Analysis Of Just Energy Group Bankruptcy Proceedings

• Published date: 19 December 2022
• Subject Matter: Energy and Natural Resources, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Energy Law
• Law Firm: Sheppard Mullin Richter & Hampton
• Author: Mr Justin Bernbrock and Alexandria G. Lattner

On 8 November 2022, the Fifth Circuit heard oral argument in connection with the direct appeal of the Southern District of Texas Bankruptcy Court's order largely denying the Electric Reliability Council of Texas, Inc.'s (ERCOT's) motion to dismiss the adversary complaint against it filed by Chapter 15 debtors Just Energy Texas LP, Just Energy Holding, Inc. and its Chapter 15 foreign representative (collectively Just Energy).

When Just Energy, a company that purchases electricity and natural gas commodities from certain energy suppliers and wholesalers and resells them to residential commercial customers, received a significantly higher invoice from ERCOT after price increases during winter storm Uri in Texas, it filed insolvency proceedings in Canada and recognition of the proceeding in the Southern District of Texas Bankruptcy Court.

The appeal presents the Fifth Circuit with issues to balance a bankruptcy court's subject matter jurisdiction against a state's interest to decide certain issues that relate to state regulatory price-setting utility frameworks. The threshold issue is whether ERCOT, a private company (as characterised in Texas Commercial Energy v. TXU Energy, Inc., 413 F.3d 503, 506 (5th Cir. 2005)), shares the sovereign immunity defence available to state agencies under Buford abstention through its role to 'exercise delegated - and closely supervised - regulatory authority to oversee the electricity market' approved by the Public Utility Commission of Texas (PUCT).

Between 13 February and 17 February 2021, winter storm Uri dumped record amounts of snow on Texas, with freezing temperatures and severe weather impacting all 254 counties in the state. The storm challenged the intrastate power grid, thereby incapacitating most of Texas's power generating facilities. During the storm, ERCOT ordered forced power outages, and the PUCT set prices at the legal maximum of $9000 per megawatt hour (MWh), in an attempt to balance the energy grid and prevent structural damage to the power grid.

According to Just Energy, the price increase caused the state's wholesale market to consume $55bn in transactions - 'a level of volume it ordinarily would take the market four years to realize'. After receiving invoices demanding approximately $335m for the operating days of 13 February to 20 February 2021, Just Energy commenced proceedings before the Superior Court of Justice in Ontario, Canada, under the Canadian Companies' Creditors Arrangement Act and sought...