(CN) – An energy company must honor its agreement to pay for wind power a farm generates even if it is not transmitted due to power grid overload, the Seventh Circuit ruled.
When it signed a contract with Benton County Wind Farm LLC, Seventh Circuit Judge Frank Easterbrook ruled that Duke Energy Indiana knowingly accepted the risk that the supply of wind energy would outstrip the capacity of the delivery grids.
“Duke wanted Benton’s facilities to exist and called them into existence by promising to pay even if a shortfall of transmission services should lead to curtailment of deliveries,” Easterbrook wrote in Tuesday’s unanimous opinion.
In 2005, Benton accepted Duke’s offer to buy 100 megawatts of renewable energy and used the proceeds to build a wind farm, which began operating in 2008, according to the opinion.
Duke agreed to buy all the power the farm generated for 20 years, which it receives via shared regional grids. In the beginning, the grids handily accommodated Benton’s output.
But by 2015, wind energy had jumped from 100 to 1,745 megawatts, thanks to central Indiana’s “excellent conditions” for generating wind energy, Easterbrook wrote.
While the grids used to grant priority to wind energy, allowing it to transmit no matter what, the policy was changed in 2013, placing all wind farms built after 2005 on par with “coal, nuclear, solar, hydro” and other forms of energy, the ruling states.
This forced Benton to reduce its production from 100 percent to 59 percent, literally shutting down its wind turbines 41 percent of the time.
Duke argues it need not pay for energy when the grid forces Benton to shut down to avoid overload, but Benton disagrees.
The case came before the Seventh Circuit after the district court found in favor of Duke, finding that the energy company need only pay for power that reached the “point of metering.” When the grid shuts Benton down, there is zero power at that point.
But Easterbrook, joined by Judges Richard Posner and Joel Flaum, was not buying it: the Seventh Circuit ruled Tuesday that just because the shared grid cannot handle Benton’s output does not mean it is not deliverable.
Rather, the parties’ contract anticipated who is liable when transmission facilities are not available.
“Duke is to pay for power not taken,” Easterbrook wrote. “Duke could build its own transmission lines or buy extra capacity from NIPSCO [a grid owner] or some other firm.”
Duke and other energy companies predicted a future grid overload, the judge said, otherwise they would not have explicitly allocated liability.
“Allocating the risk to Duke facilitates both construction of renewable energy sources and better incentives to match the size of the transmission grid to the capacity for local generation,” Easterbrook wrote.
Judge Posner concurred, starting by simplifying the majority’s analysis: electricity, he wrote, cannot be stopped or “cut off” at the point of metering. It can only be prevented from arriving there by Benton shutting down its turbines.
Thus, the district court’s finding that power must reach the point of metering for Duke to be liable falls flat, because power is never generated and then simply left at the point of metering – its generation is stopped before that by the grid or one of the parties, Posner said.
Further, there is a second contract the majority does not address that Posner argues Duke violated.
Duke, by its failure to obtain transmission facilities for an additional 30-megawatt output, violated this second contract, entitling Benton to additional damages, according to Posner.
The majority’s framing of this second violation as analogous to the first is erroneous, he continues, because there is no liquidated damages clause in the second contract. He said the issues between the two contracts are separate and must be separately addressed.
The Seventh Circuit remanded the case to Southern Indiana federal court to determine Benton’s damages.
Lou Middleton with Duke Energy said in a voicemail that it is “reviewing the decision and will determine its next steps after that review is completed.”
Orion Energy Group, the developer of the Benton County Wind Farm as listed on the county website, did not immediately return a voicemail requesting comment.