Niagara Mohawk Refuses "Adequate assurances"

Fortnightly Magazine - May 1 1996
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U.S. District Court Judge John E. Sprizzo has ruled that Niagara Mohawk Power Corp. (NiMo) has no right to demand "adequate assurances" from independent power producers (IPPs) that unsecured tracking account balances will be repaid. The decision stems from a series of lawsuits filed by IPPs in response to a February 1994 letter from NiMo threatening contract repudiation unless the assurances were given (Ecogen Four Partners v. Niagara Mohawk Power Corp.).

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The IPP contracts call for NiMo to pay fixed prices exceeding the market value of the contracts during the early years. The difference between the fixed payments and the market prices is recorded in tracking accounts. In later years, the contracts oblige the IPPs to discount electric sales to NiMo to reduce the tracking account obligations. But NiMo fears that the tracking account balances will grow so large that IPP owners will abandon their plants rather than honor their obligations.

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