CASE STUDIES – Dispute Resolution and Advisory Services

A Power Plant Construction Project

Mr. Pabon provided expert testimony in an international arbitration matter involving a power plant construction project. The case centered around a construction delay claim and associated market penalties. Mr. Pabon’s team assessed the economic validity of the claim from a regulatory perspective and demonstrated that the economic and commercial decisions made by the plant operator led not only to the imposition of penalties but also to an increase in their magnitude. Mr. Pabon opined that the decisions of the operator were made in a complex regulatory environment and driven by its own risk profile and that those choices were not required by market economics or the technical limitations of the plant.

An Investment Expropriation Project  

Mr. Pabon provided an expert report on damages in an international arbitration case about the seizure of Claimant’s investments, the revocation of a tax exemption that had initially been enjoyed by Claimant, and, ultimately, the elimination of Claimant’s opportunity to earn a return on and of his investment. Mr. Pabon’s team assessed damages and economic implications of the expropriation of Claimant’s investment, which included an assessment of country risk and interest.

A Road Toll Case in Latin America

Mr. Pabon provided expert testimony in a road concession project. The international arbitration revolved around the interpretation of the Concession Contract adjustment mechanism and the alleged lost revenues due to the wrongful application of toll adjustments. Mr. Pabon’s team assessed the economic validity of the claim and demonstrated that the Contract was the regulatory instrument that governs and protects the parties’ relationship and that the adjustment mechanism, as suggested by Claimant, was based on a wrong reading of the Contract which would produce economic inconsistencies and outcomes. It was shown that the revenue shortfall claimed was baseless, and, that Claimant had over-collected revenues.

Defense of Private Investor on a BOO Power Plant Tender

Mr. Pabon acted as an expert witness representing a large US investor-owned utility in an alleged damages claim related to a build-own-operate power plant transaction in the Dominican Republic. The claim was centered on a breach of contract by not paying for advisory services allegedly provided by Claimant in support of Respondent’s evaluation of a possible bid to build a thermal power plant. Mr. Pabon provided critical economic analysis on the restructuring of the power sector, demonstrated that Claimant’s damages methodology was based on unsubstantiated and incorrect assumptions, and noted that Claimant’s rationale was based on conjectures not representative of industry norms and practices.

Advisory Services to the Brazilian Power Industry

Mr. Pabon led a team of economists advising Independent Power Producers (IPPs) on utility regulation and other energy market issues. The team assessed for the IPPs governmental proposals to segment the generation market, advised on their participation in energy auctions, and designed and implemented commercial strategies. In addition, Mr. Pabon’s team was also retained by several distribution companies to estimate the revenue requirement under standard regulatory principles, to advise on general tariff-related issues, and to train staff on utility regulation principles. Additional work for the industry included advisory services for the Brazilian electric distribution association and provision of technical advice in the assessment of regulations issued by the national electricity regulator (ANEEL) that dealt with the economic concepts for tariffs. Mr.Pabon’s team also assessed proposed electricity market rules for the wholesale market in Brazil.

Defense of a Latin American Government in an Electricity Construction Project Dispute

Mr. Pabon worked with a team representing a Latin American government against a company seeking contract reform and compensation related to a transmission line project. The company claimed that economic turmoil had made the project financially infeasible. Mr. Pabon’s team provided critical economic analysis to the Tribunal hearing the case, including insight on economic fundamentals and an assessment that the economic turmoil did not adversely affect the company.

A NAFTA Discrimination Claim in the Pulp & Paper Industry Addressing Electricity Regulation Issues

An investor  sought compensation for alleged lost profits and diminution in value of its investment due to claimed discriminatory and unfair treatment by a government limiting the ability to arbitrage self-generated electricity against purchases from its regulated supplier. Mr. Pabon’s team conducted regulatory and economic policy analyses on restrictions on the resale of self-supplied electricity and showed that Claimant’s request was flawed because it did not follow regulatory policy and was inconsistent with economic efficiency principles. The team showed that the damages claim was without merit and that Claimant’s request would not add any capability to the utility’s resource portfolio but just to Claimant’s profits.

Structural Power Sector Reform in India

The States of Orissa and Haryana in India undertook a wide reform of their power sector. Mr. Pabon’s team played a key role in the reform effort in that sector with commission for the design and development of the regulatory framework. The team’s specific responsibilities included the analysis of legislation, regulations, licenses and guidelines; the design and implementation of on-site regulatory training; and on-site consulting on competitive procurements, performance standards, consumer affairs, regulatory economics, internal organization, and operating procedures.

A Gas Royalty Dispute in Latin America

A company with an integrated energy project that monetizes isolated gas reserves by generating electricity and transmitting it to market claimed that natural gas market changes should trigger royalty formula adjustments. Mr. Pabon’s team represented the respondent in the resulting dispute, conducting economic and commercial analyses of the royalty adjustment clause, and demonstrating that the company’s claim for damages was baseless because it did not compete with other gas suppliers and that the project as defined did not constitute a market. Essentially, the team showed that the company was trying to create an alternative, flawed argument of contract infeasibility.

The Delay in Construction of a Power Plant in a Nordic Jurisdiction

A major power reactor construction company filed for arbitration related to delay in the execution of construction work and project management issues against a power utility in a Northern European country. Mr. Pabon’s team conducted economic and financial analysis related to the delay and the contractual obligations assumed by Respondent with third party electricity off-takers. By using a replacement cost approach, it was showed that Respondent suffered damages associated with the loss of energy and the capacity value arising from the delay in the construction of the generation asset.

Regulatory and Asset Strategy for an Independent Power Producer

An IPP in the Dominican Republic facing a difficult financial situation needed to identify strategic approaches to address its problems. Mr. Pabon’s team provided a structure for assessing the IPP’s fleet of assets in the country by analyzing the flaws in the regulatory regime, identifying and prioritizing individual remedies, and assembling alternative strategies to optimize the value of the fleet of assets (distribution, generation, and an LNG facility).

The Latin American Transmission Tariff Dispute

A company claimed that the government had violated a Stability Agreement related to discrimination in the setting process of electricity transmission tariffs. Mr. Pabon and his team represented the government, offering insight on economic fundamentals and demonstrating the fallacy of using regulatory arguments in contracts disputes in unregulated commercial settings. In addition, the team noted the integrated nature of the project and showed previous benefits received by the project in other business segments.

The Middle-East Breach of Contract Dispute

A power plant and associated coal mine project in the Middle East was cancelled after a government organization imposed new terms on the project’s purchased power agreement. The Concessionaire filed a breach-of-contract claim before the International Centre for the Settlement of Investment Disputes. Mr. Pabon’s team assisted the Concessionaire in both the jurisdictional liability and damages phases of the case, demonstrating that the government’s positions were inconsistent with good-faith commercial practices and undermined the project’s financial feasibility.

Slovakia Electricity Market Design

The Slovakian regulatory agency –RONI– needed a model for the redesign of the wholesale electricity market, including the design of the market rules and regulation of transmission and generation in the context of privatization. Mr. Pabon co-led the development of the specifications of the price regulation formula for the transmission business and the guiding principles for transmission price reviews, calculation of the revenue requirement, and development of guidelines for determining cost-reflective transmission tariffs and procedures for ensuring non-discriminatory access to the transmission system.

The Asia Distribution Case Arbitration

An Asian State government argued that a “comfort letter” committed an international investor in a power distribution company to fund power costs owed to an energy supplier. Mr. Pabon worked with a team representing the investor in arbitration proceedings under local arbitration rules. The team analyzed the fundamentals of structural reform of the power sector, noted ways in which the government and regulator defaulted on their obligations, and demonstrated that funding operating losses through equity contributions was uncommon business practice.

Assistance to Brazilian Government Agencies

Mr. Pabon was part of a team that assisted the national electricity regulator (ANEEL) in developing its policies and procedures for tariff-related issues and identified the components of an institutional strengthening program for ANEEL. Additional work with the regulator included calculating distribution wheeling tariffs for certain electricity customers. He also advised the Brazilian System Operator on the commercialization of ancillary services in Brazil. Finally, Mr. Pabon was part of several privatization efforts undertaken in Brazil.

ADDITIONAL PROJECT EXPERIENCE

Advisory Services

  • Design of Commercial and Energy Strategies. For Duke Energy do Brasil, led team to assist in the design of a commercial and energy strategy to be implemented in the first energy auction held in Brazil in 2004. The work included the analysis of auctions rules and development of proposals to improve the auction outcome, the review of the commercial position of the company before its competitors, and the analysis of the role of “pivotal suppliers” in the Brazilian markets.
  • Analysis of Technical Note for AES-Sul. Assisted the distribution company with its analysis of and response to the preliminary report of ANEEL in its first tariff revision. Issues raised were related to revenue requirement, cost of capital, efficiency gains, rate base valuation, and benchmarking techniques.
  • Analysis of Revitalization Measures. For an international private investor in Brazil, analyzed set of recently published regulatory rules issued by the Brazilian government and proposed economic, efficient alternatives. Topics studied included distribution and transmission tariffs, mechanism for promotion of new generation in the Brazilian market, governance of system operator, restructuring of governmental institutions, consumer issues; deverticalization of industry, cross-ownership, etc.
  • International Experience on Separation of Distribution and Retail Segments. For Duke Energy conducted an international survey on experiences on deverticalization, elimination of cross-subsidies, determination of distribution tariffs and divestiture of retail segment. Study was the base for further discussion with the government on revitalization measures.
  • Segmenting the Brazilian Electricity Market. For Duke Energy led efforts in the development of a position paper, for further discussion with government officials, that assesses a possible segmentation of the market with respect to its consistency with objectives of reform, and especially its effect on the willingness of investors to place funds into the sector. The paper describes the flaws of the government’s proposals from the perspective of capital attraction and provides alternate proposals to segmentation.
  • Barriers for Purely Private Investment in Brazilian Generation. Advised Duke Energy in the analysis of several new market structures, primarily California and Brazil, to identify market design and regulatory or implementation problems that have acted to discourage investment in generation capacity in those markets.
  • Tariff and Regulatory Analysis. For a distribution company, Bandeirante Energia S.A, led a team that assessed internal tariff capabilities of the company, proposed regulatory arrangements to pursue the company’s tariff objectives, developed a computational model to calculate approximate revenue requirement for various test years, and analyzed the simulation’s output from a regulatory perspective.
  • Regulatory Analysis. For Elektro, Electricidade e Serviços SA led a group of consultants in the analysis of tariff issues of the company. The tasks included collection and assessment of data necessary for estimating the revenue requirement, development of a model to calculate the revenue requirement for various test years, sensitivity analysis to various parameters, development of a methodology for calculating the cost of capital and capital structure of the company and identification of alternative treatments of various components of the revenue requirement and the evaluation of their impact on Elektro’s financial performance.
  • Analysis of Draft Resolutions on Tariff Issues. For the association of distribution companies, ABRADEE, provided technical advice in the assessment of the Draft Resolutions issued by ANEEL regarding the Public Audience No. 007/2000 that deals with the economic concepts for tariffs revisions, tariff readjustments and extraordinary tariff revisions.
  • Training in Commercialization of Energy Strategies. For a group of executives of the Guaraniana Group, coordinated a team that provided technical training on strategic and organizational issues related to the development and operation of an energy trading company. Topics of this technical support included: identification of corporate objectives and strategies in energy, assessment of market environment, analysis of strategic uses of utility assets in energy, assessment of the impact of regulatory and structural arrangements on energy trading companies, analysis of risk management strategies and organizational issues of energy trading business, and assessment of the California experience. This training seminar included technical visits to US Energy Trading floors.
  • Simulation of Revenue Requirement. For a group of companies owned by AES Corp., led a team that determined tariff revenues, rate base, and cost of capital determination. The analysis included the simulation of the company’s revenue requirement, assuming standard rate-of-return regulatory treatment, sensitivity analysis to various parameters (e.g. test year, O&M and cost of capital, capital structure, rate base valuation method, treatment of non-concession activities), and assessment of results from a regulator’s perspective.
  • Analysis of Economic-Financial Equilibrium (EFEQ). For a group of distribution companies owned by AES Corporation, participated in the conceptual analysis of the distribution Concession Contracts in Brazil in order to determine an approach to define EFEQ from an economic perspective. Also participated in the design of a practical approach for determining EFEQ of the concession contracts and the firms.
  • Design of “X” Factor Methodology. Advised a distribution company, Eletropaulo, in the conceptual development of a methodological approach for determining the “X” factor under the framework of Performance Based Regulatory regime currently in place in Brazil. Reviewed the regulatory framework to advise the utility in the development of a position on the X factor for discussion with the regulatory body in order to recover missed revenues through the efficiency factor.
  • Regulation of Tariff and Strengthening Program. For the National Regulator – ANEEL – provided technical support in the developing of regulatory and economic principles for developing tariffs and procedures for tariff revisions and extraordinary tariff revisions. Participated in the development of an implementation plan for ANEEL for the improvement of non-tariff related aspects of economic regulation currently in place in Brazil.
  • Commercialization of Ancillary Services in Brazil. Worked for the System Operator (ONS) in order to develop a set of recommendations for the commercial procurement of Ancillary Services in Brazil. Work included an international survey on the provision of ancillary services in different jurisdictions, the establishment of a Brazil-specific economic framework for the analysis of procurement of ancillary services, and the development of recommendations for commercialization of ancillary services.
  • Analysis of Wholesale Electricity Market in Brazil. Member of a team working for three Brazilian distribution companies analyzing proposed rules for the electricity wholesale market in Brazil. The work involved a review of the proposed structure of the wholesale market, and an analysis of market rules to resolve controversial points, and to ensure coherent and efficient operation of the WEM.
  • Distribution Tariffs for Retail Wheeling Customers in Brazil. Worked on distribution tariffs for retail wheeling customers for ANEEL. Assignments included the analysis of alternative methods of deriving distribution tariffs, revision of proposed rules for setting distribution tariffs, analysis of competitive provision of revenue cycle services, and development of a survey of retail wheeling in thirteen US states and a variety of countries around the world.
  • Regulatory and Organizational Strategy for an Electric Utility Entering the Telecommunications Market. Conducted a survey of the international experience of electric-telecommunications convergence. Developed a regulatory and organizational strategy for the entry of the Brazilian transmission company, ELETROBRAS, into the telecommunications market.
  • Privatization of a Distribution Company – COSERN. Work centered on the valuation of the company for the purpose of its later sale. Assignments included the assessment of new business opportunities for the new company and worked closely with Brazilian consulting advisers to evaluate the impact of sector regulation on the market value of the company.
  • Regulatory Reform in Latin America – IDB. Part of a team that undertook a thorough evaluation of the regulatory frameworks in the power and natural gas sectors in a select group of Latin American countries. This work involved the preparation of a report that developed a conceptual framework for reform and privatization, then comparing this framework with the reform and privatization experiences in Argentina, Bolivia, Brazil, Chile, Colombia, Perú and El Salvador and presenting recommendations for IDB loan and technical assistance policy.

  • Regulatory Review for Cameroon. For a private investor, managed a project that analyzed the current regulatory framework in Cameroon. The objective of the work was to determine alternative mechanisms to improve the financeability and sustainability of the Cameroonian electricity sector.
  • Regulation of Electricity Distribution, Slovakia. Supported the Regulatory Office in Slovakia in the design of a new price regulation regime applicable to electricity distribution companies. Work included the development of recommended price regulation regime, formulas applicable to end users, access prices and calculation of revenue requirements of three distribution companies.

  • Analysis of Competing Generation Technologies. For an international investor analyzed the economics of renewable generation assets (wind farm assets) after the expiration of assumed initial purchase contracts and provided view of the current marginal technology and probable bus-bar costs in those regional markets where the company expected to have wind projects.
  • Brazil Countervailing Tariff. Advised a Claimant in the ferrosilicon industry on Brazilian electricity subsidies and tariffs implications.
  • Comments on FERC SMD NOPR – Cinergy Services Inc. Assisted with market and regulatory concepts for the draft of Cinergy’s comments, in particular with the assessment of the economic effects of through and out rates in the context of FERC’s investigation of the justness and reasonableness of the through and out rates in MISO and PJM and in the design of a demand response mechanism.
  • Constellation New Energy Damages. Part of a team that analyzed and provided a response in a litigation concerning breach of confidentiality in load management programs. Drafted expert report and reviewed damages calculations presented by the counterparty.
  • Automatic Mitigation Procedures. For a US Independent Power Producer analyzed price spike mitigation procedures proposed to FERC and developed an alternative approach based on demand side bidding. Work also included the assessment of proposals presented by other market participants in the US. Filed before FERC as an alternative to avoid price spikes.
  • Niche Market Study. For a southwestern utility in the US, led the effort to provide an overview of the reasons why niche markets can exist and provide examples of niches in other industries and in other parts of the energy industry. Discussed the longevity of the factors that permit niche markets to exist and the actions niche occupants can take to influence the life of those factors.
  • Assessment of Margins on Customized Products. Led a group to design a methodological approach in order to measure the magnitude of the margin that a US utility has earned by selling customized products.
  • Business Strategy to Major Utility in Southwestern US. Managed team that evaluated the strategic alternatives of a utility in the US. This involved modeling the power market in the western United States and carrying out quantitative analyses to assess the financial impact of several strategic possibilities on the utility’s financial strength. The analysis included expanding the current style of power marketing activities by investing in new generation assets, investing in the assets of a power cooperative and backward integrating into generation fuels (coal and natural gas).
  • Analysis of Competitiveness of Power Plants. Led the effort to identify and assess technical alternatives available to a US utility to increase the competitiveness of its plants in the context of the marketing and financial mechanisms available in the new deregulated markets for electricity in the United States.
  • Due Diligence for Private Investor. Regulatory expert analyzing economic implication of current and future structure of asset for further acquisition.

 

Litigation Support

  • Confidential Case: As an economic and damages expert, provides consulting services in a power plant construction claim on economic implications of alleged delay and associated market penalties.
  • Confidential Case: As an economic expert, provided expert testimony in an international arbitration case of a road concession. Assessed the contract’s price adjustment mechanism, and the alleged lost revenues. Demonstrated that the former, as suggested by Claimant, was based on a wrong reading of the contract, inconsistent economic principles and industry practices, would have led to inefficient economic outcomes which lead to the conclusion of a baseless revenue shortfall.
  • Carib-Consult v. ESI, and Florida Power & Light (“FPL”).  As an economic expert, supported international investor on claim of breach of contract for not paying for services related to alleged bid to build a thermal power plant in the Dominican Republic. Services included the economic analysis of the power sector reform efforts, analysis of the damages claim, and criticism of methodology used.
  • Mercer International Inc. v. Government of Canada.   As a consulting expert, provided economic/regulatory expertise related to claims of discrimination and unfair treatment in violation of the NAFTA treaty. Assessed regulatory and economic policy related to the self-supply requirements of pulp and paper mills in Canada with cogeneration capacity. Assessed damages claim presented by Claimant
  • Confidential Case.  As a consulting expert, provided economic/commercial contract interpretation to Claimant’s request for modification of the royalty calculations associated with its hydrocarbon exploitation concession contract in a Latin American country. Assessed economic implications of Claimant’s request as well as damages claim.
  • Confidential Case.  As a consulting expert, determined the quantum of damages associated with the lost energy and capacity value arising from a delay in the construction of a large generation asset in a Northern European country. Analysis included assessment of commodity price forecast and calculation of damages based on both the real-world and but-for words scenarios. Economic implications of the loss of energy were evaluated, and its effects on customers and electricity off-takers.
  • Isolux Corsán Concessiones v. The Republic of Peru.  Provided consulting expertise on behalf of the Government of Peru related to claim of breach of bilateral investment treaty. Assessed claims of bad faith negotiations and discrimination made against the Government and damages presented by Claimant.
  • Confidential Case.  As a consulting expert, on behalf of international investor in power plant special purpose vehicle, provided independent assessment of value of shares in that company, including analysis of the electricity market.
  • Caravelí Cotaruse Transmisora de Energía S.A.C – CCTE v. Government of the Republic of Perú.  Consulting expert analyzing the nature of the concession regime in Perú, the importance of contracting in modern economies and assessing damages arguments presented by Claimant.
  • AEI Asia Limited v. Michael Yap Kong Hwee.  Consulting expert addressing the damages suffered as a result of a defective power plant/desalination cogeneration project sold to AEI by a private developer.
  • Private Investor v. the Government of the Dominican Republic.  As consulting expert, provided support in a breach of a concession contract for electricity distribution service. Addressed liability and damages issues for the Respondent pointing out inconsistencies in claim; fallacies of arguments; jurisdictional differences between BIT and local regulations. The case settled on terms favorable to client.
  • Roz v. Coca-Cola and the Republic of Uzbekistan.  Consulting expert analyzing on damages for breach of contract.
  • Aguaytia Energy LLC v. Government of Perú.  Consulting expert analyzing comparative electric utility regulatory systems, industry practice regarding electric sector concessions, applicable compensation and damages issues on behalf of the government of Perú. Analyzed alleged violation of a Legal Stability Agreement related to discrimination in the setting of compensation for electricity transmission services.
  • Fraport AG v. Republic of Philippines Arbitration.   Consulting expert for the economic analysis of the concession agreement for the expansion of the Ninoy Aquino International Airport for arbitrations before the ICSID and the ICC.
  • Turkish Power Project Arbitration.  Consulting expert in charge of assessing the associated damages for breaching a concession contract. Coordinated NERA’s efforts in the estimation of lost profits due to the cancellation of PSEG Global’s IPP in Turkey and assessed the business practices undertaken by PSEG during pre-construction period of the project.
  • AES CESCO v. GRIDCO.  Acted as consulting expert in assessing from an economic perspective the economic and regulatory issues involved in Gridco’s claim regarding CESCO.
  • AES/Dow Chemical Arbitration.  Acted as consulting expert for determining the liability and the damages associated with the breach of contract between AES and Dow Chemical in the selling process of Dow’s power plant Elsta, located in Holland.