By Amanda Durish Cook
An Indiana appeals court ruled Monday that Duke Energy can recover from its ratepayers the cost of damages associated with not fulfilling the terms of a wind energy purchase agreement.
The court said it found sufficient evidence to let stand the Indiana Utility Regulatory Commission’s (IURC) original approval of the recovery plan (93A02-1710-EX-2468).
In 2006, Duke and Benton County Wind Farm in Indiana entered into a power purchase agreement for which the IURC authorized full cost recovery from Duke ratepayers. However, in 2013 Benton sued Duke in federal court over what it claimed was a breach of contract when Duke failed to purchase energy from the facility. Benton interpreted the agreement to mean that Duke was responsible for lost production costs in addition to the power Benton delivered.
The U.S. 7th Circuit Court of Appeals ruled that Duke was obligated under the PPA to “pay for power not taken,” and the parties settled for $29 million, with the IURC deciding last year that the money should be recovered from Duke’s ratepayers over a 12-month period.
The IURC “recognized that Duke would be incurring significant costs in connection with the PPA,” the U.S. appeals court found. “Consequently, in order to further the commission’s policy of encouraging the development of renewable resources, the commission authorized Duke to recover all of its PPA costs from ratepayers for the entire 20-year term.”
Two ratepayers, Michael Mullett and Patricia March, appealed the IURC’s decision, arguing that its order was “contrary to law because the damages are ‘liquidated’ and ‘hypothetical’ and amount to impermissible retroactive ratemaking.”
But state court Judge Cale J. Bradford on Monday said there was no caselaw to support the appellants’ claim that “purely hypothetical” liquidated damages prevent Duke from ratepayer recovery for the PPA.
The Indiana court also noted that the $29-million settlement “is no more than customers would have paid had a different offer been submitted to MISO from March 2013 through June 2017, and is less than what potentially could have been awarded has [sic] a settlement not been reached.”
Bradford also found no merit that the recovery would amount to retroactive ratemaking. “The fact that the damages arose from a past dispute regarding a contract interpretation does not automatically make the commission’s order contrary to law,” he wrote. He added that although the case was not a rate case, even rates “are subject to subsequent reconciliation after historical costs have become known.”
Bradford also noted that paying lost production costs under wind farm PPAs is consistent with past cases involving Indianapolis Power and Northern Indiana Public Service Co.
