Tri-State Generation and Transmission Ass'n, Inc. v. Shoshone River Power, Inc., TRI-STATE

• Decision Date: 05 May 1989
• Docket Number: TRI-STATE,No. 87-2288,87-2288
• Citation: 874 F.2d 1346
• Parties: GENERATION AND TRANSMISSION ASSOCIATION, INC., Plaintiff-Appellant, and United States of America, Plaintiff-Intervenor-Appellant, v. SHOSHONE RIVER POWER, INC., a Wyoming corporation, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1346

874 F.2d 1346

TRI-STATE GENERATION AND

TRANSMISSION ASSOCIATION, INC., Plaintiff-Appellant, and United States of America, Plaintiff-Intervenor-Appellant, v. SHOSHONE RIVER POWER, INC., a Wyoming corporation, et al.,

Defendants-Appellees.

No. 87-2288.

United States Court of Appeals, Tenth Circuit.

May 5, 1989.

Michael A. Williams of Sherman & Howard, Denver, Colo., and Diane Marshall Ennist of Civil Div., Dept. of Justice, Washington, D.C. (Robert E. Youle, Edward A. Gleason, and Leanne B. De Vos of Sherman & Howard, Denver, Colo., Richard K. Willard, J. Christopher Kohn, Sandra P. Spooner, and Larry R. Steffes of Civil Div., Dept. of Justice, Washington, D.C., and James L. Applegate of Hirst & Applegate, P.C., Cheyenne, Wyo., with them on the briefs), for plaintiff-appellant and plaintiff-intervenor-appellant.

Stephen S. Walters of Stole, Rives, Boley, Jones & Grey, Portland, Or. (Roy Pulvers and Mark J. Fucile of Stole, Rives, Boley, Jones & Grey, Portland, Or., Stanley K. Hathaway of Hathaway, Speight, Kunz, Trautwein & Barrett, Cheyenne, Wyo., Robert D. Olson of Goppert, Olson & Guill, and C. Edward Webster II, Cody, Wyo., with him on the brief), for defendants-appellees.

Before McKAY, SEYMOUR and BALDOCK, Circuit Judges.

McKAY, Circuit Judge.

I. Background

The background of this case is detailed in our previous opinion, reported at Tri-State Generation & Transmission Association, Inc. v. Shoshone River Power, Inc., 805 F.2d 351 (10th Cir.1986) [hereinafter Shoshone I ], which considered Tri-State Generation and Transmission Association, Inc.'s (Tri-State's) appeal from the district court's dissolution of the preliminary injunction in this case. We highlight portions of the background for purposes of this appeal as follows.

In 1936 Congress enacted the Rural Electrification Act, 7 U.S.C. Secs. 901-950b (1982 & Supp.1986), which instituted a program designed to provide electric power to rural America. Apparently, Congress was concerned with the fact that those then engaged in the business of generating electrical energy had failed to extend electric service to the rural communities of America and determined that the national interest would be served by subsidizing the rural user of electricity. The Rural Electrification Act created the Rural Electrification Administration (REA) and authorized the REA to make and guarantee loans that would enable rural communities to obtain electric power.

In response to the Rural Electrification Act, rural communities across America formed nonprofit electric distribution cooperatives. In 1942 individuals from Park County, Wyoming, organized a distribution cooperative, Shoshone River Power, Inc. (Shoshone). Basically, the consumers of electric power within the geographic area served by Shoshone are the members of Shoshone.

After REA-financed distribution cooperatives such as Shoshone were formed, groups of cooperatives banded together to form central generation and transmission cooperatives (G & Ts). ¹ This second-level cooperative formation stemmed from an effort on the part of the distribution cooperatives to secure and more economically obtain a long-term source of power.

In 1952 distribution cooperatives in Colorado, Nebraska, and Wyoming formed a central G & T, Tri-State, to be "operated on a cooperative, non-profit basis for the mutual benefit of its members." ² Record, vol. 1, doc. 86, exh. A (Articles of Incorporation, art. IV; Bylaws, art. VII, Sec. 1). Specifically, Tri-State was organized for the purpose of furnishing long-term wholesale power and energy to its member distribution cooperatives who, in turn, funnel the power to their consuming members. Tri-State is comprised of its member distribution cooperatives which are comprised of the actual consumers of the electric power.

Although not one of the original distribution cooperatives forming Tri-State, Shoshone became a member of Tri-State in 1958. Like all member distribution cooperatives, Shoshone entered into a long-term wholesale power contract (the all-requirements contract) with Tri-State for electric service. In general, the all-requirements contract provides that Tri-State would sell and deliver to Shoshone, and Shoshone would purchase and receive from Tri-State, all electric power and energy which Shoshone would require for the operation of its system. The contract secures a long-term source of power for Shoshone, assures a stable market for the power produced by Tri-State, and provides a long-term revenue stream with which Tri-State could repay obligations incurred by it on behalf of its members.

Shoshone initially agreed that the all-requirements contract would remain in effect for a term of thirty-three years--until December 31, 1991. On June 23, 1965, the contract was replaced by a similar all-requirements contract, under which Shoshone agreed to extend the term of the contract to December 31, 2005. This 1965 contract recites that Tri-State proposed to construct an electric generating plant or transmission system, or both, and that Tri-State would enter into similar all-requirements contracts for electric power with all member distribution cooperatives. The contract also provides that the rate for electric power charged to Shoshone, along with the other member distribution cooperatives, could be revised so that the revenues produced from the all-requirements contracts and other sources would be sufficient to meet the costs of operating and maintaining Tri-State's system and sufficient to make payments on all of Tri-State's indebtedness. The 1965 contract was subsequently modified, Shoshone agreeing most recently in 1977 to extend the term of the contract to December 31, 2020.

Getting electric power out to the rural communities was obviously an expensive task. The REA program and formation of central G & Ts made it possible for rural communities to obtain the needed help and financial aid. With the all-requirements contracts in place, the G & T system provided a stable, interdependent network whereby the distribution cooperatives could pool their resources and band together to obtain power at wholesale prices, build central facilities, obtain favorable loans, and attempt to keep costs down. In this respect, notwithstanding a G & T's low equity ratio, ³ it is clear from the record that REA has been willing and authorized to provide and guarantee favorable long-term, low-interest loans to G & Ts inasmuch as REA is able to look to the revenue stream under the all-requirements contracts as an assured source of repayment and security for the loans ⁴ and as an essential factor to the cohesiveness and financial strength of the G & T systems. Effectually, then, the all-requirements contracts place the financial strength of the distribution cooperatives behind G & T loans.

Initially, Tri-State operated as a paper G & T; it owned no generation facilities and acted mainly as a pooling agent to manage more efficiently its members' power allocations. Later, during the 1960's, the member distribution cooperatives anticipated substantial future growth in demand for electricity and projected increased needs. The record is clear that in response to its members' power requirement forecasts and to avert a possible power shortage, Tri-State built generation and transmission facilities, obtaining REA loans and REA-guaranteed loans to do so. The terms of Tri-State's all-requirements contracts with its member distribution cooperatives were extended to match the payment periods of the loans taken out by Tri-State. The record is clear that REA required extensions and the member distribution cooperatives agreed to the extensions so that Tri-State could obtain loans to build the facilities for its members' benefit.

After Tri-State built facilities, made substantial capital outlays, incurred debt, and expended funds on behalf of its members, economic conditions changed. The projected growth in demand failed to materialize, and there was an oversupply of electric power. In the early 1980's, Tri-State, like other G & Ts, found itself with stagnant demand, excess capacity, enormous debts to be repaid, and increasing rates being charged to its members.

In October 1985, Shoshone entered into a Memorandum of Understanding with PacifiCorp dba Pacific Power & Light Company (Pacific), an investor-owned utility. Pursuant to the Memorandum of Understanding, Pacific offered to purchase substantially all of Shoshone's assets, which include the power-delivery subscriptions of Shoshone's members and some poles and power lines. The sale was subsequently approved by Shoshone's members.

Tri-State brought this action to recover monetary damages and enjoin the sale of Shoshone's assets to Pacific. Tri-State claims, among other things, that it is a breach of Shoshone's obligations under the all-requirements contract to sell its assets to Pacific without making provision for the purchase of electric power from Tri-State throughout the remaining term of the contract. Shoshone, on the other hand, claims that selling its assets and ceasing business do not breach its obligations under the all-requirements contract because a sale, which is not expressly prohibited under the contract, would eliminate any power requirement Shoshone may have had under the contract.

REA intervened as a plaintiff in this action, subsequently claiming that it would be irreparably damaged if Shoshone is allowed to sell its assets to Pacific. ⁵ REA sought injunctive relief.

Prior to trial, the parties filed cross motions for partial summary judgment, seeking interpretation of the all-requirements contract. The district court granted a portion of Pacific's and Shoshone's motion, ruling that under the contract Shoshone is not required to remain in business or otherwise to purchase power from Tri-State throughout the term of the contract. Rather, according to the district court, Shoshone breaches its contractual obligations only if it...