NASA satellite image of Houston with area blackouts, Feb. 16 |
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 |
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. |
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 |
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) |
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).