North Star Steel Ancillary Services Litigation

Members of ERG represented the North Star Steel Company (NSS) before the United States Court of Federal Claims (USCFC), in North Star Steel Company v. The United States, in Docket No. 00238. NSS operates a large arc furnace steel mill in Kingman, Arizona. In conjunction with development of NSS’s facility, NSS entered into agreements with the Western Area Power Administration (WAPA), a Federal power marketing agency, Arizona Electric Power Cooperative, Inc., and the Mojave Electric Cooperative, Inc. for the provision of non-firm transmission, and supply of ancillary services related to NSS’s power purchases to meet the power requirements of its Kingman steel mill. At the time the agreements were negotiated, WAPA was unable to calculate the exact costs for its provision of ancillary services, in particular regulation services. The agreements required NSS to compensate WAPA for regulation services with an in-kind payment initially set at twenty percent for NSS’s actual hourly metered load. The agreements required the parties to jointly establish during the facility’s first year of operation, an appropriate cost-based methodology for NSS’s in-kind payments. NSS filed a complaint in the USCFC claiming that WAPA’s twenty percent factor for in-kind payments grossly overstated WAPA’s costs for the provision of regulation services, and that WAPA failed to meet its requirement to accept an appropriate methodology for the determination of such costs. Members of ERG sponsored expert testimony concerning the development of an appropriate methodology for the determination of WAPA’s regulation services costs, and demonstrated that NSS was grossly overcharged by WAPA for such services. At the conclusion of trial, the Court issued an initial decision in favor of NSS indicating overcharges to NSS by WAPA of approximately $7.3 million.

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