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News Analysis

With power markets now regional, the Pacific Northwest ponders responsibility for blackouts and outages.
Fortnightly Magazine - March 15 2001

While limiting the liability of transmission owners, the agreement does require the RTO to carry at least $150 million in "general liability" insurance and another $150 million for "separate errors and omissions coverage."

But the two end-user groups, the Industrial Customers of Northwest Utilities (ICNU) and the Direct Service Industries (DSI), do not seem to like that sort of language. In fact, they say that they were left out of the debate in the first place. "[U]nlike the majority of the RTO West filing ... the Liability Limitation Agreement was not reviewed by, nor does it reflect the concerns of, regional non-transmission owning parties, including end-use customers," the groups said in their joint protest, filed at the FERC Nov. 21. (The utilities on Dec. 5 responded that, "On the contrary, the Filing Utilities' proposal reflects a broad regional consensus, including transmission owners, state utility commissions, and most market participants... .")

Calling the liability protections "overbroad," ICNU and DSI are concerned that industrial customers' ability to file for damages will be severely hampered, or at least that no matter where it looks, assets will be protected from such suits. "FERC should not permit the filing utilities to completely insulate their assets, shifting potential liability away from themselves and on to end-use customers," it said in its protest.

But what about the $300 million in insurance that RTO West would be required to maintain? That's not enough, say ICNU and DSI. That's essentially putting a cap on liability. "Since the RTO will have limited assets, and be unable to receive indemnification from the [RTO West filing utilities], this liability insurance will provide a de facto cap on RTO West liability. Therefore, under the RTO West filing, end use customers claims will be capped at $150 million, regardless of their actual losses. ... "

Any damages that end-use customers will be unable to recover from either the RTO West or the Filing Utilities will be unrecoverable. These damages do not disappear but will have to be borne by end-use customers and increase their cost of doing business."

The filing utilities for RTO West, however, say they are only attempting to maintain the status quo, pointing out in their Dec. 5 response that the agreement adopts the essential terms of the Western Interconnected Systems Agreement, which has been in place for some 30 years. Responding to the critics, the utilities also point to the $300 million in liability insurance they would be required to maintain. But is that enough? The filing utilities concede that "the adequacy of such insurance, together with its cost to ratepayers, and potentially its availability, is dependent upon acceptance of the limitations on liability sought within this agreement." And accepting those limitations, the filing utilities say, is only to preserve "the status quo and price stability of the region."

Meanwhile, the Nevada Public Utilities Commission, which has intervened in the FERC docket, said in its Nov. 20 filing that RTO West should submit information demonstrating why the $150 million limitation is adequate. The PUC also asked for clarification on how the liability