Originally published October 27, 2005
Court Finds Termination Payment Too Speculative
A recent opinion issued by the District Court for the Southern District of New York (the "District Court") may be cause for some alarm among energy traders. In Tractebel Energy Marketing, Inc. v. AEP Power Marketing, Inc., the District Court held that Tractebel Energy Marketing, Inc. ("Tractebel") had breached a long-dated agreement with AEP Power Marketing, Inc. ("AEP") in which AEP claimed to be in the money. In determining the amount of damages due AEP, however, the court refused to allow damages under the contractual termination payment provision, because the twenty-year period of the agreement prevented any reasonable certainty to the calculation of AEP's damages. This decision adds significant uncertainty to an already difficult area – the valuation upon termination of long-term contracts or of contracts in illiquid markets.
