Freedom to Contract: PUC Has Jurisdiction to Evaluate Force Majeure Clause Under Idaho Law

This post was written by our colleague Tami Boeck for the Ahead of Schedule construction law blog.

The Idaho Supreme Court recently determined in Idaho Power Company v. New Energy Two, LLC, No. 40882-2013 (Idaho June 17, 2014), that the Idaho Public Utilities Commission has jurisdiction to interpret or enforce contracts when given the authority by the parties. In May 2010, IPC and the defendants entered into two energy contracts that were to be completed by a date certain. In advance of the operational dates, the defendants notified IPC of events they claimed were force majeure. Markedly, the defendants’ claim was that the decision-making process of the PUC itself, or the alleged lack thereof, was the force majeure event causing lenders to be “unwilling to lend in Idaho pending the outcome” of the PUC proceedings. IPC filed petitions with the PUC seeking a ruling that there was no force majeure event(s), and that IPC could terminate the contracts. The defendants filed a motion to dismiss that was denied, and the Idaho Supreme Court heard the issue on a permissive appeal.

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Supreme Court Rolls Back EPA's Regulation of Greenhouse Gases in Utility Air Regulatory Group Decision

The U.S. Supreme Court has delivered a stunner with its decision this morning in Utility Air Regulatory Group v. Environmental Protection Agency. The Supreme Court has curtailed the U.S. Environmental Protection Agency’s (EPA) regulation of stationary source greenhouse gas (GHG) emissions under two Clean Air Act permitting programs - New Source Review Prevention of Significant Deterioration (PSD) and Title V. EPA can no longer require PSD or Title V permits for stationary sources based on a source’s GHG emissions, unless a source is already subject to the permitting programs. However, if a source triggers PSD permitting for another pollutant, the Court has left the door open for EPA to require the source to undergo a Best Available Control Technology determination for GHGs. Today’s decision in Utility Air Regulatory Group has significant ramifications for industrial source permitting. See our alert for more details.

American Bird Conservancy Sends Notice of Intent to Sue Administration Over Revised Eagle Permit Rule

On April 30, 2014, the American Bird Conservancy (“ABC”) sent a Notice of Intent to Sue (“Notice”) to Secretary of the Interior Sally Jewell and Director of the U.S. Fish and Wildlife Service (“Service’) Dan Ashe, alleging violations of the National Environmental Policy Act (“NEPA”), the Endangered Species Act (“ESA”), and the Bald and Golden Eagle Protection Act (“Eagle Act”) in connection with the Service’s issuance of the revised eagle permit rule.

The Notice relates to the revised rule that was issued in December 2013 and that extended the maximum term for programmatic “take” permits under the Eagle Act to 30 years, subject to a recurring five-year review process throughout the permit life. Under the previous rule, programmatic permits for incidental “take” of bald and golden eagles could extend only for five years.

In the Notice, ABC alleges that the Service violated NEPA by failing to prepare an Environmental Impact Statement or Environmental Assessment on the rule changes, arguing that the changes are more than “administrative” in nature and therefore the Service erred by applying a categorical exclusion. ABC asserts that the Service’s application of a categorical exclusion is improper given the fact that the Service prepared an Environmental Assessment when it adopted the original rule in 2009. The Notice also alleges that the Service violated the ESA by failing to consult concerning the impacts to listed species under ESA Section 7. Finally, the Notice argues that the revised rule violates the Eagle Act itself, noting that, in revising the rule, the Service’s “principal, if not sole, purpose was to ‘accommodate’ the purported ‘needs’ of the wind power industry for longer term permits.” This, ABC alleges, cannot be reconciled with earlier findings by the Service that it was appropriate to issue programmatic permits for terms of five years or less.

It is unclear whether AWEA or any individual wind developers will seek to intervene or file amicus briefs in the litigation if it moves forward. It is also unclear whether ABC will seek a preliminary injunction to halt the permitting process while the litigation is pending, although our initial assessment is that a court would be unlikely to enter any such injunction. For that reason and others, we do not anticipate that the notice or any suit that is filed will have an immediate impact on whether or not developers continue to seek “programmatic” take permits. But ABC’s move adds yet another wrinkle to an area that is already fraught with more than its share of regulatory uncertainty.

Ralls Continues to Fight Presidential Divestiture Order Stemming from CFIUS Investigation

Ralls Corp., a privately-held company owned by executives of the China-based heavy machinery manufacturing conglomerate Sany Group, recently filed an appeal in its ongoing effort to avoid President Obama’s order requiring the company to divest itself of its interest in four wind farms in Oregon. We have previously reported on the order, which was issued by the president on the recommendation of the Committee on Foreign Investment in the U.S. (CFIUS) and followed a similar CFIUS order. The CFIUS order was withdrawn following issuance of the executive order. Our earlier articles can be found at

On February 7, Ralls Corp. filed an appeal of the D.C. Circuit Court’s October ruling that Ralls Corp. was not deprived of due process and that it was not entitled to know the specific basis for the executive order. The appeal asserts, among other things, that the district court erred in finding that Ralls Corp. has no constitutionally protected interest in the wind projects and in granting undue discretion to the president to prohibit a transaction on national security grounds. Ralls Corp. takes particular issue with the federal government’s failure to state with specificity the factual basis for the orders and to give Ralls Corp. an opportunity to address and rebut such a statement.

Separately, the US government has initiated a civil action to force the sale of the wind projects, which are located adjacent to a US Naval facility that is believed to be used to test unmanned drones and other electronic warfare equipment, as required by the executive order.

A successful outcome for Ralls Corp. seems unlikely, given the deference the judicial branch has historically given the executive branch with respect to matters of national security. The ongoing dispute continues to serve as a reminder of the extensive authority of CFIUS and the president to intervene in transactions to protect national security interests and, therefore, the importance of notifying CFIUS of transactions that may concern national security.

Tentative Ruling Issued in California Cap and Trade Auction Lawsuit

A tentative ruling was issued yesterday in the related cases California Chamber of Commerce v. California Air Resources Board (ARB)  and  Morning Star Packing Co. v. ARB, pending before the Sacramento County Superior Court.  The cases challenge the legality of ARB's cap and trade auctions under two theories:  (1) the cap and trade auctions exceed ARB's authority under AB 32, and (2) the auctions amount to an illegal tax adopted without the requisite two-thirds approval of the California Legislature.  The Court tentatively ruled in ARB's favor that the agency's implementation of a cap and trade auction system is within the scope of AB 32, which delegated ARB authority to design the distribution of emissions allowances.  The Court did not rule on whether the allowance auctions constitute an illegal tax.  The tentative ruling outlined questions on this topic for oral argument, which was heard yesterday.  A ruling on the tax challenge is expected in the next 90 days.

ARB held its most recent quarterly auction on August 4, 2013.  2013 vintage allowances sold for $12.22.  In the advance auction of 2016 vintage allowances, held concurrently, allowances sold for $11.10.

U.S. District Judge Rules on Ralls Corp Challenge to President Obama's Divestiture Order

There has been a new development in the effort by Ralls Corporation, a company owned by two Chinese nationals, to challenge President Obama’s September 2012 order requiring it to divest its interests in four wind projects in Oregon and to remove any equipment and infrastructure it had placed on the sites of the proposed projects.  The President’s order, issued pursuant to section 721 of the Defense Production Act of 1950 (“Section 721”), had cited unspecified national security risks as the reason for blocking Ralls Corporation’s acquisition of the wind projects, but the sites of the four proposed projects are near or within restricted airspace of U.S. Naval Weapons System Training Facility Boardman.

On Friday, U.S. District Judge Amy Berman Jackson ruled that she could not overturn President Obama’s order. In her opinion, Judge Jackson said that the law "is not the least bit ambiguous about the role of the courts: 'The actions of the president . . . and the findings of the president . . . shall not be subject to judicial review.'"  Therefore, the judge declined to review the President’s findings on the merits.  However, she did determine that the court has jurisdiction to determine whether the President followed proper procedures in implementing Section 721.  The judge will rule on that due process issue following further briefing by the parties.  If Ralls Corporation wins on the merits of the due process claim, it may be entitled to hear the reasons for the President’s decision to block the acquisition of the wind projects.

*Update: Ralls Corp reacted to Judge Jackson's ruling by insisting they would "persist in the lawsuit to the end and will appeal to the circuit court or the supreme court [sic] of the United States if necessary." See here for more of the company's reaction.

Download a full copy of the opinion here (PDF). See our prior posts for more background on the case.

200 Million Reasons Why Waivers of Subrogation Matter

When negotiating contracts with a client, sometimes their eyes roll when we come to the section on insurance, particularly that awkward phrase, “waiver of subrogation.” What is subrogation and what does it mean to waive it? Simply put, subrogation is the right of a party, typically an insurance company, to pay a loss then sue the party or parties who are liable for the loss. A waiver of subrogation precludes an insurer from such an action.

A recent case in Connecticut illustrates the importance of the subrogation waiver. On February 7, 2010 a natural gas explosion killed five, injured a dozen more and caused extensive damage to a power plant under construction.

The accident occurred during a “gas blow,” which is a commissioning procedure whereby natural gas is forced through the plant piping at a high rate in an effort to clean out the gas supply lines to the gas turbine. These operations are perilous because any spark from such debris or from static electricity can ignite the gas. Here, the gas was discharged into a confined area, where workers were engaged in welding and other activities.

Not surprisingly, lawsuits followed. The facility owner’s insurance carrier ultimately paid approximately $200 million in settlement of claims. The carrier then sued the subcontractors, the gas turbine manufacturer, and the sellers and transporters of the natural gas. The defendants denied liability and moved for dismissal based in part on language in the contract that explicitly waived the carrier’s right of subrogation. Among other theories, the carrier argued that the accident was caused by the recklessness of the subcontractors, which rendered the waiver of subrogation void as against public policy. Last Friday, the U.S. District Court for the District of Connecticut ruled on the motions to dismiss.

In language that must have given the subcontractors pause, the court found that the plaintiffs’ allegations supported a finding of recklessness. The court based this finding on allegations that, despite knowing that the gas blow process was inherently dangerous, the subcontractors designed the gas blows for discharge into a confined space with numerous sources of ignition. They also failed to follow their own commissioning procedures, lacked experience and expertise regarding the gas blow process, failed to modify the process after being warned of the dangers associated with discharge into a confined space, and discharged an employee because he attempted to develop a safer procedure.

The court found that the waiver of subrogation was valid and enforceable, and then had to squarely address the issue of whether public policy requires a different result in cases of recklessness and strict liability. Drawing a distinction between claims in a setting that would leave tort victims without compensation and situations like this that would leave an insurance carrier without reimbursement from a third party for an otherwise covered loss, the court found no public policy in favor of the carrier: “[T]he plaintiffs knowingly agreed to insure the construction of the Kleen Plant and neither the construction contract nor the insurance policy provided an exception or exclusion for reckless or ultrahazardous conduct.” The carrier’s claims against the subcontractor for subrogation were dismissed.

D.C. Circuit Reject's EPA's Transport (Cross-State Air Pollution) Rule

Yesterday, the D.C. Circuit Court of Appeals issued a decision in EME Homer City Generation, L.P. v. EPA that rejects the U.S. Environmental Protection Agency’s approach to regulating upwind pollution from coal- and natural gas-fired power plants, among other sources. The so-called Transport Rule, also known as the Cross-State Air Pollution Rule, had sought to define emissions reduction responsibilities for Texas and 27 eastern states based on those states’ contributions to downwind states’ air quality problems. The Rule would have imposed caps on sulfur dioxide and nitrogen oxide emissions.

In a 2-1 ruling, the D.C. Circuit found that the Transport Rule exceeds EPA’s statutory authority. The Court ordered EPA to continue to enforce a 2005 regulation know as the Clean Air Interstate Rule until it established a lawful replacement to the Transport Rule. That process is widely expected to take years to accomplish.

One of the immediate consequences of the ruling is likely a stay of execution for certain older coal-fired power plants. Under the Transport Rule, owners of such plants would either have had to close their facilities or install expensive pollution control equipment.

Federal Court Holds That the Migratory Bird Treaty Act Does Not Apply to Lawful Activities That Result in the Incidental Taking of Protected Birds

A legal update from our colleagues Per Ramfjord and Steve Galloway:

In a recent opinion, the United States District Court for the District of North Dakota dismissed misdemeanor criminal charges against three oil and gas companies for violation of the Migratory Bird Treaty Act (“MBTA”) arising out of the incidental death of migratory birds through contact with oil reserve pits operated by the defendants. United States v. Brigham Oil & Gas, L.P., No. 4:11-po-005-DLH et al., 2012 U.S. Dist. LEXIS 5774 (D.N.D. Jan. 17, 2012). This opinion is significant because it represents the latest in a number of cases that have interpreted the MBTA in a manner that does not criminalize the inadvertent taking of migratory birds.

By way of background, the MBTA was enacted in 1918 to implement four international treaties aimed at protecting migratory birds. The Act makes it unlawful “by any means or in any manner” to “take” or attempt to “take” any of approximately 800 species of migratory birds, including most common birds other than pigeons and starlings. Regulations promulgated under the Act further define the term “take” as to “pursue, hunt, shoot, wound, kill, trap, capture, or collect” any such birds. Companies or individuals who violate these provisions face misdemeanor criminal penalties that can result in fines of up to $15,000 per bird and/or six months’ imprisonment.

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Legal Challenge to Avenal Energy Project's PSD Permit Filed with the Ninth Circuit

On November 3, 2011, the proposed Avenal Energy Project, a 600-megawatt natural gas-fired power plant proposed in the city of Avenal near Kettleman City in Kings County, California, encountered another legal challenge to providing electricity to the southern San Joaquin Valley. Sierra Club, Center for Biological Diversity, and Greenaction for Health and Environmental Justice challenged the Environmental Protection Agency’s issuance of a Prevention of Significant Deterioration (“PSD”) permit for the Avenal project via a Petition for Review filed with the Ninth Circuit Court of Appeals pursuant to section 307(b)(1) of the federal Clean Air Act (“CAA”). This is just the most recent turn of litigation activity involving the project. Avenal’s PSD permit has long been the subject of review and legal challenges. Among other claims raised to the Ninth Circuit, the Petitioners argue that the PSD permit impermissibly fails to address the recently adopted PSD requirements for greenhouse gas emissions.

Click here to read our legal update on this matter

The Bureau of Land Management, Tribal Cultural Resources and Renewable Energy Development

My collegue Michael O'Connell issued the legal alert below on a recent significant Interior Board of Land Appeals decision concerning the intersection of tribal cultural resources and a BLM geothermal lease application:

The Interior Board of Land Appeals (IBLA or Board) decision, Earth Power Resources, 181 IBLA 94 (May 12, 2011), deals with BLM action on a geothermal lease application in Nevada. Citing National Historic Preservation Act (NHPA) section 304, 16 U.S.C. § 470w-3, BLM withheld from a geothermal lease applicant an ethnographic study of Ruby Valley that identified a tribal traditional cultural property (TCP) important to an Indian Tribe and disapproved the lease application in order to protect the TCP. The Board overturned BLM’s decision and remanded the case for further action.

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Compliance with California Cap-And-Trade May Be Deferred until 2013

Yesterday, the Executive Director of the California Air Resources Board (CARB), Mary Nichols, announced that CARB is proposing to delay full implementation of California’s cap-and-trade program for a year. In testimony before the California Senate Select Committee on the Environment, the Economy, and Climate Change, Nichols stated that CARB is proposing to “initiate” the cap-and-trade program in 2012, but delay requirements for compliance until January 1, 2013. CARB adopted cap-and-trade in December 2010 and the program was set to go into effect on January 1, 2012, the statutory deadline for all greenhouse gas emissions reduction measures under A.B. 32 to become operative. CARB’s announcement comes despite an order from the California Court of Appeals last Friday that CARB can continue with implementation of cap-and-trade pending appeals related to the program in Association of Irritated Residents v. CARB. Earlier this month, CARB issued a revised analysis of alternatives to the cap-and-trade program, as ordered by the lower court in Association of Irritated Residents v. CARB. That supplemental environmental document is currently open for public comment until July 28 and CARB will consider adoption of the supplement on August 24, 2011. Nichols stated in her testimony that CARB will hold a public workshop in the next few weeks on its proposal to delay cap-and-trade compliance and other elements needed to finalize the cap-and-trade regulation. Look for CARB to issue an updated draft regulation in advance of the public workshop.

Injunction on California Cap & Trade Rules Stayed by Appeal

At the prompting of the Petitioners, on June 6, 2011, the San Francisco Superior Court delivered an order criticizing the California Air Resources Board for continuing to work on AB 32, Greenhouse Gas regulations, despite the injunction issued in the CEQA case and ordered them to appear to discuss the issue.  However, late last week the Appeals Court hearing the appeal in the case issued a stay of that same injunction pending the appeal of that case. The question of whether the stay will he re-imposed, will be the subject the parties will need to argue in June 2011.  For additional information see our blog entitled, "Cap & Trade Injunction Stayed by Appeal of Lower Court Decision."

Minnesota PUC clarifies that "other credits" include RECs

Last year, we reported on the resolution of a longstanding dispute between Xcel Energy and 46 renewable energy generators about the ownership of Renewable Energy Credits (RECs) when the Power Purchase Agreement (PPA) is silent. In an Order released September 9, 2010, the Minnesota Public Utilities Commission decided that 1) generators own the RECs produced under PPAs signed under the 1978 federal Public Utilities Regulatory Policy Act (PURPA) and 2) Xcel owns the RECs produced under PPAs signed under Minnesota’s 1994 wind and biomass mandates, unless the generator could demonstrate that the PPA was not silent. Today, the Commission released an Order offering more clarity to PPAs in the latter category.

Following the September 2010 Order, two generators (St. Paul Cogeneration LLC and Mission Funding Zeta) with contracts under the wind and biomass mandates sought to demonstrate to the Commission that their PPAs were not silent on REC ownership. Both PPAs at issue contained language allocating to the generator the benefit of “any tax credits, allowances or other credits” related to the generation facility. In today’s order, the Commission determined that this language unambiguously includes RECs. As a result, the Commission found that St. Paul Cogeneration and Mission Funding Zeta own the RECs under the terms of their PPAs.  The Commission also found that Xcel owns the RECs under any remaining unsettled wind and biomass mandate PPAs, unless the generator demonstrates that the PPA is not silent within 30 days.

LexisNexis Selects Renewable + Law Blog to its Top 50 Environmental Law Blogs List

Having first reported to our readers in February that LexisNexis had nominated the Stoel Rives Renewable + Law Blog for its Top 50 Environmental Law & Climate Change Blogs for 2011 award, we are pleased to announce we made the list of winners! In publishing its Top 50 list, LexisNexis declared that our Renewable + Law bloggers’ “avowed passion for solar energy, wind energy, biofuels, ocean and hydrokinetic energy, biomass, waste-to-energy, geothermal and other clean technologies is evident in the care they take with this blog-the posts are frequent, the topics are interesting and cutting edge, and the writing is top notch.”


Thanks again to all our readers who make regular use of Renewable + Law Blog and those who wrote in to support us for this award. We're honored and inspired, and we plan to keep those Blogs and letters coming.


Petition for Review Filed in TXU v. FPL Curtailment Case

On April 11, 2011, FPL Energy, LLC, et al., filed with the Texas Supreme Court a petition for review of the Texas Court of Appeals’ decision FPL Energy, LLC, v. TXU Portfolio Management Company, L.P. The case illustrates the significant economic impact that curtailment can have on variable energy resources. For a detailed description of the case and its implications, see our Renewable + Law Blog entry on the Court of Appeals’ decision here.

The petition for review focuses on the question of whether the Court of Appeals was correct in enforcing the liquidated damages provisions contained in three wind energy power purchase agreements. The pertinent provisions in each PPA required the petitioners to pay $50 for every MWh that the plants fell short of achieving the their minimum REC output guarantees—the Court of Appeals’ holding meant that the petitioners owed TXU roughly $29 million in shortfall damages for a four year period of curtailment imposed by the transmission provider (ERCOT), on top of the pain of losing the contract price and the production tax credit on each MWh of energy curtailed.

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Landmark EPA Clean Air Act Settlement with TVA

On April 14, 2011, the EPA announced the settlement of a twelve year dispute with Tennessee Valley Authority (TVA) over Clean Air Act violations. In the settlement, TVA agrees to permanently retire 2,700 MW of coal power from Alabama, Kentucky and Tennessee and invest an estimated $3 to $5 billion on new and upgraded state-of-the-art pollution controls on 11 coal fired plants. The EPA estimates that this action will prevent an estimated 1,200 to 3,000 premature deaths, 2,000 heart attacks and 21,000 cases of asthma attacks each year, resulting in up to $27 billion in annual health benefits. 

The dispute stems from an administrative compliance order that EPA issued to TVA in November 1999, alleging that TVA modified a number of coal-fired units at nine of TVA's plants without first obtaining preconstruction permits and installing and operating state-of-the-art pollution control technology. Under the settlement agreement, TVA will upgrade 92% of its remaining coal fired fleet by either installing state-of-the-art selective catalytic reduction, flue gas desulfurization, or repowering the assets to burn renewable biomass. The settlement also requires TVA to spend $240 million on energy efficiency initiatives and to provide $1 million to the National Park Service and the National Forest Service to improve, protect, or rehabilitate forest and park lands that have been impacted by emissions from TVA’s plants, including Mammoth Cave National Park and Great Smoky Mountains National Park.


TVA, a corporation owned by the U.S. government, provides electricity for 9 million people in parts of seven southeastern states at prices below the national average. TVA, which receives no taxpayer money and makes no profits, developed an “Integrated Resource Plan,” detailing two portfolio standards, 2,500 MW or 3,500 MW of renewable energy by 2020. Notably, only 2 of TVA’s 7 states, North Carolina and Virginia, are subject to RPS standards. 


This settlement is a major boost for the renewable energy industry. By 2012, TVA will have 1,625 MW of renewables in its portfolio. In addition to needing 1,000 – 2,000 MW of new renewable generation to fill its renewable energy portfolio, it now must offset its retired 2,700 MW coal power by 2018. 


For more information:


EPA Press Release on Settlement:!OpenDocument


EPA’s Overview and Settlement with TVA:

MPUC Issues Order on Renewable Energy Credit Ownership

Following our post from a couple weeks ago, the Minnesota Public Utilities Commission released its Order today regarding ownership of renewable energy credits in a group of "silent" power purchase agreements (Docket No. 08-440). The Order is available here and our previous post describing its substance is here.

Minnesota PUC Settles Longstanding Dispute over REC Ownership

Last week, the Minnesota Public Utilities Commission resolved a longstanding dispute over who owns Renewable Energy Credits (RECs) when the Power Purchase Agreement (PPA) is silent.  Following the establishment of an REC tracking system for Minnesota, Xcel Energy asked the Commission to clarify ownership of RECs associated with 46 wind, biomass, hydro, and landfill gas facilities totaling 467.5 MW.  These PPAs were written before the concept of RECs existed. 

On August 17, 2010, the Commission resolved the dispute partially in favor of Xcel and partially in favor of the generators.  The Commission divided the disputed PPAs into two categories: 1) PPAs signed under 1978 federal Public Utilities Regulatory Policy Act (PURPA) and 2) PPAs signed under Minnesota’s 1994 wind and biomass mandates (Minn. Stat. §§216B.2423 and 216B.2424).

For the PURPA contracts, the Commission decided that the generators are the rightful owners of RECs because they had only been paid avoided cost with no premium for the electricity being from renewable sources.

For the wind and biomass mandate PPAs, the Commission favored Xcel and decided that the utility had acquired ownership of the RECs, unless the generator can make a showing that the PPA is not silent on REC ownership.  For this category, the Commission reasoned that Xcel had contracted to buy electricity that would meet specific renewable mandates.  Without the RECs, the electricity would not satisfy the renewable mandates.

The Commission exempted two PPAs close to being privately settled from its decision as well as 13 PPAs that were already privately settled.

Filings related to the "silent PPAs" dispute can be found by searching for Docket No. E-002/08-440 in Minnesota’s eDocket system.

Texas Court of Appeals Hands Down Decision in Important Wind Curtailment Case

On July 27, 2010, the Court of Appeals of Texas, Fifth District, Dallas, issued its decision in TXU Portfolio Management Company, L.P., v. FPL Energy, LLC, et al., 2010 Tex. App. Lexis 5905 (2010).  The case arose when three FPL wind farms (the "Wind Farms") located in the McCamey area of West Texas experienced ERCOT-imposed generation curtailments imposed by the Electric Reliability Council of Texas ("ERCOT") during 2002-2005.  The Wind Farms had each entered into a power purchase agreement (“PPA”) with TXUPM under which they agreed to deliver a minimum quantity of energy and renewable energy credits (RECs) each year. Because of the deficiencies caused by the ERCOT generation curtailments, TXUPM sued the Wind Farms for deficiency damages under the PPAs.  The Wind Farms counterclaimed, asserting that TXUPM materially breached each of the PPAs by failing to insure enough "transmission capacity" to allow the three wind farms to generate and deliver all of the electricity they were theoretically able to generate given wind conditions.

Section 2.03 of the PPAs required TXUPM to arrange for "all services, including without limitation Transmission Services . . . necessary to deliver Net Energy."  The Texas Court of Appeals concluded that this provision required TXUPM to supply transmission service sufficient to accept delivery of energy actually generated by the project and delivered to the interconnection point.  Contrary to the Wind Farms' argument, however, Section 2.03 did not require TXUPM to make sure there was enough transmission capacity in the McCamey area to make sure that the three wind plants could in fact generate every MWh they were theoretically capable of generating given wind conditions. 

This outcome is not too surprising--it would have been very unusual had the Court of Appeals concluded that an offtaker's duty to supply transmission services at the delivery point amounted to an implied duty to arrange for the construction of (very expensive) transmission infrastructure sufficient to avoid generation curtailments.  Utilities everywhere can breathe a sigh of relief that the Court of Appeals did not read this duty into the PPAs. 

The fact that the Wind Farms had failed to deliver enough output to meet the annual minimum quantities specified in  the three PPAs was not in dispute.  Since the court concluded that TXUPM had not breached the PPAs by failing to supply transmission capacity, the only remaining question was the calculation of damages. 

Stepping away from the court’s decision for a moment, though, it’s worth noting that there's a separate provision that is typically included in PPAs for intermittent renewable energy, and it apparently was not included in the three PPAs in dispute here, perhaps because of their 2000-2001 vintage.  An annual minimum output guarantee requires a wind developer to take both mechanical availability risk and wind risk--the plant's output can be reduced below the minimum level if the wind doesn't blow as hard or as often as expected, or if the wind turbines and other equipment are not available as often as they should be.  However, these risks are to some extent within the developer's control--wind risk can be addressed by thorough wind studies, and mechanical availability can be managed using the developer’s O&M program.   Generation and transmission curtailment, on the other hand, are typically outside the developer's control and can be affected by delays in completing transmission infrastructure, additions of other intermittent resources to the grid, routine maintenance of the transmission system, emergencies and other factors. 

Recognizing this, renewable energy PPAs usually provide that curtailed energy is counted as if it were generated for purposes of determining  whether a plant has achieved its output guarantees.  Although the requisite language is often omitted from utility pro forma renewable PPAs, most utilities are willing to agree if pressed that energy that could have been generated but for curtailment(s) should be counted as if it were generated for purposes of testing the project’s output guarantee. There may be a little scuffling over the proper method for calculating the quantity of energy and RECs that would have been generated “but for” the curtailment, but the real fight is usually over whether the PPA is in whole or in part a "take or pay" contract in which the utility is required to pay for some or all of the output that is actually curtailed. Cf. FPL Energy Upton Wind I, L.P., v. City of Austin, 240 SW3d 456 (2007), reh’g denied 2007 Tex App LEXIS 9306 (Tex App Amarillo 2007) (the Texas Court of Appeals ruled that ERCOT-imposed curtailments are not the same as voluntary economic curtailments by the power purchaser under a PPA and thus are not curtailments that the purchaser must pay for).

In any case, the Wind Plants in this case did not receive credit for curtailed energy under the three PPAs, so the court considered the deficiency as a given and turned to calculating the amount of damages.  The three PPAs had hard-wired $50/MWh as the liquidated damage payment due for each MWh of deficiency below the annual output guarantee.  This number was based on the per MWh penalty the Texas PUC was expected to impose, as of the time the PPA was entered into, on utilities that failed to secure enough renewable energy.  The Wind Plants argued that this amount bore no resemblance to TXUPM's cover damages at the time of the alleged breach and had persuaded the trial court to declare the liquidated damages clause to be unenforceable.  The Texas Court of Appeals reversed, concluding that the Wind Farms had failed to prove (1) that a measure of damages was ascertainable when the PPAs were entered into, or (2) that the $50/MWh rate was an unreasonable estimate of TXUPM's actual damages. 

Using the deficiency rate of $50/MWh and the Wind Farms' total net deficiencies of 580,465 MWh for 2002 through 2005, TXUPM claimed $29,023,250 in deficiency damages.  Bear in mind that these are just the deficiency damages, and thus only a part measure of the pain the plants suffered--they also had to forego a sale at the contract price and lost a Production Tax Credit (PTC) on each MWh curtailed.  For utilities that are slow to acknowledge that curtailment risk is an important issue for the intermittent energy developer, this case offers a very succinct $29 million dollar explanation of why developers, lenders, and equity care so much about the topic.

Massachusetts Suspends In-State Requirement for Renewable Energy Generation and Modifies Solar Carve Out

From our colleagues Beverly Pearman and Jeremy Sacks:

Massachusetts Department of Public Utilities (“DPU”) has modified the two programs challenged by TransCanada Power Marketing Ltd. (“TransCanada”) in a federal law suit. TransCanada filed its complaint on April 16, 2010, alleging that portions of the Green Communities Act that were intended to increase in-state renewable energy resources were unconstitutional because they favor Massachusetts producers in violation of the Commerce Clause. The Commerce Clause generally prohibits states from enacting laws that burden out-of-state businesses in order to give a competitive advantage to in-state businesses.

The first modification came in early June as a result of settlement negotiations. Massachusetts modified the Solar Carve-Out program to grandfather in rates for Alternative Compliance Payments (“ACP”) that were contractually committed or renewed before January 1, 2010. ACP are paid by electric companies that do not hold the required amount of Solar Renewable Energy Credits (“SRECs”) that must be produced only by facilities located in Massachusetts. In exchange for this rule change, TransCanada dismissed its claims challenging the Solar Carve Out on June 9, 2010, but continued to press forward with its Commerce Clause challenge to a Request for Proposals for Long-Term Contracts for Renewable Energy Projects (the “RFP”) issued by the Massachusetts Department of Energy Resources (“DOER”) this year.

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Kauai's Electric Utility Faces Civil Suit and Criminal Charges For Bird Fatalities

From our colleagues Greg Corbin and Barbara Craig:

On March 24, 2010, four conservation groups filed a complaint against Kauai’s electric utility, Kauai Island Utility Co-op (“KIUC”), alleging that KIUC’s power lines, utility facilities, and street lights “take” threatened Newell’s Townsend’s shearwaters (Puffinus Auricularis Newelli) (“Newell’s shearwaters”) and/or endangered Hawaiian petrels in violation of the Endangered Species Act (“ESA”). The civil complaint, filed in the U.S. District Court for the District of Hawaii, alleges that KIUC has failed to secure the necessary ESA incidental take permits and, despite years of promises, has failed to implement protective measures that are needed to prevent the “take” of the listed birds.

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Mitsubishi Alleges that General Electric, Co. Is Engaging in Anti-Competitive Behavior in the Variable Speed Wind Turbine Market

From our colleagues Beverly Pearman and Jeremy Sacks:

Mitsubishi Heavy Industries, Ltd. and Mitsubishi Power Systems Americas, Inc. v. General Electric Company

On May 20, 2010, Mitsubishi Heavy Industries, Ltd. (“MHI”) and Mitsubishi Power Systems Americas, Inc. (“MPSA”) (collectively “Mitsubishi”) filed suit in the U.S. District Court for the Western District of Arkansas contending that General Electric Company (“GE”) is engaged in a scheme to monopolize the sale of variable speed wind turbines in the United States in violation of state and federal statutes. They seek a compensatory damages award in excess of $100 million, an award of treble damages, punitive damages, and a permanent injunction prohibiting further litigation by GE for infringement of specified patents that GE claims to own. Mitsubishi’s claims are brought pursuant to Section 2 of the Sherman Act, Section 43(a) of the Lanham Act, and a state law claim of tortious interference with contractual and prospective business relationships.

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TransCanada challenges Massachusetts RPS

Stoel Rives litigation partners Beverly Pearman and Jeremy Sacks have prepared the following report on TransCanada’s recent challenge to the Massachusetts RPS:

On April 16, 2010, TransCanada Power Marketing, Ltd. (“TransCanda”) filed suit in the U.S. District Court for the Central District of Massachusetts arguing that Massachusetts is unconstitutionally discriminating against out-of-state renewable energy producers. TransCanada purchases energy from generators and resells it to distribution companies and retail customers in the northeast United States. It is a U.S.-based subsidiary of TransCanada Corporation, a Canadian entity that, among other things, owns significant pieces of energy infrastructure in Canada and the United States, including power generation facilities. TransCanada’s suit challenges two Massachusetts programs that it claims benefit in-state economic interests while burdening out-of-state interests in violation of the U.S. Constitution’s Commerce Clause. It is seeking declaratory and injunctive relief as well as damages under 42 USC § 1983.

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