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Central Texas experienced historic winter weather the week of Feb. 14, with a stretch of days below freezing. Sleet followed snow followed freezing rain, leading to a breakdown of the electric grid and widespread power outages. Water reservoirs were depleted and frozen pipes burst, leaving some without service for days.

Appeals court says state agency set electricity prices too high during 2021 winter storm

An aerial shot looking down at snow-filled roads
Jordan Vonderhaar for The Texas Tribune
Congress Avenue in Austin during Winter Storm Uri on Feb. 16, 2021.

A Texas appellate court surprised the electricity world Friday by ruling that the Public Utility Commission overstepped its authority during the deadly February 2021 winter storm when it raised the price of electricity to the maximum, $9,000 per megawatt-hour.

The price was set that high on Feb. 15 and 16 and kept there for days by the commission in charge of regulating Texas’ electricity in an effort to tell the market that more power generation was urgently needed. Its leadership believed that the financial tool meant to adjust the cost of electricity was malfunctioning as electricity generators fell offline and grid operators cut power to homes and businesses, the ruling explains.

The price of electricity is fluid in Texas; it goes up when demand is high in order to incentivize more production and keep the grid from being overloaded. But the state’s electricity market monitor said in the aftermath of the storm that Texas overcharged retail electricity providers by $16 billion for the power used as the storm dragged on — prices that left providers with massive debt and in some cases landed customers with giant bills.

The exorbitant price of electricity during the storm pushed retail power providers and electricity cooperatives into financial distress across Texas. Many were forced to buy power on the wholesale market at high prices and filed for bankruptcy in the aftermath of the storm.

During the 2021 legislative session, Texas senators pushed for a financial remedy to a 32-hour period during the week of the storm when regulators kept wholesale power prices at the $9,000 cap after more generation came online, but they couldn’t come to an agreement with their counterparts in the House. The power grid legislation that passed ultimately did not address the issue. Instead, legislators passed laws that would allow companies to access cheap, long-term loans to avoid passing the large costs on to consumers all at once.

The electric utility Luminant appealed the PUC’s pricing decisions in the month after the storm. It argued that the commission exceeded its authority in setting the price at the maximum, among other points. The Austin-based Third Court of Appeals agreed in its ruling Friday. But the consequences for its decision are unlikely to be immediately felt in Texas’ electricity market, since the court remanded the case for further consideration and the decision may still be appealed to the Texas Supreme Court.

Vistra Corp., Luminant’s parent company, lost at least $1.6 billion during the storm because it paid very high prices for natural gas to run its plants and was forced to procure electricity in the wholesale market to meet its delivery obligations to customers.

“We agree with the decision today by the Court of Appeals in Austin, but this is an ongoing legal proceeding and we cannot predict the final outcome,” Vistra said in a statement.

The Public Utility Commission declined to comment on the decision, first reported by The Dallas Morning News.

If the order stands, it could theoretically create a “gigantic mess” for the PUC and the state’s grid operator, the Electric Reliability Council of Texas to unwind the transactions that occurred during the days when the price was set at the $9,000 cap, said Alison Silverstein, who previously worked as a senior advisor for both the PUC and the Federal Energy Regulatory Commission.

“You would have to figure out who paid what to whom and sort of undo the daisy chain of transactions and sales as you’re repricing,” said Silverstein, who now works as an energy consultant in Austin.

That would be a long process with little chance of benefiting end users, she said. “I don’t think the end consumer will ever see a penny of benefit out of this.”

But Silverstein and other electricity experts who spoke with the Tribune on background doubted whether a legal remedy would go as far as unwinding the transactions that occurred during the storm — more likely is that it would impact other litigation among energy companies still battling in court rooms in the aftermath of Winter Storm Uri, or provide a specific remedy for Luminant.

“Practically speaking, the odds of getting a meaningful resolution apart from the legal principles would be very challenging,” Silverstein said. There might be many lawsuits, she said, but, “the money is long gone.”

This article originally appeared in The Texas Tribune.

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