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Covanta Hennepin Energy Resource Co., LLC v. The County of Hennepin

United States District Court, D. Minnesota

May 25, 2017

Covanta Hennepin Energy Resource Co., LLC, Plaintiff,
v.
The County of Hennepin, Defendant.

          Mark J. Blando, Esq., Jared M. Reams, Esq. and Eckland & Blando, LLP, counsel for plaintiff.

          Charles H. Salter, Esq., Jane N.B. Holzer, Esq. and Hennepin County Attorney counsel for defendant.

          ORDER

          David S. Doty, Judge United States District Court

         This matter is before the court upon the partial motion to dismiss by plaintiff Covanta Hennepin Energy Resource Co., LLC. Based on a review of the file, record, and proceedings herein, and for the following reasons, the court grants the motion.

         BACKGROUND

         The background of this matter is set forth in the court's previous orders [ECF Nos. 23 & 38] and will not be repeated here except as necessary. For many years, Covanta has managed and operated the Hennepin Energy Recovery Center (HERC) under the parties' service agreement, the most recent version of which expires on March 2, 2018 (Service Agreement). The County sells energy produced at the HERC to Xcel Energy - formerly Northern States Power (NSP) - under a power purchase agreement (PPA).[1] Under the Service Agreement, Covanta agreed to perform the County's obligations under the PPA as follows:

The Company shall at all times during the Term of this Agreement, as agent for the County, perform all of the County's obligations under the [PPA] and shall enforce the terms of such agreements in accordance with good business judgement [sic], and shall otherwise act under such agreements in a manner designed to maximize Energy Sales Revenues under this Agreement.

         Service Agreement, Art. 9.01. The County receives two-thirds of the revenue generated by sales under the PPA and Covanta receives the remaining one-third. Id. Sched. E at E-12.

         Under the PPA, the County - and thus Covanta - agreed to sell Xcel “all energy produced or generated by the [HERC] up to the Committed Capacity ... less the electric power and electric energy necessary for the operation of the [HERC] subject to the provisions of Article V hereof.”[2] PPA Art. 2.01(b). “Committed Capacity” is defined as the “amount of electrical capacity expressed in kilowatts (kw) rounded to the nearest 100 kw specified by [the County] ... to be used in evaluation of [the County's] performance under Article 2 and [the rate schedule].” Id. Art. 1.06.

         The rate paid by Xcel, and the amount the County and Covanta earn under the PPA, depends on several factors. Relevant here, the PPA establishes a “Committed Capacity Rate” based on a “Billing Capacity Factor.” Id. Sched. II § 3(a). The Billing Capacity Factor is the “arithmetic average of the current and 23 previous Monthly Capacity Factors.” Id. § 3(c). When the Billing Capacity Factor is less than 70%, the County receives a reduced rate for the energy produced by the HERC. Id. § 3(a).

         Covanta had hoped to renew the Service Agreement before its upcoming expiration. In 2016, however, the County decided to contract with a third-party, GRE HERC Services, which will assume Covanta's role after the Service Agreement expires.[3]

         On September 15, 2016, Covanta filed this suit alleging that the County breached the Service Agreement in its handling of the negotiations which ultimately led to the Agreement's non-renewal. After being denied injunctive relief by the court, Covanta filed an amended complaint. The court denied the County's subsequent motion to dismiss, after which the County filed an answer along with two counterclaims. ECF Nos. 38 & 40. The counterclaims allege that Covanta breached the Service Agreement by failing to (1) adequately maintain the HERC's cooling tower, and (2) meet capacity and sales obligations. ECF No. 40 at 6-9. Covanta now moves to dismiss the latter counterclaim.

         DISCUSSION

         I. ...


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