediate appellate court grounded its decision in the legislative delegation of ultimate fiscal authority over ERCOT in the PUC.  The court wrote (citations omitted):

[A]s to separation-of-powers principles, [the statute] shows the legislature intended that determinations respecting system administration fees and ERCOT's fiscal matters, as well as any potential disciplinary matters or decertification, should be made by the PUC rather than the courts. Further, as the certified [independent service operator] provided for in [the statute], ERCOT is a necessary component of the legislature's electric utility industry regulatory scheme. A substantial judgment in this case could necessitate a potentially disruptive diversion of ERCOT's resources or a decertification of ERCOT not otherwise intended by the PUC.

According to Sixel, that decision rendered ERCOT "the only grid manager in the nation with sovereign immunity."

Pixabay image by Clker-Free-Vector-Images
Panda appealed to the Texas Supreme Court, which heard oral argument (MP3, PDF) on September 15, 2020, but has not ruled.

Meanwhile, a curious procedural imbroglio arose in the lower courts to gum up the works.  While Panda was busy lodging its appeal with the Texas Supreme Court, it didn't head off the intermediate appellate court's mandamus order to the district court to dismiss the case, which it did.  Panda then appealed that dismissal on a separate track, and the intermediate appellate court stayed oral argument on that second appeal, waiting to see what the Supreme Court would do with the first appeal.

One month after the Supreme Court heard oral argument, it ordered the parties to file supplemental briefs, which they did in November 2020 (ERCOT, Panda), to answer whether the district court's dismissal mooted the case in the Supreme Court.  Panda insisted that there is a live controversy still before the court.  ERCOT wrote that Panda should have asked for a stay of dismissal in the lower court, and it didn't.  Bad Panda.

House chamber in the Texas Capitol (picryl)
It looks to my outsider eyes like the Supreme Court badly wants not to decide the case.  And that was before the winter storm of 2021.  If the court does kick the case, the intermediate appellate court's ruling for sovereign immunity will stand, and any 2021 complainants will be out of luck.  ERCOT's supplemental brief read anyway with a good deal of confidence about how things would go in the Supreme Court, so maybe it's only a question of which appellate court will bear the people's ire.  While the courts dithered, Panda Energy, a division of Panda Power Funds, folded, and Texas froze.

The best answer to the people's woes lies in their state legislature.  Maybe Texas legislators can be made to understand that privatization is not really privatization when the reins, along with sovereign immunity and a market monopoly, are simply handed over to a nominally independent and hardly nonprofit oligarchy.

Or maybe legislators are on their way to CancĂșn and points warmer.

The case is In re Panda Power Infrastructure Fund, LLC, No. 18-0792 (now pending), appealing Panda Power Generation Infrastructure Fund, LLC v. Electric Reliability Council of Texas, Inc., No. 05-17-00872-CV (Tex. Ct. App. 5th Dist. Dallas Apr. 16, 2018), reversing No. CV-16-0401 (Tex. Dist. Ct. 15th Grayson County 2017).  The latter appeal is Electric Reliability Council of Texas v. Panda Power Generation Infrastructure Fund, LLC, No. 05-18-00611-CV (oral argument stayed Aug. 20, 2019).

[UPDATE, April 3, 2021.] The Texas Supreme Court ducked the immunity issue in ERCOT v. Panda with a "hotly contested" "non-decision."  DLA Piper has the story (Mar. 29, 2021).

Wednesday, December 16, 2020

Mass. anti-panhandling law violates First Amendment

Flickr by Alex Proimos CC BY-NC 2.0
The Massachusetts Supreme Judicial Court yesterday struck down a state anti-panhandling statute as a facially unconstitutional violation of the freedom of speech.

Disparate treatment of solicitation was the statute's fatal flaw.  The law exempted newspaper sales and police-permitted nonprofit solicitations in public streets.  The disparity proved the statute to be a content-based speech restriction that could not withstand First Amendment strict scrutiny in a public forum.

The case arose from prosecution of two low-income men in Fall River, Massachusetts, who, with "homeless" signs, solicited donations from passing motorists.  They were jailed for summons and probation violations, respectively, following criminal complaints initiated by police.

The district attorney conceded the unconstitutionality of the statute at least as applied, but Fall River and its chief of police defended the law.  The statute pertains broadly to signaling or stopping a vehicle "for the purpose of soliciting any alms, contribution or subscription or of selling any merchandise," a probably permissible scope.  But the law raises a content-based free speech problem when, subsequently, it purports to exempt newspaper sales and nonprofit solicitations.

Applying strict scrutiny, the Court ruled the law both overinclusive and underinclusive.  The law would punish speech that poses no threat to public safety while also exempting speech that threatens public safety no differently from panhandling.  Underinclusiveness, the Court observed, is additionally problematic in strict scrutiny because it undermines the compelling state interest asserted in defense of the statute.

The Court refused efforts to save the statute by partial invalidation or severance, finding the law's "constitutional infirmities ... pervasive."  The district attorney would have had the Court invalidate the statute only insofar as it prohibits solicitation of donations, rather than commercial transactions.  But that's too fine a line, the Court ruled.  The difficulty of distinguishing car-side commercial exchanges from noncommercial interactions would chill permissible speech intolerably.

Severing the exemptions also was a non-starter.  The law would then prohibit signaling or stopping cars for nearly any reason, including political expression that lies at the core of First Amendment protection.  Such a broad prohibition was not the legislature's intent, the Court reasoned.  Comparing the instant case with First Amendment precedents in this respect, the Court found the anti-panhandling law more akin to the expansive yard-sign prohibition struck down in City of Ladue v. Gilleo (U.S. 1994) than to the robocall exception narrowly invalidated by the Supreme Court in July.

By my estimation, it is possible for the Commonwealth legislature to chart a constitutional course for a car-side anti-panhandling law in Massachusetts.  But it will be a navigation between Scylla and Charybdis.  A law that will satisfy the Court should anchor itself in public safety and not distinguish among the motives of actors who may approach cars in live traffic lanes.

The case is Massachusetts Coalition for the Homeless v. City of Fall River, No. SJC-12914 (Dec. 15, 2020).  Justice Barbara A. Lenk authored the opinion of a unanimous Court.