July 07, 2017 Practice Points

Refinery Power Outage Illuminates Importance of Service Interruption Coverage

The facts alleged in Valero illustrate why it is important for companies with operations that depend on utility services to incorporate service interruption coverage into their risk management programs

by Richard W. Brown and Celia Waters

In an action filed against Pacific Gas & Electric (PG&E) in the Eastern District of California last month, Valero Refining Co. alleges it sustained damages in excess of $75 million, including costs to restore operations and lost profits from decreased output, as a result of a power outage to its Benecia, California refinery. See Valero Refining Co. -- California v. Pacific Gas & Electric Co., 2:17-cv-01359-TLN-EFB (E.D.Cal. June 30, 2017). The facts alleged in Valero illustrate why it is important for companies with operations that depend on utility services to incorporate service interruption coverage into their risk management programs.

Valero produces a variety of products, including propane, butane, California Air Resources Board gasoline, jet fuel, fuel oil, and ultra-low-sulfur diesel, at the refinery. The equipment used in the refinement process is highly sensitive to sudden fluctuations or outages in power, which can result in a shutdown of operations. Equipment can be damaged by a shutdown, which can ultimately affect the output and profits of the refinery. Therefore, access to stable and reliable electrical service is critical to Valero’s ongoing operation.

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