United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
Z. Lee Judge
Barton Windpower, LLC and Buffalo Ridge I, LLC are wind
energy power plants respectively located in Iowa and South
Dakota. Both are owned by Iberdrola Renewables, LLC, the
second-largest operator of wind energy plants in the United
States. Defendant Northern Indiana Public Service Company
(“NIPSCO”) contracted to purchase electricity
generated by Iberdrola's Barton and Buffalo Ridge plants
for a period of years at a set rate. NIPSCO would then sell
that power to the Midcontinent Independent System Operator
(the nonprofit regulator of the energy grid that covers the
Midwest) at the market price. In this way, the contracts
squarely placed the risk of a low market price on NIPSCO, and
in return NIPSCO stood to benefit in the event of high
contract provisions give NIPSCO the power to refuse to
purchase electricity that Iberdrola's plants are capable
of delivering. First, under the “Unexcused Failure to
Take” provision, NIPSCO may decline to
“take” the plants' power at any time, but if
NIPSCO does so, it must pay Iberdrola what is known as the
“Cost to Cover”-unless NIPSCO's failure to
take the power is excused by a “Force Majeure
Event.” Second, under the “Voluntary Curtailment
by Buyer” provision, NIPSCO may order the plants to
stop producing power, but if NIPSCO exercises that right, it
again must pay Iberdrola the Cost to Cover.
years after these contracts went into effect, a regulatory
change took place. This change required market participants
like NIPSCO to set a minimum price at which to sell their
wind power. When the market price falls below this minimum
price, the participant's power plant receives an
automatically generated order from the energy grid's
regulator requiring that it cease delivering power to the
grid. Since this regulatory change went into effect, the
market price has fallen below NIPSCO's offer price many
times, causing the Iberdrola plants to be taken offline.
Iberdrola has billed NIPSCO the Cost to Cover for those time
periods, but NIPSCO has refused to pay.
claims that NIPSCO's refusal to pay the Cost to Cover has
breached the contracts by violating each of the provisions
described above. In the alternative, Iberdrola also claims
that, even if NIPSCO has not breached those provisions, it
has violated the implied covenant of good faith and fair
dealing by using a regulatory change to shift the risk of low
market prices onto Iberdrola, the opposite of the allocation
that the parties intended when entering into the contracts.
sides have moved for summary judgment, Iberdrola on its
express contract claim and NIPSCO on both of Iberdrola's
claims. The Court previously issued a minute order denying
both motions with an opinion to follow . Since that
time, the parties have filed supplemental briefing based on
an intervening Seventh Circuit opinion in a similar case,
Benton Cty. Wind Farm LLC v. Duke Energy Ind., Inc.,
843 F.3d 298 (7th Cir. 2016). Upon further consideration of
the original motions and in light of the Benton
opinion, the Court now modifies its previous order by
granting Iberdrola's motion for summary judgment and
Renewables, the parent company of Barton Windpower and
Buffalo Ridge I, is itself a subsidiary of Iberdrola, S.A., a
Spanish renewable energy company with the largest renewable
asset base of any company in the world. See
Pls.' SOF ¶ 1. Buffalo Ridge is a 50-megawatt wind
energy power plant in Brookings Ridge, South Dakota. See
Id. ¶ 2. Barton is a 160-megawatt wind energy power
plant in Worth County, Iowa. Id. For the sake of
simplicity, the Court will refer to Plaintiffs collectively
is a public utility located in Merrillville, Indiana.
Def.'s SOF ¶ 4. NIPSCO provides natural gas and
electric power services to approximately one million
customers across the service region encompassing Northern
Indiana. See Pls.' SOF ¶ 3. Under
NIPSCO's contracts with Iberdrola, NIPSCO is the sole
energy buyer, or offtaker, for the energy produced at the
Buffalo Ridge power plant. Id. ¶ 2. NIPSCO is
one of two offtakers for the Barton power plant. Id.
The Electricity Grid
plants in the Midwest, including wind energy plants, feed the
electricity they produce into a grid managed by Midcontinent
Independent System Operator (“MISO”), a nonprofit
organization regulated by the Federal Energy Regulatory
Commission. Id. ¶ 7. MISO's grid spans
fifteen Midwestern states and the Canadian province Manitoba.
Id. MISO purchases electricity from producers and
then sells that electricity to utilities that, in turn, sell
it to consumers. Id. NIPSCO is a utility that
purchases electricity from MISO to sell to consumers in
Indiana, but NIPSCO also sells to MISO the electricity that
Iberdrola produces in Iowa and South Dakota. Id.
¶¶ 8, 16; Def.'s SOF ¶¶ 4, 27.
managing the electricity grid, MISO must always be cognizant
of the grid's physical limitations. The grid can become
overwhelmed with electricity at times of high production and
consumption. Pls.' SOF ¶ 19; Def.'s SOF
¶¶ 15-17. And because electricity cannot be stored,
MISO must carefully balance supply with demand, both of which
can be difficult to predict. Def.'s SOF ¶ 15. To
maintain the reliability and efficiency of the grid, MISO has
the authority to order a producer to curtail its output.
Id. ¶ 28.
The Energy Markets
uses the markets through which it purchases and sells power
to help balance supply and demand and to protect the
integrity of the grid. Pls.' SOF ¶ 19. One of these
markets is called the “day-ahead” market, and the
other is called the “real-time” market.
Id. In the day-ahead market, market participants
offer to deliver to MISO a specified amount of power at a set
price on the following day. Id. ¶ 20. If MISO
accepts the offer and the market participant delivers the
power as scheduled, the participant will be paid the agreed
price regardless of the market price at the time of delivery.
Id. If MISO rejects the offer, the participant may
still sell power to MISO in the real-time market.
Id. ¶¶ 22-23. In the real-time market, the
participant is paid the market price at the time of power
delivery. Id. ¶ 23.
market price that MISO pays for energy is known as the
Locational Marginal Price (“LMP”).
Id.¶ 8. The LMP can change many times in a
single day and vary between different areas of the grid.
Id. ¶¶ 14, 17. MISO sets the LMP for a
given location based on three factors. Id. ¶
12. The first factor is the “marginal energy
component.” Id. This component reflects the
market participants' offers to MISO relative to consumer
demand. Id. ¶ 13. It is constant throughout the
grid. Id. The second factor, the “marginal
congestion component, ” reflects the costs of
transmission congestion. See Id. ¶¶ 12,
14. If more power is being produced in a particular area of
the grid than the transmission lines can accommodate, this
component will be negative in that area, thereby reducing the
financial incentive to deliver power and encouraging plants
to go offline. See Id. ¶ 14. This component can
vary throughout the grid. Id. The third factor is
the “marginal loss component.” Id.
¶ 12. It captures the cost of transmission losses due to
the physical infrastructure at each delivery point.
Id. ¶ 15. Compared to the other two components,
the marginal loss component is a relatively insignificant
driver of the overall LMP. See id.
the LMP in a particular area is negative. Id. ¶
10. A negative LMP can occur when more electricity is being
produced than consumers are demanding or when the amount of
power being produced in a particular area is causing
significant congestion on the grid. Id. When the LMP
is negative, market participants like NIPSCO can stop
generating power, or they can continue to generate power and
sell it to MISO at the negative price (i.e., pay
MISO to take the power). Id. A market participant
may be willing to sell power to MISO at negative prices if
there is an opportunity cost for not delivering
power-for example, if taking a plant offline is expensive or
tax incentives will be lost for doing so. Id.
a market participant who is supplying power to MISO when the
LMP is negative will not always be required to pay MISO
anything. For example, in the case of NIPSCO, if the LMP in
the area where it sells power to MISO is equal to the LMP in
Indiana (where NIPSCO buys power from MISO), then NIPSCO will
break even. Id. ¶ 17. And if NIPSCO agrees in
the day-ahead market to provide MISO with power at a
particular price, MISO will pay the agreed price to the
market participant regardless of the LMP at the time of
delivery. Id. ¶ 20.
The Parties' Contracts
parties entered into two power purchase agreements
(“PPAs”) on November 7, 2007. See
Def.'s SOF ¶ 5. One PPA was between NIPSCO and
Barton; the other was between NIPSCO and Buffalo Ridge.
Id. The parties agree that the two PPAs are
identical in all respects that are material to this case.
Id. ¶ 7; Pls.' Resp. Def.'s SOF ¶
7. The Court will provide an overview of the relevant
portions of the PPAs here and will provide additional detail
as it becomes necessary to the Court's analysis.
basic agreement is found in Article 5 of the PPAs, entitled
“Purchase and Sale.” In that Article, NIPSCO
agrees to purchase, and Iberdrola agrees to sell,
“Buyer's Metered Output at the Delivery Point on an
as-generated, instantaneous basis” for a set price. PPA
§ 5.1.1. NIPSCO also agrees to be responsible for
“congestion charges, ” as well as “all
charges, costs and expenses associated with a negative price
at the Delivery Point [i.e., the interconnection
between a plant and MISO's grid].” Id.
Article 5 includes a section entitled “Payments Due to
Seller for Buyer's Unexcused Failure to Take.”
Id. § 5.3. That section requires NIPSCO to pay
Iberdrola's “Cost to Cover” if NIPSCO
“fails to take Buyer's Metered Output, ”
unless the failure to take is excused by an Iberdrola default
or by a “Force Majeure Event.” Id. In
turn, “Force Majeure Event” is defined in Article
6. The definition includes the standard “acts of
God” events, but it specifies in addition that
“curtailment by Midwest ISO, or its successor, at the
Delivery Point for any reason that prevents either Party from
performing under this Agreement will constitute a Force
Majeure Event.” Id. § 6.1.2.
last major section of the PPAs that is relevant to this case
is entitled “Voluntary Curtailment by Buyer.”
This section gives NIPSCO the power to instruct Iberdrola to
stop delivering electricity to the grid at any time.
Id. § 5.4. If NIPSCO chooses to exercise this
option, however, it must comply with certain notice
requirements and pay Iberdrola's Cost to Cover for the
period of curtailment. Id. §§ 5.4.1,
5.4.3. The definition of “Cost to Cover” for
purposes of this section is substantially identical to the
definition of “Cost to Cover” for purposes of the
“Unexcused Failure to Take” section. Compare
Id. § 5.3.2, with Id. § 5.4.3.
Previous Regulatory System
wind power plants produce electricity only when the wind is
blowing, they were categorized as “Intermittent
Resources” under the regulatory system in place in 2007
when the parties executed the PPAs. Pls.' SOF ¶ 53.
The intermittent nature of wind power plants means that the
plants do not necessarily produce power when consumers are
demanding it, and sometimes the plants generate more power
than is needed or can be accommodated by the grid.
Id. ¶ 56. At the time the PPAs were executed,
MISO sometimes needed to stop such overproduction by placing
telephone calls to individual wind plants and ordering them
to curtail their production for a period of time.
Id. During these “manual curtailments”
at the Iberdrola plants, NIPSCO did not pay Iberdrola the
Cost to Cover, and Iberdrola never demanded such payments.
Id. ¶ 57.
to address the inefficiencies of manual curtailments, MISO
created a new category of energy resource in 2010, the
“Dispatchable Intermittent Resource”
(“DIR”), and began using an automated system
known as “Security Constrained Economic Dispatch”
(“SCED”) to manage this resource category.
Id. ¶¶ 60-62; Def.'s SOF ¶ 19.
The new system requires market participants, like NIPSCO, to
set a minimum LMP at which they are willing to sell
electricity to MISO. Def.'s SOF ¶¶ 32-33. That
price can be as high as $1000/MWh (megawatt-hour) or as low
as negative $500/MWh. Pls.' SOF ¶ 22. When the LMP
drops below the market participant's minimum price, SCED
automatically sends a signal from MISO to the
participant's wind plants ordering them to
“dispatch down” (i.e., stop delivering
power to the grid). Id. ¶ 63; Def.'s SOF
wind plants, including the Iberdrola plants, were required to
convert to DIR by March 1, 2013. Pls.' SOF ¶ 62.
Since then, the need for manual curtailments from MISO has
been reduced, but it has not been eliminated. Def.'s SOF
¶¶ 43-45; Pls.' Resp. Def.'s SOF