The Texas Court of Appeals, Third District, recently dismissed an appeal of a district court ruling filed by former retail electric provider HWY 3 MHP, LLC, finding that ERCOT is not a governmental unit, and therefore an appeal of district court's order on jurisdiction cannot be heard (Case 03-14-00303-CV).

ERCOT and HWY 3 MHP are involved in litigation relating to HWY 3 MHP's 2008 default at ERCOT and drop of customers to POLR.

Of relevance to the instant ruling, HWY 3 MHP has made various counter-claims against ERCOT at the district court level. ERCOT argued that the Public Utility Commission has exclusive jurisdiction over the claims presented by HWY 3 and that HWY 3 failed to exhaust its administrative remedies prior to seeking relief from the district court.

The district court agreed, dismissing HWY 3 MHP's counter-claims.

While normally only a final judgment would be appealable, HWY 3 MHP sought to appeal the district court's dismissal citing procedure which allows a party to appeal the interlocutory order of a trial court that, “grants or denies a plea to the jurisdiction by a governmental unit.”

The appeals court was thus presented with the question of whether ERCOT constitutes a governmental unit

The appeals court concluded that ERCOT is not a governmental unit, and that it could not thus hear HWY 3 MHP's appeal.

Citing recent case law finding that charter schools are governmental entities, HWY 3 MHP had argued in its appeal that ERCOT is a governmental unit due to the status conferred upon it by PURA

As summarized by the appeal court, "In particular, HWY 3 insists that ERCOT derives its status and authority from laws enacted by the legislature under the constitution and, as support, points to various provisions of the Utilities Code. For example, HWY 3 notes that ERCOT was certified by the Commission under the Code as an independent organization charged with ensuring that buyers and sellers have access to the electric market and ensuring that the electric network is reliable and adequate."

The appeals court, however, distinguished ERCOT's standing versus the recently decided charter school case.

"[T]here are other circumstances in which the legislature exercises great regulatory oversight over organizations and also bestows power on them, but those organizations do not necessarily qualify as governmental units," the appeals court said.

"As a preliminary matter, we note that the legislature’s decision to designate an entity like ERCOT as an 'independent organization' rather than as an agency or by a similar title is some support for the idea that the legislature did not intend for ERCOT to be a governmental unit," the appeals court said.

Regarding the precedent set for charter schools, the appeals court noted that, "key to the supreme court’s conclusion were the facts that charter schools are statutorily classified as part of the public school system and that although they are privately owned, they are the functional equivalent of public school districts, which by statute qualify as governmental units."

"Stated differently, charter schools operate parallel to and alternatively to governmental units. In this case, ERCOT is not fulfilling the same role that a government agency is performing and has not been statutorily defined as being a part of a governmental unit," the appeals court said.

"Moreover, the supreme court in LTTS Charter Schools determined that open enrollment charter schools should be treated as governmental units because they are given taxpayer money to use when accomplishing the public goal of educating children and are statutorily entitled to services that public schools receive. In this case, ERCOT is not statutorily entitled to any services or benefits that a typical governmental unit might receive," the appeals court said.

"Perhaps more importantly, ERCOT does not receive funding from the State; on the contrary, ERCOT charges 'wholesale buyers and sellers a system administration fee' to cover its expenses," the appeals court noted.

"Finally, as mentioned above, the supreme court also explained that open-enrollment charter schools should be deemed governmental units because various statutes expressly equated the schools with governmental entities. Although two statutes allow ERCOT to receive the benefit of computer-network security from a governmental agency if it so desires and to participate in an agency tasked with determining this State’s response to drought concerns neither of those statutes equates ERCOT with a government entity. In fact, the provision allowing ERCOT to take advantage of network security expressly states that the service is being offered to entities that are not state agencies, which is some indication that the legislature did not intend for ERCOT to qualify as a governmental unit," the appeals court said.

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