Paul W. Green (handout)
A sister company of Florida Power & Light Co. got a break from the Texas Supreme Court, which instructed a lower court to significantly reduce a $29 million judgment in a lawsuit over renewable energy credits from wind farms.
The ruling had the critical effect of limiting how damages are calculated. The American Wind Energy Association in Washington filed a friend-of-the-court brief expressing concern that a ruling contrary to the one the court took would impede the renewable energy credit market.
“Limiting the liquidated damages provisions to their plain language also has the benefit of advancing stability in the renewable energy marketplace,” Justice Paul W. Green wrote for the unanimous court.
NextEra Energy Resources LLC, a subsidiary of Juno Beach-based NextEra Energy Inc., owns three wind farms in Texas and was sued by Luminant Energy Co. LLC. The subsidiary of Dallas-based Energy Future Holdings Corp., purchases renewable energy credits for its parent company.
By state law, Texas power companies must obtain a certain percentage of power from renewable sources. Credits are counted toward meeting that goal.
From 2002 to 2005, NextEra Energy Resources, then FPL Energy, failed to provide the number of credits promised in a series of contracts signed in 2000. One credit equals one megawatt hour, and NextEra came up 580,465 megawatt-hours short.
NextEra brought a counterclaim arguing Luminant failed to provide access through the Electric Reliability Council of Texas, or ERCOT, which governs the grid used by Texas electric companies to shuttle power around the state.
NextEra complained Luminant prioritized its own fossil fuel-derived energy. When the grid was saturated, ERCOT issued curtailment orders that required NextEra’s facilities to temporarily shut down. In addition, NextEra said some credit deficits were due to unusually calm days.
A jury in Dallas County found Luminant owed no duty to ensure transmission. The jury also said Luminant should recover $8.9 million, but that award was negated because Luminant met its state requirement through other sources.
Both sides appealed a “take nothing” judgment, and the Dallas Court of Appeals reversed in part on damages. The court said the liquidated damages provisions were enforceable at a rate of $50 per MWh for the entire credit deficit.
On Friday, the Supreme Court reversed that ruling by reducing the judgment to an estimation of actual damages.
Liquidation damages are damages designated during the formation of a contract. If liquidation damages are more than actual damages, they are considered a penalty. The court focused on that difference.
As a company that owns power generation plants, Energy Future was subject to the $50 per MWh penalty rate. But the company, then TXU Energy, created Luminant to assign its credits to a wholesaler that was not subject to a state penalty.
“This change in relationship … fundamentally changed the basis for the liquidated damages provisions,” Green said.
In addition, credits lost because of transmission congestion on the grid are excused by the state, he noted. That just leaves credits lost from poor wind days, or 38 percent of the credit deficit.
Green said the state’s deficiency rate provides an alternate calculation—twice the annual average market value. From 2002 to 2005, twice the annual average market value came to $8 to $28 per MWh. At $28 per MWh, actual damages are less than $6.2 million.
“The disparity grows if we consider that (Luminant) also avoided the contract price of $24 per MWh of renewable energy,” Green said.
He did not calculate a fixed number for damages, but remanded the case to the Dallas Court of Appeals with instructions to make its own calculation based on his reasoning.
“We are pleased with the court’s ruling that Luminant did not breach its power purchase agreements with FPL and that we are entitled to pursue damages from FPL for its breach of those agreements,” said Luminant spokesman Brad Watson.
Steven Stengel, a spokesman for NextEra, refused to comment, stating the opinion speaks for itself.
NextEra Energy Resources changed its name in 2009, and its parent switch from FPL Group Inc. in 2010.