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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
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
Kemppel, Huffman & Ellis, P.C.
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.
Kemppel, Huffman & Ellis, P.C.
Failure to Respond to Failure to Respond to Service CallsService Calls
Kemppel, Huffman & Ellis, P.C.
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
Kemppel, Huffman & Ellis, P.C.
Failure to Respond to Failure to Respond to Service CallsService Calls
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
Kemppel, Huffman & Ellis, P.C.
Failure to Respond to Failure to Respond to Service CallsService Calls
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
Kemppel, Huffman & Ellis, P.C.
Cooperative BylawsCooperative Bylaws
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
Kemppel, Huffman & Ellis, P.C.
Cooperative BylawsCooperative Bylaws
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
Kemppel, Huffman & Ellis, P.C.
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
Kemppel, Huffman & Ellis, P.C.
Class Action LawsuitsClass Action Lawsuits
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
Kemppel, Huffman & Ellis, P.C.
Class Action LawsuitsClass Action Lawsuits
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 . . .
Kemppel, Huffman & Ellis, P.C.
Class Action LawsuitsClass Action Lawsuits
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
Kemppel, Huffman & Ellis, P.C.
Class Action LawsuitsClass Action Lawsuits
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
Kemppel, Huffman & Ellis, P.C.
Class Action LawsuitsClass Action Lawsuits
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
Kemppel, Huffman & Ellis, P.C.