Nelms v. Electric Reliability Council of Texas, Inc.
22-03315
| Bankr. S.D. Tex. | May 28, 2025Background
- Griddy Energy LLC, a Retail Electric Provider in Texas, purchased power from ERCOT and sold it to customers at wholesale prices plus a monthly fee.
- In February 2021, Winter Storm Uri caused ERCOT to set electricity prices to $9,000/MWh, leading to substantial unpaid invoices by Griddy’s customers.
- ERCOT deemed Griddy in breach for failing to pay collateral and invoices, and terminated Griddy’s Market Participant status, transferring its customers to a Provider of Last Resort.
- Griddy filed for Chapter 11 bankruptcy; Russell Nelms, as plan administrator, initiated adversary proceedings against ERCOT seeking damages and equitable relief.
- The court addressed whether it should abstain from hearing certain claims under the Burford abstention doctrine because of Texas’s regulatory oversight.
- Several claims were dismissed or abated; only claims uniquely rooted in bankruptcy law survived the abstention analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Should the court abstain from hearing state law (contract/unjust enrichment) claims? | Contract dispute does not implicate local policy; court can adjudicate. | Texas regulatory scheme is implicated; local policy and administrative remedies required. | Abstention applied; contract claim abated, unjust enrichment dismissed. |
| Preference Action (Bankruptcy claim) | ERCOT received avoidable preferential transfers. | Payments should be protected by earmarking doctrine as pass-through. | Motion to dismiss denied; earmarking inapplicable; claim proceeds. |
| Disallowance of Claim under § 502(d) | ERCOT’s failure to return preferences justifies disallowance. | Asserted same earmarking defense; not a valid preference. | Motion to dismiss denied; claim proceeds. |
| Equitable Subordination | ERCOT’s conduct warrants subordination due to harm to creditors. | No inequitable conduct or bad faith; followed protocols. | Dismissed; insufficient facts to support bad faith or inequitable conduct. |
Key Cases Cited
- Burford v. Sun Oil Co., 319 U.S. 315 (1943) (sets out abstention doctrine allowing federal courts to avoid interfering in complex state regulatory schemes)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (details plausibility pleading standard under Rule 12(b)(6))
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (articulates requirements for a complaint to survive a motion to dismiss)
- Coral Petroleum, Inc. v. Banque Paribas-London, 797 F.2d 1351 (5th Cir. 1986) (explains the earmarking doctrine as an exception to bankruptcy preference avoidance)
- In re Fabricators, Inc., 926 F.2d 1458 (5th Cir. 1991) (sets out the standard for equitable subordination under § 510(c))
- CPS Energy v. Elec. Reliability Council, 671 S.W.3d 605 (Tex. 2023) (PUC has exclusive jurisdiction over claims against ERCOT)
- Pub. Util. Comm’n v. Luminant Energy Co. LLC, 691 S.W.3d 448 (Tex. 2024) (confirms ERCOT’s authority to set crisis pricing)