By: Alexandria Bowles
Texas’ electricity supply is controlled by the Electric Reliability Council of Texas (“ERCOT”), which is said to have underestimated the need for supply of electricity during the recent historic winter storm.[1] ERCOT has been put on notice in the past about the underwhelming ability of the Texas power grid to respond to high demand situations and drastic weather changes. [2] In 2011, the Federal Energy Regulatory Commission wrote a report on the failing of the electric system, including the failure to winterize equipment; however, ERCOT, nor any other entity, took the steps to prepare to winterize, or actually winterize, the equipment needed to provide electricity. [3] Therefore, ERCOT should have known that the supply for energy during the storm would be greater than anything experienced before and that advance actions would need to have been taken to prepare. [4]
Citizens of Texas are now suing ERCOT under claims that the electricity provider should have been proactive and more prepared for the winter storm chaos.[5] According to the Austin American Statesmen, one of the lawsuits “cites a clause in the Texas Constitution that states ‘no person’s property shall be taken, damaged or destroyed for or applied to public use without adequate compensation being made’”[6] Citizens are claiming that since they were without power for several days, or in a series of rolling blackouts that lasted for hours to days at a time, the entity took their property without compensation and are requesting monetary damages.[7] Another claim being brought is that ERCOT was negligent and/or grossly negligent in its handling of the unprecedented situation.[8] The claims rely on the facts that the winter storm was foreseeable and that advance and preparatory action could have been taken to prevent the blackouts, or at least a portion of them.
In defense to the lawsuits, there is speculation that ERCOT might claim sovereign immunity. [9] In past lawsuits against ERCOT, specifically in the Panda Power lawsuit that alleged ERCOT filed false reports, a lower Texas court found that ERCOT had the ability to claim sovereign immunity “which protects government entities from being sued for carrying out its governmental functions.”[10] However, ERCOT is unique in a sense that it “is a private nonprofit but works under direct oversight by the Public Utility Commission of Texas”.[11] A recent development in the Panda Power case occurred on March 19, 2021 in which the Texas Supreme Court refused to answer whether ERCOT has the ability to claim sovereign immunity based on grounds of a lack of jurisdiction.[12] This leaves open the question as to whether ERCOT will be able to successfully claim the sovereign immunity privilege in answering the lawsuits stemming from the winter storm. If ERCOT is able to claim this privilege, the options for recovery by consumers will be greatly diminished. However, if ERCOT is unable to claim this privilege, there would be no cap on damage recovery amounts, which would be very important in the cases where loss of life occurred.
Another major defense that ERCOT could claim would be that the winter storm was an act of God, and therefore any damages and electric grid failures would fall under the force majeure clause of contracts between the provider and consumer.[13] This will be an important legal claim to follow in the lawsuits that have been brought against ERCOT. Any reliance on force majeure could allow ERCOT to claim that they were not able to provide electricity, and therefore not liable for any damages that occurred as a lack thereof. There will also likely be many force majeure claims brought on behalf of contracting parties to ERCOT, with differing views of whether the contracts required action by the contracting parties, and if so what action.[14]
The big question going into these lawsuits is how much of the burden, and liability, will fall on ERCOT and how much will fall on consumers? Will consumers be left to foot the bill to try to provide heat for themselves and their family during freezing temperatures? Or will the burden be on ERCOT who attempted to provide energy during a historic winter storm that impacted every part of the energy sector?
The decisions that will be made by the Texas District Court in Harris county in terms of the validity of the complaints, the acceptance of any defenses by ERCOT, and the outcome of liability will be very important for those operating in the utility and energy sectors. Since the Texas electric system is unique, and deregulated, many contracting parties will be anxiously awaiting any judicial decisions as ERCOT “manages the price of power and also balances supply and demand in the grid”.[15] The decisions will impact consumers, utility providers, and private corporations operating with governmental support.[16] In addition, it will be very interesting to see how utility providers will draft future contracts that they enter into with consumers to provide services, based on any judicial decisions that arise from this winter storm chaos.
[1] See Pippa Stevens, How the Texas power grid failed and what could stop it from happening again, CNBC (Feb. 17, 2021), https://www.cnbc.com/2021/02/17/how-the-texas-power-grid-failed-and-what-could-stop-it-from-happening-again.html (“The severity of the storm was underestimated, including by ERCOT.”).
[2] See Amy Sherman, Fact-check: Had Texas state leaders been warned of blackouts for years?, Austin Am. Statesman (Feb. 22, 2021), https://www.statesman.com/story/news/politics/politifact/2021/02/22/texas-power-outage-ercot-grid-beto-orourke/4540833001/ (“there had been years of warning by energy experts about the state’s power system following cold weather in February 2011”).
[3] See id. (stating that a 357-page report was written regarding previous power outages in Texas due to weather).
[4] Id.
[5] See John C. Moritz, Lawsuit accuses ERCOT, power companies ‘consciously’ allowing mass outages during storm, Austin Am. Statesman (Feb. 22, 2021), https://www.statesman.com/story/news/local/texas/state-bureau/2021/02/20/lawsuits-filed-against-ercot-electric-providers-over-storm-outages/4522358001/ (“This cold weather event and its effects on the Texas energy grid were neither unprecedented, nor unexpected, nor unforeseen”).
[6] Id.
[7] Id.
[8] See Stefan Stevenson, Lawsuits against ERCOT allege warnings about Texas grid issues ‘consciously ignored’, Star Tel. (Feb. 22, 2021), https://www.star-telegram.com/news/state/texas/article249386215.html (“The resulting widespread property damage from blackouts was caused by their [ERCOT] negligence and gross negligence”).
[9] John C. Moritz, supra note 5 (“It was not immediately clear if the organization can or will make a claim of ‘sovereign immunity’ meaning it cannot be sued without the Legislature’s consent.”).
[10] Jody Barr, ERCOT could be immune from winter storm lawsuits, KXAN (Feb. 26, 2021), https://www.kxan.com/investigations/ercot-could-be-immune-from-winter-storm-lawsuits/.
[11] Id.
[12] Chuck Lindell, Can ERCOT be sued? Texas Supreme Court declines to answer, Austin Am. Statesman (Mar. 19, 2021), https://www.statesman.com/story/news/2021/03/19/texas-supreme-court-declines-say-if-ercot-can-be-sued/4764392001/.
[13] Ellen M. Gilmer, Can You Sue When the Power Goes Out? Liability Shields Explained, Bloomberg L. (Feb. 17, 2021), https://news.bloomberglaw.com/environment-and-energy/my-electricitys-out-can-i-take-someone-to-court-for-damages.
[14] Kirstin Gibbs, Texas Blackouts Show Vulnerabilities of Electric Grid; Federal and State Investigations Announced, JD Supra (Feb. 18, 2021), https://www.jdsupra.com/legalnews/texas-blackouts-show-vulnerabilities-of-2146100/.
[15] Darla Cameron, How Texas’ power grid works, TX Tribune (Feb. 25, 2021), https://www.texastribune.org/2021/02/25/texas-power-grid-ercot-puc-greg-abbott/#:~:text=Electricity%20generators%2C%20such%20as%20NRG,it%20to%20residents%20and%20businesses.
[16] See Amy Sherman, supra note 2 (“A recent letter from the North American Electric Reliability Corporation to ERCOT warns that projected near-future generating capacity is insufficient to meet growth in demand and points to the likelihood of significant shortfalls in electricity generation and delivery”); see also Jody Barr, supra note 10 (stating that people are filing lawsuits against ERCOT and regional electricity providers and that decision “could be a real problem in terms of who they may be liable for.”).
