The Supreme Court recently handed down a decision that could have significant implications for power supply agreements (PSAs) across the United States. In the case of CPV Maryland, LLC v. PPL EnergyPlus, LLC, the court ruled that a lower court had erred in finding that PPL EnergyPlus had breached its duty of good faith and fair dealing in a power purchase agreement (PPA) with CPV Maryland.

The case centered around a dispute over the pricing of electricity under the PPA. CPV Maryland argued that PPL EnergyPlus had violated the agreement by charging excessively high rates for electricity, while PPL EnergyPlus maintained that it was simply following market conditions and had not breached its obligations under the PPA.

The lower court had sided with CPV Maryland, finding that PPL EnergyPlus had breached its duty of good faith and fair dealing by exploiting market conditions to charge excessive rates. However, the Supreme Court reversed that decision, stating that the lower court had applied the wrong legal standard in its analysis.

In its ruling, the Supreme Court emphasized the importance of clear and unambiguous contract language. The court noted that the PPA at issue contained specific provisions allowing for changes in pricing based on market conditions, and that PPL EnergyPlus had acted in accordance with those provisions. The court also noted that CPV Maryland had accepted the terms of the PPA knowing full well that pricing would be subject to change based on market conditions.

The decision could have significant implications for PSAs and PPAs across the United States. In particular, it underscores the importance of clear and unambiguous contract language in these agreements, and suggests that courts will not be inclined to find breaches of good faith and fair dealing absent clear evidence of bad faith or unconscionable conduct.

For parties negotiating PSAs and PPAs, the decision highlights the need for careful drafting and attention to detail in contract language. It may also encourage parties to consider including specific provisions addressing market conditions and pricing adjustments, to help avoid future disputes.

Overall, the CPV Maryland decision is a significant development in the area of power supply agreements, and one that will have important implications for parties on both sides of these agreements going forward.