Chadbourne & Parke LLP represented subsidiaries of Allegheny Energy Inc. in negotiations of the June 10 global settlement with agencies of the State of California to resolve a dispute over a $4 billion energy supply contract.
The suit related to long-term energy supply deals entered into by California and others in 2001 during the height of the energy crisis. To avoid volatility in the spot market, and with the strong encouragement of the Federal Energy Regulatory Commission, California entered into a contract with Allegheny which requires Allegheny to provide electric power to California at a fixed price for approximately eleven years. After the contract was signed, energy prices in California dropped, and California initiated proceedings at the FERC requesting FERC to abrogate or modify the contract. In addition, California initiated state court proceedings in Sacramento in which it argued that the contract was invalid.
At FERC, Allegheny responded that the contract did not exceed California’s own projections of competitive prices and that the contract included specific terms which, under established FERC policy, are intended to prevent contractual parties from seeking FERC changes to a long-term contract based on subsequent changes in energy prices. Chadbourne litigation partner Tom McCormack argued on behalf of Allegheny and a group of sellers to California in oral argument before the FERC. In the Sacramento action, Allegheny argued that the claims filed by California were pre-empted by federal law, and should await the outcome of the FERC proceedings.
Neither the FERC nor the courts have issued final rulings on the substantive issues raised, and the settlement avoids continuing protacted and costly litigation.
For Chadbourne, the settlement was the latest in a series of roles in which it has represented Allegheny. The Firm has been Allegheny’s project finance counsel, negotiated the original and revised contracts, represented Allegheny in FERC proceedings and the California state court litigation, and in the settlement negotiations leading up to the global resolution of the dispute.
