United States

United States

Fraud and negligence alleged in lawsuit

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In a legal battle unfolding between the two largest players in America's wind industry, ESI Energy Inc is seeking $15 million in compensation and damages from Enron Wind Corporation for alleged fraud and breach of contract. In the federal suit, ESI also demands a jury trial to settle what it alleges is Enron Wind's consistent and continuing violation, evasion and misuse of the confidential co-operative agreement signed by the two parties three years ago.

The complaint accuses Enron Wind of fraud, breach of contract, breach of warranty and negligent misrepresentation. ESI seeks termination of the agreement between the two energy companies, as well as reimbursement and punitive damages. ESI Energy Inc, the international development subsidiary of the huge US energy company FPL Energy Inc of Florida, filed the suit in the US District Court in San Diego, California (Windpower Monthly, September 1998). Enron Wind, formerly Zond Corp, is based in California. It is the largest US maker of wind turbines and is owned by natural gas company Enron Corp.

By the end of the third week of September, Enron Wind had not responded to the suit in detail and was said to be seeking more time, until September 30, to do so. The defendant was reportedly in the process of drawing up documents to seek arbitration to settle what it described as various sums of money owed to it by ESI.


ESI's lawsuit is a serious salvo in what has apparently been a dispute that started soon after the two parties agreed, on October 1, 1995, to a sweeping deal to develop international wind projects co-operatively and -- according to ESI -- exclusively. Among the projects itemised in the lawsuit is the world's largest wind farm, a 107 MW power plant just completed by Enron Wind in Minnesota. It is one of numerous developments in which ESI alleges that Enron ignored the marriage agreement while pursuing its own interests.

Upping the ante considerably, at least on paper, is also the lead counsel for ESI. David Boies, a leading New York anti-trust lawyer, was retained by the US Department of Justice last year in its ongoing high profile anti-trust suit against Microsoft Corp, the software giant. His retention was reported by the Washington Post and Reuters.

When ESI and Enron's co-operative agreement was initiated, Enron reportedly told ESI that it was involved in developing more than 100 potential wind projects worldwide, according to the lawsuit. ESI says too that Enron repeatedly and misleadingly assured it that wind projects in the United States and Canada would generate rates of return of 18%, while those in the rest of the world would bring in 23%. If the so-called target "rates of return" were not met, the agreement allegedly dictated that Enron was to reduce the price of its turbines or reimburse ESI in other ways. That did not happen adequately, says ESI.

ESI accuses Enron several times of trying to maximise its own return from sales of Enron turbines to the jointly developed projects; of demanding reimbursement from ESI and other plaintiffs -- all indirect subsidiaries of FPL -- for excessive and unauthorised development costs (for example in 1997 amounting to $1.5 million in excess); of refusing to pay or credit ESI for money it was owed; of blocking ESI from participating in various projects; and of misrepresenting its interest in certain projects.

ESI alleges that Enron Wind blocked its participation in various aspects of the financing for the 107 MW Minnesota project. ESI, which says it paid a "buy in" amount of $850,000 and paid $900,000 of the development costs, alleges that it was precluded from contributing to setting up the financing and from exercising its right as an equity investor.

Also in dispute, according to the complaint, is a wind project for Mid-American in Iowa, in which ESI wants a stake; a project at Vansycle in Oregon; projects at Megali Vrissi and Chandras in Greece; and several projects in Italy. Even a project for repowering wind plant in the Altamont Pass, currently being undertaken by Wind Co (Windpower Monthly, July 1998) is in dispute. According to the suit, Enron is now claiming an interest in the project, which ESI is repowering with Danish turbine maker NEG Micon and other parties. ESI says the project is exempt because its agreement with Enron Wind had expired and also because the agreement was that projects using non-Enron turbines were exempt anyway.

Even more tantalising is ESI's vague claim that it has been told and believes that Enron, directly or through its authorised agents, has taken "actions in the development or operation of certain Greek projects which could violate legal mandates and expose such projects to liability and/or other proceedings or injury."

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