Seeking to set aside what it called an “inappropriate” multi-billion verdict in which a jury awarded the State of Alabama $87 million in compensatory damages and $3.4 billion in punitive damages over unpaid royalty fees, ExxonMobil Corp. has filed an appeal with the Circuit Court of Montgomery County, AL. The case, decided last month, centered on charges that the energy giant (then Exxon, before its merger with Mobil) had underpaid up to $87.7 million in royalties on the Mobile Bay natural gas project in the Gulf of Mexico (see NGI, Dec. 25, 2000). The jury said it set the damages by tripling ExxonMobil’s annual production from 13 natural gas wells located on the Alabama coast in the disputed time. The long-standing contract dispute originally questioned whether an additional $40 million in royalties was due the state and exactly how the royalties should be calculated. To date, ExxonMobil said it has paid Alabama $1 billion in royalties and bonus payments under the lease agreement. “ExxonMobil believes that if this verdict goes unchallenged, other legitimate businesses in the state of Alabama – businesses that, like ExxonMobil, help expand the tax base, add to the economy and create new jobs – will also be potential targets,” the company said in a written statement. “Any company engaged in an open and reasonable contract dispute in the state will not be able to have reasonable disagreements with regulators without running the risk of being accused of fraud and being subjected to possible punitive damages.”

Enron Energy Services (EES) has agreed to manage energy supply for Pilkington North America Inc., a division of the UK-based glass manufacturer, for a 10-year period in a deal valued in excess of $500 million. It covers nine of Pilkington’s U.S. facilities located in North Carolina, Kentucky, Indiana, Ohio, Michigan, Illinois and California. Enron will manage the company’s supply of electricity and natural gas and provide related energy management services including energy equipment upgrades that will increase energy efficiency in Pilkington’s manufacturing facilities. “Since energy is a significant expense in our business, we must manage our energy consumption and price risk carefully. Enron’s expertise will help protect our bottom-line while allowing us to focus on glass production,” said Rick Karcher, president of Building Products North America for Pilkington. Pilkington, a large-scale manufacturer of glass and glazing products for building, automotive and technical markets has operations in 25 countries on four continents.

ISO New England Inc. (ISO-NE) and six New England power transmission companies filed today a joint petition yesterday with FERC for a declaratory order to form the New England Regional Transmission Organization (NERTO). Under the plan, which was in response FERC Order 2000, ISO-NE, Bangor Hydro-Electric, Central Maine Power, National Grid USA, Northeast Utilities, The United Illuminating Company, and Vermont Electric Power propose a Regional Transmission Organization (RTO) consisting of two entities working in concert: (1) a new independent transmission company, Northeast Independent Transmission Company, LLC (NE ITC); and (2) an independent system operator (ISO). Like ISO-NE, the NE ITC will be subject to FERC regulations. Under the plan, ISO-NE will be the system operator for the New England control area, administer the wholesale markets in the region, and provide most ancillary services through its tariff. ISO-NE has proposed that the New England Power Pool (NEPOOL) have a continuing role, albeit modified, in the development and modification of the rules for the New England markets and with respect to related agreements, and that immediate steps be taken to increase conformance of the New England and New York markets.

In response to the recent turmoil involving outrageous natural gas prices this winter, Nicor Gas submitted its intentions to the Illinois Commerce Commission (ICC) to institute a permanent 12-month budget plan that would allow its customers the opportunity to manage the effects of the high gas costs. The plan would allow Nicor Gas customers to defer their higher winter bills and spread the costs over the course of the entire year. Nicor Gas said it expects to file the details of the payment program with the ICC on or before the first of February. The utility in related action also raised the eligibility of its Sharing program up to 200% of the poverty level to help customers with trouble paying home heating gas bills. The company said it has twice raised the amount of each individual sharing grant — a one time grant to help customers pay their gas bills in the current heating season — from $200 to $325. Nicor completed the increase of the Sharing program in the wake of recent action by the Illinois General Assembly raising the eligibility for the Low Income Home Energy Assistance Program (LIHEAP) to 150% of the poverty level. The new level is a 25% increase from the previous level, and is the maximum allowed under the federal-state program.

Almost seven months after the initial agreement, Chesapeake Energy Corp. announced it has completed the acquisition of Gothic Energy Corp., making it the 10th largest independent natural gas producer in the United States. The acquisition marks the turn-around of Chesapeake, which two and a half years ago tried to sell itself due to repeated losses. The transaction included the issuance of four million common shares of Chesapeake to Gothic shareholders at an exchange rate of 0.1908-to-one. The company will also assume about $203 million of Gothic’s 11.125% senior notes that mature in 2005. As previously announced, the total acquisition cost is expected to reach $345 million, or about $1.08 per Mcfe (see NGI, July 3, 2000). Chesapeake estimates the acquisition will increase the company’s reserves by about 25% to 1,600 Bcfe, and its daily production by 22% to 450 MMcfe/d. Chesapeake believes that approximately 96% of Gothics assets are natural gas. The Gothic purchase came about after Chesapeake unsuccessfully put itself on the market in July 1998 and at the end of the year realized it was going to take a loss of almost $1 billion (see NGI, July 13, 1998; March 29, 1999). The company found no prospective buyers, so it decided to seek alternative routes and rebuild. The producers signed a definitive merger agreement in early September, and received approval from Gothic’s shareholders on Dec. 12, 2000. The combined companies will retain Chesapeake’s Oklahoma City headquarters.

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