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Can You Sue When the Power Goes Out? Liability Shields Explained

Feb. 17, 2021, 4:49 PM

Legal shields offer power companies broad protections for most weather-related blackouts. That may compound the frustrations for the millions of people left in the dark amid crippling winter power outages in Texas and beyond.

Threats of class action lawsuits and other challenges are cropping up on social media and message boards—mostly unfocused and hasty complaints targeting electric utilities and grid operators. Similar grievances tend to arise during every major electricity outage, but most never get traction offline.

Some advocates say greater accountability is needed as climate change brings more extreme storms to an oft-unprepared electric grid.

Here’s what to know about liability for power companies.

1. Why is it so hard to sue electric utilities for blackouts?

Most electricity providers have protections against power outage lawsuits written into contracts, known as tariffs, that govern how much customers pay for power.

Recent tariffs for Texas energy providers, for example, include standard provisions that companies aren’t liable for service interruptions that stem from “acts of God” or other events beyond their control. “In our business, we cannot guarantee an uninterruptable supply of power,” AEP Texas, one of the state’s utilities, says on its claims website.

Rules and legal precedent vary, but electric utilities typically face potential liability only in cases of gross negligence, willful misconduct, or other extreme scenarios. And courts are hesitant to assign liability for weather-related failures if a utility’s structure would leave customers footing the bill through their electricity rates, said Lewis and Clark Law School’s Melissa Powers, head of the Green Energy Institute.

Texas’ situation is further complicated by factors far beyond the utilities’ control that led to the outages: the state’s grid operator ordered rotating blackouts after an array of system failures caused shortfalls in power generation.

2. So have customers ever successfully sued over an outage?

Yes, but it’s rare.

Residential customers and businesses have occasionally banded together to demand compensation from local utilities after major storms caused prolonged blackouts. Nassau County, N.Y., residents, for example, filed a proposed class action against their power providers after Superstorm Sandy knocked out power in the region.

Personal injury firms promoting their services to people affected by power outages are upfront about the high legal bar for such claims, but stress that electric utilities may be held liable in certain circumstances.

In one 1992 case, Arkansas chicken farmers prevailed after arguing that a utility didn’t diligently investigate system defects that led to a power outage after a severe storm. More than 9,000 chickens died in the heat.

3. Do customers have other options?

Regulators, economists, and legal scholars have considered whether utilities should face more accountability for blackouts—through looser liability shields or mandated reimbursements to customers.

After the North American “derecho” hit the East Coast in June 2012, Timothy J. Brennan, an economics professor and a senior fellow at Resources for the Future, studied whether power companies should be subject to product liability rules, giving utilities greater incentive to avoid outages. But he concluded that the approach wouldn’t improve upon the regulatory structure already in place.

Customers can raise complaints about their utility’s performance with their local public service commission, which in turn can order site-specific improvements or broader grid resilience efforts, University of Richmond energy law professor Joel B. Eisen said.

4. Where does climate change fit in the legal equation?

With climate change prompting more severe weather worldwide, a growing legal movement aims to hold companies accountable for falling asleep at the switch.

A so-called climate resilience claim—a largely untested outgrowth of more traditional litigation over extreme weather—would push to hold companies liable for failing to respond to the consequences of climate change.

Though the Texas outages likely wouldn’t be the right fit for such a claim because outside power generation failures caused the energy shortfalls, litigants could try the approach in other circumstances where a utility’s own assets have failed, said Romany M. Webb, a senior fellow at Columbia University’s Sabin Center for Climate Change Law.

“This experience is going to prompt renewed interest in looking at how energy system operators, both utilities but also the bulk grid operators, are thinking about and planning for climate change,” she said.

To contact the reporter on this story: Ellen M. Gilmer in Washington at egilmer@bloomberglaw.com

To contact the editor responsible for this story: Chuck McCutcheon at cmccutcheon@bloombergindustry.com

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