City of Sidney v. Municipal Energy Agency of Neb.

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
10/19/2018 01:11 AM CDT
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
City of Sidney, Nebraska, appellee, v. Municipal
Energy Agency of Nebraska, appellant.
___ N.W.2d ___
Filed September 28, 2018. No. S-17-471.
1. Nebraska Power Review Board: Arbitration and Award: Appeal and
Error. On an appeal from the decision of an arbitration board convened
under Neb. Rev. Stat. § 70-1301 et seq. (Reissue 2009), trial in the
appellate court is de novo on the record.
2. Nebraska Power Review Board: Arbitration and Award: Evidence:
Appeal and Error. Despite de novo review, when credible evidence is
in conflict on material issues of fact, the appellate court will consider
and may give weight to the fact that the arbitration board observed the
witnesses and accepted one version of the facts over another.
3. Nebraska Power Review Board: Arbitration and Award: Contracts.
Where contractual issues are intertwined with a rate dispute, such con-
tractual issues are within the jurisdiction of an arbitration board con-
vened under Neb. Rev. Stat. § 70-1301 et seq. (Reissue 2009).
4. Nebraska Power Review Board: Arbitration and Award: Notice.
Under Neb. Rev. Stat. § 70-1306 (Reissue 2009), an arbitration board is
authorized to permit amendments to a notice, substantive or not, at any
time in the arbitrative proceedings.
5. Public Utilities: Proof. The purchaser of energy has the burden of prov-
ing that the transmission rate it is being charged is unfair, unreasonable,
or discriminatory.
6. Contracts. In interpreting a contract, a court must first determine, as a
matter of law, whether the contract is ambiguous.
7. ____. A contract written in clear and unambiguous language is not sub-
ject to interpretation or construction and must be enforced according to
its terms.
8. Contracts: Substantial Performance. To establish substantial perform­
ance under a contract, any deviations from the contract must be rela-
tively minor and unimportant.
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
9. ____: ____. Substantial performance is shown when the following
circumstances are established by the evidence: (1) The party made an
honest endeavor in good faith to perform its part of the contract, (2) the
results of the endeavor are beneficial to the other party, and (3) such
benefits are retained by the other party.
10. ____: ____. Substantial performance is a relative term, and whether it
exists is a question to be determined in each case with reference to the
existing facts and circumstances.
11. Appeal and Error. An appellate court is not obligated to engage in an
analysis which is not needed to adjudicate the controversy before it.
Appeal from the Public Power Review Board. Reversed.
John M. Guthery, Derek A. Aldridge, and Richard D.
Sievers, of Perry, Guthery, Haase & Gessford, P.C., L.L.O., for
appellant.
Stephen M. Bruckner and Alexander D. Boyd, of Fraser
Stryker, P.C., L.L.O., for appellee.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, and
Funke, JJ.
Funke, J.
This is an appeal from an arbitration board’s decision under
Neb. Rev. Stat. § 70-1301 et seq. (Reissue 2009). The City
of Sidney, Nebraska, initiated this dispute against its whole-
sale energy provider, Municipal Energy Agency of Nebraska
(MEAN), regarding its monthly transmission rate charges. The
board ruled that MEAN breached the parties’ “Service Schedule
M” (SSM) supplemental agreement, by unnecessarily and uni-
laterally changing the transmission path for the electric power
and energy it provided to Sidney and by charging Sidney for
the increased transmission rates. Because of these breaches, the
board ruled that the transmission rate MEAN charged Sidney
was excessive, unfair, and unreasonable.
On our de novo review, we conclude that the increased
monthly transmission rate charges were not incurred arbitrarily
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
by MEAN but, instead, were required for continued per­
formance of the SSM, after the parties learned they had insuf-
ficient contractual rights to complete the transmission path to
Sidney. We hold that MEAN substantially complied with the
SSM in transmitting energy to Sidney and that MEAN was
permitted to charge Sidney the increased transmission rate
under the SSM. Therefore, we reverse the decision of the arbi-
tration board.
I. BACKGROUND
1. R elevant Entities
Sidney is a political subdivision and the operator of the
retail electric system within its municipality and Fort Sidney,
which serves approximately 3,900 customers. Sidney’s peak
energy need ranges from 12 megawatts (MW) in the winter to
18.5 MW in the summer.
MEAN is a Nebraska political subdivision and a not-for-
profit wholesale energy provider, created under Nebraska’s
Municipal Cooperative Financing Act.1 It is composed of over
60 member communities—in Nebraska, Iowa, Colorado, and
Wyoming—who have signed an Electrical Resources Pooling
Agreement, which is the master agreement that governs all
supplemental contracts between the parties. MEAN supplies
its members’ wholesale energy by contracting for generation
rights, with other members and third-party energy providers,
and transmission rights, with third-party transmission service
providers. MEAN is governed by a board of directors and a
management committee, both of which consist of appointed
representatives from each member community.
MEAN has served as Sidney’s primary wholesale energy
supplier since 1982. At all relevant times, MEAN has served
Sidney’s energy needs through the Sidney West switchyard
(Sidney West). Sidney West is composed of several substations
1
Neb. Rev. Stat. § 18-2401 et seq. (Reissue 2012).
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
and facilities owned by different entities: The Western Area
Power Administration (WAPA) owns a substation containing
its 115 kilovoltage (kV) bus and attached transmission lines;
Sidney owns transmission lines and a 115 kV/13.2 kV trans-
former, which are located within WAPA’s substation and con-
nect to the national power grid only through WAPA’s 115 kV
bus; and Tri-State Generation and Transmission Association,
Inc. (Tri-State), owns a substation containing a 230 kV bus, a
230 kV/115 kV transformer, and transmission lines connecting
its bus and transformer to WAPA’s 115 kV bus.
WAPA is a federal power marketing administration within
the U.S. Department of Energy. WAPA allocates federally gen-
erated hydroelectric energy to municipalities and other political
subdivisions. WAPA also operates as a wholesale energy pro-
vider and transmission service provider, through its Loveland
Area Project (LAP) Network Integrated Transmission System
(NITS). Additionally, WAPA contracts with other transmission
service providers as a tariff administrator to ensure compli-
ance with Federal Energy Regulatory Commission regulations
and monitor electronic tag (e-tag) registration in “OASIS,”
the electronic system for registering transmission paths and
scheduling energy transmissions across those paths. E-tags
are electronic transaction records that document the planned
flow of energy across one or more transmission systems in the
wholesale market.
The Missouri Basin Power Project (MBPP) owns the
Laramie River Station (LRS), a power-generating company,
and transmission lines used to transmit energy from LRS.
One of the owners of MBPP is Basin Electric Power West
(BEPW). Through a displacement agreement with BEPW,
MEAN has rights to 18 MW of energy from LRS and
MBPP’s transmission lines connecting to Sidney. The dis-
placement agreement makes WAPA the tariff administrator
for BEPW and MEAN regarding their transmissions on the
MBPP system.
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
2. Contractual R elationship
Between Sidney and MEAN
In 1995, Sidney accepted bids for its wholesale energy
needs and resolicited bids in 1996. During the 1996 bid solici-
tation, MEAN’s bid tied for the lowest, and Sidney chose to
award MEAN the contract because of the parties’ long history
and Sidney’s ability to participate in MEAN’s governance,
as a member community. From 1996 until 2001, Sidney
and MEAN entered into a series of short-term supplemental
agreements, under which MEAN provided Sidney its energy
requirements in excess of WAPA’s approximately 2 MW
energy allocation to Sidney.
After winning the bid in 1996, MEAN and Tri-State entered
into the “Sidney Facilities Service Agreement” (Tri-State
Agreement), which enabled MEAN to transmit 7 MW of energy
through the portions of Sidney West “own[ed], operate[d],
and maintain[ed]” by Tri-State for $2,367.40 per month, with
the option to increase the capacity at the cost of $338.18 for
each of the MW transmitted per month. With this agreement,
MEAN was able to transmit LRS-generated energy to Sidney
through MBPP, which connects to Sidney West at Tri-State’s
230 kV bus.
In 2005, MEAN’s manager of electric operations was con-
tacted by WAPA concerning the transmission arrangement
MEAN used to serve Sidney. He informed WAPA that MEAN
served Sidney using Tri-State’s transformer, under the Tri-
State Agreement, which he believed WAPA found acceptable.
He later informed Sidney that if Sidney could no longer rely
solely on the Tri-State Agreement for its energy transmission,
then Sidney would have to be put on WAPA’s LAP NITS
for transmission at a nearly $300,000 annual transmission
rate increase.
In 2007, MEAN’s manager of electric operations encour-
aged Sidney to enter into the SSM, instead of continuing with
its then-current supplemental agreement, ending in 2011. He
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
explained several benefits of the SSM to Sidney: long-term
energy rate stability, saving Sidney over $100,000 in 2008
alone for its current agreement; savings of more than $1.6 mil-
lion in 2008, compared to full tariff service with Tri-State; and
extending Sidney’s long-term relationship with MEAN as a
participating member in MEAN’s governance. He also stated
that Sidney’s energy rates were lower than other MEAN mem-
bers, in part because of the low transmission costs enabled by
the Tri-State Agreement.
In 2008, the parties entered into the SSM, effective from
February 1, 2008, until at least 2041. The SSM is a standard
form agreement used with other members of MEAN and
includes attachments specific to the member community. It
requires MEAN to provide Sidney its energy requirements,
less WAPA allocations, and Sidney to pay MEAN for such
energy under the provisions of exhibit B, the rate schedule.
The SSM also states that the energy supplied by MEAN shall
be delivered to the “Point of Delivery” (POD) specified in
exhibit A, which may be modified only “by a revised Exhibit
A signed by an authorized officer of [Sidney] and accepted
by MEAN.”
Exhibit A includes the following diagram:
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
From 1996 until December 1, 2014, under each of the
parties’ supplemental agreements, MEAN provided Sidney’s
energy requirements through its generation rights in LRS and
transmission rights on MBPP’s transmission lines, which con-
nected to Sidney’s facilities in Sidney West through Tri-State’s
and WAPA’s facilities. The only fee for transmission charged
to Sidney by MEAN under this transmission path was the
$2,367.40-per-month base fee in the Tri-State Agreement.
3. Policy Changes R egarding
Energy Transmissions
(a) MEAN Policy Changes
In 2013, MEAN entered into a settlement with the
Southwestern Power Pool to compensate it for MEAN’s unre-
served use of its facilities, which is the use of a facility to
transmit energy without any contractual rights to do so. Tariff
administrators establish the penalties for unreserved use of
facilities, which generally include compensating the owner of
the facility for any use at double the rate normally charged.
MEAN’s board of directors decided to pay the costs of this
settlement by socializing the amount across all of its members,
even though Sidney and other members had not directly ben-
efited from the unreserved use.
In response to the incident with the Southwestern Power
Pool, MEAN’s executive director proposed a directive imple-
menting a culture of compliance for MEAN to the board
of directors, which it approved. Consequently, there was an
expectation that MEAN would do whatever was necessary to
comply with all regulations. By 2013, MEAN had begun exten-
sively reviewing energy contracts to ensure they were comply-
ing with applicable regulations.
(b) WAPA Changes to Use of
E-Tags on MBPP Lines
As Sidney’s energy provider, MEAN scheduled all e-tags
for the transmission of its generated energy resources to
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
Sidney on OASIS. Historically, e-tags were very general
in that MEAN was required to specify only the start and
end points of an entire transmission path and label it as
grandfathered.
In January 2013, however, WAPA informed MEAN that it
intended to discontinue the use of grandfathered e-tags effec-
tive March 26, 2013. As a result, MEAN was now required to
schedule each transmission segment along the complete path
through specific e-tags. These specific e-tags were required to
specify the start and end points of each transmission segment,
the transmission service provider that owned the segment, and
the capacity level of the energy. The capacity level of energy is
rated on a 1-to-7 scale. Level 7 is the highest priority, the last
level to be curtailed in the case of overscheduling, classified
as “firm” capacity.
OASIS rejects a registered e-tag if there is insufficient
capacity on a particular segment of the transmission line or if
it does not recognize the registering entity as having a contrac-
tual right for its scheduled transmission. Conversely, when an
entity had used a grandfathered e-tag, OASIS’ system for veri-
fying whether the registering entity had sufficient contractual
rights to transmit energy across each segment of a complete
transmission path was bypassed.
Upon announcing the change, Raymond Vojdani, a transmis-
sion policy advisor at WAPA, informed MEAN that its trans-
mission capacity on the MBPP line to Sidney West would be
reduced to 4 MW of firm capacity, from the 18 MW of firm
capacity available with the grandfathered e-tag. Vojdani also
suggested that MEAN’s transmission path to Sidney, under
the displacement agreement, would consist of the follow-
ing three segments: the LRS generating facility to the MBPP
transformer converting energy to 230 kV, BEPW LRS>LRS
230; MBPP’s transformer to the Stegall, Nebraska, switchyard,
LAPT LRS 230>SGW; and the Stegall switchyard to Sidney
West, BEPW SGE>SCSW.
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
4. MEAN’s Internal R esponse
to WAPA’s Changes
In December 2013, MEAN internally discussed a problem
with its transmission path for Sidney within Sidney West.
MEAN found that the three-segment path, provided by Vojdani,
was insufficient to deliver energy to Sidney, because it resulted
in a gap within Sidney West, and that it could only create a
complete transmission path by adding a fourth segment, LAPT
SCSW>SCSW. “LAPT” referred to the Loveland Area Power
Transmission, which encompassed WAPA’s 115kV bus located
within Sidney West.
Rather than scheduling transmissions to Sidney with this
fourth segment, MEAN used point-to-point transmission capac-
ity (PtP) to create a complete transmission path. PtP is the
purchase of transmission rights for a single segment of a trans-
mission system, but it must be purchased for the peak MW
capacity required at any point regardless of whether or not the
entity needs such capacity at all times. MEAN relied on 10
MW of its existing organizational PtP and acquired additional
PtP at a cost of over $30,000 in 2013 and 2014.
MEAN initially attributed the gap in its transmission path
to Tri-State’s 230 kV/115 kV transformer. They asked Vojdani
whether a Tri-State-to-Sidney West, TSGT SCSW>SCSW,
e-tag could be created, under the Tri-State Agreement, to
resolve the gap, but Vojdani stated that no e-tag across Sidney
West should be required, because all parties were aware of
MEAN’s agreement to use Tri-State’s 230 kV/115 kV trans-
former. During this same period, Billy Cutsor, a MEAN
employee, provided Vojdani with incorrect information regard-
ing the number of MW MEAN could transmit through Tri-
State’s facilities, under the Tri-State Agreement. Based upon
the incorrect information, Vojdani recommended that Sidney
be placed on LAP NITS so that MEAN could transmit a suf-
ficient amount of energy to Sidney to fulfill Sidney’s needs.
After this recommendation, MEAN targeted placing Sidney on
LAP NITS on October 1, 2014.
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
Still having issues with creating a complete transmission
path to Sidney, MEAN contacted Tri-State in February 2014.
Tri-State offered various e-tag alternatives, but each proved
ineffective. Tri-State suggested using the TSTG SGW>SCSW
230 e-tag, but it did not work, because it contained the same
gap within Sidney West. MEAN requested that Tri-State fill
the gap in its path by creating an e-tag representing its contrac-
tual rights under the Tri-State Agreement, suggesting TSTG
SCSW 230>SCSW 115, but this also did not work.
Tri-State then suggested using the LAPT SCSW>SCSW
e-tag. However, MEAN expressed concern that this e-tag
would indicate it was using WAPA’s system, which Vojdani
confirmed. Subsequently, MEAN, Tri-State, and Vojdani sched-
uled a conference call to discuss the e-tag issue further. Based
on the call, MEAN concluded that WAPA’s 115 kV bus was the
gap in its transmission path to Sidney and that it would need
to contract with WAPA to create a complete transmission path
using WAPA’s bus.
In June 2014, MEAN began working on an application to
WAPA to determine whether there was sufficient capacity on
LAP NITS to serve Sidney’s energy needs. MEAN submitted
its application to WAPA on July 21.
5. MEAN Communications
With Sidney and Change
to Transmission Path
In the spring of 2014, Cutsor mentioned to a Sidney
employee that some issues had arisen with the transmission
arrangement MEAN used to serve Sidney, explaining what
had changed and some options for solving the issue. Then, in
July 2014, Cutsor sent an email to another Sidney employee
explaining that the use of e-tags had recently become more
transparent, that the Federal Energy Regulatory Commission
now monitored e-tags, and that a complete transmission path to
Sidney would require additional transmission service. Cutsor
recommended that Sidney obtain LAP NITS and cancel the
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
Tri-State Agreement effective October 1, 2014, which would
result in about a $500,000 annual increase in transmission
fees. During a subsequent conference call in July, MEAN com-
municated that WAPA would not impose any penalty for the
unreserved use of its facilities if Sidney obtained LAP NITS
service by October 1.
In August 2014, MEAN provided Sidney with a price com-
parison for Tri-State and LAP NITS, the only entities with sub-
stations at Sidney West. MEAN determined that the use of LAP
NITS would cost $576,000 per year and that full tariff service
with Tri-State would cost about $630,000 per year. Sidney
responded that it would be examining its options further before
accepting MEAN’s proposal. Later, MEAN informed Sidney
that Tri-State’s full tariff service would not include rights to
WAPA’s 115 kV bus and that WAPA offered only full tariff
service on LAP NITS, not a limited contract for the 115 kV
bus only.
Both MEAN and WAPA estimated that keeping the exist-
ing transmission path with MBPP and adding PtP to transmit
energy across WAPA’s bus would be a similar or higher cost
than obtaining LAP NITS full tariff service. Further, PtP
would be subject to curtailing when there was insufficient
capacity on WAPA’s 115 kV bus and would continue to pro-
vide Sidney with only 4 MW firm energy. Conversely, WAPA
informed MEAN that as part of the full tariff service with
LAP NITS, Sidney could be provided with its full energy
needs at firm capacity by WAPA’s generating sources. MEAN
also learned from WAPA that LAP NITS could transmit
energy to Sidney independent of the rights in the Tri-State
Agreement and over various lines, which would reduce the
risk of interruptions.
During a meeting in September 2014, MEAN discussed
with Sidney the changes in 2013 that led to the identifica-
tion of the gap in the transmission path, how the Tri-State
Agreement was insufficient to close the gap, and its final
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
determination that obtaining LAP NITS and canceling the
Tri-State Agreement, effective October 1, 2014, would be
the best option to provide Sidney a complete transmission
path. Sidney, however, refused to accept any rate change until
60 days after MEAN provided it notice pursuant to the cor-
rect SSM procedure. The next week, MEAN advised Sidney
regarding the use of “non-firm” energy transmission and the
higher costs of doing so with PtP and explained how LAP
NITS costs were calculated.
On September 25, 2014, MEAN sent formal notice to
Sidney of its intent to implement the changes, which would
affect Sidney’s transmission charges, on December 1. On that
same day, MEAN sent a notice to Tri-State terminating the Tri-
State Agreement, effective as of December 1.
In October 2014, WAPA informed MEAN that WAPA could
have charged Sidney for the unreserved use of its 115 kV at
double the rate going back several years but opted not to do so.
WAPA also informed MEAN that it would provide an initial
discount to Sidney for obtaining LAP NITS.
Effective December 1, 2014, Sidney’s energy needs began
being served by LAP NITS. Due to a billing error, MEAN did
not start billing Sidney for the LAP NITS charges until March
2015. Over the next 12 months, WAPA phased in the increased
costs for Sidney’s service on LAP NITS. Once the full charges
for LAP NITS were phased in, Sidney’s transmission costs
had increased from $28,408.80 per year to approximately
$576,000 per year.
After Sidney was placed on LAP NITS, WAPA took over the
scheduling of e-tags to transmit energy to Sidney. According to
an unexecuted contract between MEAN and WAPA and com-
munications with WAPA, MEAN concluded that WAPA sched-
ules Sidney’s energy through the Archer, Nebraska, switchyard,
which connects directly to WAPA’s 115 kV bus in Sidney West.
However, LAP NITS connects to Sidney West with four differ-
ent transmission sources, two of which connect to Tri-State’s
230 kV bus.
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
6. Proceedings Before
A rbitration Board
In early 2015, Sidney sent MEAN a notice of election to
dispute charges, under § 70-1304. The parties failed to settle
the dispute, and arbitration proceedings were initiated, under
§ 70-1306. Sidney filed an amended notice at the first meeting
with the arbitration board that alleged MEAN had breached the
SSM by charging an unfair, unreasonable, and discriminatory
transmission rate; the SSM by unilaterally changing the POD;
and the implied covenant of good faith and fair dealing by act-
ing in a manner that injured Sidney. The arbitration proceed-
ings occurred in March 2017.
(a) Transmission Gap in Sidney West
MEAN called several of its employees to testify about the
gap in the transmission path identified in Sidney West. The
employees testified that they had concluded WAPA’s 115 kV
bus was the gap in the transmission path at Sidney West.
MEAN staff admitted that neither WAPA nor the Federal
Energy Regulatory Commission had threatened to penalize
Sidney or MEAN for unreserved use of WAPA’s facilities.
However, they stated that MEAN had to obtain contractual
rights to use WAPA’s bus, because using WAPA’s bus without
a contract violated the regulatory commission’s regulations and
MEAN’s culture-of-compliance directive. They also testified
that once Vojdani became aware of the issue, he acknowledged
that WAPA could have penalized MEAN for its unreserved use
of WAPA’s facilities but would not do so if Sidney obtained
sufficient rights.
Sidney called an expert who testified that there was no
gap in the transmission path MEAN had been using to serve
Sidney, because “[b]us transfers are not charged for in general
. . . .” MEAN’s expert agreed that the bus did not create a gap
in transmission service by stating that the convention in the
“west” is that there is no charge for energy crossing a substa-
tion if it enters and exits at the same voltage, as a professional
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CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
courtesy. Instead, he stated that an entity has to pay only for
the use of a transformer to change voltage levels, which gener-
ally covers the expense of going across a bus.
MEAN’s expert also acknowledged that there was no path
for WAPA’s Sidney West facilities posted on OASIS. Pursuant
to the Federal Energy Regulatory Commission regulations,
all transmission paths are to be registered on OASIS along
with the total transfer capability and the available transfer
capability. However, MEAN’s expert qualified his statement
by stating that only line segments needed to be registered.
Additionally, Vojdani testified that LAP NITS would include
access to transmission facilities like its 115 kV bus.
Vojdani testified that WAPA first became aware of a problem
with MEAN’s transmission path to Sidney in February 2014, as
a result of MEAN’s questions regarding its problems with its
transmission path. Vojdani stated that at that time, he realized
WAPA’s 115 kV bus was the last segment of the transmission
path to Sidney and that WAPA needed to be compensated for
the use of its bus, because the Tri-State Agreement did not
provide such a right. He testified that he informed MEAN of
this during the February 2014 conference call with MEAN
and Tri-State staff. Vojdani also stated that WAPA considered
penalizing MEAN for its unreserved use of WAPA’s 115 kV
bus but decided not to do so.
(b) Compliance With Exhibit A
Sidney employees provided testimony regarding their
understanding of exhibit A and MEAN’s actions in placing
Sidney on LAP NITS. They testified that the favorable and
stable transmission rate provided by MEAN under the Tri-
State Agreement was a primary motivation in Sidney’s enter-
ing the SSM. Sidney employees testified that they believed
exhibit A represented a contractual requirement that MEAN
transmit Sidney’s energy through the MBPP line and the
Tri-State facilities, under the Tri-State Agreement. They also
stated that Sidney never consented to amending exhibit A and
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Nebraska Supreme Court A dvance Sheets
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CITY OF SIDNEY v. MUNICIPAL ENERGY AGENCY OF NEB.
Cite as 301 Neb. 147
that MEAN unilaterally decided to place Sidney on LAP NITS
and cancel the Tri-State Agreement, without providing Sidney
with any alternative options.
Sidney’s expert testified that the POD in exhibit A was
located at the fence of Tri-State’s substation at Sidney West
on the MBPP line and that MEAN was in breach of exhibit
A because WAPA had no right to deliver energy on MBPP’s
line. He stated that typically, a transmission line owned by one
entity would connect to a transmission line at the fence line of
another entity’s facilities so that the first entity would not have
to enter the second’s facilities to service its transmission line.
The expert acknowledged that the diagram of Sidney West in
evidence did not show a change in line ownership at the fence
line to Tri-State’s substation but explained that it was likely
because the diagram was created by WAPA and not Tri-State
or MBPP.
MEAN’s expert testified that MEAN had not breached
exhibit A, because the POD was Tri-State’s 230 kV bus and
LAP NITS had transmission lines connecting to the bus and
rights to transmit energy through it. He explained that a POD
is the end point of transmission service and is generally an
entire substation but, occasionally, a bus if there is an internal
voltage transfer within a substation. The expert, and Vojdani,
testified that a POD cannot be located on a transmission
line itself, because energy cannot be forced to travel along
a specific path; instead, energy travels on the path of least
resistance, which could be any transmission line regardless
of ownership. Sidney’s expert contested that WAPA did not
have the ability to transmit energy to serve Sidney across Tri-
State’s transformer.
MEAN staff detailed their several communications with
Sidney staff regarding the issue and recommending the option
it had determined would be the most cost-effective solution,
discussed above. They also detailed the price comparisons
that they had made, and shared with Sidney staff, in reaching
their conclusion regarding the most cost-effective solution.
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MEAN’s expert agreed with the recommendation of MEAN
staff that the lowest cost option for Sidney was being placed
on LAP NITS and canceling the Tri-State Agreement.
(c) Charges Under LAP NITS
MEAN staff testified that under the SSM, transmission
charges are to be passed through to the customer at the cost
charged by the third party. They admitted that as of the hearing,
MEAN still had not executed an agreement with WAPA plac-
ing Sidney on LAP NITS, but that Sidney was receiving and
being charged for energy and transmission on LAP NITS. They
explained that WAPA charges customers based on the number
of MW transferred through LAP NITS, not by the distance
energy is transmitted.
MEAN staff testified that WAPA calculated the charges for
all of MEAN’s members under the same formula and passed
the single charge to MEAN. They testified that MEAN then
used the same formula as WAPA to determine each of its
community’s charges, which it passed on to each community
without markup. MEAN staff stated that Sidney’s transmis-
sion costs for using LAP NITS are about 10 percent of its
total energy costs, which is the same average transmission
cost ratio for all 54 of MEAN’s members with an SSM agree-
ment. MEAN staff also testified that Sidney’s transmission
costs under the Tri-State Agreement alone were extremely low,
amounting to transmission costs of less than 1 percent of total
energy costs.
7. A rbitration Board’s Decision
The arbitration board concluded that MEAN breached the
SSM because it had unilaterally changed the POD and charged
Sidney the increased transmission rate. Consequently, it ruled
that the transmission rate MEAN was charging Sidney for
electric wholesale service to Sidney was excessive, unfair,
and unreasonable. The board ruled that it was not autho-
rized to terminate or rescind the SSM, under § 70-1314,
so it set the fair, reasonable, and nondiscriminatory rate for
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transmission charges at $2,367.40 per month, the rate charged
before MEAN’s breach. The board did not make any finding
regarding the alleged breach of the implied covenant of good
faith and fair dealing.
The board ruled that the POD in exhibit A was located on
the MBPP line at the fence of the Tri-State substation and that
MEAN had breached exhibit A, because WAPA had no rights
on the MBPP line, could not use Tri-State’s transformer to
serve Sidney, and served Sidney from the Archer switchyard
at 115 kV. It found that MEAN changed the path without
consulting with Sidney and that Sidney did not consent to
the change.
The board determined that MEAN’s breach of exhibit A
damaged Sidney because changing the transmission path was
unnecessary. It ruled there was no gap in the transmission
path to Sidney by making the following findings: The trans-
mission path had been sufficient before December 2014, and
neither WAPA nor the Federal Energy Regulatory Commission
required the change; both parties’ experts testified that there
was no cost to use WAPA’s bus; and the evidence showed
that Tri-State had the right to use WAPA’s 115 kV bus at no
charge. The board determined that the entirety of Vojdani’s
testimony was not entitled to weight, because it was partially
based on incorrect facts from Cutsor.
The board also ruled that MEAN breached the SSM’s
requirement that it charge Sidney energy rates that were fair,
reasonable, and nondiscriminatory. It determined that the rate
was unfair, because it interpreted the SSM to require MEAN to
contract for a complete transmission path to Sidney at its own
expense, and discriminatory, because MEAN’s board of direc-
tors inconsistently socialize transmission costs.
MEAN appealed the decision of the arbitration board to the
Nebraska Court of Appeals, under § 70-1326. We then granted
MEAN’s petition to bypass the Court of Appeals.2
2
See Neb. Rev. Stat. § 24-1106(2) (Supp. 2017).
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II. ASSIGNMENTS OF ERROR
On appeal, MEAN assigned—reordered, restated, and con-
solidated—that the arbitration board erred in (1) concluding
that it had subject matter jurisdiction to hear breach of contract
claims; (2) allowing Sidney to amend its notice of dispute; (3)
finding WAPA’s facilities did not create a “‘gap’” in the trans-
mission path to Sidney, because they could be used without
charge; (4) finding LAP NITS was unnecessary and not the
lowest cost alternative to transmit energy to Sidney; (5) finding
that MEAN breached the SSM by changing the POD; (6) find-
ing that MEAN breached the SSM by passing unfair, unrea-
sonable, and discriminatory transmission charges to Sidney;
(7) receiving exhibit 100 into evidence; and (8) altering and
modifying the parties’ contract in setting the fair, reasonable,
and nondiscriminatory rate for transmission service.
III. STANDARD OF REVIEW
[1,2] On an appeal from the decision of an arbitration board
convened under § 70-1301 et seq., trial in the appellate court
is de novo on the record.3 Despite our de novo review, when
credible evidence is in conflict on material issues of fact, the
appellate court will consider and may give weight to the fact
that the arbitration board observed the witnesses and accepted
one version of the facts over another.4
IV. ANALYSIS
1. A rbitration Board H ad
Subject M atter Jurisdiction
MEAN argues the arbitration board, as a statutorily created
body, lacked subject matter jurisdiction to decide Sidney’s
contract-based claims. Instead, it argues the statutes expressly
limit the arbitration board’s jurisdiction to deciding rate dispute
3
§ 70-1327; In re Application of Northeast Neb. Pub. Power Dist., 300 Neb.
237, 912 N.W.2d 884 (2018).
4
Id.
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claims by determining whether the rate charged is adequate,
fair, reasonable, and nondiscriminatory.
[3] We recently considered whether an arbitration board,
created under § 70-1301 et seq., had jurisdiction to consider
breach of contract and breach of an implied covenant of good
faith and fair dealing claims, in In re Application of Northeast
Neb. Pub. Power Dist.5 We stated that “[t]he Legislature clearly
contemplated the existence of power contracts” in the statutes
and that rate disputes are often intertwined with contrac-
tual issues of the rights and obligations regarding the rate.6
Accordingly, we held that where “contractual issues are inter-
twined with a rate dispute, such contractual issues are within
the arbitration board’s jurisdiction.”7
Section 70-1302 explicitly states that a board’s authority
to “resolve wholesale electric rate disputes [includes] rate
disputes relating to transmission and delivery of electrical
energy.” Therefore, the board had subject matter jurisdiction
to consider whether MEAN breached the SSM or the implied
covenant of good faith and fair dealing to the extent that such
breaches resulted in transmission rate charges that are unfair,
unreasonable, and discriminatory.
2. A rbitration Board Did Not Err
in A llowing Sidney to File
A mended Notice
MEAN contends that the arbitration board erred in allow-
ing Sidney to file an amended notice, because § 70-1301 et
seq. does not provide a mechanism for amending a notice
of dispute.
When a purchaser elects to dispute a wholesale electric
charge, § 70-1304 requires that the purchaser “shall give
notice in writing to the supplier stating such election. The
5
In re Application of Northeast Neb. Pub. Power Dist., supra note 3.
6
Id. at 248, 912 N.W.2d at 892.
7
Id.
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notice shall fully describe the basis for the dispute and set
forth a detailed statement of disputed issues and the relief
sought by the purchaser.” Section 70-1318 states that “[t]he
arbitration board shall be bound by the rules of evidence appli-
cable in district court.” Section 70-1306 provides the default
procedural rules governing the arbitration, stating, in part,
the following:
Except as otherwise provided in sections 70-1301
to 70-1329, the Commercial Arbitration Rules of the
American Arbitration Association, as amended and in
effect March 1, 1977, shall be used to the extent that they
are determined by the arbitration board to be applicable to
the procedures set forth in sections 70-1301 to 70-1329.
The Commercial Arbitration Rules address the ability of a
party to amend its claim, or notice in this case. Rule R-6(b)
provides that “[a]fter the arbitrator is appointed, . . . no new or
different claim may be submitted except with the arbitrator’s
consent.”8 This provision’s grant of authority to the arbitrator
to allow substantive changes to the claims before him or her
necessarily includes the lesser power to permit nonsubstan-
tive changes.
[4] Section 70-1301 et seq. does not otherwise provide for
amendments of a notice or prohibit such. Accordingly, we find
that under § 70-1306, an arbitration board is authorized to per-
mit amendments to a notice, substantive or not, at any time in
the arbitrative proceedings.
At the arbitration board’s first meeting, the board ruled
that the Commercial Arbitration Rules would be inapplicable
regarding the rules of evidence but made no similar ruling
regarding procedural matters. Sidney later moved to file an
amended notice of election to dispute, and the board con-
sidered whether the arbitration rules would permit Sidney to
amend its notice. The arbitration board ultimately found that it
8
American Arbitration Association, Commercial Arbitration Rules and
Mediation Procedures R-6(b) at 13 (Oct. 1, 2013).
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had the power to allow Sidney to amend its notice and ruled
that Sidney could, after concluding that the issues presented in
the amended notice were not a substantial deviation from those
in the original notice.
Because the arbitration board had the authority to allow
Sidney to amend its notice and did allow the amendment, this
assignment of error is without merit.
3. Sidney’s Claims
The board did not consider Sidney’s implied covenant of
good faith and fair dealing claim. In addition, Sidney did not
file a motion for rehearing or a cross-appeal on this issue, so
we do not consider it.
Sidney’s breach of contract claims, in the limited context of
this dispute, depend on showing that MEAN’s breach resulted
in an unfair, unreasonable, or discriminatory rate. The board
determined that there was no gap in the transmission path serv-
ing Sidney, so it ruled that MEAN’s unilateral and unneces-
sary change to the transmission path, in breach of exhibit A,
was unfair to Sidney to the extent that it increased Sidney’s
transmission rate. The board also found that the rate increase
to Sidney was unfair because the SSM required MEAN to bear
that expense and discriminatory because MEAN inconsistently
socialized transmission costs. Upon our de novo review, we
find that the arbitration board erred in its ultimate conclusions
on the breach of contract claims and certain underlying fac-
tual findings.
(a) MEAN’s Change to Transmission
Path Substantially Complied
With Exhibit A
(i) MEAN Could Not Transmit
Energy Across WAPA’s Facilities
Without Contractual Rights
The crux of this claim is whether WAPA’s 115 kV bus con-
stituted a gap in the transmission path serving Sidney. As the
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arbitration board found, if there was no gap, then MEAN’s
action of placing Sidney on LAP NITS was unnecessary.
However, if there was a gap, at least some additional cost was
required for performance of the SSM.
MEAN contends that the arbitration board erred in deter-
mining WAPA’s facilities did not constitute a gap in the
transmission path. It contends that Vojdani testified to telling
MEAN that MEAN could not transmit energy across WAPA’s
115 kV bus without contractual rights to do so and that the
Tri-State Agreement did not provide such rights. Further, it
argues that the fact that WAPA had not charged for the usage
of its facilities in the past did not preclude it from penalizing
for that unreserved use or charging for any future use.
Sidney contends that there was no gap in the transmission
path. It argues that MEAN staff admitted that a complete trans-
mission path could be created with the LAPT SCSW>SCSW
e-tag, which proved that the Tri-State Agreement itself pro-
vided MEAN the right to use WAPA’s facilities and that
no charge was necessary—based on both experts’ testimony.
Sidney also argues that the board found Vojdani’s testimony
was not entitled to weight, because it was based on the incor-
rect information about the Tri-State Agreement provided to him
by Cutsor.
We disagree with Sidney and the arbitration board that
Vojdani’s testimony was not entitled to weight. Vojdani tes-
tified there were two independent bases for placing Sidney
on LAP NITS: (1) MEAN had insufficient firm capacity on
the MBPP line and insufficient total capacity on the Tri-
State facilities to serve Sidney, and (2) MEAN had no right
to transmit energy across WAPA’s 115 kV bus. Vojdani’s
testimony regarding insufficient capacity on the Tri-State
facilities was clearly based on erroneous information from
Cutsor. However, as Cutsor acknowledged, that incorrect
information had no relevance to Vojdani’s determination that
MEAN lacked any right to transmit energy across WAPA’s
bus. Accordingly, we find that Vojdani’s testimony regarding
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such is entitled to significant weight based on his employment
with WAPA.
The communications between MEAN, Tri-State, and WAPA
while troubleshooting the transmission issue and the testimony
of MEAN staff also support a conclusion that the WAPA bus
constituted a gap in the transmission path. Vojdani and MEAN
staff testified that they were unaware of any contractual insuf-
ficiency in the transmission path to Sidney before the grandfa-
thered e-tag was discontinued. After grandfathered e-tags were
discontinued, however, the evidence shows MEAN was unable
to complete a transmission path without relying on PtP or the
LAPT SCSW>SCSW e-tag.
While MEAN initially believed the gap was caused by Tri-
State’s transformer, its understanding evolved as a result of
Tri-State’s being unable to offer any solution to the gap other
than recommending MEAN use the LAPT SCSW>SCSW e-tag,
which Vojdani confirmed would express a contractual right to
use WAPA’s bus. On a conference call to discuss the issue
further, Vojdani informed MEAN that it could not schedule a
complete transmission path to Sidney without using WAPA’s
115 kV bus and that MEAN had no contractual right to do so.
MEAN staff testified that they obtained LAP NITS for Sidney
to acquire the right to transmit energy to Sidney across WAPA’s
115 kV bus.
The board discounted Cutsor’s testimony that the WAPA
bus was the gap in transmission service, because he also testi-
fied that the gap was the Tri-State transformer. This statement,
however, stood in contradiction to his identification of the
WAPA bus as the gap during at least two other portions of his
testimony and his description of the development of his under-
standing regarding the gap.
Sidney argues that Tri-State’s suggestion that MEAN use
the LAPT SCSW>SCSW e-tag was either an acknowledg-
ment that the Tri-State Agreement assigned MEAN a license
to use WAPA’s facilities or that the suggestion itself assigned
MEAN the right to do so. The Tri-State Agreement, however,
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provides MEAN a right to use only those facilities that Tri-
State “owns, operates, and maintains.” There is no language
granting or assigning any right to use WAPA’s facilities at
Sidney West or even mentioning WAPA. Additionally, Tri-
State’s suggestion that MEAN schedule its transmissions on
WAPA’s facilities cannot be construed as a contractual assign-
ment of any right that Tri-State may have had.
Both MEAN’s and Sidney’s experts testified that transmit-
ting energy across a bus at the same voltage level is gener-
ally not charged for as a professional courtesy in the “west”
region of the country. However, neither expert claimed to do
any work or to have specific knowledge of the customs in the
Rocky Mountain region, where the parties and the relevant
division of WAPA are located. Accordingly, regardless of the
accuracy of these statements, they provide no insight regard-
ing WAPA’s policies, as a tariff administrator, concerning the
use of facilities at the same voltage level or WAPA’s practices,
as a transmission service provider, in charging for the use of
its own facilities. In addition, Vojdani explicitly testified that
the transmission across its facilities to serve Sidney at Sidney
West would require a contractual right and compensation to do
so. This testimony was uncontested and more persuasive than
the experts’ generalities.
Sidney also argues that WAPA’s 115 kV bus is not an asset
that WAPA can charge for the use of, because the bus was
not a posted path on OASIS. The arbitration board agreed
that the failure to list the bus as a posted path was incon­
sistent with the claim that WAPA could charge for the use
of the bus. However, MEAN’s expert qualified his testimony
on this subject by stating that registering the available trans-
fer capability is applicable only to line segments. We also
find the limited testimony on this issue contradicted by the
undisputed testimony that WAPA had registered the LAPT
SCSW>SCSW e-tag.
Based on the preceding evidence, we conclude, on our de
novo review, that there was a gap in the transmission path
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serving Sidney’s energy at the WAPA 115 kV bus and that it
was necessary for MEAN to acquire contractual rights for any
future use.
We reject Sidney’s attempt to fault MEAN for acting in
compliance with federal regulations that prohibit the unre-
served use of transmission facilities. While it is undisputed
that MEAN alerted WAPA to its unreserved use of WAPA’s
facilities, MEAN did so in a good faith attempt to obtain a
valid transmission path to serve Sidney. The actions of MEAN
staff were also motivated by the directive of MEAN’s board
of directors, which Sidney is represented upon, implement-
ing a culture of compliance. The evidence shows that MEAN
could have incurred an unreserved-use penalty of approxi-
mately $1.16 million annually for scheduling transmission on
WAPA’s bus.
Further, although WAPA had not charged MEAN for using
its bus for 18 years, Sidney provides no support for its con-
tention that WAPA would have been precluded from charging
MEAN for that unreserved use or any future use. Vojdani testi-
fied that he considered penalizing MEAN for its use of the bus,
but did not because of MEAN’s active and immediate action to
correct the issue once it discovered it, but that any future use
of WAPA facilities required compensation. Additionally, the
evidence shows Sidney was fully informed of the unreserved-
use issue before being placed on LAP NITS.
(ii) LAP NITS Was Lowest
Cost Transmission Path
MEAN argues that LAP NITS was the most cost-effective
solution to create a complete transmission path to Sidney. It
asserts that it diligently considered alternate options but that
each would have cost more and been unable to provide Sidney
with all of its energy at firm capacity.
WAPA’s 115 kV bus constituted a gap in the transmission
service to Sidney, and Sidney’s facilities connected only to
WAPA’s bus, so a solution had to be implemented in order for
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Sidney to continue receiving energy. Accordingly, the parties’
arguments concerning whether the existing transmission path
could have been utilized by simply waiving any firm energy
requirement imposed by the SSM are without merit. Instead,
the limited options available to create a complete transmis-
sion path to Sidney included obtaining rights to WAPA’s bus,
connecting Sidney’s facilities to the facilities of an entity
other than WAPA, or making Sidney self-sufficient regarding
energy generation.
[5] MEAN admitted that it did not consider using Sidney’s
existing generators as an option to serve Sidney’s energy
needs. However, Sidney admitted the energy rate from its
generators was substantially higher than under the rate sched-
ule, there would have been substantial costs to fix and make
its generators compliant with federal regulations, and at full
capacity, the generators could produce only 8 MW of energy.
The evidence does not suggest the cost of fixing the existing
generators or acquiring sufficient additional generators and
facilities to produce the other 8 MW of energy Sidney needs.
There was also no evidence about the costs or ability of Sidney
to build facilities that could connect directly to those owned by
Tri-State or another entity. Sidney had the burden of proving
that the transmission rate charged by MEAN was unfair, unrea-
sonable, or discriminatory.9 Thus, Sidney failed to prove these
to be viable alternatives to LAP NITS.
The record shows that MEAN considered several alternative
options to LAP NITS for serving Sidney. MEAN staff testified
that WAPA would not offer any service less than full tariff
service, that full tariff service with Tri-State would still require
LAP NITS, and that PtP service over WAPA’s bus would have
cost more than LAP NITS and been less reliable. MEAN’s
expert also testified that he examined whether other entities
could have served Sidney’s energy needs and concluded that
9
See In re Application of Northeast Neb. Pub. Power Dist., supra note 3.
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service from any other entity would have been infeasible
because each would have run into at least three points requiring
additional transmission contracts.
Based on the evidence presented, we conclude that LAP
NITS was the lowest cost solution for transmitting energy
to Sidney.
(iii) Sidney Is Responsible
for Costs of Transmission
Rights at Sidney West
MEAN contends that the arbitration board erred in find-
ing the POD was located on the MBPP transmission line at
the fence of Tri-State’s facilities and not on Tri-State’s 230
kV bus. MEAN argues that the language of the SSM defines
a POD as the “outlet of the interconnected transmission sys-
tem,” which cannot logically be located on a transmission
line, and that based on its nature, energy cannot be forced on
a specific transmission line. It also argues that the SSM does
not require it to transmit Sidney’s energy along any specific
path. Instead, it asserts that the POD is relevant only because
it represents the change in the possession of energy and that
the SSM makes Sidney responsible for all transmission costs
after the POD.
Sidney argues that exhibit A depicts the POD at the MBPP
and Tri-State interconnect on the MBPP line, which testimony
established was at the fence around Tri-State’s substation. It
argues that exhibit A ensured MEAN would transmit Sidney’s
energy on the MBPP line at 230 kV and across the Tri-
State transformer. Sidney also argues that the contract requires
MEAN to contract, at its own expense, for all transmission
rights necessary to reach Sidney’s facilities.
[6,7] In interpreting a contract, a court must first deter-
mine, as a matter of law, whether the contract is ambiguous.10
10
Frohberg Elec. Co. v. Grossenburg Implement, 297 Neb. 356, 900 N.W.2d
32 (2017).
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A contract written in clear and unambiguous language is not
subject to interpretation or construction and must be enforced
according to its terms.11 A contract is ambiguous when a
word, phrase, or provision in the contract has, or is suscep-
tible of, at least two reasonable but conflicting interpretations
or meanings.12
The SSM defines the POD as that point “at the outlet of
the interconnected transmission system . . . at which MEAN
is obligated to deliver, and [Sidney] is obligated to accept
delivery of, [energy].” Exhibit A places the symbol indicated
as the POD on the MBPP line prior to a place identified as Tri-
State’s 230 kV/115 kV transformer. The POD is identified as
the “MBPP/Tri-State 230 kV Interconnection.”
The clear and unambiguous meaning of the SSM’s definition
of the POD is that it is the point where the MBPP line ends—
the outlet—and connects to the facilities owned by Tri-State.
Sidney argues that the contract would have specified the 230
kV bus if it had intended for the bus to be the POD, as opposed
to the interconnect which was actually listed. In fact, there is
no 230 kV bus depicted on exhibit A.
The contract is ambiguous regarding where the interconnect
between MBPP and Tri-State is located. While Sidney’s expert
testified that the interconnect is generally located at the fence
line of the substation being entered, he acknowledged that
there was no change of possession depicted on the diagram
in evidence. Nevertheless, it is not necessary to determine
the exact location of the POD, whether it is on the transmis-
sion line or the specific breaker of Tri-State’s 230 kV bus
that the MBPP line connects to, because the contract makes
the POD relevant only regarding the change of ownership of
energy. Therefore, it is sufficient to conclude that the contract
places all of Tri-State’s facilities on Sidney’s side of the point
of delivery.
11
Id.
12
Id.
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The contract contains no provision specifying a generating
source or transmission path required to serve Sidney or any
reason for requiring a specific path. However, the placement
of the POD in exhibit A does constitute a requirement that
MEAN deliver energy to the interconnect of the MBPP and
Tri-State facilities. While MEAN argues that it is impossible
to actually ensure energy would be transmitted on the MBPP
line, there is nothing in the contract that would support devi-
ating from the clear language describing the POD. Instead,
MEAN’s argument, at best, supports an interpretation that the
POD in exhibit A was established for the purely administrative
purpose of allocating ownership of the energy and separation
of costs.
Sidney argues, and the arbitration board decided, that the
SSM requires MEAN to contract for all facilities necessary to
connect to Sidney’s facilities at its own expense.
Section 5.01 of the SSM states: “MEAN shall furnish,
install, lease, contract for and maintain, at its own expense,
all equipment and facilities necessary for connecting elec-
tric lines and facilities to [Sidney’s] facilities at the [POD],
including stepdown transformers where service is supplied at
[Sidney’s] distribution voltage, unless [Sidney] otherwise pro-
vides such facilities.”
Section 5.04 of the SSM, “[Sidney’s] Lines and Equipment,”
states that “[a]ll lines, substations and other electrical facilities
. . . located on [Sidney’s] side of the [POD] shall be furnished,
installed and maintained by [Sidney].”
The SSM also requires Sidney to pay MEAN for energy
in accordance with the provisions of the rate schedule and
states that any additional charges for supplying energy through
an intervening agency’s system, incurred beyond the service
included in the rate schedule, will be paid by MEAN and billed
to Sidney. The rate schedule specifies that “[t]ransmission serv­
ice charges . . . for delivery of [Sidney’s entire energy needs in
excess of its WAPA allocation] shall be billed at the transmis-
sion service provider’s then-current transmission rates.”
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The provisions of the standard form SSM regarding the
POD indicate that the POD is typically located at the facili-
ties owned by the city that MEAN is contracting with. In this
case, however, exhibit A places the POD at a place requiring
at least some contractual rights with intervening transmis-
sion service providers to get the energy to Sidney’s facili-
ties. Because the contract states that MEAN will contract for
the facilities necessary to connect to Sidney’s facilities, the
arbitration board determined that the right to transmit energy
across WAPA’s bus to Sidney’s facilities was MEAN’s respon-
sibility to acquire at its own expense. It was also persuaded
by the fact that the contract did not state that Sidney had any
requirement to contract for facilities in the article discuss-
ing facilities.
However, a complete reading of § 5.01 provides that MEAN
is only responsible for contracting facilities connecting “to
[Sidney’s] facilities at the [POD].” While the SSM only dis-
cusses requirements for Sidney to provide and maintain facili-
ties on its side of the POD, the contract also clearly envisions
circumstances where Sidney will be responsible for reimburs-
ing MEAN for transmission charges incurred to deliver its
energy. The arbitration board’s reading of the contract ignores
both the qualifying language regarding MEAN’s responsibility
to bear the expense for acquiring transmission rights and ren-
ders all language regarding Sidney’s responsibility to pay for
transmission cost superfluous.
The SSM discusses the POD only as a mechanism for shift-
ing ownership of the energy, which also shifts the responsibil-
ity for the transmission. Accordingly, we find that the plain
language of the SSM allows MEAN to contract for trans-
mission rights on Sidney’s side of the POD and pass those
expenses on to Sidney. Therefore, the SSM allowed MEAN to
contract for transmissions right within Sidney West and pass
those expenses to Sidney.
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(iv) Transmission Path With
LAP NITS Is in Substantial
Performance of Exhibit A
MEAN argues that its delivery of energy to Sidney through
LAP NITS is in substantial compliance with the SSM. It
asserts that LAP NITS was required to complete a transmission
path to Sidney and that once Sidney was on LAP NITS, the
Tri-State Agreement was an unnecessary additional expense.
Further, it asserts that the SSM does not require it to deliver
energy on any specific path, so its delivery through a new path
at a higher capacity level and without unnecessary expenses
complies with the SSM.
Sidney argues that exhibit A required MEAN to deliver
its energy through the MBPP line and the Tri-State facilities,
because that path was highly favorable to Sidney, and that
MEAN’s change to the POD caused it to incur the additional
transmission charges. However, its argument is prefaced on its
conclusion that there was no gap in the transmission path.
[8-10] To establish substantial performance under a contract,
any deviations from the contract must be relatively minor and
unimportant.13 Substantial performance is shown when the fol-
lowing circumstances are established by the evidence: (1) The
party made an honest endeavor in good faith to perform its
part of the contract, (2) the results of the endeavor are benefi-
cial to the other party, and (3) such benefits are retained by the
other party.14 Substantial performance is a relative term, and
whether it exists is a question to be determined in each case
with reference to the existing facts and circumstances.15
Based on the facts of this case, we conclude that the spe-
cific transmission line the POD was placed on is irrelevant
13
RM Campbell Indus. v. Midwest Renewable Energy, 294 Neb. 326, 886
N.W.2d 240 (2016).
14
VRT, Inc. v. Dutton-Lainson Co., 247 Neb. 845, 530 N.W.2d 619 (1995).
15
Id.
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to MEAN’s performance under the SSM; instead, the POD is
relevant only to the extent that, as we stated above, it places
all financial risk for transmitting energy through Sidney West
on Sidney. Thus, we need not consider where the new POD is
located specifically, beyond concluding its placement on the
interconnect of a transmission line to a facility in Sidney West
would be of the same effect.
Sidney elicited extensive testimony regarding the extremely
low transmission rate enabled by the transmission path memo-
rialized in exhibit A and Sidney’s belief that exhibit A was
an agreement with MEAN that ensured a continuation of this
low rate. However, the SSM does not protect Sidney from any
changes to its transmission path from the third parties who own
facilities in Sidney West. Instead, unlike the “Service Schedule
J,” a previous supplemental agreement which placed all facili-
ties in Sidney West on MEAN’s side of the POD and required
MEAN to maintain the Tri-State Agreement, the SSM placed
the Tri-State facility on Sidney’s side of the POD. This change
required Sidney to accept all financial risks for changes with
the Tri-State Agreement.
Before the SSM was executed, Cutsor specifically informed
Sidney that the Tri-State Agreement was terminable at will and
that the consequence of termination by Tri-State would be a
$300,000 increase in transmission costs. While aware of this
issue, Sidney chose to not continue with the previous arrange-
ment which placed all facilities in Sidney West on MEAN’s
side of the POD and required MEAN to maintain the Tri-State
Agreement. By executing the SSM, Sidney accepted the full
financial burden of the ever-looming possibility that Tri-State
could terminate its favorable transmission path. While the
expense for transmitting energy across WAPA facilities was
unforeseen, it was another risk for which Sidney accepted
financial responsibility.
As we concluded above, Sidney’s facilities connect only to
WAPA’s 115 kV bus, which created a gap in the transmission
path to Sidney, and MEAN billed Sidney for the costs of the
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lowest cost option to close the gap, placing Sidney on LAP
NITS, pursuant to the SSM. Under exhibit A, Sidney had the
financial risk for an issue with WAPA’s facilities and had to
incur this expense. After placing Sidney on LAP NITS, MEAN
was able to continue transmitting energy to Sidney as required
by exhibit A, if Sidney waived any firm capacity requirements.
Thus, Sidney’s increased transmission costs did not result from
a change in the transmission path but, instead, were incurred
because it accepted the financial risk for WAPA’s facilities
within Sidney West.
Only after Sidney was scheduled to incur the costs to close
the gap on its side of the POD with LAP NITS did MEAN
decide to change the transmission path required in exhibit A.
This change offered substantial benefits to Sidney, which it has
since retained. First, Sidney saves the monthly costs of the Tri-
State Agreement, which provided rights that were unnecessar-
ily duplicative to transmission rights provided by LAP NITS.
Second, Sidney receives all of its energy at firm capacity and
has additional protection against curtailment, because WAPA
has several lines connecting to Sidney West. Third, LAP NITS
includes generation and transmission resources to Sidney,
which allows MEAN to redirect LRS and MBPP resources to
lower energy rates for all members.
Because Sidney’s increased transmission costs resulted
solely from its agreement to bear the financial risk for trans-
mission right changes in Sidney West and because MEAN’s
decision to use a new transmission path only benefited Sidney
and MEAN, we conclude its decision to change the transmis-
sion path was a good faith effort to perform its duty under the
SSM. Thus, we hold that MEAN substantially complied with
the SSM and actually provided Sidney benefits by changing
the POD.
While Sidney argues, and the board concluded, that MEAN
acted in bad faith by unilaterally changing the POD, the evi-
dence presented shows that MEAN’s unilateral action to place
Sidney on LAP NITS was required because of the use of the
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WAPA 115 kV bus. We are not unsympathetic to the conse-
quences of the parties’ mistake of fact regarding the transmis-
sion path and the fact that MEAN may have been able to better
communicate the issue to Sidney. However, the record shows
numerous communications from MEAN to Sidney from July
through October 2014, in which MEAN communicated the
issue with the transmission path, how it arose, a recommenda-
tion for the best solution, justification for its recommendation,
the consequences of inaction, and the results of obtaining
LAP NITS.
Sidney staff responded that they would make their own
independent investigations, but the record does not show that
Sidney did so. Further, Sidney refused to accept the changes on
the schedule WAPA required to avoid unreserved-use penalties,
which MEAN complied with and seemingly convinced WAPA
to accept. While Sidney staff testified that MEAN had provided
them with no alternatives, the record does not support that tes-
timony. Instead, MEAN exercised its right to incur additional
transmission expenses on Sidney’s behalf only after Sidney had
made no suggestions for alternative options and expressed an
unwillingness to accept that a material change in circumstances
had occurred.
We conclude that Sidney’s rate dispute based on its allega-
tion that MEAN changed the POD in breach of the SSM is
without merit. Thus, the arbitration board erred in finding that
MEAN breached exhibit A of the SSM to Sidney’s detriment.
(b) MEAN Did Not Breach SSM by
Charging Unfair, Unreasonable, or
Discriminatory Transmission Rate
The arbitration board made two findings that supported
a conclusion that MEAN breached the SSM by charging an
unfair, unreasonable, or discriminatory transmission rate: (1)
The contract required MEAN to acquire any transmission rights
necessary to connect to Sidney’s facilities at its own expense,
and (2) MEAN inconsistently passed through transmission
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charges. As discussed above, the plain language of the SSM
made Sidney responsible for all transmission costs on its side
of the POD. Therefore, the arbitration board erred in conclud-
ing that MEAN was required to pay the transmission costs
incurred from LAP NITS.
MEAN argues that it cannot socialize the transmission costs
incurred solely to transmit energy to Sidney, because doing
such would result in discriminatory charges to its other mem-
bers. It argues that the charges passed through to Sidney were
fair because they are incurred exclusively for Sidney’s benefit,
reasonable because they are based on the number of MW trans-
mitted to Sidney, and nondiscriminatory both because they are
calculated the same by WAPA and MEAN as the charges for
every member on LAP NITS and because they were consistent
with the average transmission cost ratio for all MEAN mem-
bers on LAP NITS.
Sidney argues that MEAN should have socialized the cost
of its LAP NITS, because MEAN has socialized other commu-
nities’ transmission costs and MEAN is now benefiting from
Sidney’s no longer using the LRS and MBPP resources. It also
argues that the transmission costs MEAN charges it is discrimi-
natory because its transmission cost ratio had been 1 percent
but is now 10 percent of total energy costs.
The arbitration board cited MEAN’s socialization of the
LRS and MBPP resource costs, the Southwestern Power Pool
settlement costs, and the PtP costs for serving Sidney’s trans-
mission needs after the 2013 e-tag changes to conclude that
MEAN could have socialized the increased transmission costs
to Sidney. However, we find that each of these circumstances is
distinguishable from the LAP NITS expenses incurred to solely
benefit Sidney.
First, the LRS and MBPP resources were obtained for
the benefit of all MEAN members, not just Sidney. MEAN
obtained about 28 MW of energy from LRS in the early
1980’s. The Electrical Resources Pooling Agreement explic-
itly authorizes MEAN to purchase generation capacity, upon
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approval by the member communities, for the benefit of mem-
bers. Sidney and the arbitration board seem to presume that
because some of these resources served Sidney for 18 years,
Sidney is entitled to them, or that they were acquired solely for
Sidney’s benefit. The board of directors approved the acquisi-
tion of these resources and the socialization of their costs to
obtain lower energy rates for all of the member communities,
so socializing the costs to obtain them across all members was
nondiscriminatory.
Second, the costs of the Southwestern Power Pool settle-
ment and PtP used to serve Sidney for 10 months represent
expenses incurred because of the actions of MEAN staff, so it
is reasonable to socialize them as an organizational expense.
While Sidney might not have directly benefited from the
unreserved use that led to the Southwestern Power Pool settle-
ment, MEAN staff were responsible for the scheduling of that
unreserved use. Accordingly, this expense may be traced to the
actions of MEAN as an organization, just as an unreserved-
use penalty for the use of WAPA’s 115 kV bus for Sidney
could have been. In recognition of this organizational risk,
the board of directors passed the culture-of-compliance direc-
tive to help ensure that the organization would not again incur
such expenses.
Additionally, the PtP costs were seemingly incurred because
MEAN staff did not act timely in addressing the issue with
Sidney’s transmission path. MEAN was unable to e-tag a
complete path to Sidney for nearly 20 months. It took MEAN
staff almost 11 months to even determine what the problem
was and another almost 5 months to start working with Sidney
on a solution. The record does not establish how MEAN’s
transmitting energy to Sidney for 10 of the 20 months but
the costs of the PtP for the other 10 months, while serving
Sidney exclusively, is attributable to an organization expense
of MEAN’s insufficient response to the problem. Despite the
arbitration board’s findings, the evidence shows that the PtP
was acquired to sell excess organizational energy to lower
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energy rates. The fact that the PtP benefited Sidney exclu-
sively for a justifiable reason did not entitle Sidney to exclu-
sively benefit from the service for the remainder of the SSM.
Therefore, the arbitration board erred in ruling that MEAN
could have socialized the costs for transmitting energy to
Sidney on LAP NITS.
The evidence also shows that the costs of LAP NITS was
fair, reasonable, and nondiscriminatory. Sidney is paying for
transmission service that solely benefits Sidney and is neces-
sary to transmit Sidney’s energy. As MEAN argues, the fact
that Sidney had benefited from low transmission costs because
of its location historically does not entitle it to such benefit in
perpetuity. The evidence shows that WAPA charges all custom-
ers based on MW used, not distance traveled. Accordingly,
the charges were reasonably based on MEAN’s usage of LAP
NITS and nondiscriminatory because all LAP NITS customers
are charged under the same formula.
4. We Do Not Consider MEAN’s
R emaining Assignments of Error
The arbitration board and the parties considered exhibit
100 relevant to establishing whether (1) Tri-State had a right
to use WAPA’s 115 kV bus and (2) WAPA had a right to use
Tri-State’s transformer to transmit energy to serve Sidney.
Regardless of whether or not Tri-State had a right to use
WAPA’s bus, there was no evidence that it ever assigned such
a right to MEAN for transmitting Sidney’s energy. Further,
we concluded that MEAN has substantially complied with
the SSM even if it transmits Sidney’s energy from the Archer
switchyard to WAPA’s 115 kV bus directly without going
through Tri-State’s facilities. Accordingly, even if exhibit 100
was inadmissible, it had no relevance to our decision.
MEAN’s remaining assignments of error concern the rem-
edy ordered by the arbitration board. Because we hold that the
arbitration board erred by ruling in favor of Sidney, we need
not address the remaining assignments of error.
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[11] An appellate court is not obligated to engage in an
analysis which is not needed to adjudicate the controversy
before it.16
V. CONCLUSION
We conclude that Sidney’s increased transmission rate was
incurred due to its unauthorized use of WAPA’s facilities.
Sidney’s current transmission costs are approximately 10 per-
cent of Sidney’s total energy costs, which is the same average
transmission cost ratio for all of MEAN’s members. We further
conclude that MEAN’s actions to gain authorized access to
WAPA’s facilities, in order to ensure stable energy to Sidney,
substantially complied with the requirements of the SSM and
that MEAN properly passed the increased transmission rate
to Sidney, pursuant to the terms of the SSM. Therefore, we
reverse the decision of the arbitration board.
R eversed.
Wright and K elch, JJ., not participating.
16
Eadie v. Leise Properties, 300 Neb. 141, 912 N.W.2d 715 (2018).