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ERCOT and Other Liability Issues Arising from the February 2021 Freeze

March 3, 2021 Coverage News

Texas’ power grid operator is facing lawsuits and resignations in the wake of a severe winter storm, which forced the Electric Reliability Council of Texas (“ERCOT”) to enact rolling blackouts to prevent a system-wide failure.  According to ERCOT, the Texas power grid had been just "seconds or minutes" away from a complete and catastrophic failure as power demand increased and generators fell offline. As a result, while some believe we should praise the ERCOT operators who saved Texas from an absolute total blackout, the mounting litigation being filed against ERCOT and the various electric providers claims otherwise.

Suits filed by the family of 11-year-old Cristian Pineda, which is seeking $100 million in damages, and 95-year-old Doyle Austin’s family, allege ERCOT could have avoided the rolling blackouts caused by the winter storm with better planning.  In their complaints, the parties assert negligence and gross negligence causes of action, alleging ERCOT failed to exercise reasonable care in estimating and planning the amount of power needed to weather the storm. They failed to take corrective actions when their projections showed insufficient supply to meet demand and failure to make reasonable efforts to prevent service interruptions.

Additionally, the suits assert negligence and gross negligence causes of action against the respective electric service providers, which allege they failed to take reasonable corrective actions to prevent cold-weather failures in their generation, transmission, and distribution facilities.

According to the complaints, ERCOT; which manages the flow of electric power to more than 26 million customers in Texas, representing 90% of the state's electric load, allegedly received warning the winter storm would jeopardize the integrity of its electrical network if reasonable measures were not taken. Moreover, the complaints allege the effects of the cold weather event on the Texas energy grid were foreseeable.  Following a 1989 cold weather event, the Texas Public Utilities Commission determined anti-freeze procedures were necessary and frequent inspections would help to avert power loss during cold weather. Also, a joint report from the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation recommended more winterization for energy generators back in 2011.

A common misconception about the entire situation is ERCOT does not own any of the generators in Texas.  For the most part, the generators of electric power in the state are independent entities and Texas has yet to enact specific laws which require some level of winterization for privately-owned power generators.  As a result, some of the key legal issues will focus on ERCOT’s authority to enforce standards for generators and whether or not ERCOT should have sounded the alarm for more winterization preparation.  Therefore, in the wake of the historic cold weather event, claimants must first establish what legal duties ERCOT and the electric service providers owe and then prove how the alleged breaches caused their injuries and damages. 

Another pending issue is the Texas Supreme Court is expected to decide this year whether ERCOT, a private corporation, is entitled to sovereign immunity. The upcoming decision arises after the Dallas Court of Appeals maintained ERCOT had immunity from a suit filed by Dallas-based utility Panda Power over allegations of flawed energy projections in 2016. Those against ERCOT contend the Texas legislature expressly stopped short of extending governmental immunity; however, ERCOT contends they are an arm of the government that performs essential functions. If the Texas Supreme Court upholds the immunity, then the focus of the lawsuits will switch directions. If the defense is rejected, then there will be an onslaught of litigation. Not only will the ruling impact any litigation from Winter Storm Uri, but such a ruling will likely influence future litigation against other governmental entities who typically invoke the sovereign immunity defense.

While the focus is currently on the main culprits, after any major event, claimants and their lawyers always start to look for any potential downstream culpable party. These parties likely include apartment complexes, insurance agents, and homeowners associations for their perceived role in the devastation.

Concerning apartment complexes and homeowner associations, the focus will be on an alleged failure to take any action to protect residents, which allowed pipes to bust, common elements to be damaged, and potentially led to personal injuries. The claims against insurance agents will stem from an alleged failure to procure and/or failure to advise theory. No immediate defenses are barring these types of lawsuits.

The Thompson Coe team has experience handling claims arising from property damage, and allegations electric providers failed to act reasonably and in compliance with their service agreements and utility tariffs.

If you have questions, we are here to help guide businesses and carriers through the legal process.