Court of Appeals Dismisses Claims Against Power Generators Arising from Winter Storm Uri

by James F. Parker

On December 14, 2023, the First Court of Appeals in Houston granted a writ of mandamus ordering the district court in the Winter Storm Uri Multi-District Litigation to dismiss the suits brought by thousands of retail electricity customers against Texas power generators arising from the loss of electricity during the February 2021 freeze.

In the course of the winter storm, an estimated 4.5 million Texas homes and businesses lost power. In what has colloquially come to be referred to as a “grid failure,” power generators did not generate enough electricity to meet demand. The result was that ERCOT required transmission and distribution utilities to cut power to customers to prevent catastrophic damage to the grid.

Alleging that they were injured by the power generators’ failure to provide sufficient electricity to the grid, thousands of retail electric customers sued hundreds of Texas power generators. The customers asserted claims for negligence, gross negligence, negligent undertaking, nuisance, tortious interference with a contract, and civil conspiracy resulting from the power generators’ actions. Specifically, the customers claimed that the power generators’ failures to (1) weatherize and maintain their equipment to prevent the loss of power, (2) assure that they had adequately trained staff, (3) provide reserve power to the grid, and (4) provide electricity to the grid were actionable under Texas common law.

The various cases were consolidated in a single multidistrict litigation case in Houston, in which the power generators filed a motion to dismiss on the basis that the plaintiffs did not assert a cause of action that had any basis in Texas law. The trial court agreed in part and dismissed the claims for tortious interference with a contract and conspiracy, but left the negligence, gross negligence, negligent undertaking, and nuisance claims to proceed. The power generators applied to the court of appeals for a writ of mandamus to instruct the trial court to dismiss those remaining claims.

The court of appeals agreed with the power generators.

As stated by the court, “the initial controlling question before us is whether the wholesale power generators owed a duty to the retail customers to continuously supply them with electricity under the factual allegations presented.” The court answered that question in the negative.

Historically, electric utilities in Texas were authorized by law to operate as regulated, vertically integrated monopolies. In any geographic area, a single, vertically integrated electric utility was authorized to provide electricity to every retail customer. Under that regime, an electric utility controlled every principal component of how electricity reached each retail customer in its area: (1) generation of electrical power, (2) the transmission of that power on high-voltage lines over long distances, and (3) the distribution of electricity over shorter distances to the ultimate retail customer.

But in 2002, the Texas Legislature dismantled that structure and implemented a competitive retail market for electricity. Under this new regime, every retail customer that is not in a city that operates its own utility chooses an electric provider, with rates set by competition. This required the non-municipal vertically integrated electric utilities to “unbundle” into separate units: (1) a power-generation company, (2) a retail electric provider, and (3) a transmission and distribution utility. The end result is that non-municipal power generators have no contracts with retail customers to provide them with electricity. Instead, the power generators generate power that is put into the grid and distributed by entirely different entities.

It is worth observing that Lloyd Gosselink attorneys represented two Municipal-Owned Utilities (“MOUs”) in this litigation, both of which were dismissed nearly a year ago. While those MOUs made similar arguments to the other power generators, they also asserted jurisdictional arguments that were available only to MOUs. On the basis of those jurisdictional arguments and the unique procedural advantages that those arguments provided, the plaintiffs opted to dismiss the MOUs represented by Lloyd Gosselink at a very early stage in the case.

As to the remaining power generators, the court concluded that “Texas does not currently recognize a legal duty owed by wholesale power generators to retail customers to provide continuous electricity to the electric grid, and ultimately to the retail customers.” Moreover, the court concluded that it should not recognize a new legal duty, as the plaintiffs requested.

With no legal duty that was breached, the plaintiffs were left with no claim they could pursue against the power generators. The court therefore ordered the trial court to dismiss the plaintiffs’ claims against the power generators.

The court’ s full opinion may be found at In re Luminant Generation Co., No. 01-23-00097-CV, 2023 WL 8630982 (Tex. App.—Houston [1st Dist.] Dec. 14, 2023).

James Parker is a Principal in the Firm’s Litigation, Appellate, Business Services, and Employment Law Practice Groups. If you would like additional information or have questions related to this article or other matters, please contact James at 512.322.5878 or jparker@lglawfirm.com.