Eighth Circuit recognizes plain language of wholesale power contracts among electric cooperatives does not permit early termination

The US Court of Appeals for the Eighth Circuit has recently confirmed the validity of term provisions in wholesale power contracts between generation and transmission cooperatives and their member distribution cooperatives. Dakota Energy Cooperative, Inc. v. East River Electric Power Cooperative, Inc., 75 F.4th 870 (8th Cir. 2023).

Distribution cooperative Dakota Energy Cooperative, Inc. is a member of, and purchases its power from, East River Electric Power Cooperative, Inc., a generation and transmission cooperative (G&T). Dakota sought to terminate its wholesale power contract (WPC) with East River and to withdraw from membership in the G&T cooperative. The WPC contains a term provision that provides the WPC will remain in effect until December 31, 2075. East River’s bylaws provide that Dakota may only “withdraw from membership upon compliance with such equitable terms and conditions as the Board of Directors may prescribe, provided, however, that no member shall be permitted to withdraw until it has met all contractual obligations to [East River].” On summary judgment, the district court concluded, “The WPC obligates Dakota Energy to purchase all its power from East River through December 31, 2075. The WPC and the Bylaws [of East River] do not allow Dakota Energy to buy out of and terminate the WPC prior to the end of that term.” Dakota appealed that decision.

The Court of Appeals first looked to the plain language of the WPC between East River and Dakota, as well as East River’s bylaws. It found that while the bylaws permit Dakota to withdraw from membership in East River, the withdrawal right is conditioned on Dakota meeting “all” of its contractual obligations to East River—including the obligation under the WPC to purchase power from East River until the end of the WPC’s term on December 31, 2075. It noted that Dakota’s inability to withdraw before 2075 was “simply a consequence of the plain and unambiguous language of its bargained-for agreement with East River.”

The Court then rejected Dakota’s argument that the bylaws and WPC were ambiguous as to how Dakota might fulfill its contractual obligations to East River. It further found that, even if the Uniform Commercial Code applied to the WPC and the bylaws, evidence of trade usage would not change the outcome, as the contracts’ express terms should prevail over Dakota’s contradictory evidence of trade usage.

The Court therefore affirmed the district court’s judgment in favor of East River, concluding “that the WPC unambiguously requires Dakota Energy to purchase all of its electricity from East River until December 31, 2075, and that no provision in the WPC or East River’s Bylaws allows for an earlier termination of that obligation.”

East River is represented by James Orr, Stacey Mohr, and Tracey Ledbetter of Eversheds Sutherland and Dana Van Beek Palmer and R. Alan Peterson of Lynn, Jackson, Shultz & Lebrun.

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