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Appeals court says state agency set electricity prices too high during 2021 winter storm

The state’s electricity market monitor said in the aftermath of the storm that Texas overcharged retail electricity providers by $16 billion.

TEXAS, USA — A Texas appellate court surprised the electricity world Friday by ruling that the Public Utility Commission overstepped its authority during the deadly February 2021 winter storm when it raised the price of electricity to the maximum, $9,000 per megawatt-hour.

Those orders cost consumers billions and sent some electric companies into bankruptcy.

The price was set that high on Feb. 15 and 16 by the commission in charge of regulating Texas’ electricity in an effort to tell the market that more power generation was urgently needed. Its leadership believed that the financial tool meant to adjust the cost of electricity was malfunctioning as electricity generators fell offline and grid operators cut power to homes and businesses, the ruling explains.

“The court has pointed out that the Public Utility Commission broke the law,” said Ed Hirs, a professor of energy economics at the University of Houston. “Consumers will be the big winners.”

The price of electricity is fluid in Texas; it goes up when demand is high in order to incentivize more production and keep the grid from being overloaded. But the state’s electricity market monitor said in the aftermath of the storm that Texas overcharged retail electricity providers by $16 billion for the power that they then passed on to residents and businesses throughout the state.

The exorbitant price of electricity during the storm pushed retail power providers and electricity cooperatives into financial distress across Texas. Many were forced to buy power on the wholesale market at high prices and filed for bankruptcy in the aftermath of the storm.

During the 2021 legislative session, Texas senators pushed for a financial remedy to a 32-hour period during the week of the storm when regulators kept wholesale power prices at the $9,000 cap after more generation came online, but they couldn’t come to an agreement with their counterparts in the House. The power grid legislation that passed ultimately did not address the issue. Instead, legislators passed laws that would allow companies to access cheap, long-term loans to avoid passing the large costs on to consumers all at once.

The electric utility Luminant appealed the PUC’s pricing decisions in the month after the storm. It argued that the commission exceeded its authority in setting the price at the maximum, among other points. The Austin-based 3rd Court of Appeals agreed in the ruling it issued Friday. But the consequences for its decision are unlikely to be immediately felt in Texas’ electricity market because the court remanded the case for further consideration.

A PUC spokeswoman declined to comment, saying the commission does not comment on pending litigation.  Legal experts say the case will almost certainly eventually end up before the Texas Supreme Court.

If the order stands, it could theoretically create a “gigantic mess” for the PUC and the state’s grid operator, the Electric Reliability Council of Texas, to unwind the transactions that occurred during the days when the price was set at the $9,000 cap, said Alison Silverstein, who previously worked as a senior adviser for both the PUC and the Federal Energy Regulatory Commission.

In its ruling, the court noted the typical wholesale price is around $30. The wholesale price at the time the commission issued the first of its two orders during the 2021 winter storm was about $1,200.

“Obviously we needed every megawatt we could get,” Walker said during the hearing. “The only way to fix that is that was to show that we were still in load shed by that $9,000.”

“You would have to figure out who paid what to whom and sort of undo the daisy chain of transactions and sales as you’re repricing,” said Silverstein, who now works as an energy consultant in Austin.

That would be a long process with little chance of benefiting end users, she said. “I don’t think the end consumer will ever see a penny of benefit out of this.”

But Silverstein and other electricity experts who spoke with The Texas Tribune on background doubted whether a legal remedy would go as far as unwinding the transactions that occurred during the storm. More likely is that it would impact other litigation among energy companies still battling in courtrooms in the aftermath of Winter Storm Uri, or provide a specific remedy for Luminant.

“Practically speaking, the odds of getting a meaningful resolution apart from the legal principles would be very challenging,” Silverstein said. There might be many lawsuits, she said, but “the money is long gone.”

ERCOT’s independent market monitor Carrie Bivens testified in 2021 that the PUC left the $9,000 cap in place for far too long, resulting in $16 billion in overcharges.

“We really believe that this was as an error, and this error should be corrected,” Bivens told a Senate committee. 

The error was not corrected.

Within weeks of the storm, Vistra Energy subsidiary Luminant filed a lawsuit challenging the PUC’s two orders setting the $9,000 price cap. Friday’s ruling was the result of that lawsuit.

Vistra previously reported that it lost in excess of $900 million. Its officials have also testified that it was caught between high wholesale electric prices on one side and outrageous natural gas prices on the other side.

Hirs believes the transactions can be unwound.

“Certainly billions of dollars, changed hands and the legislature authorized billions of dollars in these securitizations, the surcharges that you and I and everyone are paying right now,” he said. “But you can unscramble it. There are accounting records. There are transactions. Everybody knows where the money went.” 

Other experts expressed skepticism court’s ruling.
“Humpty Dumpy is already at the landfill. How do you put that back together?” said Pat Wood, who chaired the PUC in the 90s and also served as chair of the Federal Energy Regulatory Commission, or FERC. 

Beth Garza, a former ERCOT independent monitor, said, “Suffice it to say, resettling would take a long time and be very messy. For reference, when California resettled their market after the 2000 energy crisis, it took about 20 years for everything to finally be settled, financially and legally.”

WFAA investigative reporter Tanya Eiserer contributed to this report. 

The Texas Tribune is a member-supported, nonpartisan newsroom informing and engaging Texans on state politics and policy. Learn more at texastribune.org.


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