sate of minnesota - Minnesota Judicial Branch

STATE OF MINNESOTA IN THE DISTRICT COURT
CIVIL DIVISION
COUNTY OF OLMSTED THIRD JUDICIAL DISTRICT ------------------------------------------------------------ City of Rochester, Minnesota, a FINDINGS OF FACT,
Minnesota municipal corporation, CONCLUSIONS OF LAW,
and Rochester Public Utilities (RPU), ORDER FOR JUDGMENT
AND JUDGMENT
Plaintiffs/Defendants on Counterclaims, vs.
Court File No. 55-C3-05-2712
Southern Minnesota Municipal
Power Agency (SMMPA), Defendant/Plaintiff on Counterclaims. ------------------------------------------------------------ The above-entitled matter came before the Honorable Robert Birnbaum,
Judge of District Court, for trial to the Court commencing January 12th,
2009, at the Olmsted County Government Center, Rochester, Minnesota. Appearances on behalf of Plaintiffs City of Rochester and RPU were:
David J. Branson, Esq., Washington, D.C.; David P. Yaffe, Esq., of Van Ness
Feldman, P.C., Suite 700, 1050 Thomas Jefferson Street NW, Washington, D.C.
20007-3877; Evan C. Reese, Esq., of Van Ness Feldman, P.C., Suite 700, 1050
Thomas Jefferson Street NW, Washington, D.C. 20007-3877; and James R.
Carlson, Esq., of O'Brien & Wolf, LLP, Suite 611, 206 South Broadway, P.O.
Box 968, Rochester, MN 55903-0968. Appearances on behalf of Defendant SMMPA were: Craig D. Diviney,
Esq., of Dorsey & Whitney, LLP, Suite 1500, 50 South 6th Street,
Minneapolis, MN 55402-1498; Theresa M. Bevilacqua, Esq., of Dorsey &
Whitney, LLP, Suite 1500, 50 South 6th Street, Minneapolis, MN 55402-1498;
Daniel J. Brown Esq., of Dorsey & Whitney, LLP, Suite 1500, 50 South 6th
Street, Minneapolis, MN 55402-1498; and William J. Ryan, Esq., of Dunlap &
Seeger, P.A., Suite 505, 206 South Broadway, P.O. Box 549, Rochester, MN
55903-0549.
table of contents pAGE
FINDINGS OF FACT. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 3 Procedural History. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 3 Stipulated Facts . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 11 Rochester's Count III and SMMPA's Counterclaim V . . . . . . .
. . . . . 15
Count III Summary. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . 65
Counterclaim V Summary. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . 72
SMMPA's Counterclaims I, II and III (The Steam Claim) . . . . .
. . . . . 80
Counterclaims I, II and III Summary. . . . . . . . . . . . . .
. . . . . . . . . 91 CONCLUSIONS OF LAW . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 94 Count III . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . 94 Counterclaim V . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 96 Counterclaims I, II and III . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 98 ORDER FOR JUDGMENT. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 99
JUDGMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 102
Based upon the files, records and proceedings herein, including all
testimony, exhibits and evidence adduced at trial, and the arguments and
submissions of counsel, the Court makes the following: FINDINGS OF FACT Procedural History
1. On June 28, 2005, the City of Rochester on behalf of Rochester Public
Utilities (hereinafter "Rochester") filed a summons and complaint with
the Court to initiate a law suit against the Southern Minnesota
Municipal Power Agency (hereinafter "SMMPA") on a breach of contract
claim and a request for declaratory action.
1. Count I of the complaint alleged a breach of contract. Rochester in
support of its claim stated, the contract between Rochester and SMMPA
specifically requires SMMPA to "establish and maintain rates in the
Rate Schedule...that are sufficient, but only sufficient, together
with other available funds of the Agency, to meet the estimated
Revenue Requirements of the Agency." Complaint p. 9-10. Rochester
asserts that the SMMPA Board of Directors is required to review the
Rate Schedule and Revenue Requirements at least once a year but has
failed to do so. Id. p. 10 . Rochester therefore requested that the
Court order SMMPA to specifically perform under the Contract by
undertaking each year , the requisite Revenue Requirement estimation
and rate analysis that would allow SMMPA to establish and maintain
rates at a level that is sufficient, but only sufficient, to recover
the estimated Revenue Requirements of SMMPA. Id. p. 11. Rochester also
asserted that it was being overcharged as a result of SMMPA's alleged
failure to properly set rates and; as a result Rochester was entitled
to a refund of all overcharges. Id. p. 1-2 and 15.
2. Count II of the complaint raised an accounting issue. Id. Rochester
claimed SMMPA failed to estimate its Revenue Requirements each year
for the following year and conduct a thorough rate analysis, which
would allow SMMPA to establish and maintain rates under the Rate
Schedule, which are sufficient, but only sufficient, to meet its
Revenue Requirements, and have failed to provide this information to
the Board of Directors so they can perform a yearly review of the
rates. Id. Rochester asks the Court to order an accounting of SMMPA's
Revenue Requirements for each of the past three years to determine
whether SMMPA has maintained rates at a level that exceed its Revenue
Requirements in violation of the express provisions of the Contract.
Id. p. 12. Rochester also sought a refund of any overcharges. Id. p.
13. 3. Count III of the complaint asserted a claim for declaratory action
relief. Id. Rochester sought a declaratory judgment declaring (1)
Rochester is a partial-requirements member of SMMPA; (2) SMMPA's
"System" is limited to the Power Supply Resources that were in place
in 1999, and any replacement resource; and (3) Rochester, because of
its status as a partial-requirements customer of SMMPA that is subject
to the CROD under the Contract, is not responsible for the capacity
costs associated with SMMPA's participation in any incremental
capacity or generating resource in excess of the Power Supply
Resources that existed as of January 1, 2000. Id. p. 14-15.
2. SMMPA filed an Answer and Counterclaim on August 26, 2005. In its
Answer, SMMPA denied most of the allegations of the Complaint and
asserted seven affirmative defenses including waiver, estoppel,
laches, unclean hands, and the statute of limitations. SMMPA also
alleged that the complaint failed to state a claim on which relief
could be granted and that the claims were barred by the express terms
of Section 8(b) of the Contract.
1. Counterclaim I stated a breach of contract/anticipatory repudiation
claim. Answer and Counterclaims p. 13. SMMPA alleges that Rochester
has anticipatorily repudiated and breached its obligations under the
Power Sales Contract (hereinafter "PSC") by having an agreement with
Mayo Clinic to sell steam to the Franklin Heating Station. Id. p. 13-
14. SMMPA described the PSC as a "requirements contract." Id. p. 10.
SMMPA alleged this was a breach of Rochester's obligation to not
circumvent the requirement that RPU purchase all of its power and
energy from SMMPA as long as those requirements were under the level
of the CROD.
2. Counterclaim II is a breach of contract/anticipatory repudiation
claim. Id. p. 14. SMMPA claims Rochester has breached and
anticipatorily repudiated its obligation under the Settlement
Agreement dated July 13, 1992 by providing energy in the form of steam
from its Silver Lake Plant generating unit to the Franklin Heating
Station for the consumption of RPU's customers without the consent of
SMMPA. Id. 3. Counterclaim III is a breach of the implied covenant of good faith and
fair dealing claim. Id. p. 15. SMMPA states it is well established law
that a requirements contract carries with it an implied covenant by
the purchaser not to do anything intentionally to reduce its
requirements. Id. SMMPA asserts that Rochester has breached its good
faith obligation under the PSC to maintain its power and energy
requirements up to 216 megawatts (MW) by selling steam to the Franklin
Heating Station. Id.
4. Counterclaim IV asserted a claim for declaratory relief based on an
agreement between Rochester and SMMPA that RPU will have Contract Rate
of Delivery (CROD) for the purchase of power up to 216 MW. SMMPA
sought a declaration that, under the PSC and the CROD, RPU is
obligated to purchase from SMMPA all of its energy needs up to what
can be derived from 216 MW of electric power.
3. On November 7, 2006, the Court granted Rochester's motion to serve and
file a supplemented and amended complaint.
4. On December 28, 2006, Rochester filed its First Amended and
Supplemental Complaint for Breach of Contract and Request for
Declaratory Action.
1. Amended Count I makes out a claim for breach of contract based on
SMMPA's alleged failure to review and establish rates according to the
PSC. First Amended and Supplemental