FPL Energy, LLC v. TXU Portfolio Management Co., L.P.

In 1999, Texas’s Public Utility Commission (PUC) established renewable-energy-production requirements and a renewable-energy-credit (REC) trading program for Texas electric providers. Electric provider TXU Portfolio Management Company, L.P. (TXUPM) (plaintiff) had contracts with wind-farm owner FPL Energy, LLC (FPL) (defendant), pursuant to which FPL was to sell TXUPM renewable electric energy and RECs. Under the contracts, TXUPM was to provide the transmission services necessary to deliver “net energy” to TXUPM’s customers. The contracts defined net energy as the amount of megawatt hours of energy produced by FPL and delivered to a connecting entity, which was the delivery point for the energy. The contracts provided that the connecting entity was a transmission-service provider with which FPL was to interconnect. Per PUC regulations, the connecting entity could not be TXUPM. Over a four-year period, FPL failed to produce the energy and RECs required by the contracts. TXUPM sued FPL for breach of contract in Texas state court. FPL counterclaimed, asserting that congestion on the Electric Reliability Council of Texas, Inc. (ERCOT) power grid had prevented FPL from meeting its contractual obligations. If the ERCOT grid lacked capacity to transmit energy, ERCOT issued curtailment orders that required certain facilities to stop production. FPL alleged that ERCOT curtailment orders and an unexpected lack of wind had caused FPL’s production to decline below the promised levels. FPL asserted that the curtailment orders and congestion were TXUPM’s fault because TXUPM allegedly bore the responsibility under the contracts to ensure sufficient transmission capacity for all of the energy produced by FPL. TXUPM countered that the contracts placed the risk of transmission incapacity on FPL, noting that the contracts specifically identified lack of capacity as an uncontrollable force outside the parties’ reasonable control. Uncontrollable forces relieved the parties of their contractual obligations only if certain criteria were met, and FPL had not met those criteria. TXUPM further asserted that because the contracts required TXUPM to provide transmission services necessary to deliver net energy, and the contracts defined net energy as energy delivered to the connecting entity (i.e., the delivery point), TXUPM was responsible for providing transmission services only after the delivery point. The trial court found for FPL, concluding that the contracts unambiguously required TXUPM to provide FPL with transmission services, including transmission capacity. However, the appellate court reversed and held that the contracts did not require TXUPM to provide the necessary transmission capacity. FPL petitioned the Texas Supreme Court for review.