City of Sidney v. Mun. Energy Agency of Neb., S-17-471.
| Decision Date | 28 September 2018 |
| Docket Number | No. S-17-471.,S-17-471. |
| Citation | 301 Neb. 147,917 N.W.2d 826 |
| Parties | CITY OF SIDNEY, Nebraska, appellee, v. MUNICIPAL ENERGY AGENCY OF NEBRASKA, appellant. |
| Court | Nebraska Supreme Court |
John M. Guthery, Derek A. Aldridge, and Richard D. Sievers, of Perry, Guthery, Haase & Gessford, P.C., L.L.O., Lincoln, for appellant.
Stephen M. Bruckner and Alexander D. Boyd, of Fraser Stryker, P.C., L.L.O., Omaha, for appellee.
This is an appeal from an arbitration board's decision under Neb. Rev. Stat. § 70-1301 et seq. (Reissue 2009). The City of Sidney, Nebraska, initiated this dispute against its wholesale energy provider, Municipal Energy Agency of Nebraska (MEAN), regarding its monthly transmission rate charges. The board ruled that MEAN breached the parties' "Service Schedule M" (SSM) supplemental agreement, by unnecessarily and unilaterally changing the transmission path for the electric power and energy it provided to Sidney and by charging Sidney for the increased transmission rates. Because of these breaches, the board ruled that the transmission rate MEAN charged Sidney was excessive, unfair, and unreasonable.
On our de novo review, we conclude that the increased monthly transmission rate charges were not incurred arbitrarily by MEAN but, instead, were required for continued performance of the SSM, after the parties learned they had insufficient contractual rights to complete the transmission path to Sidney. We hold that MEAN substantially complied with the SSM in transmitting energy to Sidney and that MEAN was permitted to charge Sidney the increased transmission rate under the SSM. Therefore, we reverse the decision of the arbitration board.
Sidney is a political subdivision and the operator of the retail electric system within its municipality and Fort Sidney, which serves approximately 3,900 customers. Sidney's peak energy need ranges from 12 megawatts (MW) in the winter to 18.5 MW in the summer.
MEAN is a Nebraska political subdivision and a not-for-profit wholesale energy provider, created under Nebraska's Municipal Cooperative Financing Act.1 It is composed of over 60 member communities—in Nebraska, Iowa, Colorado, and Wyoming—who have signed an Electrical Resources Pooling Agreement, which is the master agreement that governs all supplemental contracts between the parties. MEAN supplies its members' wholesale energy by contracting for generation rights, with other members and third-party energy providers, and transmission rights, with third-party transmission service providers. MEAN is governed by a board of directors and a management committee, both of which consist of appointed representatives from each member community.
MEAN has served as Sidney's primary wholesale energy supplier since 1982. At all relevant times, MEAN has served Sidney's energy needs through the Sidney West switchyard (Sidney West). Sidney West is composed of several substations and facilities owned by different entities: The Western Area Power Administration (WAPA) owns a substation containing its 115 kilovoltage (kV) bus and attached transmission lines; Sidney owns transmission lines and a 115 kV/13.2 kV transformer, which are located within WAPA's substation and connect to the national power grid only through WAPA's 115 kV bus; and Tri-State Generation and Transmission Association, Inc. (Tri-State), owns a substation containing a 230 kV bus, a 230 kV/115 kV transformer, and transmission lines connecting its bus and transformer to WAPA's 115 kV bus.
WAPA is a federal power marketing administration within the U.S. Department of Energy. WAPA allocates federally generated hydroelectric energy to municipalities and other political subdivisions. WAPA also operates as a wholesale energy provider and transmission service provider, through its Loveland Area Project (LAP) Network Integrated Transmission System (NITS). Additionally, WAPA contracts with other transmission service providers as a tariff administrator to ensure compliance with Federal Energy Regulatory Commission regulations and monitor electronic tag (e-tag) registration in "OASIS," the electronic system for registering transmission paths and scheduling energy transmissions across those paths. E-tags are electronic transaction records that document the planned flow of energy across one or more transmission systems in the wholesale market.
The Missouri Basin Power Project (MBPP) owns the Laramie River Station (LRS), a power-generating company, and transmission lines used to transmit energy from LRS. One of the owners of MBPP is Basin Electric Power West (BEPW). Through a displacement agreement with BEPW, MEAN has rights to 18 MW of energy from LRS and MBPP's transmission lines connecting to Sidney. The displacement agreement makes WAPA the tariff administrator for BEPW and MEAN regarding their transmissions on the MBPP system.
In 1995, Sidney accepted bids for its wholesale energy needs and resolicited bids in 1996. During the 1996 bid solicitation, MEAN's bid tied for the lowest, and Sidney chose to award MEAN the contract because of the parties' long history and Sidney's ability to participate in MEAN's governance, as a member community. From 1996 until 2001, Sidney and MEAN entered into a series of short-term supplemental agreements, under which MEAN provided Sidney its energy requirements in excess of WAPA's approximately 2 MW energy allocation to Sidney.
After winning the bid in 1996, MEAN and Tri-State entered into the "Sidney Facilities Service Agreement" (Tri-State Agreement), which enabled MEAN to transmit 7 MW of energy through the portions of Sidney West "own[ed], operate[d], and maintain[ed]" by Tri-State for $2,367.40 per month, with the option to increase the capacity at the cost of $338.18 for each of the MW transmitted per month. With this agreement, MEAN was able to transmit LRS-generated energy to Sidney through MBPP, which connects to Sidney West at Tri-State's 230 kV bus.
In 2005, MEAN's manager of electric operations was contacted by WAPA concerning the transmission arrangement MEAN used to serve Sidney. He informed WAPA that MEAN served Sidney using Tri-State's transformer, under the Tri-State Agreement, which he believed WAPA found acceptable. He later informed Sidney that if Sidney could no longer rely solely on the Tri-State Agreement for its energy transmission, then Sidney would have to be put on WAPA's LAP NITS for transmission at a nearly $300,000 annual transmission rate increase.
In 2007, MEAN's manager of electric operations encouraged Sidney to enter into the SSM, instead of continuing with its then-current supplemental agreement, ending in 2011. He explained several benefits of the SSM to Sidney: long-term energy rate stability, saving Sidney over $100,000 in 2008 alone for its current agreement; savings of more than $1.6 million in 2008, compared to full tariff service with Tri-State; and extending Sidney's long-term relationship with MEAN as a participating member in MEAN's governance. He also stated that Sidney's energy rates were lower than other MEAN members, in part because of the low transmission costs enabled by the Tri-State Agreement.
In 2008, the parties entered into the SSM, effective from February 1, 2008, until at least 2041. The SSM is a standard form agreement used with other members of MEAN and includes attachments specific to the member community. It requires MEAN to provide Sidney its energy requirements, less WAPA allocations, and Sidney to pay MEAN for such energy under the provisions of exhibit B, the rate schedule. The SSM also states that the energy supplied by MEAN shall be delivered to the "Point of Delivery" (POD) specified in exhibit A, which may be modified only "by a revised Exhibit A signed by an authorized officer of [Sidney] and accepted by MEAN."
Exhibit A includes the following diagram:
From 1996 until December 1, 2014, under each of the parties' supplemental agreements, MEAN provided Sidney's energy requirements through its generation rights in LRS and transmission rights on MBPP's transmission lines, which connected to Sidney's facilities in Sidney West through Tri-State's and WAPA's facilities. The only fee for transmission charged to Sidney by MEAN under this transmission path was the $2,367.40-per-month base fee in the Tri-State Agreement.
In 2013, MEAN entered into a settlement with the Southwestern Power Pool to compensate it for MEAN's unreserved use of its facilities, which is the use of a facility to transmit energy without any contractual rights to do so. Tariff administrators establish the penalties for unreserved use of facilities, which generally include compensating the owner of the facility for any use at double the rate normally charged. MEAN's board of directors decided to pay the costs of this settlement by socializing the amount across all of its members, even though Sidney and other members had not directly benefited from the unreserved use.
In response to the incident with the Southwestern Power Pool, MEAN's executive director proposed a directive implementing a culture of compliance for MEAN to the board of directors, which it approved. Consequently, there was an expectation that MEAN would do whatever was necessary to comply with all regulations. By 2013, MEAN had begun extensively reviewing energy contracts to ensure they were complying with applicable regulations.
As Sidney's energy provider, MEAN scheduled all e-tags for the transmission of its generated energy resources to Sidney on OASIS. Historically, e-tags were very general in that MEAN was required to specify only the start and end points of an entire transmission path and label it as grandfathered.
In January 2013, however, WAPA informed MEAN that it intended to discontinue the...
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