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Breaking Legal Developments

08-02-2004

Published by:
Peter A. Lynch, Esq.
of Cozen O'Connor
palynch@cozen.com
http://www.cozen.com

 

EXECUTIVE SUMMARY:      This weekly newsletter covers:

  1. New Jersey Permits Limited Class Action For Power Outages To Proceed


(1) NEW JERSEY PERMITS LIMITED CLASS ACTION FOR POWER OUTAGES TO PROCEED

In Madeline Muse, et al v. GPU, Inc., et al., Case No. 1-2491-03T3, the Superior Court of New Jersey, Appellate Division permitted a limited class action to for power outages to proceed. Plaintiffs, electrical utility customers who experienced power outages on the 4th of July 1999 weekend brought a class action for damages for failure to provide service. They also asserted claims for consumer fraud, negligence and breach of contract. This was an interlocutory appeal on leave granted from the order of decertification of plaintiffs' class and the denial of their motion to admit expert testimony on class-wide damages. The Appellate Division affirmed decertification of the class and the rejection of the proffered proof of class-wide damages. However it remanded for certification of a more limited class of customers whose outages directly resulted from alleged negligence in delaying the replacement of transformers at the Red Bank substation.

Plaintiffs alleged damages resulting from electrical power interruptions, deficiencies or failure, and blackouts without notice, during a heat wave from July 4-10, 1999. The Tzannetakis plaintiffs specified damages including spoilage of food; damage to computers, appliances and other electronic equipment; inconvenience, emotional and physical pain and suffering and loss of use of electrically-powered equipment; loss of business income; and other consequential and incidental damages including the cost of alternative sources of power.

Planning engineer Andrew Zulkosky for GPU said it provided electrical service to about one million customers in two non-contiguous regions of New Jersey, separated by a territory served by Public Service Electric & Gas Company (PSE&G). The North Region includes all or part of Sussex, Morris, Passaic, Essex, Warren, Hunterdon, Union, Somerset and Mercer Counties, and the Central Region includes all or part of Monmouth, Middlesex, Ocean, Mercer and Burlington Counties.

The electrical infrastructure has three main levels: the interstate transmission system (originating at the power plants), the subtransmission system (here, two regions, functioning to reduce voltage and circulate power through a series of looped substations), and local distribution systems (here, more than 1000 circuits, functioning to further reduce voltage and distribute power radially to a particular geographic area). Voltage is again reduced at over 160,000 pole-top or pad-mounted transformers in the two energy regions before power is fed from each to a small number of customers (usually three to ten).

All levels of the electrical infrastructure are equipped with devices to protect individuals from harm and to protect equipment from damage; examples are circuit breakers, protective relays and fuses. Some of the devices operate automatically and some are used by system operators to avoid overloads when necessary to protect the system. Planning engineers attempt to forecast system conditions several years ahead to assure sufficient capacity. In a typical instance of widespread service interruptions, usually caused by severe weather, there are numerous "trouble locations" where those interruptions occur.

According to the Board, during the week of July 4, 1999 hot weather combined with the holiday created unprecedented demand for power. Defendants concede that during the relevant period about 250,000 of its customers lost power for periods ranging from a few minutes to more than fifteen hours. Defendants attribute these interruptions to at least forty-four distinct sources, including equipment failures, deliberate circuit shut-offs to permit access for maintenance or fire fighting, the triggering of protective devices, lightning and automobile accidents.

The parties did not dispute the Law Division judge's synopsis of the power outages:

The evidence before the court, which is voluminous and will only be set forth here as a sampling, indicates that the first significant power outage occurred on July 4, 1999, with a "phase" or burn-out of a line in the Mantoloking substation which interrupted power to the customers served by that substation. Within the next 12-hour period, line repairs were required in Manasquan, which required the system operators to de-energize the system while the work was done. At the Cedar Bridge substation, power had to be interrupted for work to be performed on a messenger wire. On the evening of July 6, 1999, the operation of protective devices at the Manasquan substation affected 1,500 customers.

In the late evening hours of July 5, 1999, a bushing on the Bank 2 transformer at the Red Bank substation failed. The loss of this transformer, coupled with the unusually high demand occasioned by the heat, placed additional stress on the other transformers at the substation. On July 6, 1999, the Bank 1 transformer began overheating and service was manually interrupted to several distribution circuits in order to lessen the load on the transformers. These manual interruptions affected approximately 10,000 customers for periods ranging from 2.5 hours to 8 hours. On July 6, 1999, the Bank 8 transformer also overheated, and the Bank 7 transformer was automatically taken out of service by protective devices. These events affected approximately 70,000 customers.

During this time, GPU also implemented rolling blackouts in order to limit the load on Banks 7 and 8. The rolling blackouts continued through July 7, 1999 and affected approximately 46,000 customers. Typical service interruptions lasted for approximately four hours. On July 8, 1999, rolling blackouts continued but only lasted for 2 hours. At approximately 1:30 p.m. on July 8, 1999, the rolling blackouts ceased when there was a break in the heat and the load on the transformers lessened, allowing the two transformers to handle the load.

Other service interruptions occurred throughout the North and Central regions during this time. GPU has identified no less than 38 instances of entire circuit interruptions, the reasons for which included regulator failure, circuit breaker failure, underground feeder cable failure, line burn outs, operation of over-current relay protectors, circuit de-energization, tripping of transformer breakers and car-pole accidents. Partial interruptions also resulted from causes such as animal or bird contact with electrical devices, digging activity, lightning strikes, general pole damage due to rotting, termites, woodpecker holes, age, or corrosion, insulation flashover or insulation breakdown, overvoltage, undervoltage, emergency load shedding and electrical surges (which occur when de-energized lines are suddenly re-energized). Additionally, GPU identified approximately 350 pole-top transformers that experienced interruptions during the week in question, affecting approximately 3,700 customers.

According to a report by plaintiffs' technical experts, Exponent Failure Analysis Associates (Exponent), GPU recognized before July 1999 that it was operating with a deficiency in reactive power. The power outages were the result of GPU's inability to comply with its own planning criteria, and deferring upgrades for budget reasons. This deferral of projects to meet forecast demand caused low voltage, overloads and equipment failures.

Plaintiffs assert that GPU's 1998 decision to defer installation of two larger capacity transformers at the Red Bank substation triggered the worst outages. According to Exponent, the vast majority of outages beginning at 1:22 p.m. on July 6 were related to events at the Red Bank substation. That included all the planned interruptions (rolling blackouts). A GPU internal analysis stated that interruptions resulting from a fire on the number 2 transformer at the Red Bank substation, overheating on numbers 1 and 8, and automatic shutdown of number 7, affected about 100,000 customers.

Plaintiffs assert that GPU's 1998 decision to defer installation of two larger capacity transformers at the Red Bank substation triggered the worst outages. According to Exponent, the vast majority of outages beginning at 1:22 p.m. on July 6 were related to events at the Red Bank substation. That included all the planned interruptions (rolling blackouts). A GPU internal analysis stated that interruptions resulting from a fire on the number 2 transformer at the Red Bank substation, overheating on numbers 1 and 8, and automatic shutdown of number 7, affected about 100,000 customers.

The Board determined that the majority of outages were concentrated in coastal Monmouth and Ocean Counties, "primarily due to the failure of two Red Bank Substation transformer bushings and associated rolling blackouts. It determined that at Red Bank, two bushings [insulating parts] failed independently, one on July 5 and one on July 7. According to GPU, although a series of equipment failures, deliberate load reductions and protective relay trippings occurred at Red Bank within a few days, they had different causes and affected different groups of customers for varying durations.

The court agreed with plaintiffs that a Red Bank class would be proper if their evidence could establish that failure to timely install two new transformers constituted negligence and that this failure was the proximate cause of the related outages. The lack of predominance in causation issues for the larger proposed class is much reduced in a Red Bank class. A court must not make a preliminary decision on the merits when determining whether a class should be certified. Delgozzo v. Kenny, 266 N.J. Super. at 180-81. However, the court is bound to take the substantive allegations of the complaint as true. Id. at 181.

Once the court finds that common questions of liability, and the fact of damage, predominate, individual variations in the calculation of damages does not preclude class certification. Id. at 190. However, plaintiffs may be required to present individualized proof of damages. The judge did not err by finding a lack of predominance of common liability issues for the overall class. However, the court remanded for certification of a limited, Red Bank, class.

Mr. Lynch can be reached at Cozen and O'Connor, 501 West Broadway, Suite 1610, San Diego, California 92101, 800-782-3366 (voice), 619-234-7831 (fax), palynch@cozen.com (e-mail), http://www.cozen.com. Follow us on Twitter at @firesandrain.

Please direct comments, suggestions, stories, and other items to the author by e-mail at palynch@cozen.com

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