Electric Reliability v. Just Energy
- Case Type:
- Business
- Case Status:
- Reversed and Remanded
- Citation:
- 22-20424 (5th Circuit, Jan 05,2023) Published
- Tag(s):
-
- Ruling:
- 28 U.S.C. § 1334(c)(1) provides a statutory basis for abstention that supplements--but does not subsume--judicially created abstention doctrines; and judicially-created abstention doctrines apply in the bankruptcy context. The Burford abstention doctrine provides that, in certain rare situations, federal courts should abstain from hearing matters that affect the actions of a state's administrative agencies. Burford applied in the present dispute because of the local nature of the dispute and the challenge to the actions of state regulators.
- Procedural context:
- The bankruptcy court considered a motion to dismiss filed by the Energy Regulatory Commission of Texas ("ERCOT"), which a bankrupt electric retailer debtor had sued for charges imposed by ERCOT on the debtor following winter storm Uri in February 2021. The bankruptcy court dismissed all but four of the debtor's causes of action against ERCOT, finding that Burford abstention was not required. ERCOT appealed.
- Facts:
- Just Energy Group, Inc., a Texas retail energy provider, was invoiced $335 million for electricity it purchased from ERCOT (the Electric Reliability Council of Texas) for eight days during winter storm Uri in February 2021. Just Energy had insufficient reserves and liquidity to pay this debt, commenced bankruptcy proceedings in Canada, and filed a Chapter 15 petition in the Southern District of Texas. Just Energy subsequently paid ERCOT and disputed "no less than $274 million" of the invoiced amount.
Critical to the charge from ERCOT to Just Energy was the well-documented failure of Texas's stand-alone electric utility grid. All generators of electricity in Texas have to sell to ERCOT, and ERCOT is the sole seller of electricity to Texas electric providers. ERCOT is subject to the regulations of the Public Utility Commission of Texas ("PUCT"), which was created by the Texas Public Utilities Regulatory Act ("PURA"). ERCOT is responsible for maintaining the reliability of electric generation and transmission in Texas.
During winter storm URI, several facilities generating electricity went offline as demand surged. PUCT directed ERCOT to account for the surplus of demand over supply in its pricing for electricity during winter storm URI, even though excess demand was partly due to the loss of generation in Texas. ERCOT subsequently priced electricity at $9,000 per Just Energy Group, Inc., a Texas retail energy provider, was invoiced $335 million for electricity it purchased from ERCOT (the Electric Reliability Council of Texas) for eight days during winter storm Uri in February 2021. Just Energy had insufficient reserves and liquidity to pay this debt, commenced bankruptcy proceedings in Canada, and filed a Chapter 15 petition in the Southern District of Texas. Just Energy subsequently paid ERCOT and disputed "no less than $274 million" of the invoiced amount.
Critical to the charge from ERCOT to Just Energy was the well-documented failure of Texas's stand-alone electric utility grid. All generators of electricity in Texas must sell to ERCOT, and ERCOT is the sole seller of electricity to Texas electric providers. ERCOT is subject to the regulations of the Public Utility Commission of Texas ("PUCT"), which was created by the Texas Public Utilities Regulatory Act ("PURA"). ERCOT is responsible for maintaining the reliability of electric generation and transmission in Texas.
During winter storm URI, several facilities generating electricity went offline as demand surged. PUCT directed ERCOT to account for the surplus of demand over supply in its pricing for electricity during winter storm URI, even though excess demand was partly due to losing generation in Texas. ERCOT subsequently priced electricity at $9,000 per megawatt hour ("MWh") for over 80 consecutive hours. ERCOT then left the $9,000/MWh pricing in effect for an additional 33 hours after PUCT rescinded orders directing ERCOT to alter its pricing. After ERCOT finally allowed normal supply and demand forces to set prices, the price of electricity in Texas fell from $9,000/MWh to $27/MWh in less than one hour. The price continued to decline to less than $5/MWh.
Just Energy sued to recover a portion of the amount it paid to ERCOT based on two arguments. First, Just Energy alleged that the $9,000/MWh pricing was based on unlawful orders issued by the PUCT and violated the ERCOT Protocols and other agreements governing the purchase of electricity in Texas. Second, Just Energy alleged that the final 33 hours of pricing at $9,000/MWh directly improperly ignored PUCT's decision to rescind the emergency pricing orders.
ERCOT moved to dismiss based on, among other things, the filed rate doctrine (formerly infamous in bankruptcy circles in truck company bankruptcy cases) precludes judicial intervention, and abstention was proper under Burford (Burford v. Sun Oil Co., 319 U.S. 315 (1943)).
- Judge(s):
- Southwick, Graves, and Engelhardt
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