Bad Litigation Proves No Substitute for Sound Energy Policy

CPS customers will now repay storm fuel costs through a monthly surcharge that is expected to stay on their bills for over two decades.

AUSTIN, Texas (Texas Insider Report) — For most Texans, three things reign supreme: Football, Oil & Gas, and the Rule of Law. Early last month, a Bexar County judge ruled on two of the three, ordering San Antonio's CPS Energy to pay nearly $400 million to honor natural gas contracts it agreed to during Winter Storm Uri in 2021. 

The message was clear: CPS Energy must pay its bills just like everyone else, but the ruling goes well beyond CPS’s unpaid invoices.

The San Antonio utility had asked the court to rewrite a foundational principle of American Law – the rule that a buyer cannot walk away from a contract it signed.

CPS had argued that it could, but Bexar County District Judge Laura Salinas correctly disagreed.
 
Salinas found that CPS Energy had breached its contracts with two subsidiaries of Dallas-based Energy Transfer LP, Houston Pipe Line Company and Oasis Pipeline, and ruled that the prices charged were consistent with prevailing market prices and with prices paid by other buyers for gas delivered during the February 2021 storm. Judge Salinas ruled that Houston Pipe Line and Oasis Pipeline charged market prices, that the contracts were enforceable, and that CPS breached them by failing to pay the contracted amounts.

The two subsidiaries had invoiced CPS about $309 million; the utility paid nearly $52 million and withheld the rest.

Rejecting the central defense, Salinas concluded that the contracts “are not unconscionable and must be enforced.”

After a 12-day bench trial, Judge Salinas awarded Energy Transfer close to $400 million, covering the unpaid gas, $119 million in prejudgment interest, and more than $9.3 million in attorneys' fees.
 
While the storm produced one of the most volatile energy markets in Texas history, the question in front of the court was not what the gas cost. It was whether a utility could accept delivery at negotiated prices, burn the gas to keep its customers warm, and then return years later to ask a judge to relieve it of the bill it had agreed to pay.
 
Salinas said no, and in doing so, held CPS to the ordinary rule that a party cannot pocket the benefits of a deal while asking a court to erase its costs. 
 
If courts begin relieving sophisticated parties of obligations they voluntarily entered into simply because they later regret the agreed price to pay, the legal certainty that underpins Texas energy markets would begin to erode. As one of the nation's largest municipally owned utilities, CPS was not a homeowner blindsided by a surprise charge – it is a repeat player in Texas's wholesale energy markets that knew exactly what it was buying, and at what price.

Said Energy Transfer spokesperson Vicki Anderson Granado, “CPS Energy must pay its bills just like everyone else. The bills sent to CPS were for their many natural gas purchases, and reflected the terms agreed to at that time based on market conditions. We had no choice but to file suit to get CPS Energy to honor its contracts.”

Texas became the country's leading energy producer because suppliers and customers rely on their agreements being enforced as written, not because contracts turn optional when a market seizes up. Loosen those rules, and the next emergency gets harder to manage because no supplier would reasonably want to deliver into a crisis without confidence it will be paid.

The trial record explains how CPS ended up exposed, as Energy Transfer argued that the utility leaned on short-term market purchases instead of locking in gas at fixed prices before the freeze. The court agreed CPS had time to prepare, and instead rode the spot market into the storm.

Being a municipal provider did not put the utility above its own signature – and fighting the signed contract has cost San Antonio ratepayers dearly.

CPS customers will now repay storm fuel costs through a monthly surcharge that is expected to stay on their bills for over two decades.

The interest and fees alone run to roughly $128 million, close to half of the disputed principal. And, every additional round of appeals by CPS will add to the tab that lands – in the end – on the people of Bexar County.

CPS Energy says it is weighing an appeal. But before its lawyers commit more of the public's money to a losing case, the utility owes its customers a plainer answer: it made a bad bet on the spot market, lost, and should pay the bill it ran up in their name.