Texas Supreme Court will review ERCOT’s immunity from lawsuits
Panda Power of Dallas sued four years ago, accusing state power grid manager of fraud
The Texas Supreme Court has agreed to review a lower court’s ruling that the state power grid manager is entitled to sovereign immunity, a well-established legal principle that protects governments and their agencies from lawsuits.
The review, announced last week, is a win for electricity generator Panda Power. The Dallas company sued the Electric Reliability Council of Texas four years ago, alleging that the grid manager manipulated the state’s power needs to encourage new power plant construction to relieve political pressure building in Texas. Panda Power built three power plants and invested billions of dollars based on ERCOT projections that Texas desperately needed more generation to meet growing power demands.
But ERCOT, a private nonprofit corporation, argued that it needs immunity from lawsuits because it is funded by transaction fees paid by power generators and a verdict ordering it to pay sizable damages would force it to spread the cost among generators, which in turn, would pass it on in
the form of higher electricity prices.
ERCOT is the only grid manager in the nation with sovereign immunity.
“Panda is excited about hving the opportunity to address with the state’s highest court whether ERCOT is above the law,” said Werner A. Powers, a lawyer with Haynes and Boone in Dallas representing Panda Power .
The ruling by the high court is expected to have broad implications in Texas and on the power grid in which the state and its economy depends. It could determine whether electricity buyers and sellers can hold the grid manager responsible for pricing errors, poorly conceived power supply forecasts or life-and-death consequences of power outages.
“ERCOT looks forward to presenting its argument
before the Supreme Court later this year,” ERCOT spokeswoman Leslie Sopko said.
Panda Power invested $2.2 billion to build three power plants, including one in Sherman and two in Temple, after relying on ERCOT reports in 2011 and 2012 that Texas was facing a serious shortage of electricity, Panda said in court documents. ERCOT reinforced its message in press releases and presentations, and it was used by rating agencies to provide favorable bond ratings for power companies taking on debt to build new generation facilities.
The Public Utility Commission publicly thanked Panda Power in 2012 for helping to relieve pressure on the Texas grid. By the next year, however, the Texas electricity market had more than enough capacity, reflecting new generation coming online, including new wind projects that reduced power prices.
It became increasingly clear to ERCOT that it had relied on “seriously flawed or rigged” information to forecast the earlier shortages, but the council didn’t correct the errors because it wanted to encourage the construction of power plans, Panda Power said in court documents.
Panda sued ERCOT in state court in 2016, alleging fraud, negligent misrepresentation and breach of fiduciary duty. Panda Power is seeking $2.7 billion in damages.
Panda’s case got a boost when a former employee came forward and testified he was instructed by ERCOT officials to change information he gathered from generators and used for calculating electricity demand. But the case was halted three years ago when ERCOT filed an emergency petition with the appeals court in Dallas asserting that it was protected from lawsuits by sovereign immunity. The appeals court sided with ERCOT.
Panda Power asked the Texas Supreme Court to intervene, arguing in court documents that the appeals court delivered a “destabilizing blow” to the competitive electricity market in Texas, which demands accuracy, transparency and accountability from ERCOT.
No hearing date has been set by the Texas Supreme Court.