Answering Statement and Request for Dismissal by Gainesville ..

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Markets are not perfect, and one of the r easons that parties enter into wholesalepower contracts is precise ly to hedge against the volatility that market imperfections produce. That is why one of the [Federal Energy Regulatory Commission’s] responses to the energy crisis was to remove regulatory barriers to long-term contracts. It would be a perverse rule that rendered contracts less likely to be enforced when there is volatili ty in the market . . . . By enabling sophisticated parties who weathered ma rket turmoil by entering long-term contracts to renounce thos e contracts once the stor m has passed, the Ninth Circuit’s holding would reduce the incentive to conclude such contracts in the future. Such a rule has no support in our case law and plainly undermines the role of contracts in the [Federal Power Act’s] statutory scheme. Morgan Stanley Capital Group, Inc. v. Public Utility District No. 1 of Snohomish County, 554 U.S. 527, 128 S. Ct. 2743, 2746-47 (2008) (Scalia, J.). Just as the Supreme Court rejected the utilities’ attempt to renoun ce their long-term PPAs in Morgan Stanley, the Arbitrator should reject GRU’s effort to modify its thirty-year PPA with GREC. D. Specific Performance Would Be Impr actical And Nonsensical Under The Circumstances. Despite GRU’s complaints about an alleged failure of GREC to provide it with a Right of First Offer, the Amended Demand is the first tim e GRU has ever alleged that it “was ready, willing, and able to purchase the Facility in accordance with Section 27.3 of the PPA.” Amended Demand at 26. This allegation defies credulity. Such a purchase by GRU would make no sense from an economic perspective given the risk of losing certain federal tax incentives if GRU or the City obtains an ownership interest in the Facility. According to the terms of the PPA, if the Facility is not eligible to receive the federal incentives, GRU’s power purchase price would increase by $8.35/Mwh, or approximately $197 million over the life of the contract. Even if GRU had not expressly waived the right to equitable remedies such as specific performan ce, the relief GRU seeks is impractical and nonsensical under the circumstances, further illustrating that GRU’s ulterior motive for filing its Amended Demand is simply to force GREC to re-negotiate the terms of the PPA. A/75508616.1 22
1. GRU Has Not Indicated Any Interest in Obtaining the Remedy It Seeks GRU and the City have not demo nstrated any interest in purc hasing the Facility. City Commissioners repeatedly disclaim any interest in purchasing the Facility. In fact, the City has stated repeatedly that it does not want to encu required to effect such a purchase, or to pa mber its books with more debt that would be y higher rates as provided under the PPA if the Facility were to become inelig ible to receive the federal in centives. In its October 23, 2012 presentation to the Alachua County Board outlined the many benefits to structuring the de of County Commissioners, for example, GRU al as a PPA and avoiding ownership risks and responsibilities: GRU’s Contract With GREC Minimizes Risk While Capturing Federal Incentives • Thirty (30) year term • No construction risk • No performance risk – Guaranteed heat rate – No renewal or replacement costs – Only pay when energy available • GRU benefits from federal incentives • No GRU debt • Majority of cost fixed for 30 years – Small variable O&M indexed to CPI See Exhibit 7. 2. Specific Performance Could Lead To A Loss Of The Facility’s Eligibility For Federal Incentives From the standpoint of the economics of the PPA, it would defy all logic for GRU to purchase an ownership interest in the Facility due to potential restrictions on eligibility for certain federal incentives, including the expect federal Recovery Act. This issue was well ed cash grant and investment credit under the known to, and considered by, the parties when structuring the PPA, and resulted in the inclusion of provisions in the PPA resulting in significant rate increases to GRU if the federal incentives were not realized. A/75508616.1 23
Page 1 and 2: AMERICAN ARBITRATION ASSOCIATION TH
Page 3 and 4: Facility to be ineligible to receiv
Page 5 and 6: federal incentives (and hence that
Page 7 and 8: hundreds of millions of dollars for
Page 9 and 10: No Recourse; Limited Liability . No
Page 11 and 12: BayCorp, EMI, and Tyr each appointe
Page 13 and 14: The ownership structure of GREC as
Page 15 and 16: operational management today as whe
Page 17 and 18: III. ARGUMENT A. The PPA Precludes
Page 19 and 20: For example, the ROFO provision mak
Page 21: 3. The Transfer of Tyr’s Interest
Page 25 and 26: Seventh Affirmative Defense GRU fai
Page 27 and 28: have any ownership interest in GR E
Page 29 and 30: Facility; and damages from confiden
Page 31: 20. GRU and GREC are engaged in the

Answering Statement and Request for Dismissal by Gainesville ..

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