[00:00:00] Speaker 05:
Case number 25 dash 1060 at all based on electric power, cooperative petitioner versus federal energy regulatory commission. This halpern for the petitioner Mr. for the petitioner intervener. Mr. for the respondent and miss travers for the respondent and. Morning.

[00:00:23] Speaker 07:
Good morning, your honors. May it please the court. My name is Jessie Halpern, and I represent Basin Petitioner Basin Electric Power Cooperative, a rural electric cooperative. I'd like to reserve one minute of my time for rebuttal. And before I begin my argument, I'd like to alert the court that we filed an errata to remove an erroneous description of American Municipal Power v. FERC from our initial brief.

[00:00:48] Speaker 07:
The issue before the court today is the Commission's improper and unreasoned reading of a long-term, long-standing, all-requirements contract that serves as the lynchpin of a cooperative utility's credit, stability, and structure, and that ensures the cooperative's continued ability to build necessary transmission and generation facilities to serve its members. Unlike run-of-the-mill requirements contracts between private parties, the unique nature of the contract at issue here requires that it be viewed within the context of the entire cooperative structure.

[00:01:22] Speaker 07:
And as the Commission itself has stated, it is necessary to have this contract interpreted consistently and fairly across all cooperatives, not just with respect to Northwest Rural.

[00:01:33] Speaker 01:
Do you read Sections 9 and 14 to be ambiguous at all?

[00:01:38] Speaker 07:
I do not believe the sections are ambiguous, and I believe that the core error in the case is straightforward. Section 9, that the commission orders before this court wrongly interpret, does not merely mention a pro rata payment. It expressly allocates to Basin Electric two additional protections that the commission never analyzed. The first is that Tri-State must pay Basin Electric's other obligations and commitments, as shall be determined by Basin Electric, And second, tri-state shall otherwise comply with such reasonable terms and conditions as Basin Electric shall require.

[00:02:15] Speaker 07:
This is under the second sentence of Section 9, not the first sentence. And the Commission treated those two operative phrases as background noise rather than a binding text in finding that Northwest Rural's exit does not breach the contract, which is not a permissible reading. In its own brief, the Commission actually admits that on this record, the record before the Commission, the Commission could only, and I quote, find that Tri-State has not breached its obligations under Section 9 to date, end quote.

[00:02:51] Speaker 07:
Despite that, the orders repeatedly state that there is no breach. They're very definitive.

[00:02:57] Speaker 06:
Ms. Halpern, so Basin is no longer within FERC's general jurisdiction, right? That's correct, Your Honor. So I'm wondering, do you expect that FERC will continue, will assert primary jurisdiction over the PPA? And if it does, is...

[00:03:17] Speaker 06:
Basin concerned that that would block a later breach of contract claim in district court?

[00:03:24] Speaker 07:
We are concerned that this would block a later claim in court.

[00:03:29] Speaker 06:
If they did assert primary jurisdiction over or continue to assert primary jurisdiction over the PPA. Basin doesn't raise this argument, but I was wondering if this is some background concern

[00:03:43] Speaker 07:
Our concern is that the commission's interpretation allows all of tri-state's members to exit in the eastern interconnection, and that will continue to happen based on the Tenth Circuit opinion that relies on the commission's finding of no breach here.

[00:03:59] Speaker 06:
Right. But what the terms are for the exit and for any breach would otherwise be in the breach of contract claim in district court. However, I believe- And with the FERC, FERC's decision wouldn't necessarily have preclusive effect there because courts have to interpret contracts de novo.

[00:04:24] Speaker 07:
We would likely argue that FERC would not have authority there. However, because it contributes to rates and terms and conditions that apply to a jurisdictional utility- it is likely that a jurisdictional utility would argue that the Commission's order here does have preclusive effect.

[00:04:45] Speaker 07:
And regardless, Basin Electric was subject to the Commission's jurisdiction at the time that the Commission made this interpretation. And so the there is a argument that the exits proposed at the time are authorized.

[00:05:03] Speaker 06:
Basin also argues that Firk's interpretation does not allow Basin to impose reasonable terms and conditions.

[00:05:13] Speaker 06:
I'm wondering, what is Basin's support for that argument? I mean, I guess I'm not sure why such terms and conditions wouldn't be a part of any future proceeding.

[00:05:24] Speaker 07:
The commission under the tri-state exit methodology has approved a two-year notice provision. Basin Electric, if it were to require a three-year notice provision, then...

[00:05:37] Speaker 07:
we'd have a conflict or a five-year notice provision, we'd have a conflict between the reasonable terms and conditions that Basin Electric could impose and that the commission has already authorized for exits. And regardless, the commission did not consider any reasonable terms and conditions. It simply found there was no breach.

[00:05:54] Speaker 06:
Right, but is there any other term or condition besides the number of years? I mean, I don't read the FERC decision to say anything about other terms and conditions that Basin could impose.

[00:06:06] Speaker 07:
It effectively dismisses them. It gives them no meaning, no affirmative content, says that they cannot be construed to disable a transfer, says that they can't serve as a veto. They must be provided in such a way that would permit an exit effectively.

[00:06:28] Speaker 06:
I see my... I guess that doesn't say what the terms and conditions are, though.

[00:06:36] Speaker 07:
And neither does the FERC order. It doesn't grapple with what those terms and conditions would be. It simply says there is no breach. If you look at paragraphs 73 and 82 of the order on complaint, paragraphs 25, 27 and 30 of the rehearing order, they affirmatively and definitively find regardless of the conditions, there's no breach.

[00:07:02] Speaker 02:
Thank you.

[00:07:06] Speaker 02:
We should say, Lynn, for Tri-State, which remains FERC jurisdictional, FERC accepted primary jurisdiction here to resolve in FERC's own words the extent to which Tri-State's obligations to Basin under Section 9 impact Northwest Rural's termination rights. FERC's answer to the question it poses itself is so incomplete as to violate the APA and the State Farm Doctrine. FERC's orders here just say that Northwest Rural can leave Tri-State without causing a breach so long as it pays a pro rata share of Basin's outstanding indebtedness.

[00:07:42] Speaker 02:
Surely Northwest Rural has to pay that. But there's the other provisions that allow Basin to impose more cost on Tri-State. And as my colleague just pointed out, the FERC's order doesn't apply on that at all. And that puts Tri-State, which remains FERC's jurisdictional, in an impossible position. Under paragraph 583 of the order on initial decision, the one the 10th Circuit upheld last month, Northwest Rural must pay not only the pro rata share of the indebtedness, but the pro rata share of the entire PPA.

[00:08:17] Speaker 02:
Therefore, for FERC to reasonably answer the question posed for itself when it took primary jurisdiction here, it would have to articulate an administrable method to figure out what that payment would be so there would not be a breach.

[00:08:32] Speaker 06:
We have many cases suggesting that agencies...

[00:08:37] Speaker 06:
do not have to tackle an entire problem in one fell swoop, that they can take piecemeal approaches, both procedurally and substantively. And for any exit to occur, there still are going to be future FERC proceedings. So why can't tri-state concerns be addressed in those future proceedings? Why do they have to be addressed today. So FERC did do something limited. There are questions that remain open. I take your point on that. But there are, I think, necessarily going to be subsequent proceedings where those questions can be addressed.

[00:09:14] Speaker 02:
I appreciate your honor, but we're here constantly subject to this game of whack-a-mole. We keep asking FERC how we do this. They won't tell us. At this point, we've given Northwest Rural a buyout number. They're going to exit you know, in nine months. So what happens if Basin imposes, Basin, who's no longer first jurisdictional, imposes additional terms and conditions on us? The court says, we got to pay that. I mean, there is a true-up mechanism that may or may not be sufficient to get the money back from Northwest Rural years down the line if they're still solvent.

[00:09:51] Speaker 02:
I mean, this is a continuing problem and with every single order for issues and every single docket they say we're going to address it eventually well in this case they accept the primary jurisdiction which they didn't have to do and they said they're going to determine the extent to which tri-state's obligation to basin under section 9 of the basin ppa impact north wales rules rights This is the time to answer it. Otherwise, we could be left, you know, holding the bag with no way to get the money back that we got to pay basis in the northwest rural may or may not be around to pass back.

[00:10:24] Speaker 06:
Do those practical problems for tri-state make FERC's decision arbitrary and capricious?

[00:10:31] Speaker 02:
respectfully we think they do i mean state farmers and all things considered inquiry it's obviously with some amount of deference but we would ask this court to vacate the orders on an interview so that fur can fully answer the question that it posed to itself when it accepted a primary jurisdiction here

[00:10:48] Speaker 01:
When you look at section nine, I just want to ask you, Charlie, did you hear that Northwest rules withdrawal constitutes tri-states reorganization, consolidation, merger, sale, lease or transfer of assets? Does it fit in to any one of those particular categories?

[00:11:08] Speaker 02:
In this proceeding, nobody disputed that it did. FERC found that it did, and we did not dispute that in this proceeding.

[00:11:16] Speaker 01:
But what's the it? Like, what category are you looking at?

[00:11:20] Speaker 02:
I think the reasoning of FERC was that our assets with regard to the Eastern InConnect are our all-requirements contracts with our members, and by a member exiting, that asset goes away. I think that's what the reasoning was.

[00:11:34] Speaker 01:
But you would look to it as a transfer of asset?

[00:11:36] Speaker 02:
I think that was FERC's reason in here.

[00:11:38] Speaker 01:
Out of these categories. Yeah. Okay.

[00:11:40] Speaker 02:
And I'm being careful here. Obviously, we're being repeatedly sued by a base, and I don't know what's going to happen under other district court cases. But for purposes of this proceeding, we did not dispute that conclusion by FERC.

[00:11:51] Speaker 04:
Thank you. Thank you.

[00:11:58] Speaker 00:
Morning. Morning, Your Honors. Houston Shaner for the Federal Energy Regulatory Commission. I'd like to start with Judge Child's last question just to confirm. The Commission did rely on the second sentence of Section 9 here. I believe all parties below agreed that Northwest withdrawal from Tri-State would constitute a sale or disposition of Tri-State assets. which means that the second sentence of Section 9 was triggered. I think, as this court likely agrees, the language of that second sentence is quite clear, that as so long as tri-state meets certain other conditions, which were not fully litigated below, that no breach has occurred.

[00:12:32] Speaker 00:
And that's, for that reason, Northwest failed, and it's to me, it's burden of proof.

[00:12:36] Speaker 00:
Judge Rao, I think you hit the nail on the head here. The orders here do not constrain Basin's discretion in terms of imposing reasonable terms and conditions, other than saying the Basin does not get a full veto on the withdrawal of tri-state members. And that's for two good reasons. One is that there's no need for the commission to go beyond that statement. And that's because the text is enough to stop it. We can see that there are conditions to a sort of a future breach that are clearly, were not fully litigated here. And the second is there's no adequate record for this case.

[00:13:07] Speaker 00:
Basin makes much of their concerns that they need lots of other, there could be lots of other terms and conditions out there, but no party tried to offer those terms. They're not in the record below. They're really not even raised in the opening brief on appeal. So the commission has left base with lots of discretion. And I also point the court's attention to the August 2025 and November 2025 commission orders and the exit fee proceedings that are cited in the red brief. And there you'll see that the Commission actually encourages the parties to begin discussing what these terms are, directs Tri-State to try to get the relevant information about outstanding debt or other obligations and including reasonable terms and conditions from Basin and gives Tri-State safeguards what to do in the case the Basin is not cooperating there.

[00:13:51] Speaker 06:
Mr. Chair, what is your response to Mr. Saitlin's concerns that Tri-State is sort of caught between Basin and Northwest, right? And if, you know, There's a lot of uncertainty as to what Basin may require and what Northwest is required to pay. And, you know, they're just sort of left with this uncertainty that could drag on for years.

[00:14:14] Speaker 00:
I think, Judge Rowe, you adequately described this as a practical problem for Tri-State, but that's important because it is not a textual.

[00:14:20] Speaker 06:
It's a real problem. These are, you know, entities that have to plan.

[00:14:24] Speaker 00:
But to the extent that there is a practical problem, that is for the exit fee proceedings. And much of this is already litigated in the four orders now affirmed by the 10th Circuit. The rest of it is in the August 2025 and November 2025 exit fee proceedings. The tri-state is also currently litigating for the 10th Circuit. I believe they're still going forward with that. So to the extent that they think there are financial problems for tri-states because of Northwest's withdrawal, They have plenty of opportunity to do that, not only with the current petition for review in the 10th Circuit, but in future commission proceedings as well.

[00:14:55] Speaker 00:
And Tri-State even made the point that there could be, before the commission proceedings as referenced in the August 2025 order, that there could be future commission proceedings as well to extend needed.

[00:15:05] Speaker 06:
What is FERC's reasoning for proceeding in this piecemeal fashion here?

[00:15:11] Speaker 00:
Well, I think it's largely because the posture of the case was given to FERC by Northwest filing a Section 206 complaint. And Section 206, as Your Honor knows well, requires the commission to make a determination as to whether or not a jurisdictional rate is just and reasonable. And if it is unjust and unreasonable, then we then have to set a new rate. Now, in this case, Northwest made the argument that the contract, the basin contract, was unjust and unreasonable precisely because it blocked their exit. But in this case, that was predicated on the idea that there was a, the premise that there was a breach of that contract.

[00:15:44] Speaker 00:
When the commission found that there was no breach of that contract, as my colleague mentioned in paragraphs 72 and 83, there was no need to proceed on to the just and reasonable analysis or offer any actual relief to Northwest. So I think the commission, in that sense, the parties dictated how that was teed up. And of course, prior to that, this issue did come up in the exit fee proceedings occasionally, but as the court well knows, Basin was also litigating this in parallel on the district court for the District of North Dakota.

[00:16:15] Speaker 00:
And they may be preparing to do that in the future as well.

[00:16:23] Speaker 01:
So are you suggesting that Northwest Rural's withdrawal is a transfer of assets?

[00:16:28] Speaker 00:
Correct. And I believe the parties agreed to that below. And I would also add there was some dispute as to whether or not it constituted all or a substantial portion of the assets. But the commission says, I believe it's paragraph 71 of the complaint order. I may have that slightly wrong. Maybe paragraph 73 that the commission would assume for the purposes of argument that Northwest withdrawal would constitute a substantial portion.

[00:16:56] Speaker 00:
I'd also be happy to answer any of the court's questions on jurisdiction, if not have a couple of affirmative points there as well.

[00:17:03] Speaker 00:
Please proceed. Sure.

[00:17:06] Speaker 00:
I think there are two jurisdictional problems. I'll start with the smaller one. That's tri-state arguments. While tri-state does begin with sort of the same textual hook in terms of regional terms and conditions, their argument is ultimately the polar opposite of basins here, and it even calls into question, I think, tri-state standing. As I understand it, Tri-State is saying that the Commission failed to consider an important aspect of the problem. But that aspect of the problem is not whether Northwest actually breached the contract. It's that even assuming not a breach, that puts Tri-State in a bad position, as Your Honor noted, practically.

[00:17:38] Speaker 00:
But that's really a question for the exit fee proceedings. It is not the same argument that the Commission—I'm sorry, that Basin raised here. You'll actually see that clearly from the orders here. I believe it's paragraph— 83 of the complaint order, I believe, where the commission actually says it's dealing with other issues besides the main contractual argument here. That's the exact argument the tri-state raises, beginning with Section B of their opening brief. And you also see in Section C of their opening brief, they quite directly asked the court to disagree with what is now a full 10th Circuit panel, sustaining the exit fee methodologies.

[00:18:13] Speaker 00:
Methodology.

[00:18:17] Speaker 06:
Mr. Chairman, do you I don't know if you can speak to this, but do you expect that FERC will continue to assert primary jurisdiction over the VA?

[00:18:27] Speaker 00:
I would just be guessing, Your Honor, but I would point you to paragraph 69 of the complaint order, and particularly footnote 132, the citations there. And my apologies, I can't remember the exact citations, but I'm happy to pull them for you. The second case cited in footnote 132 and the surrounding text in paragraph 69 is suggest that but for the need to advance to a just and reasonable determination and potential reformation of the contract, the Commission might not have accepted primary jurisdiction if it were simply a matter of interpreting a contract.

[00:18:57] Speaker 00:
So I think that might certainly suggest that that was the only hook for primary jurisdiction in this case. And if the Basin Agreement is no longer within the Commission's rate jurisdiction under the Federal Power Act, presumably the Commission might not accept primary jurisdiction.

[00:19:12] Speaker 06:
And so then those questions could be worked out in a breach of contract claim in federal court.

[00:19:17] Speaker 00:
That's quite true. I would also point, Your Honor, to – you mentioned preclusion earlier. I think really the starting point is Judge Williams' opinion in Alabama Municipal Distributor Group 2002, not the more recent pipeline case.

[00:19:30] Speaker 00:
In that opinion – judge williams notes that there's sort of a problem of circularity with basing standing on preclusive effect and that's the preclusive effect often turns on the ability to have standing in the first case so you need to you need to determine that before you determine the preclusive effect of any agency orders or judgments affirming those orders and so basin here is getting the analysis somewhat backwards all right any concluding remarks I think not.

[00:20:01] Speaker 00:
And I ask your honors to either dismiss or deny the petitions for review. Thank you for your time.

[00:20:06] Speaker 04:
Thank you.

[00:20:09] Speaker 04:
Good morning, Ms. Travers.

[00:20:10] Speaker 03:
Good morning, Your Honors. May it please the Court. I am representing Northwest Rural Public Power District, intervener for Respondent Ferg in this matter.

[00:20:20] Speaker 03:
NRPPD supports the Commission's arguments on the merits. The Commission's interpretation of the Tri-State Basin PPA comports with its plain language and does not read any section out of the contract contrary to Basin's arguments. Rather, it is Basin's interpretation of the PPA that would render Section 9 meaningless. If it is correct that Tri-State's ability to dispose of its assets per the terms of Section 9 would render Section 14 of the contract meaningless, Basin has not stated what the point of Section 9 would possibly be.

[00:20:59] Speaker 03:
Rather, Section 9 provides a mechanism for Tri-State to transfer its assets by compensating Basin pursuant to Section 9's terms.

[00:21:12] Speaker 03:
Any argument that Tri-State's transfer of its assets would cause a backdoor exit for Tri-State to withdraw from the contract itself is a hypothetical situation that should not be the basis of a determination here.

[00:21:36] Speaker 04:
What do you think a court or FERC should do if that hypothetical situation were to occur?

[00:21:47] Speaker 03:
Section 9 actually provides Basin with compensation.

[00:21:52] Speaker 03:
for any distribution of assets that tri-state may attempt in the eastern interconnection. The contract has bargained for relief for Basin in that eventuality.

[00:22:06] Speaker 04:
All right. Any other questions? All right. Any concluding remarks?

[00:22:10] Speaker 03:
That is it for me. Thank you, Your Honors.

[00:22:13] Speaker 04:
Okay. Thank you.

[00:22:19] Speaker 04:
Ms. Halpern, we'll give you your rebuttal time.

[00:22:25] Speaker 07:
Thank you, Your Honors.

[00:22:28] Speaker 07:
The Commission's counsel said that no parties presented adequate conditions under Section 9. This highlights another issue with the orders here. If the Commission could not determine compliance with reasonable terms and conditions, its order finding no breach is at best premature and should be vacated. And the Commission's interpretation of the Tenth Circuit opinion that Mr. Shainer just shared ignores one key element of that opinion, which is that the Tenth Circuit relied on the Commission's findings in this case to determine that the methodology was appropriately applied to Eastern Interconnection members.

[00:23:04] Speaker 07:
Because the Commission's orders do not give weight to and reconcile all of the provisions of the contract, including all three sentences in Section 9, which need to be read independently, And as a cohesive whole, we ask this court to vacate the orders.

[00:23:22] Speaker 04:
All right. Thank you.

[00:23:29] Speaker 04:
Case is submitted.