ERCOT and Sovereign Immunity
Does the Electric Reliability Council of Texas (ERCOT) liability for the catastrophic effects of Winter Storm Uri in 2021? More than two years after the storm, the Texas Supreme Court has answered the question, no.
On June 23, 2023, the Texas Supreme Court in a divided 5-4 opinion held that ERCOT is entitled to sovereign immunity, concluding that ERCOT is an “arm of the state” because it is under the complete purview of the Texas Public Utility Commission (PUC), the Legislature, and the statutory requirements of the Public Utility Regulatory Act (PURA).
The two cases the Court considered arose from massive Winter Storm Uri in 2021 which knocked out parts of the Texas power grid for extended periods of time. The two separate courts of appeals rulings, CPS Energy v. ERCOT and ERCOT v. Panda Power Generation Infrastructure Fund, LLC, yielded conflicted rulings about whether ERCOT was or could be liable.
The five member majority of the Texas Supreme Court answered three distinct questions raised by the two cases, finding:
1. ERCOT is a governmental unit as defined by the Texas Tort Claims Act (TTCA) and thereby entitled to pursue an interlocutory appeal of its plea to the jurisdiction;
2. the PUC has exclusive jurisdiction over the parties’ claims against ERCOT; and
3. ERCOT is entitled to sovereign immunity.
The result of these findings is that parties may not sue ERCOT in regard to many types of claims. According to the Court, ERCOT shared the sovereign immunity of governmental entities created by the State of Texas, even though ERCOT itself was not an entity created by the government. This marks the first time the Court has found that a nonprofit entity is entitled to sovereign immunity without a direct grant of statutory authority.
In finding that ERCOT is a “Governmental Unit” under the TTCA, the Court noted that ERCOT operates as part of the state’s broader electricity regulation system, performs the uniquely governmental function of utilities regulation, and does so under the direct oversight of the PUC. Further, although ERCOT is a private, nonprofit corporation, its “status” as the Independent System Operator for the Texas Power Region and its authority to act in that capacity are derived from PURA.
In determining that the PUC has exclusive jurisdiction over the claims in the two cases, the Court found that the extensive regulation and oversight by the PUC (including complete financial, regulatory, budgetary, and adjudicatory power over ERCOT), constituted a pervasive regulatory scheme that encompassed the claims made by the parties.
Finally, in determining that ERCOT is entitled to sovereign immunity, the Court found that PURA “evinces clear legislative intent” to vest it with the “nature, purposes, and powers” of an “arm of the state government” and because doing so “satisfies the ‘political, pecuniary, and pragmatic policies underlying our immunity doctrine.’” The Court noted there are “few things more fundamental to the state’s ability to function than its electricity grid.” Further, the Court leaned on the protection of public funds and state assets as justification for recognizing immunity.
If you have any questions about the ERCOT opinion or how sovereign immunity may impact a claim, please contact us at info@gstexlaw.com. The attorneys in our Austin and Dallas have a depth of experience litigating on behalf of and against governmental entities
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