News & Updates

ERCOT has predicted potential electric generation shortages beginning in the summer of 2013.  There are a number of ways to address these shortages, and one recently proposed by the PUC is to manipulate the current wholesale generation pricing structure in an effort to induce more generators to enter the market.  To that end, the PUC has recently proposed new and amended rules that would incrementally raise the price cap for electric generation from the current cap of $3,000 per megawatt/hour to $4,500 per megawatt/hour on August 1, 2012, $5,000 on June 1, 2013, $7,000 on June 1, 2014, and $9,000 on June 1, 2015.  These proposals were published in the April 27, 2012 edition of the Texas Register as an amendment to rule 25.505 and a new rule 25.508.  The PUC has asked that any comments on these proposals be submitted by May 29, 2012 on the proposed new rule, and by June 1, 2012 on the proposed amendment.

Here’s a link to an interesting article about various technologies for large scale storage of electric power, and they have nothing to do with batteries.  http://www.economist.com/node/21548495

The Public Utility Commission of Texas recently adopted amendments to its rules providing that electric power transactions used to charge electric storage devices will be considered wholesale transactions of electric power.  The use of large scale electric storage equipment is an emerging technology which has the potential to radically change the electric power markets.  These potential technologies include not only batteries but other types of power storage.  Traditionally, one of the major limiting factors of the electric power market is that electric power cannot be stored in large quantities.  This means that the electric generation, transmission, and distribution systems must be designed, built, and operated to meet electric power demand on an immediate basis, and further, must be designed, built, operated to meet power demands at the peak points of power consumption.  The use of large scale storage facilities would radically change all that by allowing generating facilities to produce power at off peak times for storage and later use during peak times, greatly reducing the need for electric power facilities to be designed to meet peak points of consumption.  Since electric storage facilities don’t generate power, but simply store it for later discharge to end users, questions arose over how to treat the power purchase transactions used to charge the storage facilities.  By deciding to treat those transactions as wholesale power transactions, the PUC has hopefully removed a barrier to the use of large scale storage facilities in ERCOT.  Whether and when those large scale storage facilities are technically feasible remains to be seen.

Here’s a link to a recent article from the Dallas Business Journal noting that Texas is by far the leading wind energy producing state in the US, accounting for nearly one quarter of the nation’s wind energy capacity.  http://www.bizjournals.com/dallas/news/2012/04/13/report-texas-still-tops-in-wind.html

The Fifth Circuit Court of Appeals will hear arguments on April 5 regarding the constitutionality of Texas’ Open Meetings Act, or “TOMA”, in a case styled as Asgeirsson v. Abbott.  TOMA requires that, with limited exceptions, meetings of Texas governmental bodies, such as a city council, be open to the public, and that all business be conducted in an open meeting.  If members of the governmental body meet outside of a public meeting to discuss public business, that can be a violation of TOMA.  Further, the act imposes criminal penalties if a member of a governmental body discusses public business in a situation other than an open meeting of the governmental body.  Several members of city councils of various Texas cities have sued the Texas Attorney General alleging that TOMA violates the First Amendment because it limits their ability to speak freely and openly about public business.  Essentially, they argue that because of the threat of criminal penalties, the council members are restrained from speaking about public business outside of a meeting of the governmental body, and that imposes an unconstitutional prior restraint on their First Amendment rights.  The U.S. District Court for the Western District of Texas found that TOMA is constitutional; the Fifth Circuit will hear oral arguments on April 5, 2012.

On Friday, March 2, 2012, the Texas Supreme Court withdrew its original opinion in the much publicized Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC case, which deals with deciding whether a pipeline in Texas is a common carrier and therefore has the power of eminent domain.

In its original opinion, the Supreme Court held that a pipeline would not be a common carrier with the power of eminent domain simply by declaring itself to be a common carrier and by checking a box on a Railroad Commission form.  I discussed that opinion more fully in an earlier post, found here.  After that decision, Denbury filed a motion for rehearing, and many amicus briefs were filed, both supporting and opposing the Court’s decision.

In issuing the new opinion, the Court denied Denbury’s motion for rehearing, effectively affirming its earlier decision, but made some changes to the original opinion which might be significant.  First, since the Denbury case deals with a carbon dioxide pipeline, the Supreme Court in the new opinion added language limiting its holding to CO₂ pipelines.  It will be interesting to see how that language affects future litigation regarding other types of pipelines, because regardless of the Court’s limiting language, it seems the rationale and logic of its decision applies to most any other type of pipeline.

Second, the Supreme Court appears to have fixed a problem raised by many of the amicus briefs filed on behalf of pipelines, in that the original Denbury opinion required that the pipeline demonstrate, at or before the time common-carrier status is challenged, a reasonable probability that it would serve the public.  The problem caused by this requirement was that the common carrier status of a pipeline would be challenged by a landowner long before the pipeline was constructed, and certainly long before the pipeline had signed any contracts with customers.  Courts hearing those challenges were not allowing pipelines to offer evidence of future contracts they might have with customers, which of course presented a very difficult issue of proof for a pipeline seeking to establish its common carrier status.  The Supreme Court in the new opinion now requires that the pipeline show that “a reasonable probability must exist that the pipeline will at some point after construction serve the public. . . .”  That change should permit the pipeline to offer evidence of contracts with customers it expects to enter into in the future to establish its common carrier status.

The full impact of this decision, particularly with regard to pipelines carrying natural gas and other petroleum products, remains to be seen.

ERCOT has just released a report predicting that electric generation reserves will be adequate this summer, but barely so.  Temperatures are expected to be higher than normal this summer, but not as high as last summer.  Assuming that to be the case, and assuming that there are not an unexpected number of generator outages, the current capacity should be sufficient.  Here’s a link to the ERCOT press release:  http://www.ercot.com/news/press_releases/show/489.

On Friday, February 24, 2012, the Texas Supreme Court issued its long awaited decision in The Edwards Aquifer Authority v. Day case in which the Court determined that land ownership includes an interest in groundwater in place that cannot be taken for public use without adequate compensation being paid.  That case involves the Edwards Aquifer Authority, which regulates groundwater production from the Edwards Aquifer, which covers much of central Texas.  The Authority required that a permit be issued before a water well could be drilled and water produced, except for certain wells for limited domestic and livestock use.  Under the Authority’s permit scheme, the amount of water that could be produced was determined by the historical water usage of the landowner during a certain narrow period of time.

The Authority argued in the Supreme Court that a landowner did not own the water underneath his land, at least not until he brought it to the surface and actually took possession of it.  The Supreme Court disagreed, holding that a landowner does indeed have a constitutionally protected ownership interest in water in place underneath his land, even though under the “rule of capture” a neighboring landowner could drill a well on his property and lawfully drain water from the land.  Further, the Court held that a restriction on a landowner’s production of water based solely on his historical use could deprive him of his property rights in the water, requiring the payment of compensation.  However, the Court clearly held that the State has the power to regulate groundwater production, but in doing so, it must consider factors other than historical use.  The Court did not decide that the landowner’s water rights here had been improperly taken, but instead sent the case back to the trial court for more proceedings in light of the Court’s decision.

Three principles are apparent in this decision.  First, for the first time the Court has determined that groundwater in place is a constitutionally protected property right.  Second, notwithstanding the first principle, the State may regulate groundwater production.  And third, though the State may regulate groundwater production, it must do so in a way that does not deprive a landowner of his property rights, as the Edwards Aquifer regulatory scheme may have done.

This decision could have a significant impact on the many landowners within the Edwards Aquifer Authority who were denied water production permits because they couldn’t prove the required historical use.  The Court’s decision here could mean that they now have a takings claim against the Authority.

Former Texas Tech University football coach Mike Leach has learned a lesson about contracting with a Texas governmental entity.  Several recent news stories noted that last Friday, February 17, 2012, the Texas Supreme Court refused to consider the appeal brought by Leach of the dismissal of his breach of contract claim against the university.  The case demonstrates the risks assumed, often unknowingly, by those who enter into contracts with governmental entities in Texas.

After Leach was fired by Tech, he sued the university claiming, among other things, that the university had breached his employment contract and owed him damages.  Without addressing the merits of Leach’s claim, the court of appeals dismissed his breach of contract claim on the ground that the university, as a state governmental institution, was protected from such suits by the doctrine of sovereign immunity.  This common law principle holds that unless immunity has been waived, a breach of contract suit for damages against a governmental unit is barred.  This rule applies notwithstanding that the private party may have fully performed the contract and the governmental unit may have received all the benefits of performance, and  is simply refusing to pay.  The Texas legislature has waived sovereign immunity in certain circumstances so that private parties can sue for damages for breach of contract.  For example, when a private party provides goods or services to a local governmental entity, chapter 271 of the Local Government Code permits the private party to sue for damages for breach of contract (but the private party may not sue for consequential damages).  And chapter 2260 of the Government Code provides a process by which contractors can sue the State for breach of contract damages, but recovery is limited to $250,000 without further action by the Legislature.  Further, while these statutes permit recovery of damages in certain situations where a private entity contracts to provide goods or services to the governmental entity, recovery would be much more difficult where the governmental entity contracted to provide goods or services to the private party (such as where a private entity agrees to purchase water from a governmental unit).

Anyone contracting with a state governmental entity, be it a city, a county, a university, the state, or some other governmental unit, should take care before the contract is signed to consider the effects of sovereign immunity in the event the governmental unit fails to fully perform the contract, and should structure the contract to maximize the potential for recovery should the governmental unit not perform.

Though the permitting phase of the CREZ high voltage transmission lines intended to bring electric power from wind generators into the ERCOT load centers is now essentially over, the Texas PUC expects a need for even more transmission lines in the future.  During the most recent open meeting on February 10, 2012 the Commissioners noted that more transmission lines will be needed to bring power into urban areas, as it becomes more difficult to build generating units close to the urban load centers.  The Commissioners noted that lines built near and into urban areas may be more complicated to permit than the CREZ lines, most of which are planned for largely rural areas.  The PUC is required to determine that a line is needed before it can be permitted, and also must determine the route of the line in a contested case involving all landowners affected by a proposed transmission line.  James R. Bailey, PLLC has published a “white paper” designed to provide general information for a Texas landowner when he/she learns that his property may be impacted by a proposed transmission line.  You can download your copy here.