Texas Supreme Court to decide if ERCOT is immune from storm lawsuits

Texans who lost loved ones and suffered property damage during last week’s winter storm have started to file lawsuits against the Electric Reliability Council of Texas, holding the grid operator responsible for failing to maintain power for days as outside temperatures plunged below freezing.

But seeking monetary damages may be in vain. ERCOT has sovereign immunity, a well-established legal principle that protects governmental agencies from lawsuits. ERCOT, a private nonprofit corporation overseen by the Texas Legislature and the Public Utility Commission, is the only grid manager in the country with such protections.

A pending decision by the Texas Supreme Court, however, could change that. Justices on the state’s highest court are expected to rule this year on a case between Dallas utility Panda Power and ERCOT that could strip the Texas grid operator of its sovereign immunity, leaving it open to lawsuits that ERCOT has said could cripple the agency.

The ruling by the high court will have widespread implications in the wake of last week’s blackouts. It would not only determine whether Texans can use the legal system to hold ERCOT accountable for power outages that led to more than 48 deaths and billions of dollars of property damage, but also the future of ERCOT and the state’s power markets if the court opens the door to the likely flood of lawsuits.

On HoustonChronicle.com: ERCOT, Entergy sued for $100 million

On Saturday, Houston attorney and former mayoral candidate Tony Buzbee filed a $100 million lawsuit against ERCOT and utility Entergy Texas, claiming that widespread blackouts contributed to the suspected hypothermia death of an 11-year-old boy in Conroe. On Friday, Dallas-based law firm Fears Nachawati filed suit against ERCOT and another utility, American Electric Power, seeking unspecified damages for property damage and business interruptions caused by rolling blackouts.

“Certainly, the court’s decision here will have implications for viability claims against ERCOT related to this week’s event,” said Ben Mesches, a lawyer with the firm Haynes and Boone and the lead appellate attorney representing Panda Power against ERCOT. “We certainly believe that ERCOT should be transparent, accurate and accountable in court. That is the central issue and question before the court.”

ERCOT declined to comment on Sunday.

Brandon Rottinghaus, a political science professor at the University of Houston, said a ruling against ERCOT is a long shot, given the Supreme Court’s conservative majority is unlikely to overturn a 2018 Dallas appeals court decision in favor of maintaining the grid manager’s immunity. He said, however, that political pressure should mount on the justices — who face re-election in Texas — to hold ERCOT accountable for the catastrophic power failure and its deadly and devastating consequences.

“The political rhetoric around ERCOT and the weather emergency has embraced transparency and accountability,” Rottinghaus said. “A ruling that holds ERCOT immune from such lawsuits may run against that. It could be a political liability.”

Panda Power filed suit in 2016 against ERCOT, alleging the grid operator issued “seriously flawed or rigged” energy demand projections that prompted the Dallas power company to invest $2.2 billion to build three power plants early last decade. The plants ended up losing billions of dollars, with one forced into bankruptcy.

ERCOT’s reports calling for more power generators came in the aftermath of a major ice storm in February 2011, which crippled Texas power plants and forced rolling blackouts across the state.

Panda Power’s case was halted in 2018 when an appeals court in Dallas asserted ERCOT was protected from lawsuits by sovereign immunity. The Texas Supreme Court in June 2020 said it would review the appellate court decision, heard the case in September 2020 and is expected to render a decision before it recesses in June.

Justices will have to strike a delicate balance with the decision. If justices issue a broad ruling that opens ERCOT to massive lawsuits, it could destabilize Texas’ electricity markets because of the potentially huge costs. At the same time, if justices let ERCOT off the hook, it could spell the end of their time on the bench when voters go to the ballot box, Rottinghaus said.

ERCOT, in court filings, argued that it needs immunity from lawsuits because it is funded by transaction fees paid by power generators. A big damage verdict, ERCOT argued, would mean it would have to allocate the cost among the generators, which in turn, would pass it along to consumers in the form of higher electricity prices.

ERCOT does not receive taxpayer funding.

“The goal of sovereign immunity is for the government to function in risky situations without having to fear a barrage of lawsuits,” Rottinghaus said. “For people who are unhappy about this, they’re going to have to find some solace in regulatory reform or find a different entity to direct their lawsuit toward.”

More than 4 million Texans — including 1.4 million CenterPoint customers in the Houston area — were without reliable power for days during the power failure last week. The rolling blackouts created a cascading ripple effect, causing water systems to fail, food to spoil and homes, businesses and schools to suffer billions of dollars of property damage from frozen and broken water pipes.

More than 48 deaths in Texas, including at least 30 in the Houston area, have been linked to the blackouts, including from prolonged exposure to freezing temperatures, loss of essential medical devices and carbon monoxide poisoning as people sought warmth by running cars, portable generators and barbecue grills indoors.

“A lot of people are looking for some kind of justice and can’t get it,” Rottinghaus said. “Suing the government is a high-risk enterprise. As the adage goes, you can’t fight City Hall.”

https://www.houstonchronicle.com/business/energy/article/Texas-Supreme-Court-to-decide-whether-ERCOT-is-15968323.php

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