More than 100 insurers have filed a subrogation lawsuit against Texas' electric grid operator and dozens of utilities in state court seeking compensation for losses they incurred as a result of the loss of power during the 2021 polar vortex.
Last February, a polar vortex and winter storm Uri drove record freezing temperatures which caused significant issues across the Electric Reliability Council of Texas, Inc's (ERCOT's) power network and utilities in Texas. The level of demand for power was unable to be met by any of the sources at ERCOT's disposal.
The resulting power outages for millions of energy customers meant no heating or power for days on end. This exacerbated the insurance market claims burden, particularly from freezing and burst pipes, and costs related to business interruption. At least 57 people died "in connection with the extreme weather and resulting blackouts."
This filing of a subrogation lawsuit by 131 of the insurers that were active in Texas at the time, was filed in state court in Austin, and charges that ERCOT, which was the sole manager and independent system operator of the electric power grid, and the power generating companies that supply the energy, were aware of the potential risk of loss, but failed to take any action to prevent losses.
According to the lawsuit, although ERCOT and other defendants could have been prepared for the storm, they failed to do so, and ERCOT's own projections for the 2020-2021 winter season anticipated that the state "would be thrown into the highest state of emergency" if an extreme weather event occurred.
Estimations put the industry losses at around $13 to $15 billion. This would not be the only case of subrogation by an electric company. In 2019, California power producer PG&E Corp. revealed that it had reached an $11 billion settlement with entities representing about 85% of insurance subrogation claims relating to 2017 and 2018 wildfires. That case revealed that, if decided in the industry's favor, the payouts can be meaningful and make a positive difference to the markets that shouldered large shares of those losses last year.
Editor's Note: Texas is expected to suffer from some more cold spells throughout the remainder of the 2021-2022 winter season. ERCOT claims that it is in a far better position to continue delivering electricity throughout whatever this winter season can deal to the Lonestar State.