Idaho Power Co. v. Cogeneration, Inc.

• Decision Date: 13 July 2000
• Docket Number: No. 24865.,24865.
• Citation: 134 Idaho 738,9 P.3d 1204
• Court: Idaho Supreme Court
• Parties: IDAHO POWER COMPANY, an Idaho corporation, Plaintiff-Counterdefendant-Respondent-Cross Appellant. v. COGENERATION, INC., an Idaho corporation, Defendant-Counterclaimant-Appellant-Cross Respondent.

9 P.3d 1204

134 Idaho 738

IDAHO POWER COMPANY, an Idaho corporation, Plaintiff-Counterdefendant-Respondent-Cross Appellant. v. COGENERATION, INC., an Idaho corporation, Defendant-Counterclaimant-Appellant-Cross Respondent.

No. 24865.

Supreme Court of Idaho, Boise, January 2000 Term.

July 13, 2000.

Rehearing Denied September 26, 2000.

Manweiler, Wilcox, Trout & Manweiler, Boise for appellant. Kim J. Trout argued.

Evans, Keane LLP, Boise for respondent. Bruce C. Jones argued.

SILAK, Justice.

This is an appeal by Cogeneration, Inc. (Cogeneration) from a district court judgment in favor of Idaho Power Company (Idaho Power) in a breach of contract action. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Factual Background

Cogeneration held a Federal Energy Regulatory Commission (FERC) license to construct a hydroelectric facility at Auger Falls on the Snake River. Under federal law, Idaho Power was obligated to enter into an agreement with Cogeneration for the purchase of power from the Auger Falls plant after its completion.

In January 1992, Idaho Power and Cogeneration entered into a "firm energy sales agreement" (the Agreement) that required Cogeneration to have the power plant constructed and on line by January 1, 1996 with operations to begin by February 1, 1996, and to post a liquid security deposit (the security) to assure full and timely performance of its obligations. The security was to be paid in two installments: the first, on or before June 1, 1992 in the amount of $250,000, and the second, on or before January 1, 1994 in the amount of $1,874,800. The Agreement contained an additional clause, which excused any affected performance if an event of force majeure occurred. As defined in relevant part by the Agreement:

[F]orce majeure or an event of force majeure means any cause beyond the control of the Seller or of Idaho Power which, despite the exercise of due diligence, such Party is unable to prevent or overcome, including but not limited to an act of God, fire, flood, explosion, strike, sabotage, an act of the public enemy, civil or military authority, court orders, laws or regulations, insurrection or riot, an act of the elements or lack of precipitation resulting in reduced water flows for power production purposes. If either party is rendered wholly or in part unable to perform its obligations under this Agreement because of an event of force majeure, both parties shall be excused from whatever performance is affected by the event of force majeure, provided that:

(1) The non-performing Party shall, as soon as is reasonably possible after the occurrence of the event of force majeure, give the other Party written notice describing the particulars of the occurrence.

(2) The suspension of performance shall be of no greater scope and of no longer in duration than is required by the event of force majeure.

(3) No obligations of either Party which arose before the occurrence causing the suspension of performance and which could and should have been fully performed before such occurrence shall be excused as a result of such occurrence.

(emphasis added).

Cogeneration obtained a letter of credit from its financing partner, Calpine, Inc. (Calpine) and made the first installment of the security by June 1, 1992 as required by the Agreement.

As part of the process for building a hydroelectric power facility on the Snake River, Cogeneration was required to obtain permits from various federal and state agencies. A "401 Certificate" from the Idaho Department of Environmental Quality (DEQ) was required to ensure that all relevant environmental considerations had been met. In addition, a "404 Certificate" from the Army Corps of Engineers (Corps) was required before any construction could be undertaken in the streambed of the Snake River. A 401 certificate is a prerequisite to the issuance of a 404 certificate by the Corps.

In the early 1980's, Cogeneration had obtained a 401 certificate from the DEQ and received a reconfirmation of the certificate in January, 1992. However, in February, 1992, the DEQ revoked the existing 401 certificate and established an extensive set of new criteria for Cogeneration to meet in order to obtain a new one. Cogeneration did not appeal the revocation or otherwise challenge the DEQ's action. Instead, Cogeneration entered into negotiations with the DEQ regarding requirements for the issuance of a new certificate. In October, 1992, Cogeneration and the DEQ negotiated a consent order and issuance of a new 401 certificate, subject to a list of conditions to be met by Cogeneration.

Cogeneration was unable to meet the conditions of the new 401 certificate to the satisfaction of the DEQ and in December, 1993, the DEQ notified the Corps that the newly issued 401 certificate was being revoked due to non-conformance with conditions imposed by the consent order. This notification urged the Corps to suspend further consideration of Cogeneration's pending 404 certificate.

Cogeneration did not make the second security payment to Idaho Power on January 1, 1994. On January 3, Idaho Power issued notice to Cogeneration that it was in default of the Agreement, giving Cogeneration sixty days to cure. Cogeneration responded by invoking the Agreement's force majeure provision asserting that the DEQ unilaterally and arbitrarily revoked the project's 401 certificate, which in turn prevented Cogeneration from securing the financing necessary to post the security. On January 7, 1994, a meeting was held among Idaho Power, Cogeneration and Calpine. Cogeneration and Calpine indicated that the security would be paid if Idaho Power acknowledged that the certification problems constituted events of force majeure. Idaho Power replied that the security would have to be paid first, and then it would evaluate the issue of force majeure. Calpine was not willing to advance funds toward the venture on Cogeneration's behalf without assurance that Idaho Power would acknowledge the certification problems to be an event of force majeure. Cogeneration itself, did not have the financial resources to satisfy the security. No payment of the security was made.

B. Procedural Background

In December 1994, Idaho Power petitioned the Idaho Public Utilities Commission (IPUC) and sued Cogeneration in district court seeking a declaration in each case that Cogeneration had defaulted on the Agreement because of delinquency in posting the security.

Idaho Power first pursued proceedings before the IPUC where Cogeneration requested a declaration that an event of force majeure had occurred. The IPUC ordered Cogeneration to post the second installment of the security by May 1, 1995. Both parties sought reconsideration. The IPUC declined to reconsider its earlier order, and declined to exercise jurisdiction to interpret and declare the parties' contractual obligations. Instead, it suggested that a state district court would be a more appropriate forum for the issues. Neither party appealed either IPUC order. Cogeneration did not deposit the second security installment.

The parties proceeded with suit in district court. Idaho Power asserted that Cogeneration's failure to comply with the IPUC's order put Cogeneration in default of the Agreement. The district court granted Idaho Power's motion for partial summary judgment holding that Cogeneration was in default of the Agreement by failing to comply with the IPUC order, regardless of whether an event of force majeure had occurred. Cogeneration appealed.

The Supreme Court in Idaho Power Co. v. Cogeneration Inc., 129 Idaho 46, 921 P.2d 746 (1996) (Cogeneration I), vacated the district court's decision, holding that the IPUC order did not prevail over the Agreement's force majeure clause and therefore, the failure to post the security within the period specified in the IPUC order was not a material breach of the Agreement. 129 Idaho at 49, 921 P.2d at 749. The Court further held that issues of fact remained as to whether an event of force majeure had occurred. Id.

On remand, Cogeneration moved for partial summary judgment arguing that the undisputed affidavits supported a showing that an event of force majeure had occurred. The district court denied the motion holding that it could not conclude that the events, as a matter of law, were events of force majeure.

At trial, Cogeneration moved for involuntary dismissal following Idaho Power's case-in-chief arguing that no evidence had been presented to support Idaho Power's claim. The district court, sitting without a jury, agreed that sufficient testimony had not been placed on the record to support Idaho Power's claim but denied the motion to dismiss and granted Idaho Power's motion to re-open its case because of legal confusion and legitimate misunderstandings surrounding the effect on the record of an appeal to the Supreme Court, and prior summary judgment proceedings.

Cogeneration again moved for involuntary dismissal after Idaho Power rested for the second time, arguing that the additional proffered evidence was still insufficient to support Idaho Power's claim. The district court denied Cogeneration's second motion to dismiss.

At the close of all the evidence, Cogeneration renewed its motion for dismissal. The district court denied the motion.

At the close of trial, the district court held that the actions of the government agencies, in revoking and suspending the required permits, were events of force majeure with respect to the construction and operational obligations under the Agreement but not with respect to the financial and security obligations. The court also held that Cogeneration was not excused from its obligation to make the security deposit on January 1, 1994, and because its failure to do so was not cured within the time permitted after notice of default, it was in breach of contract, entitling Idaho Power to enforce the termination provisions of the contract. Cogeneration appeals.

II. ISSUES ON APPEAL...