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ERCOT & Sovereign Immunity

Texas is 80 degrees this weekend.  If not for the dead foliage, brown grass, ruined dry wall and furnishings piled on the side of streets and long lines at home improvement stores I might be able to forget about last week.  Texans should not forget.

This week lawsuits have been filed against ERCOT for the epic failure of the maintenance of the Texas electrical grid during the Winter Storm “Uri” and freezing temperatures.

Most of the world knows that the Electric Reliability Council of Texas (ERCOT) manages the flow of electric power to more than 26 million Texas customers, or per ERCOT 90 % of the electric load in Texas.  Per the ERCOT website they are a nonprofit corporation “subject to oversight by the Public Utility Commission of Texas and the Texas Legislature”.

Why can’t ERCOT be sued for damages resulting from injury, death and property damage due to the failure to manage the electric power and failure to protect the grid from the damage of Winter Storm Uri?  The answer lies currently in the hands of the Texas Supreme Court with its decision regarding sovereign immunity.

The concept of sovereign immunity dates back to when royalty under the English common law were thought by the legitimacy of their birth to be anointed by God and to rule with absolute power.  Under English common law an individual could not sue the state for a wrong or for being damaged.  “The King could do no wrong.”  This doctrine has been followed in the U.S. because English common law was the historical basis for the laws in nearly all of the United States and Texas.  Texas courts have decided historically, due to the doctrine of sovereign immunity, the state and its political subdivisions were not liable for the torts of their agents or officers unless there was a constitutional or statutory waiver of immunity. In 1969, the Texas Legislature enacted such a waiver of sovereign immunity when it passed the Texas Tort Claims Act, but the concept is applicable today to claims brought against Texas and its municipalities.

ERCOT claimed “sovereign immunity” in a 2016 suit filed against it by Panda Power Generation Infrastructure Fund LLC.  Panda brought suit against ERCOT claiming negligence, fraud and breach of fiduciary duties regarding ERCOT’s representations of electric power market data.  ERCOT alleged successfully in state court the claims were barred by sovereign immunity.

According to the ERCOT website: “The Public Utility Commission of Texas (PUCT) has jurisdiction over activities conducted by the Electric Reliability Council of Texas (ERCOT). ERCOT is governed by a board of directors made up of independent members, consumers and representatives from each of ERCOT’s electric market segments.”  ERCOT claims in the Panda case that it performs an essential public service as a quasi-governmental regulator.

The appellate court found that ERCOT has governmental immunity because it exercises power delegated to it by the Public Utility Commission of Texas at the direction of the state Legislature and has rulemaking authority that’s binding on market participants.  Panda appealed to the Texas Supreme Court and the case is still in that court, undecided.  Oral arguments have not occurred, but supplemental briefs were filed in November 2020 and can be viewed  here.

ERCOT’s position in its pleadings is that nothing it does is free from the state’s direct oversight and any claims brought by Panda in litigation stem from regulatory authority delegated by the State of Texas and the utility commission.

I am not sure ERCOT’s argument to the Texas Supreme Court matches what we Texans heard from the elected officials in Texas last week.

Please do not rely on this article as legal advice. We can tell you what the law is, but until we know the facts of your given situation, we cannot provide legal guidance. This website is for informational purposes and not for the purposes of providing legal advice. Information about our commercial and business litigation practice can be found here.

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