By Wiley Hughes
Earlier this year, from February 10 to February 20, a series of devastating winter storms ran their devastating course through the state of Texas.[1] The storms brought record low temperatures and an unprecedented amount of snow and ice to the state’s largest cities.[2] This overwhelmed the state’s power grid which triggered rolling blackouts and multi-day blackouts that left millions of Texans without power for days in subfreezing temperatures.[3] The storms left approximately seventy people dead[4] and caused over $195 billion of damages—the costliest disaster in Texas history.[5]
In order to avoid federal regulation of its electrical system, Texas maintains its own separate electrical grid—the Texas Interconnection—from the other two electrical grids that supply Americans with power.[6] This separate grid has allowed the Texas legislature to substantially deregulate its electrical grid—contending that it produces a variety of electricity providers for consumers to choose from and supplies cheaper electricity rates.[7] In 1999, the Texas legislature enacted Chapter 39 of the Texas Public Utility Regulatory Act (“PURA”) to restructure the electric utility industry in Texas.[8] Pursuant to the Act, the Public Utility Commission of Texas (“PUC”) was required to certify an “independent system operator” (“ISO”) to, among other functions, “ensure the reliability and adequacy of the regional electrical network.”[9] In 2001, the PUC certified the Electric Reliability Council of Texas (“ERCOT”) as the ISO.[10] ERCOT is a 501(c)(4) nonprofit corporation and is subject to oversight by the PUC and the Texas legislature.[11]
One of the leadings causes for the staggering amount of damages from the storms is ERCOT’s failure to winterize the state’s electrical equipment.[12] Interestingly enough, Texas does not require that its electricity-producing infrastructure to be winterized to such a degree; nor does Texas—unlike most other states—compensate generation companies for maintenance.[13] However, in 2011, after Texas faced a winter storm that similarly overwhelmed the power grid the Federal Energy Regulatory Commission produced a report that warned Texas politicians and regulators that winterizing of the power grid was necessary.[14] This report was largely ignored.[15] ERCOT officials claim that the 2021 winter storms far exceeded what ERCOT projected to prepare for the winter, and that it previously appeared there was more than enough supply to meet demand.[16]
Now many Texans are filing lawsuits against ERCOT for damages they sustained from its failure to prepare for the winter storms.[17] For example, one suit seeks $100 million in damages for the death of an eleven-year-old boy who died of hypothermia because his home did not have power.[18] Unfortunately for Texans seeking relief, ERCOT may be entitled to sovereign immunity even though it is a private corporation.[19]
Sovereign immunity is the well-established common law doctrine “that ‘no state can be sued in her own courts without her consent, and then only in the manner indicated by that consent.’”[20] The doctrine protects a state from lawsuits for money damages and other forms of relief, and leaves to its legislature “the determination of when to allow tax resources to be shifted ‘away from their intended purposes toward defending lawsuits and paying judgments.’”[21] Although this provides the public with the benefit of preventing a disruption of key governmental services due to litigation, sovereign immunity places the burden of shouldering costs on the individuals injured by state action.[22] While the legislature determines when and to what extent to waive that immunity, it is up to the judiciary to determine under what circumstances sovereign immunity exists in the first place.[23] In certain circumstances, private entities may be entitled to sovereign immunity because the determination of whether immunity exists focuses not on the definition of a governmental unit, but on the “nature and purposes” of sovereign immunity.[24]
In 2018, in Electric Reliability Council of Texas, Inc. v. Panda Power Generation Infrastructure Fund, LLC,[25] the Texas Court of Appeals held that ERCOT was entitled to sovereign immunity.[26] In Panda Power, a company spent $2.2 billion to build three power plants based on ERCOT’s reports on the capacity, demand, and reserves (“CDRs”) in the ERCOT power region.[27] When ERCOT made new CDRs that differed from the ones the company based its power plant plans on, the company sued ERCOT for fraud, negligent misrepresentation, and breach of fiduciary duty.[28] ERCOT argued that the company’s claims are barred because Texas’s sovereign immunity extended to them.[29]
In holding that ERCOT was entitled to sovereign immunity, the court focused on the disruption of services that would entail from a serious financial judgment against ERCOT and the quasi-governmental nature of ERCOT that makes it a necessary component of the Texas legislature’s electric utility scheme.[30] The court held that section 39.151 of PURA 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.”[31] Further, the court reasoned that as the certified ISO, ERCOT is a necessary component of the legislature’s electric regulatory scheme; thus, a substantial judgment could necessitate a potentially disruptive diversion of ERCOT’s resources or a decertification not intended by the PUC.[32] Moreover, the court analogized ERCOT to federal self-regulatory organizations (“SROs”) as quasi-governmental agencies that perform vital governmental functions.[33] SROs are protected by absolute immunity in the performance of their statutorily delegated functions because they perform “a variety of functions that would, in other circumstances, be performed by a government agency.”[34] Like SROs, “(1) ERCOT is a private corporation exercising power delegated to it by an administrative agency pursuant to legislation; (2) ERCOT’s power includes rulemaking authority that is binding on market participants; and (3) ERCOT is subject to broad oversight by the PUC, which can decertify it.”[35] Thus, the court concluded ERCOT is entitled to sovereign immunity from private damages suits in connection with the discharge of its regulatory responsibilities.[36]
The ruling in Panda Power is currently under review by the Texas Supreme Court and could be decided by the end of its current term, which ends in June.[37] If the Texas Supreme Court affirms the ruling it could have a substantial effect on Texans’ ability to recover damages from ERCOT’s failure to adequately prepare for the winter storms. The sovereign immunity applied to ERCOT in Panda Power would most likely be applicable to claims related to the winter storm. There are no mandatory regulations in Texas—only voluntary guidelines—for generation companies to winterize their equipment to the best practice standard produced by the North American Electric Reliability Corporation.[38] Thus, when ERCOT decided that the Texas power grid was sufficiently winterized, it was using the discretion to discharge its “regulatory responsibility” to “ensure reliability and adequacy of the regional electrical network” granted to it by the PUC and the Texas legislature.[39] Therefore, Texans’ common-law claims against ERCOT will most likely be barred by sovereign immunity.
Furthermore, Texans may also be out of luck in their attempts to recover damages from ERCOT under the Texas Tort Claims Act.[40] The Act provides a waiver of Texas’s sovereign immunity with respect to liability and suits against governmental units for property damage, personal injury, and death proximately caused by the wrongful act or omission or the negligence of an employee acting within the scope of his or her employment.[41] However, the damages must have arisen from the operation or use of a motor-driven vehicle or motor-driven equipment or caused by a condition or use of tangible personal or real property.[42]
Therefore, Texans who sustained damages from the winter storms may not have an available remedy to recover from ERCOT. This leaves Texans little choice but to pursue claims against their private electricity providers for price gouging and damages caused by rolling blackouts.[43] More than likely this will mean that many Texans will not be fully compensated and will now have a financial disaster on their hands.
[1] 2021 Texas Power Crisis, Wikipedia, https://en.wikipedia.org/wiki/2021_Texas_power_crisis (last visited Mar. 118, 2021).
[2] Christina Maxouris, Here’s How a Week of Frigid Weather and Catastrophe Unfolded in Texas, CNN, https://www.cnn.com/2021/02/21/weather/texas-winter-storm-timeline/index.html (Feb. 21, 2021, 4:32 PM).
[3] Lynn Doan, How Many Millions Are Without Power in Texas? It’s Impossible to Know for Sure, Time (Feb. 17, 2021, 1:11 PM), https://time.com/5940232/millions-without-power-texas/.
[4]Celine Castronuovo, Close to 70 Dead in States with Severe Winter Weather: Report, The Hill (Feb. 20, 2021, 11:04 PM), https://thehill.com/homenews/state-watch/539751-as-temperatures-expected-to-warm-approximately-70-dead-from-severe.
[5] Irina Ivanova, Texas Winter Storm Costs Could Top $200 Billion — More Than Hurricanes Harvey and Ike, CBS News (Feb. 25, 2021, 3:59 PM), https://www.cbsnews.com/news/texas-winter-storm-uri-costs/#:~:text=Now%20many%20homeowners%20are%20dealing,as%20much%20as%20%24295%20billion.
[6] See Kate Galbraith, Texplainer: Why Does Texas Have Its Own Power Grid?, Tex. Trib., https://www.texastribune.org/2011/02/08/texplainer-why-does-texas-have-its-own-power-grid/ (Feb. 15, 2021).
[7] See Will Englund et al., Texas, the Go-It-Alone State, Is Rattled by the Failure to Keep the Lights On, Wash. Post (Feb. 18, 2021, 4:34 PM), https://www.washingtonpost.com/business/2021/02/18/texas-electric-grid-failure/.
[8] Elec. Reliability Council of Tex., Inc. v. Panda Power Generation Infrastructure Fund, LLC, 552 S.W.3d 297, 301 (Tex. App. 2018), rev. granted, 2020 Tex. LEXIS 496 (Tex. June 5, 2020); see Tex. Util. Code §§ 39.001-.916 (2020).
[9] Tex. Util. Code § 39.151(a)(2). The Act also required PUC to certify an ISO to ensure access to the transmission and distribution systems for all buyers and sellers of electricity on nondiscriminatory terms; ensure that information relating to a customer’s choice of retail electric provider is conveyed in a timely manner to the persons who need that information; and ensure that electricity production and delivery are accurately accounted for among the generators and wholesale buyers and sellers in the region. Id. § 39.151(a)(1)–(4).
[10] Panda Power, 552 S.W.3d at 301.
[11] About ERCOT, ERCOT, http://www.ercot.com/about (last visited Mar. 18, 2021).
[12] See Veronica Penney, How Texas’ Power Generation Failed During the Storm, in Charts, N.Y. Times (Feb. 19, 2021), https://www.nytimes.com/interactive/2021/02/19/climate/texas-storm-power-generation-charts.html; Cassandra Pollock & Alex Samuels, Gov. Greg Abbott, Other Top Texas Officials Call for Resignations and Investigations at Electrical Grid Operator, Tex. Trib. (Feb. 16, 2021, 7:00 PM), https://www.texastribune.org/2021/02/16/texas-power-outage-ercot/.
[13] Erin Douglas et al., Texas Leaders Failed to Heed Warnings That Left the State’s Power Grid Vulnerable to Winter Extremes, Experts Say, Tex. Trib., https://www.texastribune.org/2021/02/17/texas-power-grid-failures/ (Feb. 19, 2021); see Englund et al., supra note 7; Will Englund, The Texas Grid Got Crushed Because Its Operators Didn’t See the Need to Prepare for Cold Weather, Wash. Post (Feb. 16, 2021, 5:40 PM), https://www.washingtonpost.com/business/2021/02/16/ercot-texas-electric-grid-failure/.
[14] Douglas et al, supra note 13.
[15] Id.
[16] Erin Douglas, Texas Was “Seconds and Minutes” Away from Catastrophic Monthslong Blackouts, Officials Say, Tex. Trib. (Feb. 18, 2021, 6:00 PM), https://www.texastribune.org/2021/02/18/texas-power-outages-ercot/?utm_campaign=trib-social&utm_content=1613676421&utm_medium=social&utm_source=twitter.
[17] Jody Barr, ERCOT Could Be Immune from Winter Storm Lawsuits, KXAN (Feb. 26, 2021, 6:52 PM), https://www.kxan.com/investigations/ercot-could-be-immune-from-winter-storm-lawsuits/.
[18] Id.
[19] See id.
[20] Brown & Gay Eng’g, Inc. v. Olivares, 461 S.W.3d 117, 121 (Tex. 2014) (quoting Tooke v. City of Mexia, 197 S.W.3d 325, 331 (Tex. 2006)).
[21] Id. (quoting Tex. Nat. Res. Conservation Comm’n v. IT-Davy, 74 S.W.3d 849, 854 (Tex. 2002)).
[22] Id.
[23] Id. at 122.
[24] Univ. of the Incarnate Word v. Redus, 518 S.W.3d 905, 911 (Tex. 2017).
[25] 552 S.W.3d 297 (Tex. App. 2018), rev. granted, 2020 Tex. LEXIS 496 (Tex. June 5, 2020).
[26] Id. at 300–01.
[27] Id. at 301.
[28] Id. at 300–01.
[29] Id.
[30] See id. at 312–19.
[31] Id. at 315.
[32] Id.
[33] See id. at 315–19. SROs have largely existed in the federal securities regulatory scheme, but the court found that the reasoning behind giving SROs immunity extends beyond the securities context. Id.
[34] Id. at 315–16. “This immunity extends both to affirmative acts as well as to an SRO’s omissions or failure to act.” Id. at 316 (quoting Standard Inv. Chartered, Inc. v. NASD, 637 F.3d 112, 115 (2d Cir. 2011)).
[35] Id. at 318.
[36] Id.
[37] Barr, supra note 17.
[38] See ERCOT Update Press Conference on Texas Power Outages February 17, Rev (Feb. 17, 2021), https://www.rev.com/blog/transcripts/ercot-update-press-conference-on-texas-power-outages-february-17.
[39] See Tex. Util. Code § 39.151(a)(2).
[40] See Tex. Civ. Prac. & Rem. Code §§ 101.001–.109 (2020).
[41] Explanation of Indemnification Limitations and Insurance, Univ. of Tex. Sys., https://www.utsystem.edu/offices/general-counsel/explanation-indemnification-limitations-and-insurance#:~:text=The%20State%20of%20Texas%20is,courts%20without%20its%20legislature’s%20consent (last visited Mar. 18, 2021); Tex. Civ. Prac. & Rem. Code § 101.021.
[42] Univ. of Tex. Sys., supra note 41; Tex. Civ. Prac. & Rem. Code § 101.021.
[43] See Amanda Watts & Eric Levenson, Texas Attorney General Sues Electric Company Griddy that Sent Huge Bills During Storm, CNN, https://www.cnn.com/2021/03/01/us/griddy-texas-lawsuit/index.html (Mar. 1, 2021, 4:18 PM).
Post Image from NOAA-22 satellite by NOAA.
