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Texas Supreme Court Considers Overturning PUC's $26 Billion Monopoly Tax

Energy analyst Bill Peacock has submitted an amicus brief to the Texas Supreme Court this week, endorsing a lower court's decision to overturn the Public Utility Commission of Texas' (PUC) 2021 ruling. The controversial decision imposed a $26 billion monopoly tax on electricity buyers during Winter Storm Uri. The Supreme Court is set to hear oral arguments on the case on January 30.

Peacock, who serves as the policy director for the Energy Alliance, stated in his brief that "the Public Utility Commission’s adoption of its 2021 price-setting rule runs counter to statutory objectives and to an economic understanding of the normal forces of competition." He further noted that Texas law "requires that … electric services and their prices should be determined by customer choices and the normal forces of competition."

The PUC's three commissioners faced significant pressure following a blackout that left millions without power for up to three days during the storm. In response, they decided to raise the price of electricity to $9,000 per megawatt hour—almost four times more than the prevailing price—to incentivize more generation and restore power.

However, Peacock argues that this action by the PUC was doomed from the start. He writes: "Because ERCOT had already ordered all generation to run the evening before, no amount of potential profits based on higher prices could incentivize generators to do the impossible—bring their inoperable plants back online."

Billions of dollars gained and lost during the storm hinge on this case's outcome. Electricity generator Luminant, a Vistra Energy subsidiary, sued PUC in an attempt to recover over a billion dollars in losses incurred buying electricity at inflated prices to meet client obligations. Opposing Luminant are generators like Calpine Corporation that profited significantly from sales during the storm. The state of Texas and PUC also oppose Luminant.

Last year, the Texas Third Court of Appeals ruled in favor of Luminant. Those challenging this decision, including the PUC, argue that the PUC has "complete authority over ... the wholesale electricity market" in Texas under the Public Utility Regulatory Act. The court of appeals disagreed, stating: "While the breadth of the Commission’s discretion largely resists sharp delineation, the Legislature clearly stated that the Commission’s rules must be "limited so as to impose the least impact on competition."

In his brief, Peacock highlights a key issue with PUC's argument. He contends that unlike in the electricity market where competition is crucial, the Texas Legislature decided that the Texas Department of Insurance should have complete regulatory authority over "the business of title insurance on real property." He further states: "if the Legislature had desired to give the PUC this [same] authority it could have done so. But it did not."

The cost implications of PUC's decision for Texas businesses and consumers run into billions. ERCOT Independent Market Monitor Carrie Bivens stated that PUC’s "decision resulted in $16 billion in additional costs to ERCOT's market." Energy expert Robert Bryce suggests an even higher cost, citing a report from London Economics International which "shows that Texas consumers were overcharged by roughly $26.3 billion due to the inattention or incompetence of officials at the PUC and ERCOT."

The hefty $26 billion cost has significantly impacted prices on the wholesale electricity market. During the month when PUC's price was in effect, prices averaged more than 50 times higher than those recorded over the previous 13 months. Peacock observes: "The PUC’s adoption of its price-setting rule resulted in the average price for the year being almost seven times higher than in the previous year." However, these costs have not only affected buyers in Texas' wholesale market but also consumers. A report from U.S. Energy Information Agency shows retail prices increased by 19.8% since October 2020, shortly before PUC's decision.

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