When a Texas utility tried to walk away from natural-gas agreements after the 2021 winter storm, a state judge sent an important message: Contracts matter.
The case involved CPS Energy, the municipal utility serving San Antonio, and pipeline companies owned by Energy Transfer. During Winter Storm Uri, CPS Energy relied heavily on short-term gas purchases rather than securing enough long-term supply. When demand surged and gas prices spiked, the utility sought to escape contracts it had signed before the storm.
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In July, a Texas judge rejected that effort, ruling that the agreements were enforceable and “not unconscionable.” The court ordered CPS Energy to pay nearly $400 million, including unpaid gas charges, interest, and attorneys’ fees.
The ruling illustrates a principle policymakers should remember as Americans confront rising energy costs: Affordable energy requires investment, and investment requires confidence that the rules will be followed.
That confidence is increasingly important. Last month, Pew reported that 56% of U.S. adults surveyed were very concerned about gas prices, up from 32% at the start of the year. Another 54% expressed the same concern about electricity prices.
Those concerns are legitimate. But the answer is not to scapegoat energy suppliers or punish them for prices determined by supply and demand. It is to make sure America has enough energy — and enough infrastructure to produce, transport, refine, and deliver it.
The war with Iran has exposed vulnerabilities in oil production and refining. Refineries are producing 10% less fuel since the conflict began, despite operating at essentially full capacity, pushing gas prices higher.
The United States has not built a new refinery since the first year of the Carter administration, while California has closed four in the past decade. For years, climate advocates have pinned their hopes on the promise of a “rapid transition” away from fossil fuels. That vision keeps running into a stubborn fact: refined petroleum products remain essential to industrial and consumer life. Until that changes, the U.S. needs reliable domestic capacity, not policies that make it harder to maintain or expand it.
Natural gas faces a similar infrastructure problem. Demand jumped 49% from 2013 to 2024, while pipeline capacity rose only 26% and storage remained essentially flat. A University of Houston report estimates that more than $1 trillion in capital investment will be needed to meet long-term natural-gas demand driven by AI data centers.
But that investment will not materialize automatically. Energy infrastructure is enormously expensive, takes years to build and depends on rules investors can reasonably expect to remain in place.
That is what makes the CPS Energy case so instructive. If utilities and energy companies cannot rely on contracts negotiated in good faith, why would anyone make the billions of dollars of long-term investments needed to expand the energy system? The judge’s ruling reaffirmed a basic principle of market stability: parties must live with the bargains they make.
Unfortunately, other states are moving in the opposite direction. In 2022, California Gov. Gavin Newsom accused oil refiners of price gouging. The following year, the state enacted a law authorizing penalties for excessive refiner profits. California later halted enforcement without ever clearly defining what constituted an excessive profit.
But the uncertainty itself had consequences. Phillips 66 and Valero shuttered refineries, eliminating roughly 20% of the state’s refining capacity. California now imports roughly 40% of its gasoline and 35% of its jet-fuel and diesel demand. When global supplies tightened last spring, fuel prices there climbed to roughly $2 above the national average.
The lesson is straightforward: when policymakers make investment more difficult, consumers pay.
The same concern applies to New York and Vermont’s “climate superfund” laws, which aim to saddle energy companies with billions in retroactive penalties for meeting global demand for energy products.
The Supreme Court should address that problem when it hears the Suncor case on Oct. 5 and rule that states and cities cannot reach beyond their borders and drive up energy costs in the rest of the country and world.
The Iran war has reminded us that energy security cannot be taken for granted. America has abundant oil and natural gas. What it lacks is sufficient infrastructure — and, increasingly, the legal and regulatory stability necessary to build it.
The CPS Energy case points to the answer. If we want affordable and reliable energy, policymakers should create an environment where companies can invest and infrastructure can expand.
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What won’t work is scapegoating the companies that supply America’s energy, imposing unpredictable penalties or creating regulatory regimes that make the next refinery, pipeline, or power plant harder to build.
Affordable energy begins with an energy system capable of producing enough of it.
Michael Toth is director of research at the Civitas Institute at the University of Texas.
