Comments of Evgeny Zverev, senior associate, on Energy Collapse: Who Will Compensate for Losses article

25 August 2010

Total material damage caused by faulty operation of Saint Petersburg power grid on Friday, August 20, has not been calculated yet. And moral damage caused to passengers making their ways in dirty underground tubes or occupants that got stuck in elevators is mathematically unanalyzable. Reporter of J found out whether entrepreneurs and common residents of Saint Petersburg that suffered from energy collapse would be able to get compensation for sustained damage.

Accidents do not happen randomly and have quite notable consequences. Due to blackout on August 20 operation of companies and plants was interrupted, shops and cafes had to write off products that decayed in dead refrigerators, etc. Voltage jumps put computers, servers and household appliances out of operation. Hundreds of thousands of Saint Petersburg residents lost time due to faulty operation of the underground, trams and trolley buses; many of them missed trains and planes..

Last Friday blackout is by far not the first accident in power grids in Russia and even in Saint Petersburg. Losses of Moscow facilities resulting from many-hour blackout on May 25, 2005, were assessed at 1.7 bln rubles, however, not a single sustained claim against power supply companies is known. They bore no responsibility for a fire at the electric power substation on the Vasilievsky island due to which the entire district was cut off current on October 22, 2002, either.


It is specified in the Civil Code of the Russian Federation that power supply organization shall be liable for failure to fulfill or improper fulfillment of contractual obligations including interruption of power supply to the subscriber. However, in case it is guilty. That is why the principal argument of power supply companies is as follows: an accident is a circumstance of insuperable force (force majeure event) for consequences of which they shall not be liable. However, these circumstances need to be proved. By the law only extraordinary and unavoidable reasons like a hurricane, earthquake or other natural calamities shall be recognized as force majeure events, and only provided they are unforeseeable, and the structure according to set standards is not designed for relevant loads (for example, in many areas seismic activity is observed and facilities are initially built with due account for earthquakes). Even a fire is by far not always recognized as a force majeure event: it can arise due to incompetent actions of employees, worn-out conditions of equipment, etc. For example, it was negligence of its employee that investigating authorities acknowledged as a cause of fire at Lenenergo electric power substation on the Vasilievsky island. Due to the absence of victims of the fire, the guilty was released from criminal responsibility, however, no one released the employer (power supply company) of civil (that is financial) responsibility for such actions or omission of the personnel.

“Practice shows that, for example, a flood in Saint Petersburg shall be referred to force majeure only in case of its extreme materiality: floods are not uncommon here,” Pavel Ilyinykh, lawyer of Rightmark Group company, explains. “But a hurricane or an earthquake in Saint Petersburg can be referred to this category.” “A great number of various organizations is involved in power supply: wholesale power suppliers, owners of grids, organizations performing operational and dispatch control, etc.,” Evgeny Zverev, senior associate of S&K Vertical firm, states. “Circumstances that led to blackout arose not for sales companies having contract relations with power consumers. Therefore, suppliers will refer to the fact that they are not guilty of what happened. However, it has nothing to do with relations with individual consumers: the suppliers shall be liable to them irrespective of their own guilt.”

Lenenergo claimed that there were no technological failures in its grids, and Vostochnaya electric power substation at which the accident occurred is located in the area of responsibility of OAO (Open Joint-Stock Company) FGC UES MES Severo-Zapada. Petersburg Sales Company with which most of Saint Petersburg organizations consuming power and residents of Leningrad oblast concluded agreements sidestepped the issue having explained it by a force majeure circumstance: the only responsible employee fell ill.

That is why responsibility of Saint Petersburg power supply companies for a doomsday that occurred on August 20 depends on causes of the blackout. At present it is known that it occurred due to a failure at Vostochnaya electric power substation. But no plane fell on it, no mud flow descended, it was not attached by terrorists, the earth under it did not shake and even no strong wind blew over it. Oleg Budargin, head of the Federal grid company, claims that “no faults either in operation of equipment or in work of the personnel were revealed, and emergency shut down of equipment occurred at the substation.” Why? Meanwhile power supply companies have no rational explanation and therefore no convincing “alibi”.
Saint Petersburg power supply companies disclaim responsibility for troubles indirectly relating to the accident too. Already after all officials reported about elimination of energy collapse in houses of many residents of Saint Petersburg and Leningrad oblast voltage “jumped” up to 280 volts and sometimes even up to 350 volts. And all ensuing consequences for household appliances were observed. Acknowledging that transfer from standby to regular sources does not go smooth, Lenenergo shifts responsibility for burned out electric appliances to local housing departments at disposal of which there are switchboards of particular houses: the power supply company is sure that “if a specialist of a housing department finds out that problems really exist, it is the housing department, but not the citizens that shall apply to Lenenergo.”

Poor birdie

Lawyers disagree on amount of losses to be recovered. Pavel Ilyinykh is convinced that not only actual damage of the affected party, but also lost profit may be referred to losses, though it is harder to prove the latter: “In rare cases moral damage may be compensated for too. However, it should be kept in mind that it is extremely hard to prove it in a judicial proceeding. Moreover, the court usually recovers insignificant amounts from the defendant.” At the same time Evgeny Zverev notes that the legislator provides for special conditions of compensation for harm caused by improper performance of the power supply agreement: “Only actual damage, for example, cost of damaged goods, failed equipment, but not lost profit, unearned income from sales of goods, operation of equipment, etc., shall be compensated for.”

Practice shows that even if the power supply company is guilty, it is hardly probable that actual damage could be recovered from it. We remind that energy collapse in Moscow was also caused by a failure at one of electric power substations and subsequent rotating blackout. And while adjudicating claims against Mosenergo, most of the courts did not recognized the accident as a force majeure circumstance.

Even such monsters as OAO (Open Joint-Stock Company) Russian Railways sued the power supply company. It sought compensation for cost of tickets returned by passengers of trains that should have departed from Paveletsky railway station cut off power. The Federal arbitration court of Moscow District came to a conclusion that the mere fact of announcement about the accident is not a proof of force majeure: “There are no other proofs confirming impossibility of fulfillment of obligations by the defendant due to emergency circumstances unavoidable under the given conditions in the files of the case,” the tribunal concluded. But the suit was rejected: railway company incorrectly executed the documents confirming the amount to be recovered.

Another dispute is more representative: due to power cut 280 ths chickens died of asphyxia and thermal shock at Moscow region poultry plant. Lawyers of Mosenergosbyt appealed to the Rules for Arrangement of Electrical Installation approved back in 1977 by the Ministry of Energy of the USSR in which the so called categories of reliability are specified. The poultry plant is referred to category III, and that is why even in case of normal operation of the whole grid, Mosenergosbyt was entitled to cut this consumer off even for a day! In fact, the power was cut only for 3.5 hours.

For communication without defects

At the same time by far not always power supply companies are the only ones guilty of consequences of an accident: many infrastructure facilities should have functioned even while being cut off power. For example, it concerns communication facilities. Alexandr Korennikov, press secretary of Saint Petersburg governor, reported on the air of 100TV that even in Smolny Internet was turned off due to energy collapse. Representatives of Megafon confessed that as early as 07.37 p.m. (just an hour after beginning of the crisis) about half of their base stations were cut off power and backup power of still operating ones would last for only 2-3 hours.

According to witnesses, in the underground no mobile communication of any of Saint Petersburg operators was available. Though, according to standards approved by the Ministry of Communications in 2007, all base stations shall have accumulators guaranteeing uninterrupted operation of the network under maximum load for at least 4 hours. No exceptions for transmitter s located underground are made. Similar requirements are imposed on standby power supply of telephone switchboards, etc. And independent power supply facilities for coin-operated telephone communication and Internet cafes (shared access points) shall guarantee their operation for a day.

Pavel Netupsky

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