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5th Circ. Remands Just Energy Ch. 15 Suit Over Power Prices

Jan 6, 2023

The Fifth Circuit Court of Appeals remanded an energy pricing dispute between Chapter 15 debtor Just Energy Group Inc. and Texas regulators back to the bankruptcy court there, saying the lower court should have abstained from handling the fight in favor of a local state court.

In its Thursday opinion, a three-judge panel said the bankruptcy court should have left the dispute between Just Energy and the Electric Reliability Council of Texas to a local court in the Lone Star State under the Burford doctrine, which requires abstention when an issue concerns a state's regulatory interests.

Just Energy commenced an adversary action in its Chapter 15 case against ERCOT over $335 million in invoices charged to the retail supplier during a February 2021 winter storm that crippled Texas' electricity grid for more than a week, seeking refunds for the amounts paid by the debtor.

"Only one court is permitted to answer Just Energy's $335-million-dollar question: Travis County district court," the Fifth Circuit said in its opinion.

"Texas's legal scheme explicitly addresses the question Just Energy seeks to have answered. So, for this court to inject itself into the matter would be exactly the type of interference Burford abstention exists to avoid," the opinion said. "Because the answer central to Just Energy's claims can only be found in a specific state forum, this last factor weighs in favor of abstention."

The Burford doctrine created a framework under which federal courts can and should abstain from exercising their jurisdiction, the opinion said. The Fifth Circuit said the dispute between Just Energy and ERCOT meets four of the five factors under Burford, including the fact that it involves unsettled state law, the state's interest in the litigation, the state's need for coherent policy in the area, and whether there is a dedicated state forum for adjudication of disputes.

The last factor turned on the fact that ERCOT policies require disputes over invoices to be brought before the regulator before they can be appealed to the Public Utility Commission of Texas and then to the Travis County district court, the opinion said.

Not abstaining from the dispute could disrupt the state's regulatory scheme with respect to power generation and transmission, the panel said, and the questions at issue have great interest to Texas.

The remand order directs the bankruptcy court to determine the appropriate trajectory of the dispute after it abstains from adjudicating it.

Representatives for the parties did not immediately respond late Friday to requests for comment.

Just Energy began insolvency proceedings in Canada in March 2021. It was one of several Texas energy suppliers that filed for bankruptcy protection in the wake of Winter Storm Uri, during which ERCOT implemented orders that increased the price of electricity to the wholesale maximum of $9,000 per megawatt hour.

Once PUCT's directives to max out energy prices were lifted at the end of the storm, ERCOT prices dropped to about $27 per megawatt hour, according to court papers.

Just Energy was granted Chapter 15 recognition of its Canadian proceedings in Texas bankruptcy court by U.S. Bankruptcy Judge Marvin Isgur in April 2021, and in March 2022 it filed an adversary action challenging $274 million in bills from ERCOT, claiming the council's storm pricing violated state laws and its contracts with Just Energy.

The bankruptcy court dismissed some claims from the complaint, but also certified a direct appeal to the Fifth Circuit, acknowledging that many of Just Energy's allegations and its request for relief arguably violate the so-called "filed-rate doctrine," which holds that only regulators can modify rates in electricity tariffs and contracts they've approved and put on file, according to court records.

During oral arguments before the Fifth Circuit in November, Just Energy said it was unable to bring its claims in state court because of its Chapter 15 filing, and that abstention under Burford wasn't permissible in a Chapter 15 case.

U.S. Circuit Judges Leslie H. Southwick, James E. Graves Jr. and Kurt D. Engelhardt sat on the panel for the Fifth Circuit.

ERCOT is represented by Jamil Alibhai and Kevin M. Lippman of Munsch Hardt Kopf & Harr PC, and Wallace B. Jefferson, Nicholas Bacarisse and Rachel A. Ekery of Alexander Dubose & Jefferson LLP.

Just Energy is represented by James C. Tecce, Lindsay M. Weber and John Bash of Quinn Emanuel Urquhart & Sullivan LLP.

The case is Electric Reliability Council of Texas Inc. et al. v. Just Energy LP et al., case number 22-20424, in the U.S. Court of Appeals for the Fifth Circuit.

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