Elec. Reliability Council of Tex., Inc. v. Just Energy Tex., L.P. (In re Just Energy Grp., Inc.)

57 F.4th 241

In the Matter of Just Energy Group, Incorporated; et al., Debtors,

ELECTRIC RELIABILITY COUNCIL OF TEXAS, INCORPORATED; Calpine Corporation; NRG Energy, Incorporated, Appellants,

v.JUST ENERGY TEXAS, L.P.; Fulcrum Retail Energy, L.L.C. ; Hudson Energy Services, L.L.C.; Just Energy Texas I Corporation ; Just Energy Group, Incorporated, Appellees.

No. 22-20424

United States Court of Appeals, Fifth Circuit.

FILED January 5, 2023

Jamil Alibhai, Kevin M. Lippman, Munsch Hardt Kopf & Harr, P.C., Dallas, TX, Nicholas Barrows Bacarisse, Rachel Anne Ekery, Wallace B. Jefferson, Alexander Dubose & Jefferson, L.L.P., Austin, TX, for Appellant Electric Reliability Council of Texas, Incorporated.

Aaron Michael Streett, Elisabeth Catherine Butler, George H. Fibbe, Attorney, Jonathan Mark Little, Baker Botts, L.L.P., Houston, TX, for Appellant Calpine Corporation.

Luckey McDowell, Ian Roberts, Shearman & Sterling, L.L.P., Dallas, TX, for Appellant NRG Energy, Incorporated.

James C. Tecce, Lindsay Weber, Quinn Emanuel Urquhart & Sullivan, L.L.P., New York, NY, John Franklin Bash, Quinn Emanuel Urquhart & Sullivan, L.L.P., Austin, TX, for Appellees.

Autumn Dawn Highsmith, Office of the Attorney General, Bankruptcy and Collections, Dallas, TX, Layla Milligan, Assistant Attorney General, Office of the Attorney General for the State of Texas Bankruptcy & Collections, Austin, TX, for Amicus Curiae Public Utility Commission of Texas.

Before Southwick, Graves, and Engelhardt, Circuit Judges.

Kurt D. Engelhardt, Circuit Judge:

This direct appeal from the bankruptcy court arises out of the soaring electricity prices charged during week-long winter storm Uri, which incapacitated most of Texas's power-generating facilities. The bankruptcy court's refusal to abstain under Burford was in error. Accordingly, we VACATE and REMAND.

I.

Texas's Public Utility Regulatory Act ("PURA") "establish[es] 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." TEX. UTIL. CODE § 31.001(a); accord §§ 31.001(c), 39.001(a). Through PURA, the Texas legislature "created a pervasive regulatory scheme intended to be the exclusive means" of regulating electric utilities in Texas. In re Entergy Corp. , 142 S.W.3d 316, 322 (Tex. 2004). The Public Utility Commission of Texas ("PUCT") is the agency charged with overseeing and implementing PURA. This includes ultimate authority over Texas's intrastate electric grid, see TEX. UTIL. CODE § 39.151(d), which is independent of the two larger national grids.

The PUCT is required by statute to certify an independent organization to manage the wholesale electricity market and ensure the Texas electric grid's adequacy and reliability. TEX. UTIL. CODE §§ 39.151(b), (d). It put appellant Electric Reliability Council of Texas, Inc. ("ERCOT") to the task. ERCOT NODAL PROTOCOLS § 1.2(1).¹ ERCOT determines market-clearing prices unless otherwise directed by the PUCT, its state regulator. 16 TEX. ADMIN. CODE § 25.501(a). ERCOT is the sole buyer to each seller, and the sole seller to each buyer, of all energy in Texas. ERCOT NODAL PROTOCOLS § 1.2(4).

According to the operative complaint, during winter storm Uri, which devastated Texas residents from February 13, 2021, through February 20, 2021, ERCOT and the PUCT allegedly "intervened in the market for wholesale electricity by setting prices [that were] orders of magnitude higher than what market forces would ordinarily produce." Energy supply plummeted as power plants were forced offline by the storm's impact. As demand for electricity outpaced supply, ERCOT ordered "load" to be "shed" to reduce strain on the power grid – i.e. , it ordered cuts in electricity consumption in the form of forced outages. In response, the PUCT issued orders (the "PUCT orders") directing ERCOT to ensure that load shed was accounted for in ERCOT's scarcity pricing signals.

The complaint alleges that these orders were "invalid" because they were not tied "to a fact-based analysis of the current market conditions" and failed to "explain the reasoning behind [the PUCT's] determination that energy prices should be set at the high-system-wide offer cap." It further provides that ERCOT, following the PUCT orders, "impermissibly" priced the energy at the maximum of $9,000 per megawatt hour ("MWh") – the cap – for more than eighty consecutive hours. ERCOT then allegedly left this price in place for 33 hours after the PUCT rescinded its orders. Once ERCOT allowed normal supply-and-demand forces to set the price of power on February 19, the trading price plummeted within one hour from $9,000/MWh to $27/MWh, later falling to less than $5/MWh.

Appellee Just Energy, a retail energy provider, purports that after the storm, ERCOT "floored" it with invoices totaling approximately $335 million for the operating days of February 13, 2021, through February 20, 2021. Lacking sufficient liquidity to satisfy the invoices on its own, Just Energy commenced bankruptcy proceedings in Canada and filed this Chapter 15 case in the United States Bankruptcy Court for the Southern District of Texas, Houston Division.² Under protest, Just Energy paid ERCOT the monies owed, disputing "no less than $274 million of the invoiced amounts."

Just Energy challenges its invoice obligations "because, among other things, the Invoices are based on the PUCT Orders, which themselves are unlawful under the [Administrative Procedure Act] and the [Public Utility Regulatory Act], and otherwise are inconsistent with the ERCOT Protocols and the [Standard Form Market Participant Agreement]."³ In the alternative, Just Energy contends that "even if the PUCT Orders are valid, [it] still has valid claims because ERCOT had no basis to apply the $9,000/MWh price after 11:55 p.m. on February 17, 2021."⁴ ERCOT moved to dismiss the complaint, arguing that each count "attempts to obtain judicial repricing of energy charges" and "implicate[s] the filed rate doctrine, the PUCT's rulemaking, ERCOT's sovereign immunity,⁵ and Burford abstention."

At a hearing on the motion, the court dismissed all counts but four: (1) "Declaration Of Preference Under [Companies' Creditors Arrangement Act ("CCAA"), a Canadian law] (§ 36.1), [Bankruptcy and Insolvency Act ("BIA"), a Canadian law] (§ 95) – Invoice Obligations"; (2) "Declaration Of Preference Under CCAA (§ 36.1), BIA (§ 95) – Prepetition Transfers"; (3) "Recovering Proceeds If Transferred – CCAA (§ 36.1), BIA (§ 98)"; and (4) turnover under 11 U.S.C. § 542(a). The first three of these counts seek a declaratory judgment that ERCOT's Uri-related invoices and transfers paid to satisfy them are void as preferences because they were incurred or made in favor of ERCOT over Just Energy's other creditors. The fourth count alleges that property transferred to satisfy the invoices is subject to turnover. ERCOT timely appealed the court's partial dismissal.

II.

This Court "review[s] an abstention ruling for abuse of discretion, but ‘[it] review[s] de novo whether the requirements of a particular abstention doctrine are satisfied.’ " Stratta v. Roe , 961 F.3d 340, 356 (5th Cir. 2020) (applying this standard to Burford abstention) (quoting Aransas Project v. Shaw , 775 F.3d 641, 648 (5th Cir. 2014) ). "Because the exercise of discretion must fit within the specific limits prescribed by the particular abstention doctrine invoked, a court necessarily abuses its discretion when it abstains out-side of the doctrine's strictures." Id. (quoting Webb v. B.C. Rogers Poultry, Inc. , 174 F.3d 697, 701 (5th Cir. 1999) ) (alteration and internal quotation marks omitted).

At the hearing on ERCOT's motion to dismiss, the bankruptcy court stated that it would strike various language like, "subject to reduction only after a finding by the Court concerning a legally appropriate energy price per megawatt hour as proven by expert testimony, if appropriate, but in no event greater than the price per megawatt hour in effect after market forces took effect." By striking this and similar language sprinkled throughout the complaint, the court concluded, without explanation, that "th[is] change solves the [abstention] problem." We disagree. Abstention under Burford⁶ is proper because: (1) the doctrine applies in the bankruptcy context; and (2) four of the five Burford factors counsel in favor of abstention.

A. Section 1334(c) and Burford

The parties dispute whether Burford applies in the bankruptcy context. Just Energy argues that § 1334(c)⁷ subsumes Burford abstention, so Burford itself is inapplicable. Further, relying on our decision in Firefighters' Ret. Sys. v. Citco Grp. Ltd. , 796 F.3d 520 (5th Cir. 2015), it argues that 28 U.S.C. § 1334(c) bars abstention where, as here, the case arises under Chapter 15. ERCOT disclaims bankruptcy-specific abstention under § 1334(c) and instead urges that abstention is proper under Burford , a separate abstention doctrine distinct from § 1334(c).

We have already decided that § 1334(c) does not subsume Burford abstention. See Wilson v. Valley Elec. Membership Corp. , 8 F.3d 311, 315 (5th Cir. 1993). In Wilson , a Chapter 11 bankruptcy case, we reviewed a district court's abstention under Burford as opposed to under § 1334(c). Id. at 313 (observing district court's jurisdiction under § 1334 ). There, we acknowledged bankruptcy abstention under § 1334(c), yet applied Burford . Id. at 315. Had § 1334(c) "subsumed" Burford , we would not have had appellate jurisdiction to review the court's decision, see 28 U.S.C. § 1334(d) (stating that any decision to abstain or not to abstain made under § 1334(c) is not reviewable by our court), nor would we have applied the five Burford -specific factors. See Wilson , 8 F.3d at 313-16. Our application of Burford in the § 1334 context demonstrates that the two types of abstention are distinct and stand alone. See also Webb v. B.C. Rogers Poultry, Inc. , ...