Practices | Energy Law

Power Purchase Agreements

The Energy Law Practice Group (“EPG”) attorneys have represented numerous clients on issues related to their power purchase agreements. The EPG works with clients to structure and execute wholesale power transactions from portfolios throughout the region. The EPG is expert in EEI Master Agreements and the myriad complex issues involved with modern wholesale power transactions. The EPG was involved over a three-year period in the determination before the Maine Public Utilities Commission of the avoided costs of Central Maine Power Company (“CMP”), Maine’s largest utility. It represented Scott Paper Company, which was building co-generation projects at its three Maine paper mills. Scott was the major opponent to the utility. Avoided cost was to be determined according to the total revenue requirements method, using 50 megawatt decrement cases. Among the issues litigated were the design of the computer program used to model these costs, and the many inputs to these models such as fuel forecasts, generation expansion plans reflecting lowest cost resource planning, load shapes, forced outage modeling, etc. Maine undertook some of the nation’s most detailed proceedings to establish avoided costs and the EPG participated in rulemakings and contested rate cases to secure the highest available rates for its clients.

After the establishment of avoided cost rates, the EPG negotiated many power purchase agreements under the new rules, tailoring those agreements to the needs of its clients. It helped prepare responses to utility RFPs and secured a number of favorable contracts. The EPG has also negotiated power purchase agreements based upon indexed rates tied, for example, to industrial retail rates in contracts involving simultaneous purchase and sale. Its experience in drafting and negotiating power purchase agreements has led not only to the development of many successful projects, but also to special counsel roles on contracts that had already been executed. Maine’s utilities attempted in the early 1990’s to find ambiguities in existing power purchase agreements to either force a termination or a re-negotiation of the agreement. The EPG has represented numerous clients in such matters that resulted in the preservation of many agreements, or the favorable re-negotiation of others.

The re-negotiated contracts the EPG has handled have spanned a wide range of options, including the following:

  • Buy out of contract for cash payments. One client obtained $185 million and retained its facility. The facility was then sold, and the new owner (now represented by the EPG) is preparing to use the facility as a merchant plant. The utility made use of low interest financing from the Finance Authority of Maine created especially for such use. The EPG lobbied for the passage of this bill.
  • Buy out of a contract for cash payments and purchase by the utility of three small hydroelectric facilities. The purchase was structured to minimize the tax impact on the sellers, who were elderly private individuals.
  • Buy down of the rate paid under the contract with an extension of the term.
  • Buy out of the capacity portion of the contract for a cash payment, which allowed retirement of the facility’s debt and a reduction in the remaining energy rate with an extension of the term.
  • Buy down of the volume of purchase by yearly cash payment, with options to sell at indexed rates after expiration of the fixed rate portion of the contract.

The EPG also represented a municipality where a large 30 MW biomass facility was to have its contract bought out, and the utility would acquire the facility and shut it down. This would have had a devastating impact on local tax revenues and employment. Using its knowledge of plant operations, the EPG convinced the utility, in mediation sponsored by the State Planning Office to keep the facility open by reducing costs through some staff cuts, a tax reduction, a reduction in wood costs, and a wheeling swap with the local utility that was not the purchaser of the power. The facility has remained open as a result.

The EPG has represented a generator in Puerto Rico involving numerous disputes arising out of that entity’s Power Purchase and Operating Agreement with the local utility. The EPG has also resolved drafting and negotiation issues from the perspective of the buyer of energy as well.