Fifth Circuit Rules Just Energy Bankruptcy Court Erred In Exercising Jurisdiction To Redetermine ERCOT Pricing During Winter Storm Uri

• Jurisdiction: United States,Federal
• Law Firm: Bracewell
• Subject Matter: Finance and Banking, Energy and Natural Resources, Insolvency/Bankruptcy/Re-structuring, Financial Services, Insolvency/Bankruptcy, Energy Law
• Author: Mr Mark Dendinger and Jonathan Lozano
• Published date: 16 January 2023

In a January 5, 2023 opinion from the United States Court of Appeals for the Fifth Circuit, the panel held the Just Energy bankruptcy court erred in exercising jurisdiction over the debtor's suit to recover Winter Storm Uri payments made to ERCOT. The Fifth Circuit found the underlying issue'i.e., the propriety of ERCOT and PUCT's pricing'to be precisely the type of controversy that should be decided in the manner carefully prescribed by the Texas legislature, and not be second-guessed by the bankruptcy court. Therefore, the Fifth Circuit held that the Travis County, Texas district court is the appropriate forum to consider the merits of the debtor's clawback claims. Following the opinion, federal courts must carefully consider whether to abstain from deciding controversies that would unduly interfere with the complex utility regulatory scheme established by the Texas legislature.

Some background on Texas' utility regulatory scheme is necessary to understand the Fifth Circuit's opinion. Texas' Public Utility Regulatory Act (PURA) was created to establish a "comprehensive and adequate regulatory system for electric utilities to assure rates, operations, and services that are just and reasonable to the consumers and to the electric utilities."1 To that end, PURA created the Public Utility Commission of Texas (PUCT) as the agency charged with overseeing and implementing PURA and as the entity with ultimate authority over Texas' electric grid.2 As required by statute, PUCT has certified Electric Reliability Council of Texas, Inc. (ERCOT) as the independent organization to manage the wholesale electricity market, including determining market-clearing prices.3

This framework was put to the test during Winter Storm Uri, which resulted in unprecedented sub-freezing temperatures, power outages and energy shortages from February 13, 2021 through February 20, 2021. During the storm, ERCOT was forced to order load sheds'i.e., consumption cuts via forced power outages'to reduce the strain on the power grid. PUCT further issued orders directing ERCOT to ensure that load shed was accounted for in ERCOT's scarcity pricing signals, leading ERCOT to price energy at the maximum of $9,000 per megawatt hour for over eighty consecutive hours.

As a result of the surge in energy pricing, Just Energy, a Canada-based retail energy provider, incurred ERCOT invoices of approximately $335 million. After commencing bankruptcy proceedings in Canada and filing for Chapter 15 in the...