Indiana Business Lawyer Blog
Great River Energy (“GRE”) is a G&T cooperative that services 28 members. Crow Wing Coop. Power & Light (“Crow Wing”) is one of GRE’s 28 members. In 2004, Crow Wing entered into a power purchase contract with GRE. The pertinent parts of power purchase contract are (i) the section which provides the rate making formula and governs GRE’s charges to members for generated electricity, and (ii) the sections governing GRE’s amendment of its rate formula.
The contract obligated Crow Wing to acquire a fixed portion of the total power it purchases from GRE. For members obligated to purchase fixed- portion of power, the member’s rate is calculated in part by accounting for the various power plants (“resources”) that serve that particular member. Thus, each fixed-portion member may be charged a different rate based on the resources associated with that member. In the event that GRE chooses to retire a resource, a fixed-portion member is entitled to reduce the amount of energy it is required to purchase. The contract also provides that when GRE retires a resource, it is entitled to pass on certain costs associated with the retirement.
As to the amendment of rates and charges, the contract allows GRE to amend its rates so long as it obtains sufficient member approval. Specifically, GRE may amend its rates by obtaining approval of (i) 55% of its members, and (ii) members representing 45% of its load. GRE has amended its rate formula twice since 2004, most recently in 2009. Even though Crow Wing voted against the 2009 amendment, GRE obtained sufficient approval for the amendment.
In August, 2016, GRE notified Crow Wing that it intended to retire one of the resources associated with Crow Wing – a coal-powered power plant in Stanton, North Dakota. Crow Wing alleges that GRE represented that this retirement would result in “significant savings” for all of GRE’s members. Pursuant to its right under the contract, Crow Wing notified GRE that, upon the retirement of the Stanton plant, Crow Wing would reduce the amount of energy it purchased from GRE. However, despite Crow Wing’s reduction in the amount of energy purchased from GRE and GRE’s representation that the closure of the Stanton plant would result in significant savings, GRE’s 2017 budget proposed a 7% rate increase for Crow Wing while other members received a rate increase of only 0.9% or no increase at all.
Crow Wing filed a complaint against GRE in June of 2017. The complaint contained seven counts relying on multiple theories of liability. The most notable claims are for breach of contract based on: (i) Crow Wing’s contention that the 2009 rate formula upon which the 2017 rate increases are based, is invalid because GRE did not obtain sufficient approval; and (ii) Crow Wing’s contention that its 7% rate increase was a discriminatory attempt to recover the cost of closing its Stanton Plant. After a hearing, the district court dismissed all of Crow Wing’s claims. Crow Wing then appealed.
Crow Wing bases its first claim on two provisions of the contract. The first provision, entitled “effectiveness of rate revisions” states that the approval of 55% of members as well as members representing at least 45% of GRE’s electric load must be obtained before rates can be revised. However, a later provision entitled “General..” states that no amendment to the contract is valid unless it is written and executed by both parties. Crow Wing contends that this later provision establishes a two-fold approval requirement that requires approval by majority of members in addition to a written execution by every member affected by the revised rate. The appellate Court rejected this contention. Finding the contract to be unambiguous and abiding by the principle that specific language in the contract controls over more general language, the Court held that only a majority (55% of members who consume 45% of GRE’s output) is required to amend the rate formula. Thus, the 2009 amendment to the contract is valid, and the 2017 budget which increases Crow Wing’s rate by 7% is also valid.
The Court then turned to Crow Wing’s second theory: that GRE’s 7% increase of Crow Wing’s rates after closing the Stanton facility. GRE argues that this claim is merely a variation on Crow Wing’s first breach of contract claim and depends entirely on the validity of the 2009 amendment. But the appellate court, recognizing when a motion to dismiss is considered, the complaint must be liberally construed, held that the complaint presented a breach of contract claim that does not depend on the validity of the 2009 amendment. To support this, the court pointed to allegations in the complaint which state that GRE’s accounting contained “unexplained numbers shifting”, “accounting gimmicks.” The complaint also separately alleged that “reallocation of the revenue requirement related to Stanton to other resources” is how GRE breached the contract. Without reaching the merits of these claims, the Court found that facts could be introduced which would support granting Crow Wing relief.
Finally, the court summarily rejected Crow Wing’s argument that GRE’s board of director’s owed Crow Wing a fiduciary duty. The Court affirmed the district court’s judgment as to the validity of the 2009 amendment, but reversed its dismissal of all of Crow Wing’s claims. The case has been remanded to the district court for further proceedings.
Jeremy Fetty is a partner in the law firm of Parr Richey with offices in Indianapolis and Lebanon. Mr. Fetty is current Chair of the Firm Utility and Business Section and often advises businesses and utilities (for profit, non-profit and cooperative) on regulatory, compliance, and transactional matters.
The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.
