Texas Insurers Sue ERCOT, Power Generators Over Damages From Deep Freeze

By Jim Sams | January 10, 2022

A lawsuit filed by 131 insurance companies alleges that negligence by the organization that operates Texas’ electrical grid and power companies caused electricity outages during the deep freeze last February that burst pipes and shut down power across the state and led to more than $5 billion in insurance claims.

The group of carriers filed the lawsuit on Dec. 29 at the 126th District Court in Austin against the Electric Reliability Council of Texas and 41 Texas power-generation companies.

“Although Winter Storm Uri was a state-wide event, the storm divided the (power generation companies) into two categories: those who were prepared and those who were not,” the lawsuit says. “During Texas’ hour of greatest need, approximately 51.4% of the power generation in ERCOT was online despite the weather event, while the rest of the PGCs failed, with many PGCs unable to reliably generate electricity for days.”

The winter freeze brought temperatures to record lows throughout Texas from Feb. 15 to 19 last year. Some 4.5 million utility customers lost power and 246 residents were killed. Economic damages were estimated to range from $80 billion to $130 billion, according to a report by the Texas State Comptroller’s office.

Insurers reported 500,196 claims related to the winter storm, as of July 31, 2021, according to a Texas Department of Insurance report. The average incurred loss for residential property was about $15,800, and for commercial property policies about $126,900.

The lawsuit alleges that insurance carriers were forced to pay claims for water damage, living expenses and business interruption costs because of ERCOT and the generating companies’ negligence and gross negligence.

Albert Betts Jr.

Albert Betts Jr., executive director of the Insurance Council of Texas, said is unaware of any lawsuit involving such a large number of insurance companies having ever been filed before in Texas. He said the only litigation of similar scope that he can think of are the lawsuits that insurance carriers filed against the Pacific Gas & Electric Co. over damages caused by wildfires sparked by the utility’s transmission equipment.

Betts said he was aware that something was afoot before the lawsuit was filed, but the Insurance Council was not involved in the litigation.

“Obviously, these companies felt that give the scope of the loss involved here, the failure of the utility community was a concern,” Betts said during an interview Friday. “They felt strongly enough to file this lawsuit.”

The lawsuit says that the Texas Supreme Court has held that common law in the state allows damaged parties to file suit against electricity-generation companies that fail to supply electricity and the state legislaturehas confirmed that duty in the state Utility Code.

The lawsuit says ERCOT documents reveal the organization had planned for a peak load of only 69,592 megawatts during the winter of 2020-21, even though the peak winter load three years previously nearly reached that amount and demand was projected to increase by 1,000 to 3,000 megawatts per year. ERCOT told customers before the winter freeze descended on Texas that it had adequate supply, yet its own planning documents revealed that system-wide blackouts would be required if the previous peak loads were surpassed.

The suit says ERCOT and power generators “should have increased electrical production capacity in Texas in the days and weeks leading up to the February 2021 cold weather event, but consciously chose not to do so.”

What’s more, ERCOT failed to recognize that its emergency response program, which paid large industrial users to go offline during periods when electricity is in high demand, actually worsened a fuel shortage that caused many of the power outages, the lawsuit says. Facilities that refine natural gas and pump it through pipelines participated in the program. When demand began to outstrip supply those locations shut down, exacerbating the problem, the suit says.

To make matters even worse, power generators failed to identify the natural gas that they purchased from suppliers as “critical load,” a designation that would have ensured deliveries continued after ERCOT ordered utilities to begin rotating outages, the lawsuit says.

The insurers say that it is impossible to apportion the damages caused by the winter freeze among the defendants. Each shared in the negligence that caused the power outages.

Defendants were aware of the risk of harm to plaintiffs’ insured yet exhibited conscious indifference to the rights of plaintiff’s insureds, which proximately caused the damage complained of herein,” the suit concludes.

About the photo: Workers repair a power line in Austin, Texas, U.S., on Thursday, Feb. 18, 2021. Bloomberg file photo.

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