Luminant, a Texas energy company, filed a brief this week requesting the Texas Supreme Court uphold a lower court decision that the Public Utility Commission of Texas's (PUCT) violated Texas law by increasing the price of electricity during Winter Storm Uri. During the deadly winter storm, the PUCT arbitrarily raised prices to $9,000 per megawatt hour, hoping to spur the generation of electricity to bring an end to the massive blackouts all across Texas, but the action significantly raised the price that Texans paid for electricity.
At the heart of Luminant's lawsuit against the PUCT is that “In 1999, the Texas Legislature overhauled the State’s electricity market to harness the power of ‘a competitive retail electric market.’” One of the hallmarks of this competitive market was the legislature's requirement that “electric services and their prices should be determined by customer choices and the normal forces of competition.” Yet despite this clear legislative mandate, the PUCT decided it could determine the price of electricity on its own.
The Texas Legislature was very specific about the limits it put on regulators of Texas' electric grid. In Chapter 39 of the Texas Utilities Code, the legislature said that regulatory authorities “may not make rules or issue orders regulating competitive electric services, prices, or competitors or restricting or conditioning competition except as authorized in this title.” Additionally, they “shall authorize or order competitive rather than regulatory methods to achieve the goals of this chapter to the greatest extent feasible.”
When the PUC raised the price of electricity on Feb. 15, 2021, during Winter Storm Uri, it had no authorization to increase prices, according to the Excellent Thought website. It supported its decision by claiming that the market had failed and that the price hike was needed to increase the generation of electricity during the blackout. Neither turned out to be true.
According to the lawsuit filed by Luminant, “contrary to the insistence of the PUC and its intervenors, the price-setting rule didn’t fix any ‘malfunction,’ ‘flaw,’ or ‘error’ in the established pricing system.” Instead, the Electrical Reliability Council of Texas (ERCOT) had already twice rejected using forced blackouts as a factor for higher pricing. This highlights the key point that the PUC's and ERCOT's pricing rules in place at the time of Winter Storm Uri had already violated state law by manipulating market prices. The PUC's effort simply compounded the violation of Texas law.
PUC's price hike on electricity massively increased costs for Texas consumers and businesses. Prices paid for electricity that week were at least $16 billion higher than normal, with some estimates of the cost reaching as high as $30 billion, according to the Texas Tribune. Texans essentially paid more for electricity in that one week than they had paid over the previous two years combined.
According to the Houston Chronicle, some energy companies, such as Energy Transfer and Kinder Morgan, made at least $1 billion due to the higher prices. Other companies, including Luminant and NRG, lost money. The companies on both sides of Luminant's lawsuit are divided in opinion depending on whether they gained or lost money because of the PUC's decision.
In the lawsuit, Luminant claims that it does not seek to recover any of its losses. Rather, it seeks to reverse or overturn the PUC's decision. If the Texas Supreme Court upholds the lower court's decision, Luminant would be in a position to seek cost recovery through the PUC's regulatory processes. If Luminant or other companies successfully recover their losses, it is unclear who will pick up the tab.
