CPS Energy v. Elec. Reliability Council of Tex.

• Docket Number: 22-0056, No. 22-0196
• Decision Date: 23 June 2023
• Citation: CPS Energy v. Elec. Reliability Council of Tex., 671 S.W.3d 605 (Tex. 2023)
• Parties: CPS ENERGY, Petitioner, v. ELECTRIC RELIABILITY COUNCIL OF TEXAS, Respondent Electric Reliability Council of Texas, Inc., Petitioner, v. Panda Power Generation Infrastructure Fund, LLC d/b/a Panda Power Funds; Panda Sherman Power Holdings, LLC; Panda Sherman Power Intermediate Holdings I, LLC; Panda Sherman Power Intermediate Holdings II, LLC; Panda Sherman Power, LLC; Panda Temple Power Holdings, LLC ; Panda Temple Power Intermediate Holdings I, LLC; Panda Temple Power Intermediate Holdings II, LLC; Panda Temple Power, LLC; Panda Temple Power II Holdings, LLC ; Panda Temple Power II Intermediate Holdings I, LLC; Panda Temple Power II Intermediate Holdings II, LLC ; and Panda Temple Power II, LLC, Respondents
• Court: Texas Supreme Court

671 S.W.3d 605

CPS ENERGY, Petitioner,

v.ELECTRIC RELIABILITY COUNCIL OF TEXAS, Respondent

Electric Reliability Council of Texas, Inc., Petitioner,

v.Panda Power Generation Infrastructure Fund, LLC d/b/a Panda Power Funds; Panda Sherman Power Holdings, LLC; Panda Sherman Power Intermediate Holdings I, LLC; Panda Sherman Power Intermediate Holdings II, LLC; Panda Sherman Power, LLC; Panda Temple Power Holdings, LLC ; Panda Temple Power Intermediate Holdings I, LLC; Panda Temple Power Intermediate Holdings II, LLC; Panda Temple Power, LLC; Panda Temple Power II Holdings, LLC ; Panda Temple Power II Intermediate Holdings I, LLC; Panda Temple Power II Intermediate Holdings II, LLC ; and Panda Temple Power II, LLC, Respondents

No. 22-0056

No. 22-0196

Supreme Court of Texas.

Argued January 9, 2023

OPINION DELIVERED: June 23, 2023

Elliot Clark, Wallace B. Jefferson, D. Blake Wilson, Austin, Rachel Anne Ekery, Houston, Nicholas B. Bacarisse, Ron H. Moss, Austin, for RespondentsElectric Reliability Council of Texas, Inc., Magness, William L. "Bill" in 22-0056.

Brent Webster, Houston, John R. Hulme, Austin, Judd E. Stone II, Kyle Highful, Atty. Gen. W. Kenneth Paxton Jr., Bill Davis, Austin, for Amicus Curiae Public Utility Commission of Texas in 22-0056.

James Sullivan, for Amicus Curiae Abbott, Greg in 22-0056.

Jennifer Nicole Pulliam, Christopher D. Anderson, Bryan, for Amicus Curiae Rayburn Country Electrical Cooperative, Inc. in 22-0056.

Glenn Arlen Ballard Jr., Adam C. Kiehne, Houston, Harriet O'Neill, Austin, Lauren Valkenaar, Greta McFarling, Blake Stribling, Mukul S. Kelkar, Houston, Adrianna Jimenez, Barry A. Chasnoff, for Petitioner in 22-0056.

Patrick Leahy, Juliana Sersen, Austin, Macey Reasoner Stokes, George Harold Fibbe, Houston, Andrea Moore Stover, Austin, J. Mark Little, Houston, for Amicus Curiae Calpine Corporation in 22-0056.

John Hubbard, Katherine Coleman, Michael A. McMillin, Phillip Glynn Oldham, Austin, for Amicus Curiae Texas Industrial Energy Consumers in 22-0196.

Leslie Conant Thorne, Andrew W. Guthrie, Werner A. Powers, Dallas, Roger D. Sanders, Sherman, Ben L. Mesches, Christopher Knight, for Respondent in 22-0196.

Hobart Hind, George McMullin Jr., Dallas, for Amicus Curiae National Association of Subrogation Professionals in 22-0196.

Kyle Highful, Bill Davis, Austin, Brent Webster, Houston, Judd E. Stone II, Warren Kenneth Paxton, Austin, for Amicus Curiae Public Utility Commission of Texas in 22-0196.

James Sullivan, for Amicus Curiae Abbott, Greg in 22-0196.

Nicholas B. Bacarisse, Wallace B. Jefferson, Austin, Chad Vann Seely, Erika M. Kane, J. Hampton Skelton, Austin, Rachel Anne Ekery, Houston, Brandon Duane Gleason, Austin, Nathan Myrick Bigbee, for PetitionerThe Electric Reliability Council of Texas, Inc.(ERCOT) in 22-0196.

Chief Justice Hechtdelivered the opinion of the Court, in which Justice Blacklock, Justice Bland, Justice Huddle, and Justice Young joined, and in which Justice Lehrmann, Justice Boyd, Justice Devine, and Justice Busby joined except as to Part IV.

These two cases present three questions concerning the Electric Reliability Council of Texas, Inc.: (1) Is ERCOT a governmental unit as defined in the Texas Tort Claims Act and thereby entitled to pursue an interlocutory appeal from the denial of a plea to the jurisdiction?(2) Does the Public Utility Commission of Texas have exclusive jurisdiction over the parties’ claims against ERCOT?And (3) is ERCOT entitled to sovereign immunity?The answer to all three questions is yes.In No. 22-0056,¹we affirm the court of appeals’ judgment² dismissing the claims against ERCOT.In No. 22-0196,³we reverse the court of appeals’ judgment⁴ and render judgment dismissing the claims against ERCOT.

I

"In its electrical grid, as in so many things, Texas stands alone."⁵Most of the state comprises the U.S. mainland's only intra state electrical grid,⁶ which covers 75 percent of the state's acreage, carries about 90 percent of its electrical load, and includes more than 52,700 miles of transmission lines, 1,100 generation units, and 26 million electricity customers.⁷The Public Utility Regulatory Act (PURA) requires the Public Utility Commission(PUC) to certify an independent system operator (ISO) for the Texas power region.⁸The PUC certified ERCOT, a membership-based 501(c)(4) nonprofit corporation.⁹

ERCOT was formed in 1970 by various Texas electric utilities that had interconnected their grids for greater reliability and increased capacity.¹⁰Membership was "available to any electric utility [that] own[ed], control[led] or operate[d] an electric power system in Texas".¹¹In those days, each member utility operated its own control area, and ERCOT served an administrative role that "promote[d] reliable operations of power systems in Texas by providing a means to communicate and coordinate the planning and operation of its members."¹²

In 1999, the Legislature restructured the electric utility industry in Texas.¹³It amended PURA to require the "[u]nbundling" of vertically integrated electric utility monopolies and established a fully competitive electric power industry.¹⁴The new structure required an ISO to operate the wholesale electric market and "ensure the reliability and adequacy" of the Texas power grid.¹⁵Since 2001, ERCOT has served as that "[e]ssential [o]rganization[ ]".¹⁶

The two cases before us stem from different facts and different parties, but they raise overlapping jurisdictional questions.

A

CPS Energy, a municipally owned utility that serves the San Antonio area, is a market participant in the ERCOT wholesale market.CPS buys and sells power through ERCOT, so ERCOT both collects money from CPS and pays money to CPS.The parties settle the amounts owed by each side and pay each other accordingly in what they call "settlement" payments.At issue here are payments from ERCOT to CPS.CPS’ participation in the market is governed by the terms of a Standard Form Market Participant Agreement, PURA, and the ERCOT Protocols, which are rules promulgated by ERCOT to manage the market and the grid.

In February 2021, Texans endured the catastrophic Winter Storm Uri.On February 15, just as the storm hit, ERCOT declared its highest state of emergency, Emergency Energy Alert Level 3, and directed transmission operators to curtail firm load.The PUC then directed ERCOT to set the per-megawatt-hour price of electricity at the highest permissible rate of $9,000 to reflect scarcity of supply.ERCOT recalled its firm load shed instructions on February 17 but kept prices at the cap rate for an additional 32 hours through the morning of February 19.CPS alleges that ERCOT should have ended its pricing intervention when it recalled its firm load shed instructions and that its failure to do so resulted in $16 billion in overcharges to market participants.

Some market participants defaulted after the storm.Pursuant to its Protocols, ERCOT then implemented its "short-pay" procedure and its "Default Uplift process".¹⁷These processes spread the impact of the default, allocating the loss among market participants—including CPS—by reducing the amounts they are owed by ERCOT.¹⁸CPS alleges that it was short-paid at least $18 million through the short-pay process.It also alleges that ERCOT intended to apply two downward adjustments to the credit in CPS’ account by over $1 million each through the default-uplift process.¹⁹

CPS sued ERCOT and several of its officers for breach of contract, negligence, breach of fiduciary duty, and violations of the Texas Constitution.²⁰ERCOT filed a plea to the jurisdiction, arguing that CPS’ claims are barred by sovereign immunity and, alternatively, that the PUC has exclusive jurisdiction over the claim.The trial court denied the plea.²¹

ERCOT appealed, asserting that it is a governmental unit entitled to an interlocutory appeal from the denial of a plea to the jurisdiction.²²ERCOT also sought review by petition for writ of mandamus in the event it is not entitled to an interlocutory appeal.After one court of appealspanel summarily denied mandamus relief,²³ ERCOT filed its petition for writ of mandamus in this Court²⁴ to continue the alternative path to review.A different court of appealspanel then held that ERCOT is a governmental unit entitled to take an interlocutory appeal, that the PUC has exclusive jurisdiction over CPS’ claims, and that CPS’ claims should be dismissed.²⁵We granted review and set the case for oral argument on the same day as the case brought by the Panda Power Companies.²⁶

B

As part of ERCOT's functions, the PUC requires ERCOT to annually publish resource adequacy reports that project, for at least the next five years, the capability of existing electric generation resources to meet projected demand in the Texas power region.²⁷ERCOT does so by publishing "Capacity, Demand, and Reserves" reports (CDRs).ERCOT's 2011 and 2012 CDRs projected a likelihood of severe energy shortfalls.Panda, a group of private-equity investors, alleges that it relied on these reports when it decided to invest billions of dollars to build three new power plants.After construction on the new plants began, ERCOT revised its CDRs and forecast a future oversupply of generation capacity.Panda sued ERCOT for fraud, negligent misrepresentation, and breach of fiduciary duty.Panda alleges that ERCOT's misleading reports caused it substantial financial harm and seeks damages in excess of $2 billion.

The procedural history of this case is long and complex, and we recite only what is relevant to the disposition of this appeal.ERCOT filed two pleas to the jurisdiction arguing that the PUC has exclusive jurisdiction over Panda's claims and that ERCOT has sovereign immunity.The trial court denied both.ERCOT appealed, arguing that it is a "governmental unit" under the Texas Tort Claims Act entitled to an interlocutory appeal from the denial of its plea to the jurisdiction.²⁸ERCOT alternatively sought review by mandamus.The...