First Court of Appeals Dismisses Winter Uri Claims Against Wholesale Power Generators | McGuireWoods LLP

In February 2021, Winter Storm Uri hit Texas, causing a sharp spike in electricity demand that could not be satisfied by available generation resources, resulting in statewide blackouts. Commercial and industrial as well as residential retail customers across Texas sued hundreds of entities involved in the Texas electricity market for damages sustained due to the resulting electrical outages, including wholesale power generators.

To handle these cases, a multidistrict litigation (MDL) court was instituted to address pretrial matters. The wholesale power generators filed motions to dismiss under Texas Rule of Civil Procedure 91a. After conducting a two-day hearing, the pretrial MDL court signed orders granting in part and denying in part the Rule 91a motions. Specifically, the MDL court dismissed the causes of action against the wholesale power generators for tortious interference with contract, civil conspiracy, concert of action and indivisible injury, but allowed the claims and assertions for negligence, gross negligence, negligent undertaking and nuisance to proceed. The wholesale power generators later sought mandamus relief from the denial in part of their Rule 91a motions.

On Dec. 14, 2023, the First Court of Appeals granted the wholesale power generators’ request for mandamus relief. With respect to the retail customers’ claims for negligence, gross negligence and nuisance, the Court of Appeals found in In Re Luminant Generation Co. LLC that wholesale power generators do not have a duty to retail customers and retail customers cannot assert claims based in negligence against the wholesale power generators. In particular, since the Texas Legislature deregulated the retail market for electricity in January 2002, wholesale power generators cannot enter into agreements with retail customers to sell them electricity. Rather, the Legislature has given the Electric Reliability Council of Texas (ERCOT) oversight and enforcement authority to ensure a reliable and safe electrical grid and that electricity production is accurately accounted for among the generators.

The court summarized the structure as follows: “[W]holesale power generators solely produce ‘electricity that is intended to be sold at wholesale’ to retail electric providers, who in turn sell the electricity directly to retail customers.” Based on this, 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.”

The retail customers urged the court to create a new duty not recognized by statute. The court rejected this argument, holding that (1) ERCOT, not the wholesale power generators, manages the delivery of electricity; and (2) blackouts during a winter storm are foreseeable events. The court also found that creating a new duty between retail customers and wholesale power generators would “upend the carefully-crafted framework that the Legislature has implemented.”

Finally, the retail customers argued that the wholesale power generators should be liable for the “negligent performance . . . of voluntary undertakings.” Again, the court rejected this argument, finding that (1) a claim for negligent undertaking cannot be based on an alleged omission; and (2) the undertakings alleged by the retail customers — such as failing to winterize equipment — constitute omissions, not affirmative actions, by the wholesale power generators.

Next steps will likely include a request for hearing en banc of the Court of Appeals’ opinion, a request for reconsideration or a petition for review to the Texas Supreme Court.

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