Public Utility Commission of Texas, Petitioner, v. Luminant Energy Company LLC, Respondent
No. 23-0231
Supreme Court of Texas
June 14, 2024
Argued January 30, 2024
Justice Huddle and Justice Young did not participate in the decision.
During Winter Storm Uri, with the Texas electric grid on the brink of collapse, the Public Utility Commission issued two orders, the effect of which was to raise the market price of electricity to the regulatory ceiling of $9,000/MWh1 to reflect the scarcity of supply, thereby incentivizing generators capable of adding supply to do so and large industrial users to reduce their demand. Some market participants went bankrupt. Litigation ensued.2
In this case, the court of appeals held that the Commission‘s orders exceeded its authority under Chapter 39 of the Public Utility Regulatory Act (PURA) because the statute prohibits price-setting.3 We disagree. We also hold that the Commission substantially complied with the Administrative Procedure Act‘s (APA) procedural rulemaking requirements, an issue the court of appeals did not reach. We reverse the judgment of the court of appeals and render judgment affirming the orders.4
A
The Legislature added Chapter 39 to PURA in 1999 as part of Texas’ transition to a competitive retail electric market.5 Though its provisions are wide-ranging, only a few are at issue here. Among subchapter A‘s “General Provisions” is Section 39.001, which includes several statements of “Legislative Policy and Purpose“. There, in subsection (a), the Legislature states its finding that “the public interest in competitive electric markets requires“, with some exceptions, that “electric services and their prices should be determined by customer choices and the normal forces of competition.”6 Continuing that theme, subsection (d) states that “[r]egulatory authorities . . . shall authorize or order competitive rather than regulatory methods to achieve the goals of this chapter to the greatest extent feasible and shall adopt rules and issue orders that are both practical and limited so as to impose the least impact on competition.”7
Subsections (c), (e), and (f) address rules. Subsection (c) prohibits regulatory authorities from “mak[ing] rules or issu[ing] orders regulating competitive electric services, prices, or competitors or restricting or conditioning competition except as authorized in this title“.8 Subsections (e) and (f) authorize “[j]udicial review of competition rules”9—a concept we return to later—and set out the procedure for initiating such review directly in the court of appeals.10
The other provisions at issue are in subchapter D, which addresses “Market Structure“. Section 39.151(c) requires the Commission to “certify an independent organization“—here, ERCOT11—“to perform the functions prescribed by this section.”12 Four functions are listed in subsection (a). The second is “ensur[ing] the reliability and adequacy of the regional electrical network“.13 The fourth is “ensur[ing] that electricity production and delivery are accurately accounted for among the generators and wholesale buyers and sellers in the region.”14
Section 39.151(d) sets out the Commission‘s oversight of ERCOT. “The commission shall adopt and enforce rules relating to the reliability of the regional electrical network and accounting for the production and delivery of electricity among generators“, or it may delegate that responsibility
B
As set out above, two of ERCOT‘s statutory duties are ensuring the adequacy and reliability of the electric grid and ensuring that electricity production and delivery are accurately accounted for among the generators and wholesale buyers and sellers in the region.18 Relatedly, the Commission is charged with making rules addressing those duties or delegating the rulemaking responsibility to ERCOT, over which the Commission has complete authority.19 Under the Commission‘s rules, “ERCOT shall determine the market clearing prices of energy“, “[e]xcept as otherwise directed by the commission“.20 “The protocols and other rules” adopted by ERCOT “shall promote economic efficiency in the production and consumption of electricity; support wholesale and retail competition; support the reliability of electric service; and reflect the physical realities of the ERCOT electric system.”21
Texas maintains an “energy only” market in which generators are compensated only for the energy they actually produce, as opposed to a “capacity market” in which generators are paid to maintain capacity for times of high demand. In an energy-only market, generators are incentivized to come online in times of high demand by higher prices for wholesale electricity. To ensure sufficient power generation during times of high demand, the Commission by rule established a scarcity-pricing mechanism—or SPM—and directed ERCOT to administer it.22
The SPM is a mathematical formula run on ERCOT‘s computers that sends price-based signals to energy generators regarding whether additional power is needed. Its goal is to ensure that in times of energy shortage, prices adequately account for high demand and the amount of reserves needed to keep the lights on. The formula should result in an inverse correlation between energy capacity in the grid and the price of electricity—the less energy available, the higher the price to incentivize generators to add power.
The SPM is complex, but only a few of its components need explanation here. The Commission by rule sets a ceiling on the price of energy, called the high system-wide offer cap, or HCAP. In February 2021, the HCAP was $9,000/MWh.23 Another component of the SPM is the value of lost load or VOLL, which reflects the hypothetical price a customer would pay to avoid the loss of electrical service. The
C
For the ERCOT grid to remain functional, electricity supply and demand must remain balanced at a frequency of 60 hertz. The grid can operate at a frequency of 59.4 hertz for up to nine minutes before grid failure occurs.
Winter Storm Uri descended upon Texas over Valentine‘s Day weekend of 2021, bringing frigid air from the North Pole and record snowfall and low temperatures. As energy demand soared, almost 50% of the power-generation equipment in Texas froze and went offline. In the early morning hours of Monday, February 15, energy reserves dipped low enough to trigger the first level of grid emergency, Emergency Energy Alert Level 1. Within about an hour, reserves had dipped lower, triggering EEA2 and then EEA3—the highest level of alert. After breaching EEA3, ERCOT‘s protocols required it to “shed firm load“—start mandatory rolling blackouts—which it did. Available power continued to fall, which necessitated massive, more widespread blackouts. That morning, the grid operated at or below 59.4 hertz for just over four minutes. Texas was fewer than five minutes away from a total grid collapse that would have plunged the state into darkness for weeks, maybe months.
The mandatory blackouts averted the worst-case scenario, but ERCOT remained in EEA3. ERCOT called the Commission‘s attention to a problem that ERCOT perceived in the pricing signals that the SPM was sending to the market. Because the system was in load shed—mandatory blackouts were occurring—the price of energy should have been at the VOLL and HCAP of $9,000/MWh to incentivize generation. Instead, the price was fluctuating to as low as $1,200. ERCOT was having to hold some energy in reserve to maintain the system, and it believed the SPM interpreted the existence of those reserves to mean that load shed was no longer occurring.
D
The Commission called an emergency meeting for the evening of February 15. The notice advised that the meeting was “necessary to allow the Commission to address the imminent threat to public health and safety due to this loss of electricity for millions of citizens in the ERCOT region.” At the meeting, the Commission would determine whether to “exercise its authority under section 39.151 of [PURA] to ensure that the electricity market provides clear signals to generators of the value of generation when customer loads must be shed to protect the ERCOT system“. Specifically, the Commission would “consider whether the system demand component of energy prices should be set at the system-wide offer cap when firm load is being shed.” “Without such decisions,” the notice stated, “the continuing lack of electricity for some of the citizens of Texas could result in loss of life or damage to property that otherwise could be prevented.”
After a short meeting, the Commission issued the first of two orders at issue in this case. Citing the language in Section 39.151(d) that gives the Commission complete authority over ERCOT, the order “directs ERCOT to ensure that firm load
ORDER DIRECTING ERCOT TO TAKE ACTION AND GRANTING EXCEPTION TO COMMISSION RULES
On February 12, 2021, pursuant to
Texas Government Code § 418.014 , in response to an extreme winter weather event, Governor Greg Abbott issued a Declaration of a State of Disaster for all counties in Texas.Further, on February 15, 2021, the Electric Reliability Council of Texas, Inc. (ERCOT) declared its highest state of emergency, an Emergency Energy Alert Level 3 (EEA3), due to exceptionally high electric demand exceeding supply. ERCOT has directed transmission operators in the ERCOT region to curtail more than 10,000 megawatts (MW) of firm load. The ERCOT System is expected to remain in EEA3, and firm load shed is expected to continue, for a sustained period of time in light of the expected duration of the extreme weather event.
This Order addresses two significant market anomalies identified during this EEA3 event.
I. Energy Prices Lower than System-Wide Offer Cap During Load-Shed Event
ERCOT has informed the Commission that energy prices across the system are clearing at less than $9,000, which is the current system-wide offer cap pursuant to
16 TAC § 25.505(g)(6)(B) . At various times today, energy prices across the system have been as low as approximately $1,200. The Commission believes this outcome is inconsistent with the fundamental design of the ERCOT market. Energy prices should reflect scarcity of the supply. If customer load is being shed, scarcity is at its maximum, and the market price for the energy needed to serve that load should also be at its highest.
Utilities Code § 39.151(d) gives the Commission “complete authority” over ERCOT, the independent organization certified by the Commission pursuant to§ 39.151 . Further,16 TAC § 25.501(a) provides that ERCOT determines market clearing prices of energy and other ancillary services in the ERCOT market unless “otherwise directed by the commission.”Pursuant to this authority, the Commission determines that adjustments are needed to ERCOT prices to ensure they accurately reflect the scarcity conditions in the market. Accordingly, the Commission directs ERCOT to ensure that firm load that is being shed in EEA3 is accounted for in ERCOT‘s scarcity pricing signals. The Commission further directs ERCOT to correct any past prices such that firm load that is being shed in EEA3 is accounted for in ERCOT‘s scarcity pricing signals.25
The following day, February 16, the Commission issued a second order that is identical to the first except that it rescinds the last sentence under part I of the February
ERCOT acted on the Commission‘s directive by manually plugging a value into the SPM that would have the effect of raising the price of electricity to $9,000. This manual change remained in place until the grid returned to normal operations on February 19.
E
The storm‘s fallout was substantial. All three commissioners resigned. The Legislature sprang into action, enacting laws to improve preparation for winter weather emergencies26 and to stabilize the market by offering a securitization program to market participants who had suffered defaults or losses from the high prices.27 Still, some utilities went bankrupt.
Luminant is a power company that both buys and sells electricity. Although its sales offset some of the losses from purchasing electricity during the storm, Luminant claims that it suffered a net loss of a billion dollars from purchasing electricity at $9,000 during the storm. Luminant filed administrative challenges to the invoices it received for those purchases28 and, in March 2021, sought judicial review of the Orders in the court of appeals under PURA Section 39.001(e)-(f). Several parties intervened on each side.
A two-judge panel rejected each of the jurisdictional objections raised by the Commission and held that the Orders exceed the Commission‘s authority under PURA and are therefore invalid.29 The court did not reach Luminant‘s alternative argument that the Orders fail to comply with the procedural rulemaking requirements of the APA. The Commission and parties aligned with it filed petitions for review, which we granted.30
II
We start, as we must, with jurisdiction. The Commission challenges the court of appeals’ subject-matter jurisdiction on three bases.
A
The Commission raises issues of standing and mootness. “Constitutional standing requires a concrete injury that is both traceable to the defendant‘s conduct and redressable by court order.”31 The Commission acknowledges that being overcharged for electricity is the “sort of pocketbook injury [that] is a prototypical form of injury in fact“,32 but it argues that Luminant‘s injuries are not redressable through this appeal. Specifically, the Commission argues that what Luminant “ultimately seek[s]” is “retrospective repricing“—it wants its money back—and PURA does not authorize the court of appeals to grant that relief. The court can only “render
But Luminant has challenged the invoices it received during the storm in an administrative proceeding, which is abated pending the outcome of this litigation. If the court of appeals’ judgment invalidating the Orders were upheld, the decision would be binding in the administrative process. The Commission points out that “it must be ‘likely,’ as opposed to merely ‘speculative,’ that the injury will be ‘redressed by a favorable decision.”34 The Commission argues that whether Luminant could recoup its losses in the administrative proceeding is speculative because ERCOT does not maintain a fund of money—it just facilitates market transactions—and any payment would come out of the pocket of other market participants. Essentially, the Commission‘s argument is that the egg cannot be unscrambled. Yet potentially it can. Luminant points us to ERCOT protocols authorizing invoice repricing and market-wide resettlements35 and to a market-wide resettlement that occurred just prior to the storm.36 We conclude that Luminant has standing to seek judicial review of the Orders.37
We are likewise unpersuaded by the Commission‘s argument that Luminant‘s appeal was moot38 before it even began. The Commission argues that the Orders expired on their own terms when the market returned to normal operations on February 19, 2021. But Luminant suffered financial loss as a result of the Orders. Following the Commission‘s logic would mean that short-term rules could never be challenged. That is not the law.39
B
PURA authorizes judicial review of
We conclude that the Orders meet the APA‘s definition of a rule. They directed ERCOT to implement the Commission‘s policy that “[i]f customer load is being shed, scarcity is at its maximum, and the market price for the energy needed to serve that load should also be at its highest.” This policy applied to all market transactions.43 And while the Orders were addressed to ERCOT, the policy they implemented affected market participants directly.44
We also conclude that the Orders are competition rules within the meaning of PURA. The statute does not define competition rule. Citing dictionary definitions of competition and derivative terms, the Commission proffers that “competition rules are anti-monopolistic rules geared toward curbing the effects of monopolies and other anti-competitive practices.” There is no language in PURA to support such a narrow construction. We need not delineate the precise contours of competition rule. The Orders were adopted under Chapter 39. A fair reading of Section 39.001 indicates that a rule regulating pricing of the wholesale electricity market is within the term‘s ambit.45
Having concluded that the court of appeals had jurisdiction over Luminant‘s suit, we turn to the merits.
III
The Commission argues that the court of appeals erred in its conclusion that the Orders exceed the Commission‘s authority under PURA. We agree.
A
Agency rules are presumed valid, and the challenger has the burden of proving a rule‘s invalidity.47 A challenger can meet this burden by showing that the challenged rule (1) contravenes specific statutory language; (2) runs counter to the general objectives of the statute; or (3) imposes additional burdens, conditions, or restrictions in excess of or inconsistent with the relevant statutory provisions.48 Only (1) and (2) are at issue here.
We discern a statute‘s objectives from its plain text.49 That text must always be read “in context—not isolation.”50 We “give meaning to every word in a statute, harmonizing each provision“,51 while “consider[ing] the context and framework of the entire statute“, in order
B
The court of appeals’ opinion acknowledges some of these principles, yet its analysis departs from them. The court compared the legislative findings on the desirability of competition in Section 39.001(a) and (d)54 with the language setting out ERCOT‘S responsibility to ensure the reliability of the power grid and the Commission‘s responsibility to make rules on that topic in Section 39.151(a) and (d).55 The court then phrased “[a] threshold question” as “whether the authority granted by Section 39.151 qualifies, or is qualified by, the limitations imposed by 39.001.”56 “Put another way,” the court said, “the question is whether, or to what extent, Section 39.151‘s directive to ensure system reliability provides an exception to Section 39.001‘s general preference for reliance on competition rather than regulation to set prices.”57
The court observed that “Section 39.151 is silent as to whether ‘regulatory’ rather than ‘competitive’ methods may be adopted to ensure grid reliability.”58 From there, it concluded that “the Commission‘s actions must be subject to the constraint provided by the text of Section 39.001.”59 The court believed this result to be directed by “the whole-text canon“, which, the court said, “require[d] that [it] give effect to the phrase ‘greatest extent feasible’ in Section 39.001(d).60 To find that the Orders complied with the statement in Section 39.001(d) that the Commission “shall authorize or order competitive rather than regulatory methods to achieve the goals of [Chapter 39] to the greatest extent feasible“, the court said that it “must find that the Orders could not have used ‘competitive rather than regulatory methods’ to any greater extent than they did as issued.”61 “This [it] [could not] do” because, prior to the Orders’ being issued, the “SPM did not result in ‘HCAP’ pricing.”62
C
The whole-text canon “calls on the judicial interpreter to consider the entire text,
Section 39.001 announces the legislative policy that the price of electricity should be determined by competition while also acknowledging that the new market will not be completely unregulated. Subsection (a) states that prices should be determined by competition “except for transmission and distribution services and for the recovery of stranded costs“.69 Subsection (c) reflects the Legislature‘s understanding that “[r]egulatory authorities” may indeed have to “make rules or issue orders regulating . . . prices . . . or restricting . . . competition” by stating that such rules can only be made “as authorized in this title“.70 Subsection (d) provides that “[r]egulatory authorities . . . shall authorize or order competitive rather than regulatory methods to achieve the goals of this chapter“, but then the Legislature added, “to the greatest extent feasible“.71 Subsection (d) also directs regulatory authorities to “adopt rules and issue orders that are both practical and limited so as to impose the least impact on competition.”72 Luminant argues that Section 39.001 prohibits the Commission from engaging in any act whatsoever that regulates prices, but it gets there by disregarding much of the section‘s language.73
Deciding when those circumstances are present—and how to respond—is the Commission‘s job, not the judiciary‘s. We addressed the judiciary‘s limited role in reviewing agency rules for validity in Texas Board of Chiropractic Examiners v. Texas Medical Ass‘n.78 That case involved rules by the Chiropractic Examiners Board defining two terms that the Legislature had used in defining the scope of chiropractic practice.79 The Medical Association challenged the rules’ validity under the APA, arguing that the rules enlarged the scope of chiropractic beyond its statutory bounds.
We criticized the trial court for “weigh[ing] evidence—specifically, witness testimony presenting each side‘s view of the appropriate line between chiropractic and [medicine]—as if it were doing the Board‘s work anew.”80 We reiterated that “[t]he proper question for the court was whether, despite [the rules‘] presumption of validity, [they] contravene[] the Act‘s specific text or run[] counter to its purpose as a matter of law.”81 This textual analysis “ensures that courts will stay in their lane.”82 “Judges are experts in statutory analysis, not in healthcare“, we said.83 “To prevent expensive and time-consuming usurpations of administrative agencies’ policymaking work, the court‘s inquiry in a suit challenging the validity of an agency rule must be limited.”84
The lessons of Chiropractic Examiners apply squarely here. The Commission has the expertise to manage the electric utility industry; the courts do not. The court of appeals thus strayed from its lane by inquiring
When the claim is that an agency rule exceeds the scope of statutory law, the judiciary‘s role is purely textual. We have concluded that the Orders do not “contravene specific statutory language” or “run[] counter to the general objectives of” Chapter 39, so the presumption of validity holds.86
IV
Because of the court of appeals’ holding on PURA, the court did not reach Luminant‘s alternative argument that the Orders violate the APA‘s rulemaking procedures. The issue is fully briefed in this Court, and the parties urge us to address it. We do and conclude that the Orders substantially comply with the statutory requirements.
The Government Code authorizes a state agency to “adopt an emergency rule without prior notice or hearing, or with an abbreviated notice and a hearing that it finds practicable, if the agency“:
(1) finds that an imminent peril to the public health, safety, or welfare . . . requires adoption of a rule on fewer than 30 days’ notice; and
(2) states in writing the reasons for [that] finding . . . .87
The finding of imminent peril “shall [be] set forth in an emergency rule‘s preamble“.88 The agency “shall file” the emergency rule and the written reasons for it “in the office of the secretary of state for publication in the Texas Register“.89 The Legislature has determined that substantial compliance with these requirements is enough to defeat a procedural challenge to an emergency rule.90 “A mere technical defect that does not result in prejudice to a person‘s rights or privileges is not grounds for invalidation of a rule.”91
A
The requirement of a written finding of imminent peril and reasons for that finding in the rule‘s preamble is satisfied by language in the Orders’ introductory paragraphs, which note:
- the Governor‘s having issued a statewide disaster declaration under Section 418.014 of the Government Code;92
- ERCOT‘s having “declared its highest state of emergency“, an EEA3, “due to exceptionally high electric demand exceeding supply“;
-
ERCOT‘s having directed transmission operators to shed load; and - the expectations that ERCOT would remain in EEA3 and load shed would continue “for a sustained period of time in light of the expected duration of the extreme weather event.”
Luminant complains that the Commission did not quote the exact statutory language under a heading titled “preamble“. But only substantial compliance is required. We have said that “[a]n agency‘s order substantially complies with” a procedural rulemaking requirement if it “accomplishes the legislative objectives underlying the requirement” and “comes fairly within [its] character and scope“.93 The requirement that a reasoned finding of imminent peril be set out at the beginning ensures that the agency explains to the public why it is not following the usual procedures and timeline before making the rule. The language the Commission included in the Orders’ introduction achieves that goal.94
B
It is undisputed that the Commission did not file the Orders with the Secretary of State to be published in the Texas Register. Publication in the Register is the only formal statutory notice requirement for an emergency rule,95 but under the Secretary‘s regulations, there is an almost two-week gap between the deadline for filing a rule and the date of its publication in the Register.96 If the Commission had filed the Orders with the Secretary but done nothing else, the Orders would have expired before any interested party received notice of them.
Elsewhere, the APA states that an “agency shall take appropriate measures to make emergency rules known to persons who may be affected by them.”97 The Commission did that by immediately posting the Orders on its website. The Orders were also summarized and linked in a notice that was posted on ERCOT‘s website and emailed to its distribution list. Under the circumstances, these measures provided better and faster notice to interested parties and the public than publication in the Register would have.
Luminant argues that substantial compliance does not apply to the filing requirement because the APA provides that emergency rules become “effective immediately on filing with the secretary of state“.98 Yet the statutory text says that it does. “A rule is voidable unless a state agency adopts it
Finally, neither Luminant nor any other respondent has articulated any prejudice resulting from the Commission‘s failure to file the Orders with the Secretary.100 There is no dispute that respondents had actual notice of the Orders. Luminant contends that the Commission‘s “hasty process . . . cost Luminant and other market participants hundreds of millions of dollars“. But that complaint is about the Orders’ substance, not their procedure.
We hold that the Commission substantially complied with the APA‘s emergency rulemaking procedure.
* * * * *
We reverse the judgment of the court of appeals and render judgment affirming the Orders.101
Nathan L. Hecht
Chief Justice
OPINION DELIVERED: June 14, 2024
Notes
Elec. Reliability Council of Tex., Inc. v. Panda Power Generation Infrastructure Fund, LLC, 619 S.W.3d 628, 634-635 (Tex. 2021) (citation omitted).The mootness doctrine—a constitutional limitation founded in the separation of powers between the governmental branches—prohibits courts from issuing advisory opinions. A case becomes moot when (1) a justiciable controversy no longer exists between the parties, (2) the parties no longer have a legally cognizable interest in the case‘s outcome, (3) the court can no longer grant the requested relief or otherwise affect the parties’ rights or interests, or (4) any decision would constitute an impermissible advisory opinion.
The parties dispute whether part I of the Orders, being challenged here, amended the pricing rules then in effect. See
Indeed, the Commission has previously labeled a rule it described as “governing the enforcement of wholesale electricity markets and ERCOT administered markets” as a competition rule. Pub. Util. Comm‘n of Tex., Re Enforcement of Wholesale Market Rules, Project No. 26201, 230 P.U.R.4th 361, 2004 WL 367935, at *2 (Feb. 9, 2004) (order adopting
Id. at 168.Many of the other principles of interpretation are derived from the whole-text canon—for example, the rules that an interpretation that furthers the document‘s purpose should be favored (§ 4 [presumption against ineffectiveness]), that if possible no word should be rendered superfluous (§ 26 [surplusage canon]), that a word or phrase is presumed to bear the same meaning throughout the document (§ 25 [presumption of consistent usage]), that provisions should be interpreted in a way that renders them compatible rather than contradictory (§ 27 [harmonious-reading canon]), that irreconcilably contradictory provisions should be given no effect (§ 29 [irreconcilability canon]), and that associated words bear on one another‘s meaning (noscitur a sociis) (§ 31 [associated-words canon]).