Baker & O'Brien, Inc.

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Refinery Power Outage - What Were the Damages?

Litigation, North America

January 1, 2020

Uninterrupted electrical power is essential for the safe and continuous operation of petroleum refineries.  North American refineries typically source their electrical power from a supply grid operated by the local utility; most refineries do not independently generate all their own power.

In the event of a power failure, refinery equipment and instrumentation is designed to automatically default to a “safe” shutdown state.  In addition, refiners have procedures and practices that detail specific actions that operations personnel must take during a loss-of-power event.  Unfortunately, equipment damage can still occur due to the sudden stop of process flows and rapid changes in temperatures.  Frequently, internal equipment components are damaged or fouled, which may not be noticed until normal operation has resumed.  In these cases, the refiner may incur long-term losses after restarting due to adverse impacts on product yields or throughput.

Economic damages incurred due to a power outage   typically fall into three categories:  (1) the cost of repairing   or replacing damaged equipment; (2) the loss of operating   profit during the complete or partial outage; and (3)   commercial losses incurred to manage feedstock purchase   or product sales obligations.  To determine the economic   damages, one must consider (among several refinery-  specific and market-related factors):  the “normal” or   baseline refinery operation; the appropriate duration of the outage or period of impaired operation; and what (if any) actions the operator should have taken to mitigate operating and commercial losses.  Thus, an accurate assessment of the true economic damages requires a thorough understanding of refining economics, processes, operations, and maintenance practices. 

A North American refinery shut down after a series of power interruptions from the local utility.  The refinery incurred equipment damage, loss of operating income, and commercial losses.  However, the parties disagreed on the extent of the damages caused by the incident.  Litigation ensued, and Baker and O’Brien was retained to: (1) opine whether the refinery’s operational response was consistent with accepted industry practices and procedures; (2) evaluate the reasonableness of the time the refinery took to return to normal operating levels; (3) evaluate the appropriateness of the claimed equipment repair costs; and (4) calculate the economic damages. 

Baker & O’Brien reviewed the relevant refinery-specific and market-related data.   We submitted an initial expert report, a second report in response to the opposing experts’ rebuttal reports, and provided deposition testimony.