WASHINGTON — The Nebraska Supreme Court last week dismissed a lawsuit brought by Falls City against the Nebraska Municipal Power Pool and three of its staff members.

The lawsuit was related to prepaid gas transactions and questions previously raised by market participants about whether public entities can have proprietary information. Sources also had questioned if the lawsuit meant the Securities and Exchange Commission’s Rule 15c2-12 on disclosure is deficient by not ensuring bond issuers disclose wholesale management changes.

The lawsuit was filed in 2006 against NMPP and three of its former employees by Falls City and the American Public Energy Agency, a gas purchaser and bond issuer. The former employees were: J. Gary Stauffer, executive director; John Harms, a gas analyst and a member of the management team; and Evan Ward, director of capital strategies.

A district court sided with the APEA in July 2008, ordering two of the executives to pay $3.3 million in damages to the company for taking proprietary information about long-term natural gas purchases from it.

The agency helped to pioneer the transactions, and the executives conspired to use its information to win contracts away from the agency, Lancaster District Court Judge Steven D. Burns concluded. The APEA settled its suit before last week’s decision, according to the Supreme Court.

Burns also ordered the three men and NMPP to pay $477,828 in damages to Falls City, Neb., which had a contract with the utility and claimed the employees breached it.

However, the Nebraska Supreme Court ruled that neither a state interlocal cooperation law nor the agreement Falls City signed when it joined the National Public Gas Association, a group that sold natural gas to local systems, gave the city the right to sue the power pool or the executives.

“NPGA is a public body and its duties are owed to the public,” the high court said. “Therefore, Falls City did not have standing to bring the cause of action and the action must be dismissed.”

In prepaid gas transactions, municipal utilities use tax-exempt bonds to finance the purchase of natural gas over a period of time, while also entering into a commodity swap with a third party to hedge against the risk of volatile gas prices.

The American Public Energy Agency issued billions of dollars of bonds through 2005 for such transactions. One of its customers was the NPGA.

Both the APEA and the gas association were provided with NMPP personnel and staff under contracts. Those power pool employees oversaw the purchase, management, and resale of natural gas through the American Public Energy Agency and NPGA, according to court documents. Then in September 2006, Ward and Stauffer brokered an agreement with Cedar Falls, and with a state political subdivision that buys and provides natural gas to the Omaha area.

But Falls City filed a lawsuit against the NMPP, the prepaid natural gas project, and five individuals connected with it, including Ward, Stauffer, and Harms. Falls City filed the lawsuit on behalf of itself and the NPGA, claiming that it had a contract with the power pool, which was to benefit the association and its members.

Falls City claimed the power pool employees breached that contract and acted contrary to the interest of NPGA by forming the new project while being compensated by the association.

The court allowed the APEA to intervene in the lawsuit to sue Stauffer and Ward, claiming they conspired to improperly use or disclose the agency’s proprietary information, including economic models or spread sheets, a copyrighted handbook explaining the prepaid transactions, and detailed knowledge of relationships with the gas purchasers.

APEA officials claimed the new project would divert business away from the agency after it had delivered prepaid gas on contract with local purchasers and gas delivery entities for more than 10 years.

According to court documents, the APEA did indeed have a dry spell after the project’s launch, landing no contracts after 2005 despite increased prepaid gas deals nationwide. Before that, the agency had averaged a contract per year.

Ward was working for the agency while simultaneously trying “in earnest to create an entity which would compete with APEA,” Burns said. Ward sent an e-mail signed “The Mole” encouraging the NMPP to change its relationship with the APEA, and later distributed copies of a prepay structure used by the agency for a bond deal, according to court documents.

“It may be argued that APEA is a governmental entity and therefore all of this information is publicly available,” Burns said in the ruling. “It is also apparent that it would take very sophisticated calculations and estimates from publicly available information to produce things such as the pricing information for its gas purchases.”

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