A federal judge in Arkansas just ruled that “Force Majeure” is not a get out of jail free card for gas suppliers fighting lawsuits over the 2021 Winter storm that rocked Oklahoma, Texas, Kansas and Arkansas.
The ruling applies in a $34 million lawsuit brought by Arkansas Oklahoma Gas against BP Energy Company for failing to supply its contracted natural gas during the storm. U.S. District Judge P.K. Holmes, in this week’s ruling, awarded $18,033,617.90 to AOG, the company with 60,000 customers, some of whom are in eastern Oklahoma.
It is believed the benefit to Oklahoma customers might be around $3.5 million, an amount that would reduce AOG’s extraordinary gas costs owed by customers because of the storm.
“The Court finds that BP’s decision not to make such arrangements was a conscious business decision that was made by and “reasonably within the control of” BP. Instead, BP gambled that if the day ever arrived when AOG should demand the full 30,000 MMBtu, then BP would be able to find whatever it needed on the spot market and to transport the gas over the EOIT Pipeline on an interruptible contract. But when that day finally arrived, BP lost its gamble and breached the Contract.”
Arkansas Oklahoma Gas was not among those companies that used securitization and bonds to extend winter storm costs over decades. Instead, it went to court against the Houston company. and argued BP Energy had a contract to supply AOG up to 30,000 MMBtu of natural gas a day, to which BP Energy claimed its nonperformance was excused because of “force majeure.”
As defined, Force majeure is a French term that literally means “greater force.” It is related to the concept of an act of God, an event for which no party can be held accountable, such as a hurricane or a tornado. However, force majeure also encompasses human actions, such as armed conflict.
Because the contract was a case governed by Texas law, BP had the burden of proof to establish the defense if it wanted to avoid liability for its nonperformance. The Judge found that BP made numerous unsuccessful efforts to secure more gas than it was ultimately able to arrange for delivery to AOG.
“However, the Court also finds that these last-minute efforts would not have been necessary if BP had previously secured sufficient firm supply and firm transportation to provide AOG with 30,000 MMBtu of natural gas per day on demand,” stated Judge Holmes. He also said BP’s decision not to make such arrangements was a conscious business decision.
“Instead, BP gambled that if the day ever arrived when AOG should demand the full 30,000 MMBtu, then BP would be able to find whatever it needed on the spot market and to transport the gas over the EOIT Pipeline on an interruptible contract,” he added.
“But when that day finally arrived, BP lost its gamble and breached the Contract.”
As a result, AOG was forced during the storm to adopt a multi-tier curtailment plan in which it first shut off the gas to all of its larger industrial customers and then mandating that all of its smaller commercial customers stop their gas usage as well. Judge Holmes found that none of the curtailment would have been necessary if AOG had received the full 30,000 MMBtu of gas day to which it was entitled under the contract.
The judge found that other suppliers of natural gas to BP were successful in their declaration of force majeure. BP fed natural gas to AOG through the Ozark Pipeline and two intrastate lines connected to Ozark—Enable Oklahoma Intrastate Transmission and a line owned by ONEOK Gas Transportation, LLC.
BP made arrangements with other on-system and off-system producers including Merit Energy Company, LCC and Wells Fargo Commodities, LLC to maintain its supply of natural gas. They were considered long-standing contracts prior to Winter Storm Uri.
Judge Palmer found that the storm was in fact the cause for BP’s loss of supply from Merit and Wells Fargo and also affected yet another firm’s ability to supply the gas, Koch Energy Services.
The federal court decision came the same week that Arkansas Oklahoma Gas appeared before an Oklahoma Corporation Commission Administrative Law Judge on the firm’s request to be approved for a move to cover extraordinary gas costs of $18,363,674 during the 2021 winter storm.
Oklahoma’s Attorney General signed a stipulated settlement agreement in support of AOG in which the company’s customers would be charged another $9.91 a month in their gas bills. AOG originally asked for approval of $15.31 more a month over a 15-year period but the amount was negotiated downward.
During the hearing, an attorney for AOG informed the Administrative Law Judge of the company’s lawsuit regarding its storm costs.
