You Don’t Own Me: 8th Circuit’s Definition of ‘Direct Ownership Interest’ in Wind Farms Excludes Parent Entities
Blog Pillar and Post
USA September 15 2021
Ownership changes at the parent-company level do not constitute a transfer of “direct ownership interests” in distant subsidiaries, a unanimous panel of the 8th Circuit held last month in Laredo Ridge Wind LLC, et al v. Nebraska Public Power District, No. 20-1956, 2021 WL 3731897 (8th Cir. Aug. 24, 2021). The Nebraska Public Power District (NPPD), a public utility company, sued four affiliated wind farm businesses for breach of Power Purchase Agreements (the PPAs) after the wind farms’ parent companies changed hands multiple times. The district court granted summary judgment in favor of the wind farms and a preliminary injunction preventing NPPD from terminating the PPAs, and the 8th Circuit affirmed.
From 2008 to 2010, NPPD signed identical PPAs with four limited liability companies (the Project Entities) that own and operate wind energy-generation facilities in rural Nebraska, each originally developed by Edison Mission Energy (Edison). Under the PPAs, NPPD agreed to buy all energy produced by the Project Entities for 20 years at a predetermined price. The Project Entities have no employees, and each is part of a multi-tier affiliate ownership structure with Edison at the top, the Project Entities at the bottom, and many layers of subsidiary holding companies in between. This tiered structure allows parent companies to allocate federal tax credits and is “largely a function of the syndication of multiple wind energy projects.” Brief of Appellees at 3, Laredo Ridge Wind LLC, et. al. v. Nebraska Public Power District, No. 20-1956 (8th Cir. Aug. 6, 2020).
The PPAs each contain a change-of-control provision requiring NPPD’s written consent for any Project Entity to “transfer a majority of its direct ownership interests” to a non-Edison entity. In 2012, Edison entered bankruptcy and NRG Energy, Inc. (NRG) bought Edison and all its affiliates tasked with operating the Project Entities. In 2018, NRG sold one of the Project Entities’ parent holding companies to Global Infrastructure Partners (GIP). The Project Entities did not obtain NPPD’s written consent for either transaction. In the meantime, advancements in wind technology caused PPA pricing to exceed double the current market rates, much to the chagrin of NPPD. After the GIP transaction, NPPD sought to terminate the PPAs, citing the change-of-control provision and the 2014 and 2018 acquisitions as events of default. The Project Entities sued, seeking a declaratory judgment that they did not breach the change-of-control provision and an injunction preventing NPPD from terminating the PPAs.
The district court granted summary judgment in favor of the Project Entities and the preliminary injunction, holding that the NRG and GIP transactions involved transfer of ownership interest in the Project Entities’ upstream parents, not in the Project Entities themselves. The 8th Circuit agreed, distinguishing between direct and indirect ownership interests—the former being an “ownership of membership units” in the Project Entities themselves, and the latter an ownership in the Project Entities’ parent companies. See Laredo Ridge Wind, 2021 WL 3731897, at *3-4. That parent companies exercised a degree of control over the Project Entities was not enough to confer a “direct ownership interest” because, the 8th Circuit clarified, “control and ownership are distinct concepts.” Id. at *4. Therefore, neither transaction triggered the change-of-control provision, and the Project Entities were not required to obtain NPPD’s consent.
As an alternative basis for terminating the PPAs, NPPD argued that the Project Entities violated an anti-assignment clause by delegating work to third-party affiliates. This anti-assignment clause provided that Project Entities “shall not assign [the PPA] or any of its rights or obligations under [the PPA]” without NPPD’s written consent. As evidence of breach, NPPD pointed to the Project Entities’ admitted practice of outsourcing day-to-day operations and management of their facilities to third parties. But the 8th Circuit rejected this argument as well, holding that because each remained ultimately responsible for its legal obligations under the PPAs, the Project Entities had not “assigned obligations” but instead only “delegated duties” to third parties. See id. at *6.
Also of note is the preliminary injunction granted in favor of the Project Entities preventing NPPD from terminating the PPAs. The 8th Circuit held that the injunction was warranted given that NPPD was the Project Entities’ only customer, so termination of the PPAs would cause “irreparable harm” by eliminating the Project Entities’ only source of income and forcing them to file for bankruptcy. See id. at *7. One effect of Laredo Ridge Wind, then, is ostensibly to bind utilities to their power purchase agreements with single-customer affiliates pending the resolution of any contract disputes in court.