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Texas energy users may make up ERCOTs $12 billion loss

Although lawsuites are still pending, Texas energy users may eventually have to make up about $12 billion in ERCOT’s electricity-related losses from this winter’s storm.

Last week, the Electric Reliability Council of Texas released reports showing oustanding debts of $2.9 billion from local providers and cooperatives. Those debts represent the total payments due from 14 entities, the largest of which is the Brazos Electric Coop, which owes $1.86 billion and has filed for Chapter 11 bankruptcy. Another debtor, the Rayburn County Electric Coop, has $574 million in outstanding payments, and Entrust Energy, a retail electric provider, owes $290 million to ERCOT.

But this $2.9 billion total only accounts for a portion of the shortfall. ERCOT had previously indicated that it diverted $800 million in payments that were slated to be refunded to some of its counterparties to pay for current obligations. In total, therefore, ERCOT is short roughly $3.7 billion that it cannot pay. As many of these entities default and file bankruprcy, ERCOT has said that any of these outstanding debts will have to be absorbed by other retail providers.

However, some people are trying to hold ERCOT accountable for its own shortcomings. Four Texas counties—Harris, Travis, Fort Bend and Hidalgo—are asking the Texas Supreme Court to determine that the officials who manage the state’s grid, the Electrical Reliability Council of Texas (ERCOT), are not protected by governmental immunity.

ERCOT and other utility companies around the state have already been hit with at least 15 lawsuits seeking to hold the companies liable for the rolling blackouts that left millions of Texans in the dark for days as the state experienced a record-breaking cold snap in February of this year.

Currently before the Texas Supreme Court is the issue of whether ERCOT is immune from suit. Dallas-based Panda Power sued ERCOT in 2016, claiming that reports the grid operator put out said the state was woefully short on power generation. Using that prediction, Panda Power spent billions building new plants. However, the report was wrong and at least one of the new plants went bankrupt. ERCOT sought to dismiss Panda Power’s suit by arguing immunity, but a Grayson County District Court judge denied the grid operator’s bid. The Fifth Court of Appeals in April 2018 reversed that decision, concluding “ERCOT’s regulatory responsibilities include ensuring the reliability and adequacy of the regional electrical network” qualified it for immunity. Elec. Reliability Council of Texas, Inc. v. Panda Power Generation Infrastructure Fund, LLC, 552 S.W.3d 297, 319 (Tex. App. –2018, pet. granted). Panda Power appealed to the Texas Supreme Court.

On March 9, 2021, Harris, Travis, Fort Bend and Hidalgo Counties filed amici briefs in the two cases challenging the Dallas appellate court’s ruling. Harris County’s brief asked the State Supreme Court to strongly consider the effects its ruling would have on cases related to property damage and lost lives following the Valentine’s Day storm. Meanwhile, Travis, Hidalgo and Fort Bend Counties argued in their brief that ERCOT’s former CEO Bill Magness (who was fired March 3) directly contradicted ERCOT’s legal arguments when he testified about the grid operator’s response to the winter storm in front of the Texas Legislature on Feb. 25. While testifying under oath, Magness said ERCOT was not a governmental agency but “a private Texas corporation,” according to the brief.

The court could decide by the end of its current term, which ends in June, whether ERCOT is a private entity and not an extension of state government. This could have significant ramifications for multiple pending suits seeking huge damages.

Regardless of the court’s decision, the Texas legislature is exploring options to prevent this from happening again. The Texas House gave final passage on Wednesday, March 31, to six bills aimed at preventing last month’s widespread and deadly power outages from ever happening again.

The votes comes two days after the State Senate passed its own legislation, SB 3.

Under House Bill 11, the Public Utility Commission would be required to mandate winterizing power plants and electricity providers and enforce it.

The Commission regulates the state’s power grid operator, ERCOT.

Some critics have expressed concerns the House bill doesn’t have enough enforcement measures.

The House bills passed Monday don’t include two requirements in SB 3, which would require natural gas facilities and pipelines to be prepared for extreme winter weather.

It would also issue fines of up to $1 million per day against companies that don’t comply.

The House is considering a separate bill requiring natural gas facilities to be winterized.

Also Wednesday, the House approved a measure banning the sale of variable rate electricity plans for residential customers.

Other measures approved by the House and Senate bills would establish a statewide alert system if there could be power outages, whether in the winter or summer.

Bills would also form a new council to ensure the natural gas and electric power sectors meet regularly.

House Speaker Dade Phelan told CBS 11 last Friday, March 26, that House and Senate members will consider each other’s bills and compromise.

“We will hash out the differences. And there’s no private and ownership between the two chambers. We just want to do what’s right for all Texans.”

Other legislation being considered centers on paying for improvements at the facilities and increasing oversight of the PUC and ERCOT.