Background

Energy Transfer LP brought suit against CPS Energy, San Antonio's municipally-owned utility, seeking payment on natural gas invoices arising from spot market transactions executed during Winter Storm Uri in February 2021. The invoices totaled $263 million in unpaid principal for gas delivered under fixed-price contracts negotiated during the crisis period when spot prices spiked. CPS Energy declined payment and asserted unconscionability as an affirmative defense, arguing the contract terms were commercially unreasonable given the extraordinary pricing conditions during the storm.

The Dispute

The central legal issue turned on whether unconscionability doctrine permits a sophisticated commercial party to avoid performance under fixed-price spot contracts executed during a market crisis. CPS Energy argued that the extreme pricing conditions during Winter Storm Uri—when natural gas spot prices reached unprecedented levels due to supply disruptions and demand surges—rendered the contracts unconscionable. Energy Transfer countered that the parties negotiated at arm's length during known market conditions, that CPS Energy possessed full information regarding spot pricing at the time of contracting, and that sophisticated commercial entities cannot invoke unconscionability to escape unfavorable market bets.

The Court's Ruling

The Bexar County District Court rejected CPS Energy's unconscionability defense and entered judgment for Energy Transfer in the full amount sought. The court held that sophisticated parties with equal bargaining power who negotiate fixed-price contracts during known market volatility cannot later avoid performance based on unconscionability. The judgment included $263 million in unpaid principal on the invoices, $119 million in contract interest that had accrued since early 2021 under the parties' agreement, and $9.3 million in attorney fees. The court's ruling reinforces the principle that commercial parties bear the risk of market movements under fixed-price arrangements, even during extraordinary pricing events, where both parties possessed material information regarding market conditions at the time of contracting.

Implications for Energy Transactions

The $393 million judgment represents the largest reported Uri gas-pricing award to date. The ruling signals that Texas courts will enforce fixed-price natural gas contracts negotiated during market volatility where sophisticated parties transacted with full knowledge of prevailing conditions, foreclosing unconscionability as an avenue for avoiding performance based solely on adverse price movements. For utilities, marketers, and producers engaged in spot market transactions, the decision underscores the importance of risk assessment during crisis periods and the limited availability of equitable defenses for sophisticated commercial parties seeking to avoid performance under fixed-price arrangements negotiated during known market disruptions.