OK folks. Today is UTILITY LAW 101. Back when I was in law school I had actually been hired prematurely to go to work for the regional energy company, ENTERGY, when I graduated. Accordingly I took some courses suited for that arena, including regulatory law and utility law. Fortunately (I guess anyway), I was hired away to go work for the good guys with the Plaintiff bar and rest is history…lol.
Anyway, much has passed since then with respect to how utilities work in Texas, and a number of other laws have passed in the interim, so I have had to go back to the books and see what the lay of the land is with respect to litigation associated to this major disaster.
The first question we always ask, is who can be sued and what types of cases are viable.
Unfortunately, right now it is a very fluid situation and there are very few definitive answers. Already some lawyers have filed cases of one sort or the other, and in my opinion somewhat hoping for the best.
Here are the two basic types of cases to look at and I will provide some more insight into both.
First, we have a ton of businesses and residences shut down for a week or longer with freezing and subfreezing weather, many with no heat source due to loss of power. As a result, pipes froze and water poured out everywhere when power was restored and/or the lines thawed out. Do we have viable cases there. YES.
1. We have direct action or first party cases for property damage. Most policies have some deductible but otherwise are good cases to have with a Public Adjuster and/or contractor who can do a workup on the case and maximize the value. Granted some can get amicably resolved with a carrier without a lawyer, but many times lawyers need to step in. Likewise, businesses not only have those types of damages, but also business interruption. Many of these policies have a certain period of time before they kick in but worth looking at due to the extended nature of the shutdown. We have a team of forensic analysists who work up these numbers. Surprisingly many business owners don’t even think to look for interruption coverage on their polices, they just want to get opened back up and make up for lost time.
2. The energy sector may or may not be viable here as third party defendants. Not only for the physical damages but consequential damages as well. All of this will be discussed further in more detail. ERCOT is the statewide (for the most part) energy provider in charge of operating the power grid under the auspices of the Texas Public Utility Commission (PUC) but is also a 501.C.4 non-profit. Texas has provided significant sovereign immunity to agencies and a restrictive tort claims cap on just about everything else. In addition, there is a Texas Charitable Immunity and Liability Act which may well provide another layer of protection to ERCOT. Adding yet another layer of problems is the fact that ERCOT only oversees the grid, not the process itself and cannot force providers to properly winterize their equipment.
Second, we have tragic loss of life. Those cases are going to face some difficulty under the present law, but there is certainly hope. Some of the issues involving immunity of ERCOT and the utility system is in front of the Texas Supreme Court at this very minute. See Electric Reliability Council of Texas, Inc. v. Panda Power Generation Infrastructure Fund, LLC D/B/A Panda Power Funds, et al. Essentially, the case stems from ERCOT’s urging Panda Power to build three power plants after the 2011 ice storm in Texas strained Texas electricity-generating capacity. Panda Power spent more than 2 billion dollars to build the power plants, however, the demand for increased electricity generation did not materialize. Panda sued ERCOT for $2.7 billion alleging fraud and breach of fiduciary duty. ERCOT claims that it has sovereign immunity. As such, the question before the Supreme Court is whether ERCOT, as a private nonprofit, is protected by sovereign immunity, which has yet to be determined.
Third, we have a myriad of other losses of all sorts directly or indirectly attributable to the widespread power outages. Each has to be looked at individually with the issues pointed out above and below to take into consideration.
UTILITY COMPANY “PROVIDER” LIABILITY
Assuming that ERCOT has immunity as a sovereign governmental agency, lack of liablity, Tort Claims damage cap or even charitable immunity 501c4 nonprofit status, that leaves us primarily with the energy providers to the grid.
There are a number of tricky issues here.
1. There are 600 energy providers in the grid. Which ones performed and which ones didn’t have to be segregated out.
2. There is no REQUIREMENT in the ERCOT grid for any particular energy provider to perform at any particular level, so there is an argument right off the bat that since they had no duty to perform at a specific level, they had no duty to perform at ANY level.
3. A major portion of the consumers out there have “choice” electric provider agreements. Those agreements usually have a standard provider contract with the customer with significant legal problems to address. One, they have arbitration clauses, which are generally enforced in Texas. Two, they almost all have a “force majeure” clause, which basically states the utility is NOT liable for damages associated to a wide variety of weather conditions or other “acts of God” (or Budha, Allah or any other omnipotent being).
4. There are rumblings that some providers couldn’t get fuel (usually natural gas) to operate their plants because:
a. The pressure in the lines allegedly fell below production limitations due problems in the distribution system (frozen lines, etc).
b. The price point SPIKED to hundreds of times higher rates than normal, likely causing some buyers to hold off. (not proven yet but likely).
c. The pressure in the lines may well have fell also from direct consumer demand for natural gas for direct heating of HVAC systems, fireplaces, etc.
PRICE GOUGING ALLEGATIONS
Many consumers have already been tagged for huge gas bills they ran up heating their homes through natural gas heaters/fireplaces, etc. This seems like it has the makings of some sort of consumer fraud and unfair price gouging claims attached to it. Arguably this falls under the Texas Deceptive Trade Practices Act but the State has prosecuted wholesale price gouging issues in the past, typically associated to inflated prices for gas in shortages, water in emergencies, etc.
The problem here is that most consumers entered into FLOATING contracts, in which there is no set price for the energy. The PUC used to strictly regulate prices and the energy providers had to petition for increases every year and it was reviewed on a performance basis. Some number of years ago, the State decided to “open up” the energy sector to free enterprise capitalism. This invited in our very own GRID system, ERCOT, rather than attaching to a more predictable and stable national grid with the Feds that every other state pretty much adheres to. As a consequence, most contracts with providers acknowledge that the price is whatever it is, and is passed on directly to the retail consumer. So when fuel got scarce, demand hit the roof, the price then went THROUGH the roof. Hundreds of times OVER the typical prices seen in a monthly cycle. Residents used to seeing a $100 monthly bill are getting $10,000 dollar bills, and that is just for the one week. Right now the Governor has egg on his face, as do most other state officials, so they are all saying that the providers cant force those payments right now, can’t disconnect, and can’t charge interest. How that all shakes out is anyone’s business.
In the meantime, while there are legal hurdles to those claims, there may be a solution at the end of the day that includes some benefits to those who litigate. It may be that the State steps in and makes some decision that impacts all that group and circumvents their ability to litigate. Again, a lot of political maneuvering will take place with this one.
Until we hear from the Supreme Court later in the year on the blanket immunity issues, our present plan is to help put together an MDL that addresses all these issues in an organized format. Our firm is working with several other leading firms in this arena to file pleadings that follow the legal analysis mentioned above and try to steer clear of the rocks.
Due to the massive nature of these proceedings and the number of involved parties plaintiff and defendant, we see this one somewhat like the BP Oil Spill. We were able to predict and maneuver over 99% of our 10,000 plus cases into a settlement on that one, probably much better than any other firm, by selectively analyzing with path was best for each type of case. There should not be a cookie cutter analysis to cases with this much complexity. There will be a large number of cases from the private sector, consumers, businesses, and even other governmental units. It is going to take some time to sort out, and a great deal of legal elbow grease.
VENUE ISSUES
As many of the providers are state of Texas entities, we are going to initially and primarily proceed on that format. We have a class actions department, and will likely file one or more class actions in the near future. Note that the Federal Class Action Fairness Act may apply, and if it does, those will all likely either be filed in Federal Court or see them removed to Federal Court. There are some arguments around it but again, time will tell.
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Brent W. Coon
Founder/CEO-Brent Coon & Associates National Law Firm
Board Certified-Civil Trial Law (National Board of Trial Advocacy)
Board Certified-Personal Injury Trial Law (Texas Board of Legal Specialization)
Board Certified-Civil PreTrial l Law (National Board of Trial Advocacy)
Charter & Founding Member-National Trial Lawyers Association
Past President-S.E. Texas Trial Lawyers Association
Past Director-Texas Trial Lawyers Association (1990-2010)
Wall Street Journal-Top 100 Lawyers
Forbes Magazine-Americas Top Lawyers
Texas Monthly-Top Lawyer of the Month
Clarence Darrow Award Recipient (Mass Torts Made Perfect)
Top Public Service Award Recipient (American Trial Lawyers Association)
Multi-Million Dollars Advocates Forum
Member: Texas College of the Bar Foundation
Executive Board-National Trial Lawyers Association
Executive Board-Environmental Trial Lawyers Association
Licensed with the Northern District, Southern District, Western District and Eastern District of Texas Federal Courts
Licensed with the 5th Circuit U.S. Court of Appeals and the United States Supreme Court
409.222.2222(w)
Brent@bcoonlaw.com; www.bcoonlaw.com
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