NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Kingdom of Spain

Case summary

At a glance

Parties: NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. (Netherlands) v. Kingdom of Spain
Case no.: ICSID Case No. ARB/14/11
Forum and rules: ICSID Convention arbitration; ICSID Arbitration Rules 2006
Treaty: Energy Charter Treaty (ECT)
Tribunal: Prof. Donald M. McRae (President), L. Yves Fortier, Prof. Laurence Boisson de Chazournes
Annulment Committee: Prof. Joongi Kim (President), Prof. Lawrence Boo, Humberto Sáenz-Marinero
Sector: Renewable energy; concentrated solar power
Outcome: Spain was held to have breached fair and equitable treatment (ECT Art. 10(1)) by defeating the claimants' legitimate expectations. Damages were awarded on a reasonable-return basis. Spain's annulment application was dismissed in full.
Amount: Claimed: up to EUR 521.4 million (primary case); EUR 398.4 million (alternative case). Awarded: EUR 290.6 million plus interest at 0.234%, compounded monthly, from 30 June 2016. Costs: USD 132,368.86 (share of proceeding costs), plus USD 4,147,031.81 and EUR 1,042,135.30 towards the claimants' costs (as stated in the US petition). Annulment: Spain to bear the proceeding costs of USD 528,474.49 and pay USD 3,500,000 towards the claimants' legal costs.

The dispute

Two Dutch companies of the NextEra group invested about EUR 750 million in two concentrated solar power plants in Spain, the Termosol Plants. They relied on the feed-in tariff and pool-plus-premium regime of RD 661/2007, as confirmed by RD 1614/2010, on registration in the Pre-assignment Registry, and on letters from Spain's Secretary of State for Energy. Between 2012 and 2014 Spain replaced that regime ("Regulatory Framework III"). Payment was now based on capacity rather than output and was limited to a 25-year regulatory useful life. Tariffs were no longer indexed to the CPI, support for gas-generated electricity ended, and a 7% levy was imposed. The claimants argued that these changes breached Articles 10(1) and 10(7) of the ECT. Spain raised the intra-EU objection and challenged investor status, denial of benefits (Art. 17 ECT), the claimants' clean hands (installed capacity) and jurisdiction over the 7% levy (TVPEE). On the merits, it argued that investors could expect only a reasonable return.

Key holdings

The Tribunal upheld its jurisdiction. Spain breached the fair and equitable treatment standard in Article 10(1) of the ECT by failing to protect the claimants' legitimate expectations. Decision on Jurisdiction, Liability and Quantum Principles ¶ 682
The claimants could not expect RD 661/2007 to stay frozen. But the ministerial letters, the Pre-assignment Registry and the Ministerial Resolutions of 28 December 2010 gave them a legitimate expectation that the regime would not be changed in a way that undermined the security and viability of their investment. Spain had not shown a lack of due diligence. Decision ¶¶ 591–596
Taken together, the changes made by Regulatory Framework III changed the regime fundamentally and radically, beyond anything the claimants could reasonably have expected. Decision ¶¶ 597–599
The Tribunal rejected a DCF valuation based on Regulatory Framework I, because the claimants had no entitlement to that regime and the plants had operated for less than a year. Damages are instead a return on the actual capitalised costs of EUR 720.6 million (including financing costs, intercompany costs and related-company investments), at the WACC plus 200bps. The valuation date is 30 June 2016, a nominal tax rate applies, and the debt restructuring is excluded. Decision ¶¶ 645–670
Interest runs at the rate of 5-year Spanish sovereign bonds at the date of the Award, compounded monthly, both before and after the Award. The Award then fixed damages at EUR 290.6 million, with interest at 0.234% compounded monthly. Decision ¶ 676; Award ¶ 37
The ad hoc Committee unanimously dismissed all 22 annulment grounds. Among them, the Tribunal's handling of evidence and of the claimants' alternative case did not seriously depart from a fundamental rule of procedure. Spain had waived its complaint about the translation of exhibit C-006 under ICSID Arbitration Rule 27 because it did not object promptly. Decision on Annulment ¶¶ 454, 468, 479–481, 533
The Committee continued the stay of enforcement on condition that Spain undertake to pay unconditionally if annulment failed. Spain sent a letter that did not meet those terms, so the Committee terminated the stay. Decision on Stay ¶ 102; Decision Terminating Stay ¶¶ 14–16
The D.C. Circuit held that the district court has jurisdiction to confirm the award under the FSIA arbitration exception. It vacated the injunction barring Spain from seeking anti-suit relief in the Netherlands as an abuse of discretion. Judge Pan dissented on the injunction. D.C. Circuit Opinion, p. 41