Nelms v. Electric Reliability Council of Texas, Inc.
22-03315
Bankr. S.D. Tex.May 28, 2025Background
- Griddy Energy LLC, a Texas retail electric provider, purchased electricity from ERCOT and sold it to consumers at wholesale prices until it ceased operations after Winter Storm Uri in February 2021.
- During Winter Storm Uri, Texas' electric grid nearly collapsed and ERCOT, under orders from state regulators, set the electricity price at the maximum $9,000/MWh, leading to massive charges to Griddy and its customers.
- Many Griddy customers failed to pay these invoices, resulting in Griddy’s alleged breach of its obligations to ERCOT, triggering notices of payment breach and eventual termination of Griddy’s market participation.
- Griddy filed for Chapter 11 bankruptcy in March 2021; Russell F. Nelms became plan administrator and brought suit on behalf of Griddy’s estate against ERCOT for damages and equitable relief.
- Nelms asserts ERCOT overstepped its authority and should not have enforced payment remedies due to force majeure, while ERCOT argued for dismissal and abstention under the Burford doctrine due to the involvement of Texas’ regulatory scheme.
- The Bankruptcy Court’s decision addresses which claims should proceed and under what jurisdiction, citing the Texas regulatory framework and recent precedent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Should court abstain from breach of contract claim? | ERCOT’s actions were just breach of contract, not regulatory. | Involves state law and regulatory scheme; Burford abstention applies. | Abstained; claim stayed for state resolution. |
| Unjust enrichment claim | ERCOT was unjustly enriched by enforcing payment during force majeure. | Disfavored discretionary federal interference with state regulation. | Dismissed. |
| Preference/disallowance of claim under bankruptcy law | Transfers to ERCOT were avoidable preferences, should be returned. | Payments were earmarked for ERCOT; thus not property of estate and not avoidable. | Dismissal denied; claim to proceed. |
| Equitable subordination (11 U.S.C. § 510(c)) | ERCOT’s inequitable conduct warrants subordination of its claim. | No bad faith or inequitable conduct; only exercised contractual remedies under protocols. | Dismissed without prejudice. |
Key Cases Cited
- Burford v. Sun Oil Co., 319 U.S. 315 (Burford abstention doctrine/abstention in complex state schemes)
- Phillips v. Elec. Reliability Council, Inc. (In re Entrust Energy, Inc.), 101 F.4th 369 (recent 5th Cir. application of Burford abstention to ERCOT pricing powers and disputes)
- Elec. Reliability Council, Inc. v. Just Energy Tex., L.P. (In re Just Energy Grp. Inc.), 57 F.4th 241 (guidance on Burford abstention in ERCOT bankruptcy cases)
- CPS Energy v. Elec. Reliability Council, 671 S.W.3d 605 (Tex. 2023) (PUC has exclusive jurisdiction over ERCOT and market participant disputes)
- Pub. Util. Comm’n v. Luminant Energy Co. LLC, 691 S.W.3d 448 (Tex. 2024) (confirmed ERCOT’s authority to set emergency pricing per state regulations)