July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
With power markets now regional, the Pacific Northwest ponders responsibility for blackouts and outages.
The Limited Liability Agreement ensures that the RTO West cannot sue the [RTO West utilities] for their ordinary negligence, limits damages for gross negligence and willful conduct, and prevents the RTO West from recouping damages for its own willful or negligent conduct," say the Industrial Customers of Northwest Utilities and Direct Service Industries in their joint filing in the RTO West proceedings at the Federal Energy Regulatory Commission (FERC).
"RTO West should not be permitted to become the liability sugar-daddy for those Transmission Owners executing the [transmission operating agreement] and the Liability Agreement," says Deseret Generation and Transmission Cooperative Inc., which owns transmission assets within the contemplated RTO West system but was kept out of the negotiations leading up to the "Stage 1" proposal.
As electric retail choice gained steam until last year, power outage-related settlements seemed to do so, as well. Consider a few events of 1999, such as when Pacific Gas & Electric willingly forked out $8.3 million to settle some 6,600 claims following a power outage, or when Commonwealth Edison paid out $2.5 million to compensate customers for such losses as spoiled food. Today, as many transmission issues migrate from utilities to the developing regional transmission organizations, it's no wonder that liability is receiving attention in the debate over how to design the regional transmission organizations (RTOs) that will control the electric grid, dispatch generation resources, and order blackouts or brownouts if so required.
Such is the case with RTO West and the saga of its formation and pending approval. The Washington Utilities and Transportation Commission, in its comments on that RTO's proposal before the FERC (), underscored the importance of the issue, albeit without officially taking a stand:
"[W]e believe [liability and insurance issues] affect the willingness of transmission owners to agree to participate in the RTO and, consequently, we believe it is important for the Commission to clarify its view of whether these provisions are appropriate and acceptable in the formation of an RTO."
Considering the sometimes tepid "willingness" of utilities to participate in RTOs, does that mean that the FERC should go easy on an RTO and its transmission owners with respect to liability? In fact, notes one protester in the case, when ordering the formation of RTOs, FERC did not even address liability limitations agreements. Nevertheless, the issue has arisen, for example, in the RTO West proceeding, in which two groups representing large end-users have expressed concern over the proposed RTO's liability provisions as they are currently written.
A $150 Million Liability Cap?
Under the RTO West proposal and its accompanying "Agreement Limiting Liability Among RTO West Participants," transmission, generation, and distribution owners would not be liable to the RTO for end-use customer claims except in cases of gross negligence or intentional misconduct, "in which case the Owner shall not be liable for any special, indirect, incidental, consequential, punitive or exemplary damages." The agreement also protects the owner from liability for damages, such as lost revenues.