Disputes December 2017

Download printed edition

Liability for Faulty Energy Supply: Mechanisms for the Protection of Electrical Retailers

By Xavier de Bernat

More than one year ago, the Supreme Court laid the foundation for the interpretation that should govern damages caused by the energy supply. Accordingly, the Supreme Court held that any electrical retailer can and must be responsible to its customers for damages suffered by the latter as a result of an incident resulting from the supply of energy, regardless of whether the actual cause is a third party.

Notwithstanding the above, it left open the possibility that, after the retailers compensate either their customers, or the insurers of these, they could bring a claim against the whoever caused the incident, for payment of the amounts previously settled.

This interpretation, of a civil law matter, ignores the specific legislation that regulates the energy sector in Spain, which in its full text clearly outlines the responsibility of each one of the participants in the production, transportation, distribution and marketing of energy.

With this law, retailers have become the parties most negatively affected as a result of this type of incident, having entered into contracts for the supply of energy to final consumers, and our courts have placed objective liability on them, or in other words, the mere existence of harm caused by the energy supply is reason enough to compel retailers to compensate their customers for the damages suffered, irrespective of whether the cause of these is a third party separate from this type of company.

Even so, electrical retailers are being left in a clear situation of helplessness, given that in many cases they do not have (i) the mechanisms, (ii) the resources, or (iii) the skills necessary in order to safeguard the quality of energy supply contracted by the end consumer, and the courts apply a lower burden of proof to any customer, or their insurer, that seeks to be reimbursed from this type of business for damages suffered (due to the objective liability explained in the previous paragraph).

In a scenario like this, it is not surprising that many consumers, as well as their insurance companies (subject to insurance cover of the corresponding incident) have in recent months claimed, both extrajudicially and in court, compensation to rectify damages caused by the quality of the energy supply, and our courts have accepted these types of claims without comprehensively assessing whether a third party which has legal responsibility for the quality of the power supply according to the law of the electrical sector, was actually responsible for the incident that caused the damages claimed.

It is not that claims were not previously brought against energy retailers for the supply of energy, but they now have a higher probability of being assessed in their entirety by the Spanish courts.

The typology of these claims can be extremely diverse, as shown by the following examples:

  • Claims arising for power shortages over fairly prolonged periods of time that cause losses to the customer by stopping their activity. In cases of this type, both so-called consequential damages (damages actually incurred as a result of the incident), and loss of profit (loss of income as a result of the incident) can be claimed.

  • Claims arising from fluctuations in the intensity of the supply, causing increases and decreases in tension affecting the elements that are connected to the network. In these cases, both consequential damages and loss of profits may also be claimed.

  • Errors in measurement, and subsequent billing, causing the customer to pay amounts greater than the actual consumption.

There is no doubt that all of these types of incidents are beyond the control of the energy retailers, since their powers are defined by law.

Consequently, and until case law in Spain takes a new direction, the know-how that law firms can contribute to electrical retailers to deal with and manage any claim made by their customers or, as the case may be, their insurers, in the event of any incident arising due to the quality of the power supply, will be very important, even decisive.

Our experience in the field allows us to categorise as follows the way in which we can cope with these situations with the aim of trying to minimise the impact of a possible judicial or extra-judicial claim:

(i) Stage prior to the incident/contractual relationship

Focussed on prior negotiation and contracting of the energy supply by the customer.

Accordingly, it is essential to have contractual content up-to-date and properly formulated, and a review of these types of contracts for the supply of energy by law firms is highly recommended.

(ii) Stage after the electrical incident

In most cases, customers or their insurers first bring an extra-judicial claim after the incident, or after the latter have compensated the former.

With this first contact, it is critical how electrical retailers and their law firms manage this type of incident, as this will have a significant impact on the subsequent judicial claim, with the timescales being important for management and the decisions that are taken.

The way in which we manage these types of electrical incidents is based on our experience and has as its purpose the collection of sufficient evidence so that we can better defend the interests of energy retailers, whether extrajudicially or in court, against any claim arising for the supply of energy. In addition, this systematic action means that, in the event that the retailer is required to compensate third parties, any subsequent claim against whoever actually caused the incident may be carried out with better guarantees.

For this reason, and until our courts fail to update their interpretation of this matter, it will be critical for retailers to have excellent legal advice, not only to strengthen their defence in the event of a dispute, but to give them sufficient evidence if they choose later to bring a claim against whoever caused the incident for payment of the amounts previously awarded in compensation to their customers or the insurers of these.