Exhibit 10.5.4
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
Sithe/Independence Power Partners, L.P. )
)
v. ) Docket Nos. EL99-65-000
) EL95-38-000
Niagara Mohawk Power Corporation ) (not consolidated)
SETTLEMENT AGREEMENT
(JUNE 28, 2001)
SECTION I. INTRODUCTION
1. Niagara Mohawk Power Corporation ("Niagara Mohawk") is an electric
utility in New York State providing transmission services in interstate commerce
subject to the Commission's jurisdiction under the Federal Power Act ("the
FPA").
2. Sithe/Independence Power Partners, L.P. ("Sithe") is the owner and
operator of a 1060 MW gas-fired electric generating facility located in Scriba,
New York ("the Independence Plant"). Prior to September 1, 2000, Xxxxx sold the
majority of the electricity produced at its Independence Plant to the
Consolidated Edison Company of New York, Inc. ("Con Edison").
3. Sithe and Niagara Mohawk are parties to a transmission service
agreement with Niagara Mohawk dated November 5, 1991 (as amended, the "TSA") and
an interconnection agreement dated March 9, 1992 (as amended, the "IA"). The TSA
was initially accepted for filing by the Commission on February 5, 1992, as
Niagara Mohawk's Rate Schedule No. 178. The IA was initially accepted for filing
by the Commission on October 29, 1993, as Niagara Mohawk's Rate Schedule No.
189.
SECTION II. PROCEDURAL HISTORY
1. In March of 1995, Xxxxx filed a complaint against Niagara Mohawk
under Section 206 of the FPA, which complaint was assigned Docket No.
EL95-38-000 by the Commission. In that complaint, Xxxxx claimed that Niagara
Mohawk's methodology for calculating transmission losses under the TSA was
unjust, unreasonable and unduly discriminatory. On May 10, 1995, Niagara
Mohawk filed an answer to Xxxxx's complaint, denying Xxxxx's claims that
Niagara Mohawk was calculating transmission losses under the TSA pursuant to
a methodology that was unjust, unreasonable or unduly discriminatory. On
September 16, 1996, the Commission issued an order denying Xxxxx's complaint
in SITHE/INDEPENDENCE POWER PARTNERS, L.P. V. NIAGARA MOHAWK POWER CORP., 76
FERC [Paragraph] 61,285 (1996). The Commission denied rehearing of the
September 16, 1996 order in SITHE/INDEPENDENCE POWER PARTNERS, L.P. V.
NIAGARA MOHAWK POWER CORP., 81 FERC [Paragraph] 61,071 (1997).
2. On December 16, 1997, Xxxxx petitioned the United States Court of
Appeals for the District of Columbia Circuit ("Court") for review of the
Commission's two orders. On January 29, 1999, the Court issued an opinion
granting Xxxxx's petition for review and remanding the proceeding to the
Commission. SITHE/INDEPENDENCE POWER PARTNERS V. FEDERAL ENERGY REGULATORY
COMM'N, 165 F.3d 944, 949 (D.C. Cir. 1999). On April 30, 1999, Xxxxx filed a
Motion for Further Proceedings on Remand in Docket No. EL95-38-000. On May 17,
1999, Niagara Mohawk filed an answer to Xxxxx's Motion, requesting the
Commission to reaffirm its prior orders denying Xxxxx's Complaint. This
Settlement
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Agreement ("Settlement") fully resolves the issues raised by Xxxxx's
complaint in Docket No. EL95-38-000.
3. On May 3, 1999, Xxxxx filed another complaint against Niagara Mohawk
under Section 206 of the FPA. This second complaint ("the Complaint") was
assigned Docket No. EL99-65-000 by the Commission. This Settlement also fully
resolves the issues raised in this Complaint.
4. In the Complaint, Xxxxx claimed that both the transmission rates
established in Rate Schedule No. 178 and loss rates contained in that Rate
Schedule were unjust and unreasonable. Xxxxx also sought a refund or reduction
in future rates of approximately $63 million for certain expenditures made by
Sithe for facilities constructed by Xxxxx and transferred to Niagara Mohawk or
constructed by Niagara Mohawk and paid for by Xxxxx. Xxxxx requested this refund
or reduction in future rates on the ground that the facilities to which those
payments related were allegedly improvements to Niagara Mohawk's transmission
system rather than the kind of generator leads or interconnection facilities
which could be charged to Sithe under applicable Commission pricing policies. In
addition, Xxxxx also sought a variety of changes to the provisions of both the
TSA and the IA. In each sentence of this paragraph, the relief sought by Xxxxx
is as more particularly described in the Complaint.
5. On June 16, 1999, Niagara Mohawk filed its Answer to the Complaint. In
its Answer, Niagara Mohawk contended that the transmission and loss rates
established in the TSA were in all respects just and reasonable. Niagara Mohawk
also denied Xxxxx's claim that Niagara Mohawk had required Sithe to pay for any
upgrades to Niagara
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Mohawk's transmission system in violation of Commission pricing policies and
opposed the changes to the provisions of the TSA and the IA requested by Xxxxx.
6. On July 1, 1999, Xxxxx filed a Response to Niagara Mohawk's Answer to
the Complaint.
7. On September 27, 2000, the Commission issued its Order on Complaint
Establishing Hearing and Settlement Judge Procedures. NIAGARA MOHAWK POWER
CORPORATION, 97 FERC [Paragraph] 61,258 (2000) ("September 27 Order"). In the
September 27 Order, the Commission set for hearing Xxxxx's challenges to the
transmission rate and loss rates contained in the TSA and Xxxxx's request for
a refund of approximately $63 million for transmission facilities provided to
Niagara Mohawk or constructed by Niagara Mohawk at Sithe's expense.
8. On October 27, 2000, Niagara Mohawk filed an Application for Rehearing
of the portion of the September 27 Order setting for hearing Xxxxx's claim for a
refund of approximately $63 million for transmission facilities provided to
Niagara Mohawk by Sithe or constructed by Niagara Mohawk at Sithe's expense. On
November 13, 2000, Xxxxx filed an Answer to this rehearing request. By order
dated November 15, 2000, the Commission granted rehearing for the purpose of
further consideration of the issues raised in Niagara Mohawk's rehearing
request.
9. By order dated October 4, 2000, the Commission's Chief Administrative
Law Judge assigned the Xxxxxxxxx Xxxxxx X. Xxxxxxx to act as Settlement Judge in
these proceedings. A settlement conference was held at the Commission's offices
on November 14, 2000 and numerous subsequent meetings and telephone
conversations have been conducted between the parties and with Judge Xxxxxxx.
These negotiations
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have resulted in this Settlement, which resolves all issues in Docket Nos.
EL99-65-000 and EL95-38-000.
SECTION III. TERMS OF THE SETTLEMENT
1. Niagara Mohawk and Sithe (collectively referred to herein as "the
Sponsoring Parties") have agreed to this Settlement resolving all issues in
Docket Nos. EL99-65-000 and EL95-38-000.
2. Sithe has previously consented in Docket Nos. ER97-1523-011, ET AL., to
the application of the marginal loss provisions of the NYISO OATT to service
received by Sithe under the TSA after August 31, 2000. The Sponsoring Parties
stipulate and agree that: (a) as full compensation to Sithe for claims by Xxxxx
for overcharges for transmission losses during the period from July 2, 1999 to
November 17, 1999, Niagara Mohawk has paid Sithe a lump-sum payment in an amount
equal to $2,300,000.00; and (b) Niagara Mohawk made this payment to Sithe on
March 2, 2001. The Sponsoring Parties agree that issues relating to transmission
losses during the period from November 18, 1999 to August 31, 2000 shall be
finally determined in Docket Nos. ER97-1523-011, ET AL.
3. The Sponsoring Parties stipulate and agree that the TSA will be amended
and restated as provided in Attachment A to this Settlement to provide that the
currently effective firm transmission rate of $1.76/kW/month and the currently
effective Contract Demand of 853 MW shall be fixed for a period commencing on
July 2, 1999 and ending December 31, 2005, and to further provide that no change
may be made to the transmission rate during this period except as required by
the Commission pursuant to the public interest standard of Section 206 of the
FPA. To this end, Niagara Mohawk and
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Sithe each waive their rights to seek changes to the firm transmission rate
established by this Settlement pursuant to Sections 205 and 206 of the FPA
during this period; provided however that nothing in this Settlement shall
constitute a waiver of any of the Sponsoring Parties' rights under the TSA or
the IA, including under Sections 205 or 206 of the FPA, except as expressly set
forth in this sentence and in Sections 5.1.1 and 8.2 of the TSA.
4. In order to settle Xxxxx's interconnection and transmission upgrade
claims in Docket No. EL99-65-000: (a) Niagara shall pay to Sithe an amount equal
to $28,112,917.00 ("Purchased Facilities Payment") to purchase the facilities
identified in Attachment C to this Settlement ("Purchased Facilities"); (b) The
Sponsoring Parties acknowledge and agree that, as of the date of the execution
of this Settlement, the Purchased Facilities are transmission upgrade facilities
that are integrated with the Niagara Mohawk transmission system; (c) The
Sponsoring Parties agree that the Purchased Facilities Payment is intended to
represent the full fair-market value, as determined by the Sponsoring Parties,
of the Purchased Facilities as of the date of this Settlement, and that,
accordingly, Niagara Mohawk believes (and will use its best efforts, consistent
with its obligations under federal and state law, not to take any position
inconsistent therewith) that neither Xxxxx's original payment for the Purchased
Facilities nor the Purchased Facilities Payment will give rise to federal or
state tax liability to Niagara Mohawk; (d) The Purchased Facilities Payment
shall be made in two lump-sum payments to Sithe, and Commission acceptance or
approval of this Settlement shall constitute authorization to Niagara Mohawk to
reflect this payment on its books as a capital payment appropriately made for
transmission facilities with a fair market value of $28,112,917.00; and (e)
Niagara Mohawk has already paid Sithe $15,075,000.00 of the
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Purchased Facilities Payment, on March 2, 2001, and shall pay to Sithe, by no
later than August 1, 2001, the remaining $13,037,917.00 of the Purchased
Facilities Payment (the "Remaining Portion").
5. The Sponsoring Parties stipulate and agree that it is appropriate to
assign directly to Sithe those costs already incurred by Sithe prior to the date
of this Settlement, for the facilities identified in Attachment D to this
Settlement (the "Other Facilities"). Xxxxx agrees to waive its right to make
filings at the Commission under Section 206 of the Federal Power Act to: (i)
seek reimbursement from Niagara Mohawk for all, or any part of, the costs and/or
expenses already incurred by Sithe prior to the date of this Settlement for the
specific facilities and operation and maintenance prepayments identified in
Attachment D; and (ii) pursue the specific transmission losses claims raised by
Sithe in Docket No. EL95-38-000, subject to Sithe's reservation of rights set
forth in Section III, Paragraph 2, above. The provisions of this Paragraph 5
shall not hereafter be modified except as required by the Commission pursuant to
the public interest standard of Section 206 of the FPA.
6. In addition to the foregoing, the Sponsoring Parties have agreed to
make certain modifications to the TSA and IA to: (i) implement this
Settlement; (ii) reflect the NYISO's operation and control of the New York
Control Area and to reflect the existence of the NYISO markets and its market
rules; and (iii) comply with the Commission's Order No. 614, 90 FERC
[Paragraph] 61,352 (2000). As noted in Paragraph 3 above, the amended and
restated TSA is included as Attachment A to the Settlement. The amended and
restated IA is included as Attachment B to the Settlement. Acceptance
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or approval of this Settlement shall constitute acceptance or approval by the
Commission of these amendments to the TSA and the IA.
7. The Sponsoring Parties shall retain any rights they may have to pursue
all issues related to: (a) the proposal of Niagara Mohawk and the other Member
Systems in Docket Nos. ER97-1523-011, ET AL., to impose marginal losses on
service under the TSA and the pursuit of the transmission losses issues and
requests for relief related thereto raised by Xxxxx in that proceeding; and (b)
all claims with respect to service rendered under the TSA after December 31,
2005.
8. If the FERC does not accept this Settlement in its entirety or orders
changes to this Settlement that are unacceptable to either of the Sponsoring
Parties, then: (a) this Settlement shall terminate, be null and void and shall
have no binding effect under applicable law; (b) Sithe shall return the payments
discussed in Section III, Paragraphs 2 and 4 of this Settlement to Niagara
Mohawk within five (5) business days of the date of any such final Commission
order, with interest calculated in accordance with the interest rate set forth
in the Commission's regulations (calculated from the date that Sithe received
the payments to the date that Xxxxx returned the payments to Niagara Mohawk);
and (c) the Sponsoring Parties shall use good faith efforts to reach a mutually
agreeable settlement with the same economic impact and legal effect on the
Sponsoring Parties as this Settlement.
SECTION IV. OTHER PROVISIONS
1. The Sponsoring Parties agree to take all reasonable action to support
this Settlement and its implementation before the Commission.
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2. The Sponsoring Parties have both participated in the drafting of this
Settlement and, therefore, no rule of construction should apply that would
interpret this document more favorably to either Sponsoring Party.
3. The rights conferred and obligations imposed on either Sponsoring Party
by this Settlement shall inure to the benefit of or be binding on that Party's
successors in interest or assignees as if each such successor or assignee was
itself a Sponsoring Party.
4. This Settlement is made upon the express understanding that it
constitutes a negotiated settlement and no person or Sponsoring Party shall be
deemed to have approved, accepted, agreed to or otherwise consented to any
ratemaking or tariff principle or methodology underlying or supposed to underlie
any of the provisions herein. This Settlement shall not be deemed to have
established a "settled practice," as that term is used in PUBLIC SERVICE COMM'N
OF NEW YORK V. FERC, 642 F.2d 1335 (D.C. Cir. 1980), CERT. DENIED, 454 U.S. 879
(1981). The making of this Settlement shall not be deemed in any respect to
constitute an admission by either Sponsoring Party with respect to any
allegation or contention in this proceeding.
5. The discussions that have produced this Settlement have been
conducted on the explicit understanding, pursuant to Rule 602(e) of the
Commission's Rules of Practice and Procedure, 18 C.F.R. Section 602(e)
(2000), that neither this Settlement, the accompanying Explanatory Statement,
nor any comment on this Settlement, are admissible in evidence against any
participant, except in any proceeding to enforce the provisions of the
Settlement, and on the further explicit understanding that any discussions
among the Sponsoring Parties with respect to this Settlement prior to the
execution and filing thereof shall not be subject to discovery or admissible
in evidence;
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provided however that, notwithstanding the foregoing, the provisions of Section
III, Paragraph 4 of this Settlement shall be admissible in evidence and binding
on the Sponsoring Parties in any future proceedings in which Niagara Mohawk's
transmission rates or the Transmission Service Charge for withdrawals to serve
load in Niagara Mohawk's Transmission District (as those terms are defined in
the NYISO OATT) or other similar charges for the recovery of Niagara Mohawk's
transmission revenue requirements are at issue ("Transmission Rate Proceeding"),
as long as Niagara Mohawk is not seeking to assign such charges directly to
Sithe in the Transmission Rate Proceeding. At Niagara Mohawk's reasonable
request, Xxxxx shall provide supporting evidence in the form of testimony or
affidavit(s) in such a Transmission Rate Proceeding.
6. This Settlement constitutes a full settlement with respect to Docket
Nos. EL99-65-000 and EL95-38-000, and supersedes any and all prior or
contemporaneous representations, agreements, instruments and understandings
between the participants, whether written or oral, relating to the matters
addressed herein. There are no other oral understandings, terms or conditions of
this Settlement, and none of the participants has relied upon any such
representation, express or implied in making this Settlement.
7. The Commission is hereby requested to grant such waivers of its
regulations as may be necessary to effectuate all of the provisions of this
Settlement.
8. Any number of counterparts of this Settlement may be executed, and each
shall have the same force and effect as an original instrument, as if each of
the Sponsoring Parties to all the counterparts had signed the same instrument.
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The undersigned party to this proceeding, by its signature, supports
this Settlement Agreement.
NIAGARA MOHAWK POWER CORPORATION
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------------
Dated: June 28, 2001
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The undersigned party to this proceeding, by its signature, supports
this Settlement Agreement.
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
By: Sithe/Independence, Inc., its General Partner
By: /s/ Xxxxxx X. Xxxxxxxxx
----------------------------------------------
Dated: June 28, 2001
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ATTACHMENT C
PURCHASED FACILITIES PAYMENT
The Purchased Facilities Payment of $28,112,917.00 shall be in exchange
for the facilities that consist of the 345 kV Transmission Circuit from the
Independence Substation to the Clay Substation (Line #26). The facilities and
costs related to the facilities listed on Attachment D are excluded from the
Purchased Facilities Payment.
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ATTACHMENT D
The following facilities are excluded from the Purchased
Facilities Payment:
1. Independence 345 kV Substation;
2. Independence Plant Power System Stabilizer;
3. Operation and Maintenance Pre-Payment to Niagara;
4. Xxxxx's capitalized interest during construction;
5. Niagara System Improvements for Adding Scriba to Clay 345 kV Circuit;
6. The 345 kV Transmission Circuit from the Scriba Substation to the
Independence Substation (Line #25); and
7. Interest on Items 1-6 above.
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