utility legal issues update alaska power association 2009 annual meeting andy leman kemppel, huffman...

Utility Legal Utility Legal Issues Issues

UpdateUpdateAlaska Power AssociationAlaska Power Association

2009 Annual Meeting2009 Annual Meeting

Andy LemanKemppel, Huffman & Ellis, P.C.

TopicsTopics

DOT&PF Right of Way PermitsDOT&PF Right of Way Permits

Red FlagsRed Flags

Failure to Respond to Service CallsFailure to Respond to Service Calls

Cooperative BylawsCooperative Bylaws

Coop Class Action LawsuitsCoop Class Action Lawsuits

Kemppel, Huffman & Ellis, P.C.

DOT&PF Right of Way DOT&PF Right of Way PermitsPermits


DOT&PF Right of Way DOT&PF Right of Way PermitsPermits

Regulations still in draft, now at the Attorney Regulations still in draft, now at the Attorney General’s officeGeneral’s office Overall, APA would prefer the current regulationsOverall, APA would prefer the current regulations

Changes from last public comment draftChanges from last public comment draft Removed requirement for new permits if utility Removed requirement for new permits if utility

ownership changesownership changes Took out section allowing to use hoped for future Took out section allowing to use hoped for future

highway plans to deny permitshighway plans to deny permits Added section allowing exceptions for mountainous Added section allowing exceptions for mountainous

terrain or other special conditionsterrain or other special conditions Other miscellaneous changesOther miscellaneous changes


Red FlagsRed Flags


Red FlagsRed Flags

November 9, 2007 – FTC announces Red Flag regulations November 9, 2007 – FTC announces Red Flag regulations effective Jan. 1, 2008, with enforcement date of Nov. 1, 2008effective Jan. 1, 2008, with enforcement date of Nov. 1, 2008

Oct. 22, 2008 – FTC announces enforcement delay to May 1, Oct. 22, 2008 – FTC announces enforcement delay to May 1, 20092009

April 30, 2009 – FTC announces enforcement delay to August April 30, 2009 – FTC announces enforcement delay to August 1, 20091, 2009

May 13, 2009 – FTC releases template for entities with low May 13, 2009 – FTC releases template for entities with low risk of identity theftrisk of identity theft

July 29 - the FTC announced another 3-month enforcement July 29 - the FTC announced another 3-month enforcement delay -- to November 1, 2009.delay -- to November 1, 2009. The FTC also promised more guidance and outreach to small The FTC also promised more guidance and outreach to small

entities.entities.


Failure to Respond to Failure to Respond to Service CallsService Calls



Allstate Insurance sued Cleveland Electric Allstate Insurance sued Cleveland Electric Illuminating Company, claiming utility was Illuminating Company, claiming utility was negligent in failing to respond to a negligent in failing to respond to a customer’s service callscustomer’s service calls Utility customer noticed that tree limb was Utility customer noticed that tree limb was

leaning on service drop wiresleaning on service drop wires Called at noon to reportCalled at noon to report Called again a few hours laterCalled again a few hours later Called again at 5:00 pmCalled again at 5:00 pm Shortly after, the wires broke and set the duplex Shortly after, the wires broke and set the duplex

on fireon fire Allstate had to pay fire and property damageAllstate had to pay fire and property damage



Jury found Cleveland Electric 100% at fault and Jury found Cleveland Electric 100% at fault and awarded $161k in damagesawarded $161k in damages

Cleveland Electric tried to argue that Ohio PUC Cleveland Electric tried to argue that Ohio PUC had exclusive jurisdictionhad exclusive jurisdiction Cleveland argued that if it was negligent, that Cleveland argued that if it was negligent, that

negligence arose out of its own policies and negligence arose out of its own policies and procedures for responding to service calls, and that procedures for responding to service calls, and that was within the exclusive jurisdiction of the PUCwas within the exclusive jurisdiction of the PUC

Allstate argued that Cleveland Electric had a duty to Allstate argued that Cleveland Electric had a duty to exercise reasonable care and that deciding negligence exercise reasonable care and that deciding negligence claims is within the jurisdiction of the trial courtsclaims is within the jurisdiction of the trial courts



Ohio Supreme Court overruled appellate Ohio Supreme Court overruled appellate court and held that trial court had jurisdictioncourt and held that trial court had jurisdiction Failure to respond to a service call is no different Failure to respond to a service call is no different

than any other claim that a business fails to correct than any other claim that a business fails to correct a known dangerous conditiona known dangerous condition Expertise of PUC not necessary to determine thisExpertise of PUC not necessary to determine this Cleveland Electric claimed it had guideline allowing an Cleveland Electric claimed it had guideline allowing an

emergency call to go without response for up to six emergency call to go without response for up to six hourshours Court said that wasn’t sufficient to avoid trial court Court said that wasn’t sufficient to avoid trial court

jurisdictionjurisdiction Even if Allstate had gone to PUC, PUC could not Even if Allstate had gone to PUC, PUC could not

have awarded damageshave awarded damages



Illinois appellate court found that bylaw Illinois appellate court found that bylaw requiring arbitration of disputes with the requiring arbitration of disputes with the cooperative was enforceablecooperative was enforceable Member challenging bylaw signed membership Member challenging bylaw signed membership

application in 1974application in 1974 Membership application was subject to bylawsMembership application was subject to bylaws Coop bylaws stated that application was Coop bylaws stated that application was

agreement to comply with bylaws and amendmentsagreement to comply with bylaws and amendments In 2003 after member notice and vote, bylaws were In 2003 after member notice and vote, bylaws were

amended to require arbitration if requested by amended to require arbitration if requested by either partyeither party



When member sued in 2006 for stray When member sued in 2006 for stray voltage injury to cattle, court enforced voltage injury to cattle, court enforced arbitrationarbitration Court focused on fact that member signed the Court focused on fact that member signed the

application and bylaws were properly amendedapplication and bylaws were properly amended

Important case becauseImportant case because Court focused on signed membership applicationCourt focused on signed membership application Court enforced bylaw provision amended after Court enforced bylaw provision amended after

applicationapplication Court enforced arbitration bylawCourt enforced arbitration bylaw


Class Action LawsuitsClass Action Lawsuits



Last year, members of Pedernales Electric Last year, members of Pedernales Electric Cooperative brought a class action lawsuit Cooperative brought a class action lawsuit against the cooperative and individual against the cooperative and individual board membersboard members Alleged mismanagement, self-dealing and Alleged mismanagement, self-dealing and

excessive compensationexcessive compensation Objected to handling of capital creditsObjected to handling of capital credits

Failing to retire capital creditsFailing to retire capital credits Failure to notify individual members of their Failure to notify individual members of their

capital credit balancecapital credit balance



The case was eventually settled on the The case was eventually settled on the following terms:following terms: Release for all directors and PECRelease for all directors and PEC PEC agreed to retire $23 million in capital credits PEC agreed to retire $23 million in capital credits

over 5 yearsover 5 years Comprehensive and independent review of Comprehensive and independent review of

financial and management operations by Navigantfinancial and management operations by Navigant Pay $4 million in class attorney’s feesPay $4 million in class attorney’s fees

PEC’s insurer agreed to pay $2.4 million of the fees PEC’s insurer agreed to pay $2.4 million of the fees and costs awardand costs award

Members had to pick up the remaining $1.6 millionMembers had to pick up the remaining $1.6 million



A PEC member challenged the settlement as A PEC member challenged the settlement as being too weakbeing too weak Court found settlement fair, adequate and Court found settlement fair, adequate and

reasonablereasonable Emphasized that any monetary recovery would Emphasized that any monetary recovery would

be paid by PEC and its membersbe paid by PEC and its members

But the PEC litigation was only the But the PEC litigation was only the beginning . . .beginning . . .



In the wake of the PEC litigation, class action In the wake of the PEC litigation, class action lawsuits have been filed against electric lawsuits have been filed against electric cooperatives in Texas, South Carolina, and cooperatives in Texas, South Carolina, and ArkansasArkansas

Substantive AllegationsSubstantive Allegations General failure to retire any capital creditsGeneral failure to retire any capital credits Failure to retire capital credits upon a member's Failure to retire capital credits upon a member's

cessation of membershipcessation of membership Involuntary discounting of general capital credit Involuntary discounting of general capital credit

retirementsretirements Maintenance of unreasonably high equity levelsMaintenance of unreasonably high equity levels



Procedural AllegationsProcedural Allegations Unreasonable director nomination by petition Unreasonable director nomination by petition

requirementsrequirements Low member meeting attendanceLow member meeting attendance Excessive director and executive compensationExcessive director and executive compensation Failure to provide membership or voting lists Failure to provide membership or voting lists

The law firms involved previously participated The law firms involved previously participated in the PEC litigation or requested governance in the PEC litigation or requested governance and financial information from multiple and financial information from multiple electric cooperatives across the countryelectric cooperatives across the country See http://coop-litigation.comSee http://coop-litigation.com



Are class actions coming to Alaska?Are class actions coming to Alaska? Probably notProbably not

Alaska directors cannot receive salariesAlaska directors cannot receive salaries But shows the importance ofBut shows the importance of

Retiring capital creditsRetiring capital credits Open elections with open election proceduresOpen elections with open election procedures

If you have a nominating committee, it should be If you have a nominating committee, it should be independentindependent

Relatively easy petition processRelatively easy petition process Conducting open meetingsConducting open meetings


The EndThe End


utility legal issues update alaska power association 2009 annual meeting andy leman kemppel, huffman...

Documents

huffman ellis

service calls kemppel

service calls failure

red flags kemppel

ftc releases template

month enforcement delay

miscellaneous changes

utility ownership changes