United States Court of Appeals

For the Eighth Circuit

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No. 17-1091

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Smoky Hills Wind Project II, LLC

Plaintiff - Appellant

v.

City of Independence, Missouri

Defendant - Appellee

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No. 17-1171

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Smoky Hills Wind Project II, LLC

Plaintiff - Appellee

v.

City of Independence, Missouri

Defendant - Appellant

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Appeals from United States District Court 

for the Western District of Missouri - Kansas City

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 Submitted: December 14, 2017

 Filed: May 2, 2018 

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Before SMITH, Chief Judge, KELLY and ERICKSON, Circuit Judges.

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ERICKSON, Circuit Judge.

This case involves a “Renewable Energy Purchase Agreement” (“REPA”) that

resulted from arms-length bargaining between parties with longstanding experience

and expertise in the generation and marketing of electrical energy. SmokyHills Wind

Project II, LLC (“Smoky II”), operates a wind farm generating wind energy which it

supplies to various customers, known in the energy business as “off-takers.” Smoky

II is an indirect subsidiary of Enel Green Power North America, Inc., whose parent

company is Enel Green Power, SpA., headquartered in Italy. The City of

Independence, Missouri (“Independence”), owns and operates Independence Power

& Light, a municipal electric system that distributes electricity to its customers. 

Independence generates electricity from its own generators but also purchases

wholesale energy from varioussuppliers, including Smoky II. Smoky II brought suit

for breach of contract when it did not receive payment from Independence on

invoices related to curtailed energy. Curtailed energy is wind energy that is not

actually produced because the producer is directed to reduce production either

because: (1) an off-taker like Independence requests that its share of the production

be reduced, or (2) because the regional regulator (in this case Southwest Power Pool)

directs reduction based on regional market conditions. Independence counterclaimed. 

After a five-day bench trial, the district court , having jurisdiction pursuant to 1

28 U.S.C. § 1332, held Independence liable for certain charges that it found to be

“timely-billed” and denied the counterclaims. Having jurisdiction under 28 U.S.C.

The Honorable Roseann A. Ketchmark, United States District Judge for the

1

Western District of Missouri.

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§ 1291, we affirm the judgment of the district court, but for our own reasons asstated

below.

I. BACKGROUND

As is apparent to people only vaguely aware of the energy business, the

production and delivery of electricity is a highly regulated industry. The regulatory

context governing the relationship between the parties is described in the stipulation

of facts provided to the district court prior to trial. The United States electrical energy

grid is made up of interconnected transmission systems and local distribution

systems. Higher-voltage transmitting facilities deliver electricity to load centers over

long distances, while lower-voltage facilities are used to deliver energy to the local

consumers. The Federal Energy Regulatory Commission (“FERC”) has exclusive

jurisdiction under the Federal Power Act, 16 U.S.C. §§ 791-828, to regulate the rates,

terms, and conditions of electrical transmission service in interstate commerce. 

FERC, in recent years, has encouraged the creation of non-profit entities called

Regional Transmission Organizations (“RTOs”) to manage the operation of these

systems and the wholesale markets for the energy transmitted by these systems. The

North American Electrical Reliability Corporation (“NERC”) is a non-profit

regulatory authority overseen by FERC. NERC establishes and enforces mandatory

reliability standards for the electricity industry,including transmission grid operators. 

Southwest Power Pool, Inc. (“SPP”), is a FERC-approved RTO that manages

transmission systems and the wholesale energy market in the central United States on

behalf of a group of utilities and transmission companiesin fourteen states, including

Kansas and portions of Missouri. SPP and other RTOs commonly operate on a

conservative contingency, or N-1, basis. SPP is a NERC regional electric reliability

council member and is a NERC Reliability Coordinator. In these capacities SPP is

responsible for maintaining reliability of the bulk electric power system in the region

in which Independence and Smoky II are located.

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On August 14, 2008, the parties entered into a REPA setting forth the terms

and conditions for the sale of energy from Smoky II to Independence. Independence

is just one of five off-takers who buy portions of the wind energy produced and sold

by Smoky II. The parties agree that the REPA is a valid and enforceable contract,

2

supported by adequate consideration.

The Smoky II wind project was only possible with the involvement of tax

equity investors. Tax investors are by nature very concerned about minimizing risk

and were heavily involved in the negotiation of the REPA. Frank Costanza, the

executive vice president of TradeWind Energy, the primary start-up developer of the

Smoky II project before it was bought by Enel, testified that his focus “was to make

sure that in that contract that the terms and conditions that we agreed on with our

counterpart, the utility, would be found acceptable to the tax equity financiers.”

Costanza stressed that the investors made it plain that they were not interested in

absorbing the risk of curtailment, stating “we need to get paid” and “we need to get

paid for curtailments.”

The parties anticipated curtailment and included provisions in the REPA that

govern the allocation of costs associated with curtailment. Under the REPA,

curtailmentsfall into two categories: (1) Economic Curtailments, and (2) Emergency

Curtailments. 

Specifically, section 7.3(B) provides: “SPP, Interconnection Provider, or

Transmission Owner may curtail all or a portion of the delivery of Test Energy or

Renewable Energy to Buyer from the Facility. If such curtailment is not an

Emergency, then such curtailment shall be considered an Economic Curtailment.” 

The other off-takers are the City of Springfield, Missouri; Midwest Energy, 2

Inc.; Sunflower Electric Power Corporation; and Enel Green Power North America,

Inc.

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Section 7.3(C) providesthatIndependence is “obligated to pay forRenewable Energy

or Test Energy not delivered due to an Economic Curtailment at the rate set forth in

Section 8.2.” Section 8.2 provides:

Payment during Economic or Emergency Curtailment. If

Seller is unable to deliver energy to the Delivery Point due to an

Emergency Curtailment or an Economic Curtailment, (A) the parties

shall use reasonable efforts to determine the quantity of Renewable

Energy that would have been produced by the Facility had its generation

not been subject to EmergencyCurtailment or an Economic Curtailment

and (B) Buyer shall pay to Seller;

(1) all amounts that Seller would have received from Buyer under

this REPA had production not been so curtailed, and

(2) the amount of any Tax Benefits to which Seller would have

been entitled but does not receive, adjusted upwards for taxes based on

the marginal federal and Kansas tax rates.

Seller shall install sufficient measuring equipment at the Facility

to collect data necessary to reasonably determine the amount of Facility

generation subject to the Emergency Curtailment or Economic

Curtailment. Seller shall install sufficient meteorological towers around

the Site or in conjunction with the Wind Turbines to provide the

capability of measuring and recording representative wind data twenty

four (24) hours per day, which wind data shall be used to calculate any

amounts due Seller under this Section 8.2.

 

Section 1.3(U) of the REPA defines “Emergency Curtailment” as “a

curtailment ordered by SPP, Interconnection Provider, or Transmission Owner due

to an Emergency.” Under section 1.3(T), “‘Emergency’ means an emergency

condition as defined as ‘TLR Level 6 – Emergency Procedures’ in the SPP OATT

Attachment R Transmission Loading Relief Procedure.” In the stipulated facts, the

parties agree that “[t]he SPP OATT Attachment R Transmission Loading Relief

Procedure, referred to in the definition of an Emergency in the REPA, refers to

NERC’s Transmission Loading Relief (‘TLR’) Procedures.”

 

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Article 9 of the REPA governs the parties’ billing and payment process. 

Section 9.1 provides:

Billing Invoices. Themonthly billing period shall be the calendar

month. No later than fifteen (15) Business Days after the end of each

calendar month, Seller shall provide to Buyer, by first-class mail, an

invoice for the amount due Seller by Buyer for the Renewable Energy

provided by Seller and purchased by Buyer, under thisREPA, during the

previous calendar month billing period. Seller’s invoice will show all

billing parameters, rates and factors, and any other data reasonably

pertinent to the calculation of monthly payments due to Seller.

Section 9.3 specifies:

Refunds in Event of Emergency Curtailment. Upon the

occurrence of an Emergency Curtailment, Buyer shall submit to Seller

documentation reasonably satisfactory to Seller evidencing the date and

duration ofsuch Emergency Curtailment. Upon acceptance by Seller of

such documentation, Seller shall refund to Buyer such payment related

to the Emergency Curtailment on the next monthly invoice.

The REPA specifically notes that the REPA was negotiated at arms length

between parties of equal bargaining power by stating at section 1.1(E): “This REPA

was negotiated and prepared by both Parties with the advice and participation of

counsel. The Parties have agreed to the wording of this REPA and none of the

provisions hereof shall be construed against one Party on the ground that such Party

is the author of this REPA or any part hereof.” Section 1.1(F) requires the parties to

“act reasonably and in accordance with the principles of good faith and fair dealing

in the performance of this REPA.”

Smoky Hills II began delivering energy to Independence in late 2008 or early

2009. From the start the parties followed the billing and payment schedule outlined

in Article 9. For some time the parties did not experience any curtailment orders.

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Beginning in March 2012, Smoky II began to receive orders from SPP to curtail.

Smoky II was aware of the curtailments at the time they occurred but failed to bill for

curtailed energy as the curtailments occurred. In the fall of 2012 Smoky II noticed

that the curtailments were becoming more significant and representatives of the

company began to look into the reasons for the curtailments. Smoky II contacted SPP

to attempt to discern whether the curtailments were “Emergency Curtailments” as

defined by the REPA. On January 3, 2013, Smoky II sent Independence a letter

informing it that Smoky II had received “an increased number of curtailment

directives” and that Independence “may incur some, possibly significant, financial

obligations.” 

On March 12, 2013, Smoky II followed up by telling Independence that it

intended to issue revised invoices for 2012 because it believed the curtailments were

not the result of an emergency under the REPA and that Independence was obligated

to pay for the curtailed energy. On March 26, 2013, Smoky II issued the first invoice

to Independence for curtailments. The invoice was for curtailments from March

through December 2012, and totaled $331,990.91. This invoice along with eleven

subsequent invoices are the subjects disputed at trial. The following chart reflects the

twelve disputed invoices:

Curtailment Date Invoice Date Amount Invoiced for

Curtailments

1. March - December

2012

March 26, 2013 $331,990.91

2. January - March 2013 April 18, 2013 $110,832.56

3. April 2013 May 7, 2013 $11,097.22

4. May 2013 June 7, 2013 $7,581.56

5. June 2013 July 9, 2013 $6,303.41

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6. September 2013 October 9, 2013 $4,004.60

7. November 2013 January 7, 2014 $10,111.58

8. December 2013 January 8, 2014 $8,784.92

9. January 2014 February 7, 2014 $42,074.16

10. February 2014 June 9, 2014 $17,294.41

11. January 2014 

adjustments August 15, 2004 $8,638.00

12. July 2014 September 3, 2014 $4,487.93

At the end of the trial the district court concluded that none of the curtailments

at issue was an emergency curtailment as defined in the REPA’s plain language. As

a result, the trial court concluded that Independence was liable to Smoky Hills II for

the timely-billed invoices.

The court denied Independence’s counterclaim for breach of contract for

untimely billing, concluding: “Based upon the plain language of the Purchase

Agreement, Section 9.1 does not apply to curtailed energy. Rather, the Purchase

Agreement contains no express time limit with respect to invoices for curtailments.” 

The court then applied Kansas law requiring that performance must occur

within a “reasonable” time. The court weighed the evidence and found that the

invoices that were issued more than fifteen days after the month in which the

curtailments occurred were not issued within a reasonable time. In a footnote to its

conclusions of law, the district court indicated that while it had rejected the

application ofsection 9.1 to billing for curtailed energy, it “ultimately determined that

fifteen business days is a reasonable time to submit invoicesfor curtailments.” Thus,

the court decided that Independence must pay that portion of the invoice described

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at No. 2 attributable to curtailments in March 2013 and the total amounts of the

invoices described at Nos. 3, 4, 5, 6, 8, and 9.

II. DISCUSSION

A. TIMELINESS UNDER THE REPA

Smoky II primarily contends that the district court “negated” the intent of the

parties when it implied a “reasonable time” deadline for billing Independence for the

curtailment costs. It also objects to the court’s apparent equating of a “reasonable

time” with the fifteen-day timely-billing requirement found in the contract.

Independence took the position at trial that the billing requirements of Article

9 of the REPA applied to billing for both curtailed energy and energy actually

delivered. On appeal, Independence appears to abandon this argument by stating in

its brief that “after concluding that the REPA’s express fifteen-day deadline did not

apply to curtailment invoices,” the trial court’s finding that Smoky II had a duty to

bill in a reasonable time was supported by the law and the facts. However, later in

the brief, Independence takes issue with Smoky II’s contention that “REPA section

9.1 applies only to energy invoices, not curtailment invoices.” Independence

specifically argues:

First, there is no basis for reading the “Renewable Energy” limitation

that appears in the second sentence of section 9.1 into the first sentence

of section 9.1. If the parties had intended to have monthly billing

periods for energy invoices only, they could have easily said so by

simply adding “for Renewable Energy” after “monthly billing period”

in the firstsentence. And they chose not to do so. Second, the argument

ignores the other evidence of the parties’ intent that a monthly billing

period should apply to curtailment invoices (e.g., the importance of the

revenue stream to Smoky Hills and Smoky Hills’ course of conduct),

evidence that the trial court found persuasive.

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The parties agree that the REPA’s choice-of-law provision at section 19.13

requiresthat the REPA “shall be governed and construed in accordance with the laws

of the State of Kansas.” Accord Gateway Customer Solutions, LLC v. GC Services

Ltd. P’ship, 825 F.3d 502 (8th Cir. 2016) (applying Delaware law to interpret and

construe contract provisions pursuant to the parties agreement and the choice-of-law

provision in the contract). 

“We may affirmthe judgment of the district court ‘on any basis disclosed in the

record, whether or not the district court agreed with or even addressed that ground.’” 

Warner Bros. Entertainment, Inc. v. X One X Productions, 644 F.3d 584, 591 (8th

Cir. 2011) (quoting PFS Distribution Co. v. Raduechel, 574 F.3d 580, 591 (8th Cir.

2009). Under Kansas law, appellate courts “exercise unlimited review over the

interpretation and legal effect of written instruments, and . . . are not bound by the

lower courts’ interpretations of those instruments.” Prairie Land Elec. Co-op v.

Kansas Elec. Power Co-op, Inc., 323 P.3d 1270, 1274 (Kan. 2014) (citing Osterhaus

v. Toth, 249 P.3d 888, 896 (Kan. 2011)). “The primary rule for interpreting written

contracts is to ascertain the parties’ intent” and when the terms of the contract are

clear, “the intent of the parties is to be determined from the language of the contract

without applying rules of construction.” Anderson v. Dillard’s, Inc., 153 P.3d 550,

554 (Kan. 2007) (citing Liggatt v. Employers Mutual Casualty Co., 46 P.3d 1120,

1125 (Kan. 2002)). “A document’s meaning should be gleaned from the document

as a whole rather than ‘the critical analysis of a single or isolated provision.’” Water

District No. 1 of Johnson County v. Prairie Center Development, L.L.C., et al., 375

P.3d 304, 312 (Kan. 2016) (quoting Marquis v. State Farm Fire & Cas. Co., 961 P.2d

1213, 1219 (Kan. 1998)).

The REPA is a detailed document that precisely indicates the responsibilities

of the Seller (Smoky II) and the Buyer (Independence). The entirety of the billing

and payment responsibilities of the parties is found in Article 9 of the REPA, which

is entitled, “Billing and Payment.” Section 9.1 specifically provides for calendar

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month billing. That section further requires that “Seller shall provide to Buyer, by

first-class mail, an invoice for the amount due Seller by Buyer for the Renewable

Energy provided by Seller and purchased by Buyer, under this REPA, during the

previous calendar month billing period.” If this were the sole content of Article 9, we

might be sympathetic to Smoky II’s contention that section 9.1 applies only to actual

renewable energy delivered to Independence and that it does not apply to curtailed

energy. However, Kansas law requires us to look at the contract as a whole and not

isolate a single provision and interpret it out of context. The rest of the REPA,

including the rest of 9.1, leads us to conclude that Article 9 controls.

Section 9.1 specifically requires that “Seller’s invoice will show all billing

parameters, rates and factors, and any other data reasonably pertinent to the

calculation of monthly payments due to Seller.” Further, section 9.3 specifically

addresses curtailments. That section anticipates that in the event of an “Emergency

Curtailment” Independence “shall submit to Seller documentation reasonably

satisfactory to Seller evidencing the date and duration” of the emergency curtailment

and then be entitled to a refund “on the next monthly invoice.” The inclusion of

language requiring that the invoices show “all billing parameters, rates and factors,

and other data” in section 9.1 and the inclusion of the refund provision in 9.3 make

it clear that the parties intended that the monthly billing invoices would include all

payments owed to Smoky II, for renewable energy, for curtailed energy, or for

anything else within the billing parameters.

3

Smoky II argues the court erred by not considering that Independence was not

prejudiced by the delay in billing. This argument lacks merit. The trial court

carefully weighed the evidence, including the importance of monthly billing and the

The evidence at trial, including the testimony of Enel’s Associate Vice 3

President, Mark McGrail, plainly established that Smoky II was able to meet the

fifteen business day deadline once it satisfactorily performed its duties under section 

8.2 of the REPA.

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importance of reasonable performance of contractual obligations. The court

specifically noted that the contract required a twenty-year commitment of the parties

and the dramatically high billing amounts resulting from delayed billing. These

findings of fact are not clearly erroneous.

B. NATURE OF CURTAILMENTS: ECONOMIC OR EMERGENCY 

In its cross-appeal, Independence contends that the district court erred in its

interpretation of the meaning of “Emergency Curtailment” in the REPA. We

disagree. The plain language of the REPA supports the district court’s conclusion.

The language in the REPA defining economic and emergency curtailments is

precise and clearly incorporates known terms and standards in the power production

and distribution industry. The language specifically defines an emergency

curtailment as one ordered by SPP due to an emergency which “means an emergency

condition as defined as ‘TLR Level 6 - Emergency Procedures’ in the SPP OATT

Attachment R Transmission Loading Relief Procedure.” At trial, Smoky II argued

that a curtailment was not an emergency curtailment unless SPP declared it to be a

TLR Level 6 curtailment. Independence argued that emergency curtailments were

any curtailments of Smoky II’s generation or any curtailment incident to certain

circumstances listed in one section of TLR Level 6 - Emergency Procedures. The

district court was correct in rejecting these arguments.

The district court looked to the plain language of the contract and to NERC’s

definition of TLR Level 6 - Emergency Procedures. The court recognized that the

term “‘TLR Level 6 - Emergency Procedures’ is defined in NERC’s procedures,

outside of the contract, and is generally understood within the electric industry to be

a procedure used when there is a critical condition on the bulk electric grid.” The

court concluded:

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that the proper interpretation of Emergency Curtailment given the

Purchase Agreement’s plain language and TLR Level 6's accepted use

within the electric industry is any SPP curtailment that is due to a critical

condition on the bulk electric grid. Further, SPP, as the entity

responsible for implementing NERC’s TLR Procedures, describes

critical condition to mean “cascading outages” and a “doomsday”

scenario where generation is immediately curtailed to zero.

C. ENERGY ALLOCATION

Independence further argues on appeal that the district court erred when it

failed to find that Smoky II had over-allocated energy to Independence beyond the

10.1 per cent share provided in the REPA. We disagree. “Whether a contract has

been breached is a question of fact.” Waste Connections of Kansas, Inc. v. Ritchie

Corp., 298 P.3d 250, 265 (Kan. 2013). We review the district court’s findings of fact

for clear error, but we review de novo mixed questions of law and fact that require

consideration of legal concepts. Stine Seed Co. v. A & W Agribusiness, LLC, 862

F.3d 1094, 1099 (8th Cir. 2017) (“In an ‘appeal from a civil bench trial, we review

the trial court’s findings of fact for clear error. Its conclusions of law are subject to

de novo review. Mixed questions of law and fact that require the consideration of

legal concepts . . . are also reviewed de novo.’”) (quoting Darst-Webbe Tenant Ass’n

Bd. v. St. Louis Housing Auth., 339 F.3d 702, 710-11 (8th Cir. 2003)).

The evidence at trial did not support a finding that Smoky II was permitted to

adjust the allocation of energy to Independence if another off-taker curtailed its

allotment. The court specifically found that “[t]he evidence shows that the parties

were aware that they would have to agree on additional day-to-day operating

procedures, and the parties filled in the gaps related to their curtailment procedures

so that Independence’s allocation of energy would be unaffected by a curtailment

ordered by another off-taker during times of negative LMP, or otherwise, and would

not result in a reduction of Independence’s megawatt share of energy to a strict

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percentage ofthe remaining output.” The court further noted that “Independence paid

all of its invoices, except for those for the Curtailments, with full knowledge of the

exact amount of energy it was allocated, how much other off-takers were allocated,

the total wind project production for each allocation, and had access to the level of

LMP at the given times.”

The district court further recognized that “the procedure now advocated by

Independence would leave Independence at the mercy of the other off-takers” when

the REPA’s clear intent was to allow Independence to control “its own allocation of

energy from Smoky II so that it can make an economic decision about what it wants

to do with Smoky II’s output—whether to receive the energy or self-curtail.” The

trial evidence clearly supports the district court’s rejection of Independence’s theory

regarding over-allocation of energy.

D. SUBSTANTIAL PERFORMANCE

For the first time on appeal, Smoky II alleges that the district court erred by not

considering its substantial performance under the contract. We do not ordinarily

consider arguments raised for the first time on appeal. United States Securities and

Exchange Commission v. Collyard, 861 F.3d 760, 765 (8th Cir. 2017). Smoky II has

not persuaded us to abandon this general rule. Accord id. Because Smoky II has

waived the issue of substantial performance, we do not address it.

III. CONCLUSION

We affirm the judgment of the district court.

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