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The Bankruptcy StrategistFeaturesBankruptcyLitigationRegulation

Fifth Circuit Adds Color to Abstention Issue

By Francis J. Lawall and Brenden Dahrouge
March 01, 2023

Jurisdictional boundaries within the federal system as between bankruptcy and district courts as well as various federal agencies can be a maze that is at times nearly impossible to navigate. Further complicating matters are those cases involving state-regulated issues that add abstention to the mix. On Jan. 5, the U.S. Court of Appeals for the Fifth Circuit provided some additional color to the abstention issue by ruling that the U.S. Bankruptcy Court for the Southern District of Texas lacked jurisdiction to decide an exclusively state-governed question related to emergency energy price controls. See, Electric Reliability Council of Texas v. Just Energy Texas (In re Just Energy Group), 2023 U.S. App. LEXIS 253, __ F.4th __, 2023 WL 111207. The Just Energy decision, arose from events that took place from Feb. 13, 2021, to Feb. 20, 2021, caused by storm Uri, which severely impacted Texas' power grid. During the storm, state regulators imposed artificial price caps on the sale of wholesale electricity that upset the entire Texas energy market and forced Just Energy and many others into bankruptcy.

For context, it is helpful to first understand the full extent of Texas' regulatory scheme governing electric utilities within the state. Texas' Public Utility Regulatory Act (PURA) created "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," which was designed as "a pervasive regulatory scheme intended to be the exclusive means" of regulating electric utilities within the state. The Public Utility Commission of Texas (PUCT), the state agency created pursuant to PURA, is given "ultimate authority over Texas' intrastate electric grid." PUCT is required by law to appoint an independent group to oversee the wholesale of electricity in the state, for which it granted authority to the Electric Reliability Council of Texas, Inc. (ERCOT). As part of its responsibilities, ERCOT is tasked with setting market-clearing prices, under the direction of PUCT.

From Feb. 13, 2021, through Feb. 20, 2021, Texas was struck by winter storm Uri, which caused many power plants in the state to shut down, significantly reducing the available supply of electricity. To account for the sudden disproportionate consumer demand for electricity and to prevent excess strain on the Texas power grid, ERCOT ordered rolling blackouts. Further, under the direction of PUCT, ERCOT raised energy prices to the maximum cap of $9,000 per megawatt hour for more than 80 consecutive hours, holding that price for a full 33 hours after the PUCT orders had been rescinded.

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