Estimating damages in the electricity and gas sectors

Estimating damages in the electricity and gas sectors

Frontier contributes chapter to GAR’s latest edition of the Guide to Damages in International Arbitration

Wynne Jones, Christoph Riechmann and Stefan Lochner, dispute experts in Frontier’s Energy Practice, have again contributed a chapter to Global Arbitration Review’s (GAR) latest edition of The Guide to Damages in International Arbitration. The chapter, ‘Damages in Gas and Electricity Arbitrations’, is published here (see Chapter 26).

The chapter discusses why damages can occur. This is usually through breach of contract but can also be caused by breaches in competition law and as a result of the expropriation of an asset. The chapter also covers the specific nature of gas and electricity - disputes relating to damage and the complexity in estimating damages may be relatively greater in gas and electricity than in other sectors.

The 5 steps: estimating damage

The chapter details a number of techniques available to estimate damages. The first technique explored is the broad framework to estimate damage, which uses 5 steps;

  1. Establishing the factual case
  2. Establishing the ‘but for’ case
  3. Determining the correct perspective for the damage estimation
  4. Valuing the damages and;
  5. Computing the present value of these damages to arrive at the amount to be compensated.

Further on in the chapter, the more common approach that is used when estimating damage, the comparator approach is examined. Wynne, Christoph and Stefan also explain how a market simulation model could be carried out to estimate damages.

Gas and electricity vs other sectors

The Chapter highlights that although there are many similarities when estimating damages in the electricity and gas sectors compared to other sectors, it is likely to be a more challenging task. This challenge comes from the long duration of contracts and the large changes in value over time. However, the comparator analysis could simplify the task.

GAR is a resource for international arbitration news and research. The Guide is a reference for all aspects of damages, covering legal principles, valuation techniques and how to apply them to specific industries, and other topics such as the weighted average cost of capital, tax and currency.

Frontier has a number of experts who provide written and oral testimony on commercial and investor-state arbitrations, and other forms of dispute resolution. Our experts provide testimony on both the merits of the case and on the quantum of damages. To read the full chapter, click here.

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Damages in Gas and Electricity Arbitrations