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Court upholds $60M award against South Jersey Gas for breaking Antero contract


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Court upholds $60M award against South Jersey Gas for breaking Antero contract

A federal court shot down an attempt by utility South Jersey Gas Co. to get out of a finding that it had breached a natural gas contract and owed producer Antero Resources Corp. $60 million in damages.

The U.S. Court of Appeals for the 10th Circuit affirmed the U.S. District Court for the District of Colorado, where a jury had rejected South Jersey's claims against Antero over an increase in index-based gas prices and found that South Jersey breached the contract by not paying those prices. South Jersey tried to argue that the district court had made a mistake in the law in denying its motion for judgment or had made a mistake in its communications to the jury, but the appeals court rejected the arguments.

"We conclude South Jersey is not entitled to a judgment as a matter of law because a reasonable jury could find South Jersey breached its contract with Antero because the index was not discontinued nor did it materially change," the 10th Circuit judges said in an Aug. 6 order.

The 10th Circuit also said South Jersey, a subsidiary of South Jersey Industries Inc., was not entitled to a new trial based on any alleged problems with the district court's jury instructions.

The dispute arose out of an eight-year contract between the two companies, in which Antero agreed to deliver Marcellus Shale gas to gas meters on a pipeline in West Virginia. The companies agreed to use gas prices tied to the Columbia Appalachia Index, an index maintained by S&P Global Platts and "widely used in the natural gas industry," according to the court. The contract went into effect in October 2011 and will end in October 2019.

Over the term of the contract, the price of gas linked to the index increased. South Jersey protested the price increase, saying that modifications to the index had changed the pricing methodology and the index should be replaced with another. In November 2014, Platts had clarified how it determined prices in the Columbia Appalachia Index, saying it would not include transactions that were outside of the Columbia Gas Transmission LLC Interruptible Paper Pool, also known as the IPP Pool or TCO Pool. Transactions outside the pool would drive down the average price of the index because they did not include certain firm gas transportation costs that allowed shippers to access the pool. Platts later announced a new index would be created for non-IPP Pool transactions because those took place in a different market.

South Jersey first tried to get Platts to modify the index, and when that did not work, it pursued a change in its contract with Antero. South Jersey sued Antero in New Jersey state court for refusing to negotiate a replacement index, and the utility began paying a lower price for gas based on another index. Antero hit back with a lawsuit for breach of contract, filed in federal district court in Colorado, the producer's principal place of business. The lawsuits were consolidated in the Colorado court and the case went to trial, where the jury decided in favor of Antero and said South Jersey owed Antero $60 million in damages. (U.S. Court of Appeals for the 10th Circuit docket 18-1163)

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.