Contract Negotiations & Litigation Support

North Star Steel Ancillary Services Litigation

Members of ERG represented the North Star Steel Company (NSS) before the United States Court of Federal Claims (USCFC), in North Star Steel Company v. The United States, in Docket No. 00238. NSS operates a large arc furnace steel mill in Kingman, Arizona. In conjunction with development of NSS’s facility, NSS entered into agreements with the Western Area Power Administration (WAPA), a Federal power marketing agency, Arizona Electric Power Cooperative, Inc., and the Mojave Electric Cooperative, Inc. for the provision of non-firm transmission, and supply of ancillary services related to NSS’s power purchases to meet the power requirements of its Kingman steel mill. At the time the agreements were negotiated, WAPA was unable to calculate the exact costs for its provision of ancillary services, in particular regulation services. The agreements required NSS to compensate WAPA for regulation services with an in-kind payment initially set at twenty percent for NSS’s actual hourly metered load. The agreements required the parties to jointly establish during the facility’s first year of operation, an appropriate cost-based methodology for NSS’s in-kind payments. NSS filed a complaint in the USCFC claiming that WAPA’s twenty percent factor for in-kind payments grossly overstated WAPA’s costs for the provision of regulation services, and that WAPA failed to meet its requirement to accept an appropriate methodology for the determination of such costs. Members of ERG sponsored expert testimony concerning the development of an appropriate methodology for the determination of WAPA’s regulation services costs, and demonstrated that NSS was grossly overcharged by WAPA for such services. At the conclusion of trial, the Court issued an initial decision in favor of NSS indicating overcharges to NSS by WAPA of approximately $7.3 million.

Entergy System Agreement – Production Cost Equalization

On behalf of the Council of the City of New Orleans (CNO), ERG staff have provided expert testimony before the Federal Energy Regulatory Commission (FERC) and litigation support regarding the Entergy System Agreement on issues pertaining to utility operations, utility resource planning, resource allocations, and appropriate accounting treatment. The Entergy System Agreement is a FERC approved rate schedule that governs joint operations and cost sharing among six Entergy Operating Companies: Entergy Louisiana, LLC (ELL), Entergy Arkansas, Inc. (EAI), Entergy Mississippi, Inc. (EMI), Entergy New Orleans, Inc. (ENO), Entergy Gulf States Louisiana, LLC (EGSL) and Entergy Texas, Inc. (ETI). In 2001 the Council of the City of New Orleans and the Louisiana Public Service Commission jointly filed a complaint asserting that the cost allocations embodied in the Entergy System Agreement had become unjust, unreasonable, and discriminatory. ERG staff filed direct testimony in support of the complaint and provided litigation support in depositions, at hearing, and within briefs. FERC concluded that the Entergy System Agreement was no longer just and reasonable and not unduly discriminatory, and that a just and reasonable remedy was required. FERC implemented a remedy that requires annual filings to determine if remedy payments are required among the Entergy Operating Companies. In addition to the annual filings and associated proceedings, numerous additional proceedings at FERC related to the service schedules of the Entergy System Agreement have been precipitated by Section 205 and 206 filings. ERG staff have participated in each of proceedings in various capacities including, developing strategy, discovery, deposition questions and testimony. As each annual proceeding must review the prudence of each of the Entergy Operating Company’s production costs, the issues in each proceeding can encompass all facets of utility planning, operations, and accounting.

Fuel Adjustment Clause Ratepayer Litigation

ERG staff provided expert testimony on behalf of the Council of the City of New Orleans (Council), which consisted of a ratepayer suit which alleged that Entergy New Orleans, Inc (ENO) improperly passed certain charges through its fuel adjustment clause to ENO’s retail electric ratepayers for a period of many years. In addition, the plaintiffs alleged that ENO improperly favored its own generating resources and those of its unregulated subsidiary over other third party merchant generators, thereby increasing the costs of purchase power to ENO ratepayers. Based upon ERG’s findings, the Council issued an Order covering final resolution of the docket, which resulted in a refund of approximately $7 million plus interest to ENO ratepayers. Additionally, as part of its Order, the Council ordered ENO to provide the Council with annual reporting related to it’s (i) supply plan; (ii) margin/discount analysis; (iii) and transmission studies regarding power supply imports. Though appealed numerous times by the Plaintiffs which claimed overcharges of approximately $35 million, The Louisiana Supreme Court ruled that the Council’s ordered refund of $7 million was appropriate.

Wholesale Power Purchase Litigation

North Star Steel Company (NSS) owns and operates a large induction arc furnace steel mill located in Kingman, Arizona. During the 2000 - 2001 period, NSS purchased power for its Kingman mill from the Arizona Public Service Co., British Columbia Hydro Authority, Enron Power Marketing, Inc., California Independent System Operator, Nevada Power Co., PacifiCorp, Public Service Company of New Mexico, and the Tucson Electric Co. (collectively the "parties"). NSS filed a complaint at FERC claiming that the power purchased at wholesale from the parties was sold at prices far in excess of the then competitive market clearing prices. Members of ERG performed independent analysis of NSS’s wholesale power purchases in support of developing and sponsoring expert testimony before FERC in Docket No.EL06-68 concerning the amount of overcharges to NSS above the just and reasonable competitive market clearing price.

GTC Nutrition, Inc. – Cogeneration Litigation

Members of the Firm provided consulting assistance to GTC Nutrition, Inc. (GTC) in connection with a case filed against Johnstown Cogeneration Partners, L.P. in Weld County, Colorado, Circuit Court concerning breach of contract issues related to a failed cogeneration project located at GTC’s corn syrup mill located in Johnstown, Colorado. Issues in the case surrounded the inability of an installed gas turbine based cogeneration system to reasonably provide the mills’ process steam requirements. Members of the Firm prepared an Expert Report concerning technical issues with the design of the cogeneration system and inconsistent contractual provisions. The case settled out of court prior to trial.

Port of Oakland, California

Members of the Firm provided consulting assistance to the Port of Oakland’s (Port) special counsel regarding early termination of the Port’s power supply agreement with Enron. Assistance provided included analysis of termination payments and negotiation support.

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