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Legal Arguments on $9,000 Electricity Rates in Texas

The Texas Public Utility Commission’s February 2021 emergency rules allowing an increase in electric rates to $9,000 per megawatt hour in response to Winter Storm were invalid and screwed up the state’s power system.

Dallas-based Luminant Energy asked a 3-judge panel in the Texas Third Court of Appeals in Austin to declare that the PUC illegally adopted two pricing rules during the historic storm that allowed the Electric Reliability Council of Texas to increase the emergency price of electricity 650% for five days.

The PUC contended that the energy companies are simply upset because they lost money during Winter Storm and extreme weather conditions.

Many argue that the PUC decision to set rates at $9,000 for the five days during the winter storm forced many electric providers to pay billions to provide power to their residential and commercial customers, while other electric companies profited by selling power at high rates.

Legal Arguments on $9,000 Electricity Rates in Texas

Impact on Providers & Electric Rates

The decision by the Austin Court of Appeals will dramatically impact the efforts by more than a dozen electric providers challenging their ERCOT invoices.

The winter storm that hit Texas on Feb. 14, 2021, caused the electricity to go out in large portions of the state, especially in the Houston area. Power demand surged in other metro areas, and at the same time, many electric generators went off-line because natural gas providers were unable to supply product to electric generators.

Sneaky Electricity Price Manipulation

In a six-minute meeting Feb. 15, the PUC decided to address the gap between supply and demand by issuing an emergency reset of the maximum price to $9,000 per megawatt hour, which is way up from $1,200. It also made the $9,000 price retroactive to Feb. 14. The next day, however, the PUC met again and rescinded the retroactive part of its order.

Electricity Price Competition

The high-stakes litigation pits the energy companies against each other… Houston-based Pattern Energy, Exelon Generation and Constellation NewEnergy are supporting Luminant in the litigation. All are fighting multibillion-dollar charges as a result of the $9,000 price. Lawyers argued that both emergency pricing rules were invalid for multiple reasons, including the fact that the PUC never filed the rule change with the Secretary of State’s office. This is a case where the agency disregarded legal procedures. It did not follow the law. The PUC has staked out extreme and unprecedented positions.

Houston-based Calpine Corporation, Talen Energy and TexGen Power support the PUC position. Spring, Texas-based DGP2 and Distributed Solutions argue that the first PUC rule is valid but the second-day rule rescinding retroactivity was illegal. Companies like Luminant are just using the litigation to try to shift their market losses to other parties.

Texas Assistant Solicitor General, Lisa Bennett (representing the PUC), told the judges that the PUC did not violate Texas law because the agency’s actions were a direction to ERCOT, not rulemaking. She argued that the law provides wide discretion for the PUC to make such decisions because the PUC’s actions were taken during an extreme emergency and because there was a flaw in the system – there were negative reserves, but the price was not going up.

Hindsight

When the emergency passed, market participants assessed the financial outcomes of the complex actions they and others had taken in the market during the storm, and some suffered staggering losses. In hindsight, some market participants now want to blame the PUC for their losses and argue that the orders were illegal all along.