In a forty-page opinion issued by Chief Justice Nathan L. Hecht, the Texas Supreme Court held that the Electric Reliability Council of Texas (“ERCOT”) has sovereign immunity regarding allegations of overpricing during Winter Storm Uri and related fraud claims, even though ERCOT is a private corporation. The Court was split 5-4 in its decision with Justices Boyd and Devine writing in dissent, joined by Justices Lehrmann and Busby.
In this case, the Supreme Court addressed conflicting decisions from the Texas Fourth and Fifth Courts of Appeals, which diverged on the issue of whether ERCOT possesses sovereign immunity from tort claims against it arising from its statutorily required operations in overseeing the Texas electric system. The court faced three fundamental questions: (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 Court answered all three questions in the affirmative but qualified their decision to make clear that ERCOT’s immunity only applies to its role as the Independent System Operator (“ISO”) for the ERCOT Power Region. The Court stated that “[t]here is no evidence that ERCOT performs any functions outside its role as the ISO, but we note that ERCOT would not be immune outside that role.”
The Court focused on ERCOT’s responsibilities and duties flowing from Texas statute, and the significant Public Utility Commission oversight under which ERCOT operates. The Court’s opinion acknowledged the reality of ERCOT’s actual independence as a private corporation, but observed that “[a]n entity’s organizational form is not dispositive” when discussing whether simply being a private corporation in form bars an entity from claiming immunity as a governmental unit. The Court argued that “[w]hile corporations do not typically enjoy sovereign immunity, ERCOT is not a typical corporation” and that “ERCOT may not exercise any of those corporate powers independently of the state.” The Court went on to distinguish ERCOT from other corporations in the state by outlining that “ERCOT’s assets are owned by the state. ERCOT may not raise money, spend money, or obtain debt financing without PUC input and approval. The “business” ERCOT conducts is governmental and for the public benefit, and it is set forth by statute and subject to PUC authority and oversight. In short, the fact that the state is utilizing the corporate form to achieve its objectives for the Texas power region does not change governmental nature of ERCOT’s actions.”
The dissenting justices disagreed with the majority’s claim that ERCOT is a governmental unit while also being a private corporation and argued that “because Texas law has not vested the private corporation ERCOT with the nature of an arm of the state, we respectfully disagree that sovereign immunity should broadly prohibit courts from exercising jurisdiction over claims against it.” This argument outlines the unique predicament that ERCOT presents as a private entity on paper but a governmental unit in practice. The dissenting justices also noted that the this is the first time in State history that the Supreme Court has granted immunity to a “purely private entity”.
The majority made clear in concluding its opinion that ERCOT is not held unaccountable by this decision. The Court stated “ERCOT is accountable to the state. Its shortfalls are being addressed by the Legislature, which is accountable to the people through the political process.” Further, the Court made note that its decision that ERCOT has immunity as a governmental unit “would not bar CPS’ constitutional claims.”
The Court ultimately affirmed the Texas Fourth Court of Appeals ruling in CPS Energy v. ERCOT and reversed and dismissed the Texas Fifth Court of Appeals ruling in ERCOT v. Panda Power Generation Infrastructure Fund, LLC et al. for lack of jurisdiction. These decisions remain subject to motions for rehearing from the parties as of the date of this article.
We will follow how the lower courts apply this decision to other pending lawsuits challenging ERCOT actions arising out of Winter Storm Uri and in other contexts. We would anticipate the Court’s rationale here will affect the determination of ERCOT’s immunity in other contexts.
Links to the Opinions of the Court: