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Subrogation Alert: Rolling Brownouts and ERCOT

The past few days have been trying ones for Texans suffering due to the loss of electric power in their homes and business.  Already we have received several subrogation assignments arising from claims involving burst water and sprinkler piping.  Other claims involve damage due to lack of heat to inventories and other property.

The question presented is whether a subrogated property carrier has any recourse against those responsible for the brownout, either or both the electrical utility or the Electric Reliability Council of Texas, Inc (ERCOT).

The question is timely and interesting. The answer is a big MAYBE at this time. Here is why.

Electric utilities in Texas operate through and under publicly filed tariffs.  A tariff is viewed as a public contract between the utility and the people it serves.  An electric utility such as ONCOR operates under a tariff which by its express terms eliminates any liability of ONCOR for ordinary negligence causing property damage or personal injury; however, by the tariff ONCOR retains liability in the event of gross negligence or willful misconduct.  ONCOR would remain liable in the event it caused harm intentionally.

The first question raised then is whether ONCOR’s conduct and its role regarding the rolling brownouts constitutes intentional, grossly negligent or willful misconduct.  Certainly the decision to supply or not to supply electric power would be considered an intentional act.  By no means does it make any sense to say that electricity is provided or not negligently.

Perhaps ONCOR would argue that the extreme and sustained cold weather experienced in Texas the past week was an unprecedented Act of God or something akin to a force majeure, relieving ONCOR of any legal responsibility for property damages caused by the brownouts.  Texas experienced severe weather in 2011 and during that time attention was directed to the limitations of the grid servicing the state.  It would be difficult for anyone following 2011 to argue that the threat of extreme cold or hot weather could overtax the existing grid.  Rather, the threat was well-recognized and the limits of the grid were quantified, the vulnerability of the grid to extreme weather events is well-understood. 

The fact is that the recognized limitations of the grid have not been corrected since 2011 despite the well-recognized threat.  There may be many contributing factors to this state of affairs but it would be stretching the meaning of words to describe the conduct of decision makers involved as nothing more than mere negligence.  The definitions of gross negligence and willful wanton conduct under Texas law include knowingly acting or failing to act in the face of a recognized extreme threat which could cause great harm. 

ONCOR might also point to ERCOT’s role in directing the rolling brownouts in effect arguing that it did only what it was directed to do by ERCOT.  ERCOT is a private entity, although in a recent Dallas Court of Appeals decision, in ERCOT v. Panda Power, the Court of Appeals held that ERCOT enjoyed sovereign immunity of sorts.  That decision is currently on appeal to the Texas Supreme Court, which has heard arguments. A decision could be rendered at any time.  At the moment then ERCOT enjoys immunity but a contrary decision from the Texas Supreme Court could change all that.

I would suggest that the facts of individual losses occurring during the brownouts be examined carefully because there may be a sound factual and legal basis to seek recovery from those responsible for turning off the electricity which caused the damages. 

The deep freeze of 2011 should have been instructive for those who design and construct buildings in Texas and losses arising from the loss of electricity, extreme and sustained low temperatures, involving frozen pipes, and water damage should be analyzed to see whether the design and construction means and methods were adequate and complied with building and design codes. 

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