SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report: March 22, 1999
Commission File Number 33-82034
INDIANTOWN COGENERATION, L.P. (Exact name of co-registrant as
specified in its charter)
Delaware 52-1722490 (State or other
jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
INDIANTOWN COGENERATION FUNDING CORPORATION (Exact name of
co-registrant as specified in its charter)
Delaware 52-1889595 (State or other
jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7500 Old Georgetown Road, 13th Floor Bethesda, Maryland 20814-6161
(Registrants' address of principal executive offices)
(301)-718-6800 (Registrants' telephone number, including area code)
Item 5. Other Events.
On March 19, 1999, Indiantown Cogeneration, L.P. (the
"Partnership") filed a complaint against Florida Power & Light
Company ("FPL") in the United States District Court for the Middle
District of Florida. The lawsuit stems from a course of action
pursued by FPL since March 10, 1999, in which FPL has purported to
exercise its dispatch and control rights under the power sales
agreement in a manner which the Partnership believes violates the
terms of the power sales agreement. In its complaint, the
Partnership charges that such conduct is deliberately calculated to
cause the Partnership to be unable to meet the requirements to
maintain the Facility's status as a Qualifying Facility under the
Public Utility Regulatory Policies Act of 1978.
The complaint alleges that FPL has taken the position that if the
Facility is off-line for any reason, then FPL is under no obligation
to allow the Facility to reconnect to FPL's system. The complaint
asserts, however, that the Partnership specifically and successfully
negotiated for a contractual right to operate the Facility at 100 MW
("Minimum Load") in order to enable it to cogenerate sufficient
steam to maintain its Qualifying Facility status. While FPL has not
disputed that the Partnership may maintain Minimum Load operations
if the Facility is delivering power when FPL requests the
Partnership to decommit the Facility, the complaint states that FPL
has claimed absolute discretion to deny the Partnership permission
to reconnect the Facility with FPL's system.
Because the loss of Qualifying Facility status may result in an
event of default under the power sales agreement, the Partnership
must take action to address this matter.
The complaint asserts causes of action for (i) FPL's breach of the
power sales agreement, (ii) FPL's anticipatory repudiation of the
power sales agreement, (iii) breach of the implied covenant of good
faith, fair dealing and commercial reasonableness and (iv) a
declaratory judgment by the court of the rights of the parties under
the power sales agreement. The Partnership seeks (a) a declaratory
ruling that FPL's actions constitute a breach of the terms of the
power sales agreement and that the Partnership has the absolute
right to operate the Facility at Minimum Load (except for reasons of
safety or system security) at the rates provided for in the power
sales agreement, (b) injunctive relief preventing FPL from further
violating the power sales agreement, (c) compensatory damages and
(d) other relief as the court may deem appropriate.
This summary of the Partnership's complaint against FPL is qualified
in its entirety by the complaint, which is filed herewith as Exhibit
99.1. This summary does not, nor does it purport to, include all of
the material statements and claims made in the complaint, and has
been provided solely for the reader's convenience. This summary is
not intended to be relied upon for any purpose without reference to
the complaint.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Indiantown Cogeneration, L.P.
(Co-Registrant)
Date: March 22, 1999 /s/ John R. Cooper John R.
Cooper Vice President (Chief
Financial Officer)
Indiantown Cogeneration Funding
Corporation (Co-Registrant)
Date: March 22, 1999 /s/ John R. Cooper John R.
Cooper Vice President (Chief
Financial Officer)
Exhibit 99.1
UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
INDIANTOWN COGENERATION, L.P.,
Plaintiff,
vs. CASE NUMBER:
FLORIDA POWER & LIGHT COMPANY,
Defendant. JURY TRIAL DEMANDED
____________________________________/
COMPLAINT
Plaintiff Indiantown Cogeneration, L.P. ("ICL") files this Complaint
against Florida Power & Light Company ("FPL") and alleges:
NATURE OF THE ACTION
1. ICL brings this action to enforce its
rights, as seller, against FPL, as purchaser, under an Agreement
for the Purchase of Firm Capacity and Energy, dated as of March
31, 1990, as amended pursuant to amendments effective December
5, 1990 and July 15, 1992 (collectively, the "Power Purchase
Agreement").
2. The Power Purchase Agreement obligated ICL to
construct and operate a coal-fired power plant (the "Facility")
using cogeneration. Cogeneration is the sequential production
of both electricity and other industrially-useful outputs (in
this case, steam) from a single fuel source. ICL sells all the
electricity generated by that power plant to FPL. FPL, in turn,
is obligated to purchase the electrical output from ICL's power
plant pursuant to the terms and conditions of the Power Purchase
Agreement. The generation, purchase and sale of this
electricity occurs in the wholesale market for electricity.
3. Because of the monopoly nature of the market for the
transmission of wholesale electricity, ICL must be connected to
FPL's transmission system in order to sell its electricity to
FPL or any other wholesale purchaser.
4. Moreover, the unique
nature of ICL as a cogeneration facility means that it must be
connected to FPL's system to generate both electricity and steam
from a single fuel source. This is because electricity
generated in the form of alternating current (AC) cannot be
stored. It must be used as it is generated. If FPL denies its
transmission system to ICL, ICL cannot generate electricity, and
cannot operate as a cogenerator.
5. From time to time,
coal-fired power plants, including the Facility at issue here,
"trip," which means that a plant automatically shuts down and
disconnects from the transmission system to which it is
connected for a brief period of time due to the operation of
certain safety mechanisms within the plant. ICL's facility has
tripped for safety reasons on a few occasions in recent years.
After each trip, ICL has promptly (within hours) rectified any
problem and readied its Facility for reconnection to FPL's
system.
6. Notwithstanding the Power Purchase Agreement's
express terms, and the substantial services and consideration
FPL has already received from ICL thereunder, FPL has
arbitrarily and in bad faith refused to allow ICL to "reclose
into," i.e., reconnect with, FPL's system. Continued refusal to
reconnect ICL will substantially harm ICL and threaten its
status as a Qualifying Facility ("QF") under Federal law.
7. ICL seeks judgment (i) declaring that FPL has breached the terms
of the Power Purchase Agreement; (ii) preliminarily and
permanently enjoining FPL from violating the terms of the Power
Purchase Agreement, and requiring FPL to allow ICL to reconnect
to FPL's system following a trip and pay ICL the rates required
by the Power Purchase Agreement; (iii) awarding ICL compensatory
damages, including prejudgment interest, for those compensable
injuries suffered by ICL as a result of FPL's conduct alleged
herein; (iv) awarding ICL its costs attendant to this action;
and (v) awarding ICL such other and further relief as is just
and proper.
PARTIES
8. ICL, a limited partnership organized and existing
under the laws of the State of Delaware, was formed to develop,
acquire, own, engineer, construct, test and operate the
Facility.
9. The following are general partners in ICL.
Indiantown Project Investment Partnership, L.P., a Delaware
limited partnership with its principal place of business in
Maryland, owns a 19.95% share in ICL. Palm Power Corporation, a
Delaware corporation with its principal place of business in
North Carolina, owns a 10% share in ICL.
10. The following are
limited partners in ICL. TIFD III-Y, Inc., a Delaware
corporation with its principal place of business in Connecticut,
owns a 40% share in ICL. Toyan Enterprises, a California
corporation with its principal place of business in Maryland,
owns a 30.05% share in ICL.
11. Defendant FPL is an investor
owned utility corporation organized and existing under the laws
of the State of Florida having its principal place of business
in Florida. Its service territory covers South Florida and the
eastern seaboard of Florida, including portions of the Middle
District of Florida.
JURISDICTION AND VENUE
12. The amount in controversy exceeds
$75,000.00, exclusive of interest and costs.
13. This Court
has jurisdiction over the subject matter of this action pursuant
to 28 U.S.C. 1332 (diversity of citizenship), 2201 and 2202
(declaratory judgment).
14. Venue is proper in this district
pursuant to 28 U.S.C. 1391(a)(1) and (c) since FPL resides
within this district.
FACTUAL BACKGROUND
15. The Facility is a cogeneration resource,
i.e., it produces sequentially (i) electric capacity and energy,
which are sold to FPL pursuant to the Power Purchase Agreement;
and (ii) steam, which is sold to Caulkins Indiantown Citrus
Company ("Caulkins"), a wholesale citrus juice processor which
uses steam in its fruit processing operations, pursuant to an
Energy Services Agreement, dated as of September 8, 1992, as
amended (the "Energy Services Agreement").
16. FPL is the
Facility's sole purchaser of electric generating capacity and
energy, and Caulkins is its sole purchaser of steam.
17. On
March 21, 1991 and November 23, 1992, the Florida Public Service
Commission (the "FPSC") approved the Power Purchase Agreement,
finding that the cost of electricity to be provided by the
Facility is reasonable when compared to the viable alternatives
to meet FPL's need for electricity and that the Facility was the
most cost effective alternative available to meet FPL's need for
firm capacity and energy.
QF Status
18. The Facility has been certified as a QF under the
Public Utilities Regulatory Policies Act of 1978 ("PURPA"), 16
U.S.C. 824a et. seq., and regulations promulgated thereunder.
19. PURPA exempts QF's from certain provisions of the Public
Utility Holding Company Act of 1935, as amended ("PUHCA"), 15
U.S.C. 79z et. seq., most provisions of the Federal Power Act
(the "FPA"), 16 U.S.C. 791 et. seq., and rate and financial
regulation under state law.
20. The Facility must satisfy
certain requirements specified in the regulations promulgated by
the Federal Energy Regulatory Commission ("FERC") in order to
maintain its QF status.
21. Specifically, the Facility must
sequentially produce both electricity and useful thermal energy
for non-mechanical or non-electrical uses, with the useful
thermal energy being produced in such proportions to the total
useful energy output that the useful thermal energy is not less
than 5% of the total annual useful energy output. 18 C.F.R.
292.205.
22. Section 2 of the Power Purchase Agreement
requires that the Facility maintain its QF status.
23. Caulkins operates seasonally from November through May.
Consequently, in order to maintain its QF status, ICL must
deliver sufficient steam to Caulkins during this limited season
to achieve the 5% ratio of steam to total energy output on an
annual basis.
24. The amount of steam Caulkins purchases in a
normal operating season is sufficient to maintain the Facility's
QF status. Caulkins does not, however, purchase sufficient
steam to provide a significant protective cushion to the
Facility. Accordingly, it is critical to the Facility's QF
status that the Facility provide QF qualified steam to Caulkins
at all times without significant interruption.
25. In normal
operations, the Facility supplies steam to Caulkins sequentially
with the generation of electricity for FPL. That is, steam
which has been used to drive the Facility's turbine generators
is subsequently transmitted to Caulkins. Such steam is
appropriately accounted for in calculating the Facility's QF
ratio.
26. During periods when the Facility is not generating
electricity, ICL is still required to supply steam to Caulkins,
but does so through use of a natural gas auxiliary boiler
system. Such non-sequential steam may not be counted in
calculating the Facility's QF ratio.
27. Recognizing these
critical facts relating to QF status, FPL and ICL negotiated
provisions of the Power Purchase Agreement which were
specifically intended to preserve ICL's ability to maintain QF
status even at times when FPL did not require electricity from
the Facility. Thus, in Section 13.7 of the Power Purchase
Agreement, the parties agreed that even in situations when FPL
determined that it preferred to decommit the Facility (i.e.,
shut it down), ICL could, in its "sole discretion," continue to
produce a Minimum Load of 100 megawatts of electricity and that
FPL would accept such electricity, albeit at reduced rates. The
principal purpose of this Minimum Load provision was to provide
ICL with the ability to continue to produce sequential steam for
QF compliance.
28. FPL's recent decision to refuse to accept
such 100 MW Minimum Load directly and imminently imperils ICL's
QF status.
The Operative Contractual Provisions
29. Pursuant to Section 6.2 of
the Power Purchase Agreement, FPL is obligated (with certain
exceptions not pertinent here) to purchase electric generating
capacity made available to it and associated energy from the
Facility.
30. At all relevant times, ICL has fulfilled its
obligations under the Power Purchase Agreement to FPL and
remains ready, willing and able to do so.
31. Pursuant to
Section 8 of the Power Purchase Agreement, FPL is required to
pay ICL (i) monthly capacity payments for electrical generating
capacity made available to FPL, regardless of the amount of
electrical energy actually purchased, and (ii) energy payments
based upon the amount of electrical energy actually delivered.
Payments from FPL pursuant to the Power Purchase Agreement
account for most of the revenues generated by the Facility.
32. Under Section 2 of the Power Purchase Agreement, the
Facility is required to maintain its QF status under federal law,
specifically PURPA and regulations promulgated by FERC pursuant
thereto, and its "qualifying cogenerator" status under Florida
law, specifically regulations promulgated by the FPSC.
33. Section 13 of the Power Purchase Agreement sets forth various
provisions relating, inter alia, to the safe and secure
operation of the Facility and interaction with FPL's system.
34. In particular, Section 13.3 of the Power Purchase Agreement
provides in its entirety as follows:
If the Facility is separated from the FPL system for any reason,
under no circumstances shall ICL reclose into FPL's system without
first obtaining FPL's specific approval, as determined by the
Operating Representatives.
35. Section 13 contains provisions relating to FPL's right to
accept or decline electricity from ICL. Specifically, Section 13.6
provides that, "Consistent with Section 13.7, FPL shall have
Dispatch and Control Rights to commit and decommit the Facility....
Control of Capacity and Energy shall be ICL's responsibility except
during any Dispatch Hour."
36. However, Section 13.7 specifically
limits FPL's discretion to decommit the Facility by providing that
except in certain exigent circumstances which are not applicable
here, "ICL may, at is sole discretion, continue to operate the
Facility at or below Minimum Load and deliver energy to FPL." Any
such hour that ICL elects to operate rather than decommit the
Facility is not considered a Dispatch Hour.
37. Minimum Load is
defined as "100 MW (megawatts) net of internal electrical
requirements."
38. Nothing in Section 13 of the Power Purchase
Agreement provides FPL with a right to refuse to permit ICL to
reconnect to FPL's system.
FPL's Refusal to Allow the Facility to Reclose into FPL's System
39. On March 10, 1999, the Facility "tripped," i.e., automatically
ceased providing electricity to FPL due to the operation of certain
safety mechanisms within the Facility. The problem was quickly
corrected, but, without justification, FPL did not allow the
Facility to reconnect into the FPL system.
40. FPL has
unequivocally and wrongfully repudiated its obligations under the
Power Purchase Agreement to accept delivery of electricity at 100 MW
Minimum Load and has no intention of fulfilling its obligations to
ICL. Thus, after providing substantial services to FPL, and while
remaining ready, able and willing to continue doing so, ICL is in
jeopardy of losing the consideration owed to it by virtue of FPL's
wrongful breach of its obligations and refusal to continue to
purchasing electricity from ICL under the terms of the Power
Purchase Agreement. More importantly, FPL's anticipatory
repudiation creates an immediate danger that ICL will be irreparably
harmed by loss of the Facility's QF status.
41. FPL has engaged
in the conduct described herein for improper motives, including an
attempt to coerce ICL into renegotiating the Power Purchase
Agreement, in violation of the implied covenant of good faith, fair
dealing and commercial reasonableness and/or for the purpose of
precipitating a breach of ICL's obligation to maintain QF status.
42. That implied covenant requires FPL (i) to do nothing to destroy
ICL's ability to enjoy the benefits for which it bargained by
entering into the Power Purchase Agreement, and (ii) to do
everything that the Power Purchase Agreement presupposes will be
done in order to accomplish its basic purpose.
43. FPL has
discretionary powers to further the purposes of the Power Purchase
Agreement which it is required to exercise reasonably and with
proper motive. By unilaterally and unjustifiably repudiating its
obligations under the Power Purchase Agreement, FPL has wielded
those powers arbitrarily, capriciously, with improper motive and in
bad faith, and in a manner which is inconsistent with ICL's
reasonable expectations.
44. Accordingly, FPL has breached its
implied covenant of good faith, fair dealing and commercial
reasonableness in fulfilling the purposes of the Power Purchase
Agreement.
Irreparable Injury
45. FPL's conduct constitutes a blatant attempt
to make it impossible for the Facility to maintain its QF
status. As described above, the Facility's ability to maintain
its QF status depends upon an uninterrupted supply of
sequentially produced steam to Caulkins. Any significant
interruption of that steam supply during Caulkins' operating
season may result in an insufficient amount of sequential steam
to permit the delivery of useful thermal energy in excess of 5%
of total energy. Further interruption will irreparably injure
ICL.
46. A failure to maintain QF status precipitated by FPL's
wrongful conduct will have two irreparable consequences on ICL.
First, such failure constitutes an event of default under ICL's
loan agreements relating to its (i) $125 million loan from
Martin County Industrial Development Authority and (ii) its $500
million First Mortgage Bonds. Secondly, such a failure will
provide FPL with a pretext to terminate the Power Purchase
Agreement. Without the Power Purchase Agreement, the Facility
cannot service its debt and will become insolvent.
COUNT I Breach of Contract
47. ICL repeats and reallege paragraphs
1 through 46 as though fully set forth herein.
48. ICL
expended considerable sums in reasonable reliance upon FPL's
express promises in entering into the Power Purchase Agreement.
49. Under the express terms of the Power Purchase Agreement,
FPL is obligated to purchase electricity from ICL through
December 1, 2025.
50. Under the express terms of Section 13.7
of the Power Purchase Agreement, FPL is required to purchase, in
ICL's "sole discretion", output of 100 MW at Minimum Load, even
during periods when FPL has determined to decommit the Facility.
51. FPL's refusal to allow the Facility to reconnect to FPL's
system and its refusal to purchase 100 MW of energy, constitute
a breach of FPL's obligations under the Power Purchase
Agreement.
52. ICL has fully and completely complied with all
its obligations under the Power Purchase Agreement.
53. FPL's
breach of its obligations to ICL has and will significantly
damage ICL and has harmed and will irreparably harm ICL by
making it impossible for the Facility to maintain its QF status
with the loss of the value of the Facility.
WHEREFORE, Plaintiff ICL demands judgment against Defendant FPL
for damages, interest, and the costs of this action, and any other
such relief that the Court deems just and equitable.
COUNT II Anticipatory Repudiation
54. ICL repeats and reallege
paragraphs 1 through 46 as though fully set forth herein.
55. FPL's refusal to allow the Facility to reconnect into FPL's
system and its refusal to purchase electricity from ICL,
constitute a blatant attempt to frustrate ICL's ability to
maintain its QF status thereby creating a pretext for FPL to
attempt to terminate the Power Purchase Agreement. Such conduct
constitutes an anticipatory repudiation of FPL's obligations
under the Power Purchase Agreement.
56. ICL is and, at all
relevant times, has been ready, willing and able to perform as
required under the Power Purchase Agreement.
57. FPL's
anticipatory repudiation of its obligations to ICL has and will
significantly damage ICL and has harmed and will irreparably
harm ICL by making it impossible for the Facility to maintain
its QF status with the consequent loss of the value of the
Facility.
WHEREFORE, Plaintiff ICL demands judgment against Defendant FPL
for damages, interest, and the costs of this action, and any other
such relief that the Court deems just and equitable.
COUNT III Breach of the Implied Covenant of Good Faith, Fair Dealing
and Commercial Reasonableness
58. ICL repeats and reallege
paragraphs 1 through 46 as though fully set forth herein.
59. FPL,
in addition to breaching the express terms of the Power Purchase
Agreement as described above, also breached the implied covenant of
good faith, fair dealing and commercial reasonableness, undermining
the Power Purchase Agreement's basic purpose, frustrating ICL's
ability to perform its obligations under the Power Purchase
Agreement and depriving ICL of the essential benefits for which it
had bargained.
60. That implied covenant required FPL to do that
which the contract presupposed would be done to accomplish its basic
purpose and to refrain from conduct that would undermine that basic
purpose or deprive ICL of the essential benefits for which it had
bargained.
61. ICL expended considerable sums in reasonable
reliance upon FPL's express promises and good faith in entering into
the Power Purchase Agreement.
62. FPL's conduct in refusing to
permit the Facility to reconnect to its system is a blatant, bad
faith attempt to abuse a provision of the Power Purchase Agreement
which was intended only to provide for safety and system security in
a manner which effectively abrogates FPL's obligation to purchase
electricity from the Facility.
63. FPL's current "interpretation"
of the Power Purchase Agreement is inconsistent with the parties'
prior course of dealing and has been contrived at a time when FPL is
seeking to renegotiate the Power Purchase Agreement. Upon
information and belief, this conduct is part of FPL's strategy to
unilaterally reduce the cost of purchased power, and is not a good
faith interpretation of the agreement. Alternatively, it is
designed to wrongfully precipitate a termination of the Power
Purchase Agreement.
64. FPL's breach of its duty of good faith and
fair dealing has damaged ICL and has harmed and will irreparably
harm ICL by making it impossible for the Facility to maintain its QF
status with the consequent loss of the value of the Facility.
WHEREFORE, Plaintiff ICL demands judgment against Defendant FPL
for damages, interest, and the costs of this action, and any other
such relief that the Court deems just and equitable.
COUNT IV Declaratory Judgment
65. ICL repeats and realleges
paragraphs 1 through 46 as though fully set forth herein.
66. For all of the above-mentioned reasons, there exists an
actual, substantial and immediate controversy within the Court's
jurisdiction, the controversy is the result of FPL's conduct and
this controversy will be redressed by a favorable judicial
decision. The Court, thus, may properly declare the rights and
other legal relations of the parties to this action with respect
to ICL's claims.
WHEREFORE, ICL demands judgement:
A. declaring that FPL has
breached the Power Purchase Agreement and that its threatened
actions constitute an anticipatory repudiation thereof;
B. further declaring that FPL is required under Section 13.3 of
the Power Purchase Agreement to permit ICL to reconnect to the
FPL system except under conditions which demonstrably affect
system security and integrity;
C. further declaring that FPL is
required to purchase output from a Minimum Load of 100 MW of
capacity in ICL's sole discretion under the financial terms of
Section 8 of the Power Purchase Agreement governing the basis
for payments by FPL;
D. preliminarily, pending final resolution
of this action and, thereafter, permanently enjoining FPL and
its agents, officers, employees, agents and all persons acting
in concert with it from further breaching the terms of the Power
Purchase Agreement;
E. awarding ICL compensatory damages,
including prejudgment interest, for those compensable injuries
it has suffered due to FPL's conduct alleged herein;
F. awarding
ICL its costs incurred herein; and
G. awarding such other and
further relief as may be just and proper.
JURY DEMAND Plaintiff hereby demands trial by jury pursuant to
Federal Rule of Civil Procedure 38(b).
DATED this 19th day of March, 1999.
/s/ Gregory A. Presnell
Gregory A. Presnell, Esquire Florida Bar
Number: 100525 William C. Turner, Jr., Esquire Florida Bar Number:
871958 AKERMAN, SENTERFITT & EIDSON, P.A. 255 South Orange Avenue
Citrus Center - 10th Floor Post Office Box 231 Orlando, Florida
32802 Telephone Number: 407-843-7860 Facsimile Number:
407-843-6610
Attorneys for Plaintiff Indiantown Cogeneration, L.P.
