Background
Tri-State Generation and Transmission Association, Inc. is a generation-and-transmission cooperative with long-term all-requirements contracts with its member distribution cooperatives. When some members sought to terminate their contracts early, Tri-State proposed a lost-revenues methodology for calculating exit fees. The Federal Energy Regulatory Commission, after administrative proceedings, rejected Tri-State’s proposal and adopted a balance-sheet approach proposed by the Trial Staff, directing Tri-State to implement it. Tri-State challenged this decision, arguing it shifted costs unfairly to remaining members.
The court’s reasoning
The court reviewed the Commission’s decision under the arbitrary and capricious standard. The Federal Power Act requires that rates and charges be just and reasonable, incorporating a cost-causation principle. The court determined that the Commission’s adoption of the balance-sheet methodology was supported by substantial evidence and that the methodology bore a reasonable resemblance to the burdens imposed by the departing members. The court rejected Tri-State’s argument that the methodology was arbitrary.
What it means going forward
The decision upholds the Federal Energy Regulatory Commission’s authority to set exit-fee methodologies for generation-and-transmission cooperatives that align with cost-causation principles, ensuring that departing members do not receive windfalls at the expense of remaining members.