The Texas Supreme Court has ruled ERCOT and the Public Utility Commission were within the law when they raised wholesale prices to more than 300 times above normal during the deadly February 2021 winter storm that came within minutes of bringing down the grid.

The high court on June 14 reversed a state appeals court’s ruling that the PUC’s order to raise wholesale prices to their $9,000/MWh cap during Winter Storm Uri violated state law.

The Supreme Court said the commission met the requirements of the Public Utility Regulatory Act’s (PURA) Chapter 39 — added when ERCOT was opened to retail competition — when it issued the emergency orders in a desperate effort to bring generation back online to meet demand. It also found that the commission “substantially complied” with the Administrative Procedure Act’s procedural rulemaking requirements (23-0231).

“The [PUC] has the expertise to manage the electric utility industry; the courts do not,” Chief Justice Nathan Hecht said, writing for the 7-0 majority. (Two justices recused themselves.) “The Court of Appeals thus strayed from its lane by inquiring whether the orders could have used ‘competitive rather than regulatory methods’ to any greater extent than they did.”

The Texas 3rd Court of Appeals in March 2023 reversed the PUC’s emergency orders and raised the issue of repricing the market transactions during the storm. The court found the commission’s actions “entirely” eliminated competition and were contrary to state law. (See Texas Court Reverses PUC’s Uri Market Orders.)

Luminant initiated the proceeding after it incurred $1.6 billion in losses when forced to buy backup power at the system cap and gas supplies at equally exorbitant prices. (See Vistra’s Winter Storm Loss Deepens to $1.6B.)

The PUC argued that Luminant’s ability to recoup its losses in the administrative proceeding was speculative because ERCOT does not maintain a fund of money.

ERCOT “just facilitates market transactions — and any payment would come out of the pocket of other market participants,” the high court said. “Essentially, the commission’s argument is that the egg cannot be unscrambled.”

The court noted that Chapter 39 directs the PUC to establish protections entitling customers “to safe, reliable and reasonably priced electricity, including protection against service disconnections in an extreme weather emergency.”

It said the law also “expressly” directs ERCOT to “ensure the reliability and adequacy of the regional electrical network” and gives the commission “complete authority” to ensure that ERCOT adequately performs that duty, including rulemaking related to the grid’s reliability.

The Supreme Court heard oral arguments in January. (See Texas Supremes Hear Arguments Over Uri’s Prices.)

When the PUC issued its directive to ERCOT on Feb. 15, 2021, the grid operator’s algorithm was setting prices as low as $1,200/MWh, even though generation was dropping offline. Under ERCOT’s market construct, prices are designed to increase during scarce conditions to incentivize more generation to come online.

The problem was there wasn’t enough generation during the first two days of the storm because of frozen equipment or lack of fuel supplies. ERCOT kept prices at the $9,000 cap — since reduced to $5,000 — until Feb. 19, resorting to rolling blackouts to keep the grid stabilized.

The emergency order resulted in $16 billion of market transactions that ERCOT’s Independent Market Monitor said were incorrectly priced during the 33 hours that followed the end of firm load shed. The PUC declined to reprice the transactions. (See “Monitor: $16B ERCOT Overcharge,” ERCOT Board Cuts Ties with Magness.)

Some of the $16 billion balance has since been securitized. Other transactions have been settled outside ERCOT and can’t be undone, according to legal experts.

The court also dismissed a lawsuit by RWE Renewables Americans and an RWE wind farm, finding that the 3rd Court of Appeals did not have jurisdiction over the proceeding (23-0555).