Norcon Power Partners v. Niagara Mohawk Power Corp.

705 N.E. 2d 656 (1998)

Facts

Norcon (P) was an independent power producer and Niagara (D) was a public utility provider. P and D entered into a contract for 25 years wherein D undertook to purchase power from P's Pennsylvania facility. Differences emerged during the early years of the arrangement. A federal lawsuit was taken and the below issue was certified for determination by the New York Court of Appeals. In the first period, D was to pay P six cents per kilowatt-hour for electricity. In the second and third periods, the price was based on D's 'avoided cost.' The avoided cost reflects the cost that D would incur to generate electricity itself or purchase it from other sources. If the avoided cost falls below a certain floor price D was obligated to pay the floor price. If the avoided cost rose above a certain amount (calculated according to a formula), D's payments are capped by a ceiling price. An 'adjustment account' tracked the difference between payments actually made by D in the second period and what those payments would have been if based solely on D's avoided cost. In the third period, the price paid by D was based on its avoided cost without any ceiling or floor price. Payments in the third period were to be reconciled against any credits or debits owing from the second period. If the adjustment account contained a balance in favor of P, D must make increased payments to Norcon. If a balance exists in the adjustment account at the end of the third period, the party owing the balance must pay the balance in full within thirty days of the termination of the third period. In 1994, D presented P with a letter stating its belief that based on revised avoided cost estimates that substantial credits in D's favor would accrue in the adjustment account during the second pricing period. That sum was estimated to be in excess of $610 million by the end of the second period. D then demanded that P provide adequate assurance to D that P will duly perform all its future repayment obligations. P then promptly sued D and sought a declaration that P had no contractual right to demand adequate assurance of performance under New York law, beyond what was negotiated and expressed in the agreement. P sought a permanent injunction to stop D from terminating the contract. D counterclaimed that it had the right to demand adequate assurances of performance even that was beyond that listed in the contract, the UCC did not apply to the contract and P was solvent. P got its motion for summary judgment; the doctrine was only recognized when the promisor becomes insolvent or when the UCC applied but neither of those conditions were present. The appeals court agreed and also stated that no such right existed outside the UCC.