CORE Electric Cooperative (CORE), a Colorado electric cooperative that provides retail electric service to its member-owners, made a minority investment of about $400 million in the Comanche Unit 3 electric generation facility (Comanche 3), a 750-megawatt super-critical electric generating facility that was projected to have a useful lifespan of at least 60 years. The sole operator and majority owner of Comanche 3, Public Service Company of Colorado (PSCo), was responsible for the prudent management of Comanche 3 and the delivery of CORE’s share of Comanche 3’s electric output. The Comanche 3 Project Agreements established the costs of constructing and operating the facility were to be shared by PSCo, CORE, and a third electric utility owner, Holy Cross.

CORE filed a lawsuit against PSCo alleging, among other claims, that PSCo failed to operate Comanche 3 in accordance with its contractual obligations and Prudent Utility Practices.  Comanche 3 suffered a series of problems including superheater leaks, turbine blade failure, a turbine lube oil incident, and generator damage from a breaker incident. Comanche 3 had the worst reliability and performance record of any of PSCo’s generation facilities, causing CORE to incur tens of millions of dollars in replacement power costs. On top of the imprudent outages, the unit is scheduled to retire from operation 40 years earlier than originally planned.

CORE, through its counsel Stinson LLP, retained Senior Managing Director Kurt G. Strunk as its economic expert to perform diligence regarding PSCo’s operating practices at Comanche 3 and to quantify the harm faced by CORE as a result of any imprudence found on PSCo’s part. Mr. Strunk worked with NERA Director Willis Geffert and Consultant Ibrahim Ouf and engineering experts retained by CORE to support CORE in this dispute.

Mr. Strunk issued two expert reports and testified at deposition and trial in Denver County. In his reports, Mr. Strunk:

• Discussed how the Project Agreements obligated PSCo to operate Comanche 3 in accordance with Prudent Utility Practice; 
• Provided an overview of the prudence standard and how it has been applied by finders of fact in litigated matters;
• Summarized evidence before the court to establish imprudence under a well-established standard; and
• Presented the quantum of damages owed to CORE.

A key issue in the case was whether the claimed replacement power damages were barred by the filed rate doctrine, a position taken by PSCo in its defense. Mr. Strunk explained how the filed rate doctrine was not an obstacle to awarding damages for breaches of Project Agreements governed by Colorado law. He then calculated damages without reference to any FERC-regulated agreements between PSCo and CORE. 

Mr. Strunk presented damages equal to the loss in value associated with the outages for each instance of PSCo’s imprudence, totaling $66.1 million, including pre-judgement interest. The breakdown of damages from allegedly imprudent outages supported by Mr. Strunk is as follows:

• $9.1 million for recurring problems with superheater boiler tubes that led to a total of 134 imprudent outage days;
• $5.9 million for a crack in a turbine blade caused by poor water chemistry practices and previous superheater leaks;
• $26.1 million for a fractured pin in a turbine lube oil failure caused by failures in training, poor procedures, and negative organizational and safety culture; and
• $18.6 million for a circuit breaker incident that damaged a generator caused by lack of maintenance and clear policies.

The jury found PSCo liable for imprudent operation of Comanche 3. The jury awarded CORE the majority of the replacement power damages calculated and supported by Mr. Strunk for the outages it found to be imprudent. The jury also awarded CORE pre-judgment interest and the legal and consulting fees it had incurred in connection with the litigation.