## Facts

- Texas regulators created renewable-energy requirements and a renewable-energy-credit (REC) trading program.
- TXU Portfolio Management Co., L.P. (TXU) entered long-term agreements to buy wind-generated electricity and associated RECs from FPL Energy entities (FPL).
- The contracts required TXU to provide transmission services necessary to deliver “net energy” to TXU’s customers.
- “Net energy” was defined as megawatt-hours produced by FPL and delivered to a “connecting entity,” which served as the contractual delivery point and could not be TXU.
- ERCOT manages the transmission grid and can order curtailments when congestion occurs, reducing generator output.
- Over several years, FPL delivered less energy and fewer RECs than required; FPL attributed shortfalls to ERCOT curtailments and low wind conditions.
- FPL claimed TXU had a contractual duty to ensure sufficient transmission capacity for all of FPL’s output; TXU argued the contracts placed that risk on FPL and treated inadequate transmission as an “uncontrollable force” subject to specified conditions.
- The trial court granted partial summary judgment that TXU was required to provide transmission capacity and that the contracts’ liquidated-damages provisions were unenforceable; after trial, it rendered take-nothing judgments for both sides.
- The court of appeals reversed both partial summary judgments and remanded.
- The Texas Supreme Court granted review on (1) transmission-capacity duty, (2) scope of liquidated damages, and (3) enforceability of liquidated damages.

## Issues

1. Whether the contracts imposed on TXU a duty to provide adequate transmission capacity (including upstream of the delivery point), making congestion and curtailments TXU’s breach.
2. Whether, if FPL breached and TXU did not, the liquidated-damages provisions applied to both energy and RECs or only to RECs.
3. Whether the liquidated-damages provisions were enforceable or constituted an unenforceable penalty under Texas law.

## Decision

- The Texas Supreme Court held TXU owed no contractual duty to provide transmission capacity upstream of the contractual delivery point.
- The Court held the liquidated-damages provisions, by their terms, applied only to REC shortfalls, not to energy shortfalls.
- The Court held the liquidated-damages provisions were unenforceable as a penalty.
- The Court affirmed in part, reversed in part, and remanded for further proceedings on damages consistent with its holdings.

## Legal Principles

- Contract interpretation turns on the agreement’s defined delivery point and the allocation of responsibilities tied to that point; a buyer’s obligation to provide transmission services “to customers” may begin only after the seller’s contractual delivery to the designated interconnecting party.
- Where a contract defines “net energy” as energy delivered to a specified connecting entity, the seller bears responsibility for delivering to that point absent clear language shifting upstream transmission-capacity risk to the buyer.
- Contract clauses treating insufficient transmission capacity as an “uncontrollable force” support allocating congestion and curtailment risk as an external condition governed by the contract’s excuse provisions, not as a buyer obligation to eliminate congestion.
- A liquidated-damages clause is enforceable only if (1) damages were difficult to estimate at the time of contracting and (2) the stipulated amount is a reasonable forecast of just compensation; otherwise, it is an unenforceable penalty.
- A liquidated-damages provision limited by its text to REC shortfalls cannot be expanded to cover energy shortfalls without contractual language doing so.

## Conclusion

The Texas Supreme Court concluded that the contracts did not require TXU to provide upstream transmission capacity for FPL’s wind generation, interpreted the liquidated-damages provisions as limited to REC shortfalls, and held those provisions unenforceable as a penalty, leaving damages to be determined under actual-damages principles on remand.


FPL Energy, LLC v. TXU Portfolio Mgmt. Co., 426 S.W.3d 59 (Tex. 2014)