Complaint As Filed 092809 (00247452)

Case: 7:09-cv-05008

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Date Filed: 09/28/2009

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEBRASKA

Case Number: CV-09-5008 CHIMNEY ROCK PUBLIC POWER DISTRICT, MIDWEST ELECTRIC COOPERATIVE CORPORATION, NORTHWEST RURAL PUBLIC POWER DISTRICT, PANHANDLE RURAL ELECTRIC MEMBERSHIP ASSOCIATION, and ROOSEVELT PUBLIC POWER DISTRICT Plaintiffs, v. TRI-STATE GENERATION AND TRANSMISSION ASSOCIATION, INC, HAROLD “HUB” THOMPSON, BRIAN SCHLAGEL, JAMES “JIMMY” BASON, JACK HAMMOND, TOM HOLGERSON, THAINE MICHIE, CHARLES “JIM” SOEHNER Defendants.

COMPLAINT AND DEMAND FOR JURY TRIAL

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Plaintiffs Chimney Rock Public Power District (“Chimney Rock”), Midwest Electric Cooperative Corporation (“Midwest”), Northwest Rural Public Power District (“Northwest”), Panhandle Rural Electric Membership Association (“Panhandle”) and Roosevelt Public Power District (“Roosevelt”) (collectively, the “Nebraska Plaintiffs” or “Plaintiffs”) file this Complaint against Defendants Tri-State Generation and Transmission Association, Inc. (“Tri-State”), Harold “Hub” Thompson, Brian Schlagel, James “Jimmy” Bason, Jack Hammond, Tom Holgerson, Thaine Michie and Charles “Jim” Soehner, and in support allege as follows: NATURE OF THE ACTION AND BACKGROUND 1.

The electric power supply and distribution industry exhibits strong natural

monopoly characteristics.

Different corporate forms and regulatory institutions have been

adopted to constrain monopoly behaviors: publicly-owned power districts or generation entities, closely-regulated investor-owned utilities, and cooperative associations. In theory, public power is constrained through political accountability; investor-owned utilities are regulated by state public utility commissions and the Federal Energy Regulatory Commission (“FERC”); and cooperatives are self-regulating through their members. 2.

This Complaint arises because the monopoly power possessed by an electrical

generation and transmission cooperative, Tri-State, is ineffectively restrained as against the Nebraska Plaintiffs here. In effect, Tri-State acts as an unregulated monopoly against Plaintiffs, and the self-regulating nature of the cooperative has broken down because a majority of Tri-State members can and do effectively exercise monopoly power against the Nebraska Plaintiff minority. Neither the Nebraska Public Service Commission, FERC, nor the Rural Utilities Service (“RUS”) have regulatory power over Tri-State to control the rates, terms and conditions

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it imposes on Nebraska Plaintiffs. With no effective regulator of the Tri-State monopoly, Nebraska Plaintiffs must turn to this Complaint for relief from the unrestrained monopoly. 3.

Plaintiffs are each rural Nebraska non-profit electrical distribution cooperatives,

public power districts or electrical membership associations that provide electricity to their respective member-consumers in Nebraska. While they may have slightly different corporate structures, Plaintiffs share the common attributes of being rural electrical distribution entities that are owned or governed by their respective end-user customers. 4.

Plaintiffs are also each members and owners of Defendant Tri-State, which is a

Generation and Transmission Association (“G&T”). Tri-State supplies Plaintiffs with electricity through contractual arrangements with other electric suppliers and is thus effectively a “paper G&T” as to Plaintiffs. Tri-State is contractually responsible to provide all of the power that each Plaintiff may require to serve its customers, with one nominal exception that allows each Plaintiff to provide up to five percent of its energy needs with renewable energy or distributed generation. This case arises, most fundamentally, because Tri-State significantly overcharges Plaintiffs for the power that Plaintiffs are required to purchase per these contracts. 5.

The power that Tri-State supplies to each Plaintiff is actually generated by one of

two entities: The Western Area Power Administration (“WAPA”), a United States governmental entity that provides cost-based hydroelectric power, and Basin Electric Power Cooperative (“Basin”), a North Dakota-based G&T. Each Plaintiff in turn distributes the power that Tri-State physically transmits to it from these two supply sources to its end-user customers within the state of Nebraska.

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Defendant Harold “Hub” Thompson is a Tri-State Director, the Chairman of the

Tri-State Board of Directors (“Chairman”), and the President of Tri-State. He has served as Chairman and President of Tri-State for more than 25 years. 7.

Defendants Brian Schlagel, James “Jimmy” Bason, Jack Hammond, Tom

Holgerson, Thaine Michie, and Charles “Jim” Soehner, along with Defendant Thompson, comprise the Tri-State “Nebraska Withdrawal Committee,” as explained in more detail herein. Each of these Defendants is also a member of the Tri-State Board of Directors (“Board”). 8.

Beyond their membership in Tri-State, each Plaintiff has entered into one or more

wholesale power supply contracts with Tri-State.

These contracts are “All Requirements”

contracts, whereby Tri-State provides all power required by each Plaintiff, subject to the limited five percent exception described above. This power comes from only two sources, WAPA and Basin, as described above. Tri-State also sets the rates for this power, which each Plaintiff is required to purchase, and pay for at the rates set by Tri-State, pursuant to these contracts. 9.

For many years now, Tri-State has set rates, and assessed charges for the power it

provides to Plaintiffs, that recover revenues that far exceed Tri-State’s actual cost to provide this power to Plaintiffs. 10.

For many years now, Tri-State has recovered revenues from Plaintiffs through

these rates that, collectively, are nearly double what it costs Tri-State to actually acquire the power that it provides to Plaintiffs. 11.

This action, and the claims asserted herein, fundamentally stem from Tri-State’s

persistent and ongoing exploitation of Plaintiffs in the inequitable rates that Tri-State charges for the power that it supplies to Plaintiffs. Tri-State holds Plaintiffs captive to these excessive rates

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in violation of its All Requirements contracts with each of the Plaintiffs, and in violation of the fundamental principle of mutual benefit underlying the purported cooperative nature of Tri-State. Plaintiffs no longer enjoy the mutual benefit that led them each to come together with other rural distribution entities to form Tri-State in 1952.

Rather, Plaintiffs are now captive in an

increasingly intolerable situation that Tri-State simply refuses to acknowledge, let alone correct. 12.

Plaintiffs have repeatedly asked Tri-State to evaluate the rates that it charges for

power provided to Plaintiffs, and repeatedly asked that Tri-State develop cost-based rates for Plaintiffs to mitigate this inequity, to no avail. Tri-State persists in imposing on Plaintiffs rates that significantly over-recover Tri-State’s actual costs to provide power to Plaintiffs. Plaintiffs have asked for relief from this situation in virtually every manner conceivable, both formal and informal, in an effort to resolve this situation “the cooperative way.” Tri-State has tabled, refused or rejected every request to take action on Plaintiffs’ requests, and it is now clear that no relief will ever be forthcoming. 13. governance.

Tri-State is not shy about extolling the virtues of its form of democratic For instance, in comments recently filed with the Colorado Public Utilities

Commission (“PUC”), Tri-State observed that: “Tri-State’s resource planning, wholesale rates and other business policies are regulated by a 44-person Board of Directors – one director representing each of Tri-State’s 44 member cooperatives and public power districts – that is democratically elected by rural electric customers. Local, democratic control is a fundamental principle of Tri-state’s non-profit operations, and Tri-State’s Board is directly accountable to its

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members and in turn to the members’ retail member-customers.”1 14.

Tri-State’s notions of democratic governance and direct accountability, however,

have become an illusion for Plaintiffs. More importantly, they have become an illusion for Plaintiffs’ member-consumers and the rural communities in which they live, which depend on a reasonably priced supply of power to remain economically viable. Plaintiffs, being five in number, elect only five members of the 44-member Tri-State Board, and Plaintiffs’ many attempts to bring this problem to the Board’s attention have each been rejected. 15.

As a consequence, and as a means of last resort after trying to work through Tri-

State to find a solution to this problem, Plaintiffs finally requested that Tri-State specify equitable terms and conditions to allow Plaintiffs to withdraw from Tri-State. Article I, Section 3(a) of Tri-State’s Bylaws expressly permits a member to withdraw from Tri-State on such equitable terms and conditions as established by the Board of Directors, provided that a member meet all of its contractual obligations to Tri-State. This request, too, has been to no avail. 16.

Plaintiffs first formally requested that Tri-State provide such equitable terms and

conditions to allow Plaintiffs to withdraw from Tri-State in February 2009. On February 13, 2009, Plaintiffs submitted a formal Joint Resolution to the Tri-State Board, asking that Tri-State agree to mediate the issue of rates for the Plaintiff member systems, or to appoint a committee to develop an equitable, cost-based rate for the Plaintiff systems. In the alternative, this Joint Resolution requested that, consistent with the Bylaws, the Tri-State Board determine equitable terms and conditions to allow Plaintiffs to withdraw from Tri-State. The February 13, 2009 Joint

1

Initial Comments of Tri-State Generation and Transmission Association, Inc., Colorado PUC, In the Matter of Amendments to the Electric Resource Planning Rules, 4 CCR 723-3, Rules 3600 – 3615, Docket No. 09I-041E, at 5 (filed Apr. 6, 2009).

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Resolution is attached as Exhibit A. 17.

In a March 3, 2009 Tri-State Board meeting, the Board considered and voted

down the first part of the February 13, 2009 Joint Resolution, requesting mediation or the appointment of a committee to develop an equitable, cost-based rate for the Plaintiff member systems. Wayne Cobb, who is the Tri-State director from Plaintiff Northwest, then moved that the Tri-State Board take action on the alternative request in the Joint Resolution, which would direct the Tri-State Board to determine equitable terms and conditions to allow the Plaintiff members to withdraw from Tri-State. 18.

In response, Defendant Hub Thompson offered that, in his opinion, Mr. Cobb

should carefully consider whether he really wanted to make this motion because Mr. Cobb was, in Mr. Thompson’s opinion, subject to a conflict of interest. Mr. Thompson further intimated to the entire Board of Directors that an individual director could be breaching his fiduciary duty to Tri-State if he voted in favor of the motion to direct the Board of Directors to specify equitable withdrawal terms and conditions for Plaintiffs. In particular, Mr. Thompson went so far as to suggest to the directors who were just about to vote on the resolution that Tri-State might sue those directors who voted in favor of the resolution, observing that, while he (Mr. Thompson) might not sue them, Kent Singer (Tri-State’s attorney) might. 19.

Following Mr. Thompson’s not-so-thinly veiled threats, the Board voted and,

perhaps not surprisingly, rejected the second aspect of the Joint Resolution, notwithstanding the fact that Plaintiffs have an absolute right to request withdrawal terms pursuant to Tri-State’s Bylaws.

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Plaintiffs followed with an April 10, 2009 letter to Tri-State, reiterating that

Plaintiffs had a right to request withdrawal terms from Tri-State pursuant to Tri-State’s Bylaws. In Tri-State’s May 2009 Board meeting, Defendant Thompson acknowledged the requirement to have the Tri-State Board determine equitable terms and conditions to allow Plaintiffs to withdraw from Tri-State. Beyond this, though, the Tri-State Board took no action on this item. 21.

In a July 6, 2009 Memorandum from Defendant Thompson to the Tri-State Board,

Mr. Thompson indicated that he had constituted a “Nebraska Withdrawal Committee.” The Nebraska Withdrawal Committee was not determined by the Tri-State Board, and indeed, the Board did not even have input on this issue. Rather, Mr. Thompson unilaterally determined who would serve on this committee and merely reported this to the Board. 22.

Defendants Brian Schlagel, James “Jimmy” Bason, Jack Hammond, Tom

Holgerson, Thaine Michie, and Charles “Jim” Soehner, along with Mr. Thompson, comprised the Nebraska Withdrawal Committee, as solely determined by Mr. Thompson. 23.

These Defendants accordingly all received a delegation of the Tri-State Board’s

responsibility, and fiduciary obligation, to determine equitable terms and conditions for the withdrawal of the Plaintiff systems from Tri-State, per Article I, Section 3(a) of Tri-State’s Bylaws. 24.

None of the Tri-State directors from the Plaintiff systems were asked to serve on

the Nebraska Withdrawal Committee, and none of them were named to the committee. 25.

Further, no one from the Plaintiff systems was permitted to address the Nebraska

Withdrawal Committee at any time regarding any of the issues or rate inequities that led the Plaintiff systems to ask the Tri-State Board of Directors for withdrawal terms.

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Tri-State finally took up the issue of withdrawal terms for the Plaintiff systems at

its September 1, 2009 Board meeting. Tri-State did so, however, in an executive session of the Board from which the directors from the Plaintiff member systems were improperly barred from participating. 27.

Specifically, Mr. Thompson made clear to the directors of the Plaintiff systems

that they would not be allowed to participate in the Board’s executive session where the Board would consider the recommendation of the Nebraska Withdrawal Committee. Mr. Thompson stated that the directors from the Plaintiff systems were required to leave. When one of these directors asked what would happen if the directors from the Plaintiff systems did not leave, Mr. Thompson responded that, in that event, he would simply constitute a “committee of 39” and deal with the issue in that committee. In other words, he would comprise a committee composed of directors from all Tri-State systems except the Plaintiff systems to take up the recommendation of the Nebraska Withdrawal Committee. 28.

As a result, Plaintiffs had no representation whatsoever in the Board’s

consideration and apparent adoption, without change, of the withdrawal terms recommended by the Nebraska Withdrawal Committee, including a “buy-out” figure for each Plaintiff system. Defendant Thompson would not allow Plaintiff’s directors to participate in the Board’s vote on this issue, or even to participate in the discussion of this issue before the Board. Accordingly, Plaintiffs’ interests were utterly unrepresented as the Board considered and apparently adopted the recommendation of the Nebraska Withdrawal Committee. 29.

Further, neither Plaintiffs, nor Plaintiffs’ individual representative directors on the

Board, were given any advance notice that they would be excluded from the vote and excluded

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even from the deliberations on the issue relating to withdrawal terms for the Plaintiff systems. 30.

This exclusion of Plaintiffs’ directors from the Board’s executive session dealing

with withdrawal terms for the Plaintiff systems was inappropriate and impermissible under Colorado law, Tri-State’s Articles of Incorporation, and Tri-State’s Bylaws. There was no basis to exclude these directors from the Board’s executive session relating to this issue. Because the full Board did not take valid action on this item, the Nebraska Withdrawal Committee has effectively specified withdrawal terms to Plaintiffs on behalf of Tri-State. 31.

When the executive session concluded the directors from the Plaintiff systems

were recalled to the Board room, and given “buy-out packets” expressing the terms and conditions upon which each Plaintiff system would be allowed to withdraw from Tri-State. 32.

There was no Board discussion whatsoever as to how the buy-out figures and

other withdrawal conditions presented to each Plaintiff system was determined. 33.

There was no Board discussion whatsoever as to whether the buy-out figures and

other conditions presented to each Plaintiff system in these packets represented the recommendation of the Nebraska Withdrawal Committee, without change. 34.

Because the Plaintiffs’ directors were improperly excluded from the Tri-State

Board’s executive session dealing with withdrawal terms for Plaintiffs, Plaintiffs do not know what issues were raised or discussed, whether other directors had questions regarding the proposed withdrawal terms, or even whether any directors questioned why the Plaintiff systems were requesting withdrawal terms. 35.

All Plaintiffs know for certain is that, per the minutes, this executive session

lasted for approximately two hours, and that the Board (less, of course, any vote from Plaintiffs’

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excluded directors) voted in favor of approving the withdrawal and buy-out terms ultimately presented to each Plaintiff. 36.

As Plaintiffs expected would be the case based on their past efforts to seek relief

from the inequitable rates that Tri-State charges them for power, the buy-out figure for each Plaintiff system was so large, and the other conditions of the buy-out package so unreasonable, as to ensure that withdrawing on those terms and conditions would not be a viable option for any of the Plaintiffs.

Plaintiff Northwest, for example, would be required to pay Tri-State

approximately $15,000 per end-user customer under Tri-State’s proffered terms and conditions. The withdrawal package offered by Tri-State, by design, will therefore continue to hold Plaintiffs captive to Tri-State, and the inequitable rates that Tri-State continues to assess on each Plaintiff system. 37.

As such, these terms and conditions also do not satisfy the requirement that they

be “equitable” as prescribed by Tri-State’s Bylaws. THE NATURE OF THE RATE DISPUTE 38.

For the past several years the revenues that Plaintiffs contribute to Tri-State have

been almost double Tri-State’s cost to acquire that power from WAPA and Basin.

Even

allowing for the cost to transmit that power to each of the Plaintiffs, along with a reasonable allocation of overhead expense and a reasonable margin contribution, these rates, and the revenues they have recovered, are grossly unfair and inequitable to Plaintiffs. 39.

The net result is that these five Plaintiffs are wrongly made to subsidize other

members of Tri-State.

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Plaintiffs, all charter members of Tri-State, came together with other rural electric

distribution cooperatives and districts to form Tri-State in 1952, for the mutual benefit of all members. That benefit is no longer mutual. 41.

Far from deriving any benefit from their membership in Tri-State, Plaintiffs are

made to pay rates that are inequitably set, and that they are powerless to change despite their repeated protestations, given their minority position in Tri-State. Plaintiffs’ end-user customers, in turn—rural Nebraskans who purchase power from Plaintiffs—are equally harmed by this situation. 42.

Tri-State has breached its All Requirements contracts with Plaintiffs by setting

rates for Plaintiffs without any regard to the actual cost to serve Plaintiffs, by refusing to remedy this situation despite repeated requests from Plaintiffs, and by failing to provide to Plaintiffs equitable terms and conditions to allow Plaintiffs to withdraw from Tri-State. Tri-State has acted in bad faith in setting rates for Plaintiffs under these All Requirements contracts, and has not dealt fairly with Plaintiffs in its obligation to set equitable rates under these contracts. 43.

Tri-State’s actions have harmed Plaintiffs, along with Plaintiffs’ customers, who

are made to pay much more than a reasonably competitive, cost-based rate for the power that they have no choice but to purchase. The uncompetitive, non-cost-based rates that Tri-State charges to Plaintiffs have, in turn, made it impossible for Plaintiffs to be competitive in attracting new customers, or new electrical “load” for their systems. 44.

Plaintiffs have, in fact, lost the opportunity to add increased electrical load to their

systems as a direct consequence of the non cost-based rates that Tri-State assesses Plaintiffs for power.

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Tri-State would clearly prefer to hold Plaintiffs captive in this situation as long as

possible, but with no other option to remedy this oppression, Plaintiffs now bring this Complaint. JURISDICTION AND VENUE 46.

Because Defendant and each of the Plaintiffs are citizens of diverse states, and

because the matter in controversy as to each Plaintiff exceeds $75,000.00, exclusive of interest and costs, this Court has jurisdiction over this action pursuant to 28 U.S.C. §1332. 47.

Venue is proper under 28 U.S.C. § 1391(a)(2), as a substantial part of the events

and omissions giving rise to the claims in this Complaint occurred in this judicial district. This matter concerns charges for power contractually supplied by Tri-State to each of the Plaintiffs. Tri-State transacts business within Nebraska by supplying power to each of the Plaintiffs in Nebraska, and each Plaintiff in turn provides this power to its respective customers, each of which are end-user consumers of this power within the State of Nebraska. Further, this power was supplied by Tri-State to each of the Plaintiffs over transmission lines located within the State of Nebraska. This dispute also relates to the buy-out terms and conditions determined by the members of the “Nebraska Withdrawal Committee.”

The terms and conditions on which

Plaintiffs would be allowed to withdraw from Tri-State directly impacts the financial viability of Plaintiffs, which are all Nebraska electrical distribution entities, and also directly impacts each of the Plaintiff’s Nebraska end-user customers. PARTIES 48.

Plaintiff Chimney Rock Public Power District (“Chimney Rock”) is a non-profit

political subdivision of the State of Nebraska with its principal place of business in Bayard, Nebraska. Chimney Rock was created in 1935. Chimney Rock is a publicly-owned rural public

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power district that supplies power to roughly 1,500 customers and 3,000 meters within its service territory, which includes northwest Morrill County, Nebraska, western Scottsbluff County, Nebraska, and small parts of Banner, Sioux and Box Butte Counties, Nebraska. Nearly all of Chimney Rock’s service territory, which covers nearly 1,200 square miles, is utilized for agriculture, either cattle grazing or cultivated and irrigated for row crop production. 49.

Plaintiff Midwest Electric Cooperative Corporation (“Midwest”) is a non-profit

Nebraska corporation with its principal place of business in Grant, Nebraska. Midwest was founded in 1945 and its first lines were energized in 1947. Today, Midwest provides service to five Nebraska counties over 2,800 miles of distribution lines with a meter density of 2.1 meters per mile.

Midwest provides service to approximately 2,200 customers.

Revenues from

residential meters account for approximately 16 percent of Midwest’s sales, while agriculture accounts for nearly 75 percent of Midwest’s sales. The largest community that Midwest serves is Wallace, Nebraska, with a population of approximately 350 people. 50.

Plaintiff Northwest Rural Public Power District (“Northwest”) is a non-profit

political subdivision of the State of Nebraska with its principal place of business in Hay Springs, Nebraska. While Northwest’s headquarters building is located in Hay Springs, it also has an outpost located in Crawford, Nebraska. Northwest is a rural public power district that supplies power to roughly 1,600 customers and 3,100 meters over 2,200 miles of line within its service territory in the northwest corner of the Nebraska panhandle, which includes the rural portions of Dawes County, the northern half of Sheridan County, and the northwest edge of Cherry County. Northwest was first organized as Niobrara Electric in 1947 and was reorganized as Northwest in 1950.

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Plaintiff Panhandle Rural Electric Membership Association (“Panhandle”) is a

non-profit Nebraska corporation with its principal place of business in Alliance, Nebraska. Panhandle was incorporated in 1945 “to provide electric service to every farm and ranch within [its] area” and its first customers were connected in 1948. Panhandle is a rural electric membership association that supplies power to nearly 1,600 members and 3,700 meters within its service territory, which includes over 2,700 miles of line touching eleven rural Nebraska counties. Approximately 59% of Panhandle’s revenue comes from agriculture and 37% comes from residential and small commercial services. 52.

Plaintiff Roosevelt Public Power District (“Roosevelt”) is a non-profit political

subdivision of the State of Nebraska with its principal place of business in Mitchell, Nebraska. Roosevelt is a rural public power district that supplies power to roughly 3,300 customers within its service territory, which includes portions of three western Nebraska counties. Roosevelt was created as a result of the Rural Electrification Act of 1936. Approximately 50 percent of Roosevelt’s customers are in residential areas, 21 percent are classified as irrigation customers, 19 percent are industrial customers and 10 percent are commercial customers. 53.

Defendant Tri-State Generation and Transmission Association, Inc. (“Tri-State”)

is a non-profit Colorado corporation with its principal place of business in Westminster, Colorado. Specifically, Tri-State is a Colorado “cooperative association” organized under Title VII, Article 55 of Colorado law (Section 7-55-101, C.R.S. et seq. (2008)). Each Plaintiff is a member of Tri-State, and Tri-State provides power to each of the Plaintiffs pursuant to separate contracts with each of the Plaintiffs.

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Defendant Harold “Hub” Thompson is the Chairman of the Tri-State Board of

Directors and also the President of Tri-State. Defendant Thompson is also the Tri-State Director representing Tri-State member High Plains Power, Inc. (“High Plains”), which is based in Riverton, Wyoming.

Defendant Thompson is also a member of the Nebraska Withdrawal

Committee. Defendant Thompson is a citizen and resident of the State of Wyoming, with his principal place of residence in Jeffrey City, Wyoming. 55.

Defendant Brian Schlagel is the Tri-State Director representing Tri-State member

Morgan County Rural Electric Association, based in Fort Morgan, Colorado.

Defendant

Schlagel is also a member of the Nebraska Withdrawal Committee. Defendant Schlagel is a citizen and resident of the State of Colorado, with his principal place of residence in Strasburg, Colorado. 56.

Defendant James “Jimmy” Bason is the Tri-State Director representing Tri-State

member Sierra Electric Cooperative, Inc., based in Elephant Butte, New Mexico. Defendant Bason is also a member of the Nebraska Withdrawal Committee. Defendant Bason is a citizen and resident of the State of New Mexico, with his principal place of residence in Hillsboro, New Mexico. 57.

Defendant Jack Hammond is the Tri-State Director representing Tri-State member

Niobrara Electric Association, Inc., based in Lusk, Wyoming. Defendant Hammond is also a member of the Nebraska Withdrawal Committee. Defendant Hammond is a citizen and resident of the State of Wyoming, with his principal place of residence in Lance Creek, Wyoming. 58.

Defendant Tom Holgerson is the Tri-State Director representing Tri-State

member San Isabel Electric Association, Inc., based in Pueblo, Colorado. Defendant Holgerson

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is also a member of the Nebraska Withdrawal Committee. Defendant Holgerson is a citizen and resident of the State of Colorado, with his principal place of residence in Rye, Colorado. 59.

Defendant Thaine Michie is the Tri-State Director representing Tri-State member

Poudre Valley Rural Electric Association, based in Fort Collins, Colorado. Defendant Michie is also a member of the Nebraska Withdrawal Committee. Defendant Michie is a citizen and resident of the State of Colorado, with his principal place of residence in LaPorte, Colorado. 60.

Defendant Charles “Jim” Soehner is the Tri-State Director representing Tri-State

member Y-W Electric Association, Inc., based in Akron, Colorado. Defendant Soehner is also a member of the Nebraska Withdrawal Committee. Defendant Soehner is a citizen and resident of the State of Colorado, with his principal place of residence in Wray, Colorado. TRI-STATE AND THE ELECTRIC COOPERATIVE SYSTEM 61.

Tri-State is not a traditional investor-owned electric utility. It is a G&T that

contracts for or provides all of the wholesale power and energy requirements of its 44 members in four states, including Nebraska. 62.

Tri-State serves no retail customers. It was formed and is owned by its customer-

members, including the Plaintiffs in this action, to facilitate its members’ provision of retail electric service to end-users in the rural areas served by these members. 63.

Tri-State, as a cooperative, exists not to make a profit, but to provide a reliable

and affordable source of electricity to its members. 64. “Act”). RUS.

Tri-State effectively traces its roots to the Rural Electrification Act of 1936 (the

The Act created the Rural Electrification Administration (“REA”), now known as the The Act authorizes REA (now RUS) to make and guarantee loans to enable rural

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communities, like those served by each of the Plaintiffs, to obtain electric power. These rural communities were, and remain, largely unserved by investor-owned utilities. 65.

As one commentator has noted: The [Act] addressed a serious need. When President Roosevelt created the REA, only 10 percent of rural Americans had electricity. This lack of power prevented farmers from modernizing their facilities. It also forced some people to live in unhealthful conditions. Many rural Americans, for example, lived in inadequately heated homes with poor sanitation. Most farmers had no running water and little means to store their food. Nevertheless, privately owned utility companies, which provided power to most of the country, were not eager to serve the rural population. These companies argued that supplying rural areas with electricity was not profitable. The lack of attention from private companies led farmers to form non-profit cooperatives to implement electrification even before the REA. But, without the government’s assistance, these organizations lacked the technical and financial expertise they needed to succeed.2

66.

The Act, collectively with other federal legislation including, but not limited to,

the Reclamation Project Act of 1939, afforded rural electric distribution cooperatives and public power districts like Plaintiffs access to federal hydroelectric power supplied by the Bureau of Reclamation and other federal government suppliers at cost-based rates. 67.

Largely in response to the Act, rural communities began to form non-profit

electric distribution entities to receive and distribute this supply of federal power to residents in those communities. Plaintiffs are each such a non-profit, member-owned electric distribution cooperative or association. 68.

For a number of years before Tri-State even existed, the Bureau of Reclamation

directly provided federal hydroelectric power to each of the Plaintiffs. Each of the Plaintiffs was

2

Andrew W. Klein, Rural Electrification Act (1936) (available at http://www.enotes.com/major-acts-congress/ruralelectrification-act).

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given a specific allocation of Bureau of Reclamation power, to be delivered to specific metered delivery points within each of the Plaintiffs’ respective distribution systems.

Each of the

Plaintiffs paid for this electric service at rates that were set by the Bureau of Reclamation. 69.

WAPA is the successor to the Bureau of Reclamation in Tri-State’s service

territory. As WAPA has described it: “the REA provided loans to rural coops that enabled farmers and other rural residents to acquire power at lower rates.”3 70.

WAPA is now one of four federal power marketing administrations across the

country that: “sells Federal power at cost-based rates—giving preference by law—to consumer owned utilities that serve 60 million Americans in 34 states.”4 71.

During the 1940s and 1950s increased electricity needs caused by growth in rural

areas began to exceed the supply of available federal hydroelectric power. As a result, groups of rural distribution cooperatives and associations began to join together to create G&Ts, to secure other long-term sources of reliable and affordable power to supplement federal hydroelectric power. 72.

Tri-State is such a cooperative G&T. In 1952, 26 distribution cooperatives and

public power districts in Colorado, Nebraska and Wyoming—including each of the five Plaintiffs—came together to form Tri-State, for the purpose of furnishing long-term wholesale power and energy to its member distribution cooperatives and associations, which in turn provide that power to their consumer members. On information and belief, each of the charter 26 members of Tri-State, at or around this same time, assigned their allocations of WAPA (at that

3

WAPA, Serving the West: Western Area Power Administration’s First 25 Years as a Power Marketing Agency, at 7 (available at http://www.wapa.gov/about/pdf/histintro.pdf ). 4 Id at 4.

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time, Bureau of Reclamation) power to Tri-State. 73.

In particular, Tri-State was formed to mutually benefit all members by serving as

a central source of wholesale power and to provide a reliable, cost-based supply of electricity. At its inception in 1952, Tri-State’s members served only 41,000 end-user customers. 74.

Over time, through acquisitions and mergers, Tri-State increased its membership

to 44 systems, and its service territory expanded to include members in four states. Through these acquisitions and mergers, Tri-State essentially quadrupled in terms of its geographical size and assets. Tri-State members now serve more than 1.4 million end-user customers. 75.

While Tri-State has evolved and a number of Tri-State systems have changed with

it, in terms of both the demographics of their service territory and the type of customers they serve, Plaintiffs serve a rural Nebraska today that looks much like it did when Tri-State was created in 1952. For instance, while Tri-State members in total now serve nearly 600,000 consumer-meters (which translates to approximately 1.4 million end-user customers), Plaintiffs in total serve only approximately 16,000 consumer-meters. Plaintiff Panhandle, which had 1,462 members in 1960, counted 1,588 members at the end of 2008, for a net increase of only 126 members over 48 years. 76.

In portions of Tri-State’s service territory outside of Nebraska, sprawling

metropolitan areas have blurred the lines between urban and rural. Much of this growth is occurring, but is certainly not limited to, Tri-State’s territory along the “Front Range” of Colorado. 77.

In fact, in Tri-State’s 2007 Integrated Resource Plan, which was submitted to

WAPA, Tri-State predicted that over the next decade 85 percent of its total system growth is

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expected to occur in Colorado, with 55 percent of that growth concentrated along the Front Range.5 78.

The relative proportion of traditionally “rural” loads within the Tri-State system is

also declining due to heavy load growth among Tri-State’s “high load,” industrial customers in other states, including Colorado and Wyoming. “Load” is best defined as the amount of power that a member system or group of systems requires. 79.

For example, Tri-State’s 2007 Integrated Resource Plan shows that irrigation

customers account for approximately 41% of Tri-State’s total sales in Nebraska, with sales to residential customers accounting for 27% and commercial and industrial loads accounting for 25%.6 The Integrated Resource Plan also shows that, on average, total Nebraska sales have grown less than 1% on an annualized basis over the past 20 years, and total Nebraska sales actually declined in the five years prior to the Plan.7 80.

By contrast, Tri-State’s sales in its “Eastern Colorado” region are made largely to

commercial and industrial customers (42%) and residential customers (39%), with a significantly smaller percentage of irrigation customers (15%) being served.8 Tri-State’s total sales in Eastern Colorado have consistently grown more than 3% to 4% on an annualized basis over the past 20 years.9 81.

In Wyoming, a mere 6% of Tri-State’s sales are made to irrigation customers,

with 20% going to residential customers and two-thirds of Tri-State’s sales going to commercial 5

Tri-State Generation and Transmission Association, Inc., Integrated Resource Plan, at 57 (Feb. 15, 2007) (available at http://www.tristategt.org/RP/documents/T-S-IRP-2007.pdf) (hereinafter “Tri-State Integrated Resource Plan”). 6 Id. at 60. 7 Id. at 61. 8 Id. at 60.

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and industrial customers.10 While total sales in Wyoming have grown just over 1% on an annualized basis over the past 20 years, over the past five years total sales in Wyoming have grown nearly 5% on an annualized basis.11 82.

This data underscores that Tri-State has evolved in recent years to become a

fundamentally different G&T than it was for several decades following its inception. Specifically, Tri-State’s high-load, high-growth members in areas outside of Nebraska serve an increasingly heterogeneous customer base. 83.

These transformative demographic shifts have serious implications with respect to

Tri-State’s priorities for future investment and its rate structure. 84.

Although Tri-State has recently made a number of significant investments to add

to its portfolio of generation resources, it advised the Colorado PUC in 2007 that it has a clear need for new generation resources to serve the Front Range region.12 Tri-State also predicted that its members’ loads would continue to increase because of the continued growth of its members along the Front Range as well as the addition of new industrial customers in the service areas of other members. 85.

Virtually none of these ongoing and future capital investments for Tri-State’s

member systems in Colorado, New Mexico and Wyoming, which will cost hundreds of millions of dollars, will provide any benefit to the Plaintiffs, who, as noted, are served exclusively with power provided by WAPA and Basin.

9

Id. at 61. Id. at 60. 11 Id. at 61. 12 Tri-State Generation and Transmission Association, Inc., Electric Resource Plan Rule Compliance Filing, at 7 (Oct. 2007) (available at http://www.mvea.org/documents/PURPA/PURPA%2008/TriState%20Testimony/RPfinal-CPUC07.pdf). 10

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Nevertheless, the Plaintiffs will be wrongly made to subsidize these capital

investments if Tri-State continues to impose its “postage stamp” rate methodology,13 as described below. TRI-STATE’S GOVERNING STRUCTURE 87.

Tri-State is governed by a Board of Directors, and each of the 44 member systems

is allowed to elect one representative director to the Tri-State Board. Tri-State directors also typically serve as a director of their own member system. 88.

As previously noted, each of the members of Tri-State, including each of the

Plaintiffs, has over time executed “Member Wholesale Power Agreements” with Tri-State, more commonly referred to herein as “All Requirements” contracts. These contracts obligate each member to purchase (with one nominal exception) all of the power and energy that a given member requires to serve its respective retail member-customers. 89.

Each of these contracts specifies that the member “shall pay [Tri-State] for all

electric service furnished hereunder at the rates and on the terms and conditions set forth in the rate schedule(s), adopted from time to time by [Tri-State’s] Board of Directors.” In other words, the rates each member pays are set solely by Tri-State’s Board. The All Requirements contracts further provide that the Tri-State Board must adopt such rates at least once per year. 90.

Further, no federal or state regulatory body exercises any jurisdiction over the

actual wholesale rates that Tri-State charges to its Nebraska members for power that Tri-State

13

For example, Tri-State recently announced that it will invest $142 million to expand its transmission capabilities in the first phase of a ten-year, $1.9 billion dollar capital improvement plan. See Miles Moffeit, Tri-State OKs $142 Million to Boost Electrical-Transmission Network, The Denver Post (Sept. 6, 2009). Because Tri-State plans to make relatively nominal improvements to its transmission assets in Nebraska over the next ten years, the Plaintiffs will incur a massively disproportionate cost responsibility - in comparison to Tri-State’s member systems in Colorado, New Mexico and Wyoming - by virtue of Tri-State’s rate structure.

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supplies to those members. Indeed, as Congressman Jim Cooper (D-Tenn.) has observed, “[t]he U.S. Department of Agriculture’s Rural Utilities Service (“RUS”) has general oversight powers over co-ops that still borrow from it, but it is more cheerleader than critic.”14 91.

Thus, Tri-State is effectively an unregulated monopoly provider of electric service

to its Nebraska members. 92.

Prior to 2007, the All Requirements contracts between Tri-State and each of the

Plaintiffs, originally entered into in 2001, were effective through December 31, 2040. 93.

In 2007 Tri-State pressed for and received extensions of the All Requirements

contracts between Tri-State and each of the Plaintiffs through December 31, 2050. 94.

When these extensions were under consideration Tri-State management made

very clear to its members that any member who refused to execute these 10-year extensions might be held responsible for any discrete costs that this decision would cause Tri-State to incur. 95.

For instance, on October 5, 2006, Defendant Hub Thompson circulated a letter

and several attachments to Tri-State’s members regarding the extension of member contracts. Included in these attachments was a “Question and Answers” document from Tri-State, which stated as follows: If not enough members sign the new contracts, our credit rating could be reduced. That could increase our interest payments. Further, the Rural Utilities Service has informed Tri-State that it will require separate loan agreements for Tri-State that contain different amortization schedules for members served under the shorter existing contracts as compared to members served under the new longer contracts. These increased costs would have to be passed on to members and it is possible the Board would decide to allocate those costs to the members who don’t sign.

14

Representative Jim Cooper, Electric Co-Operatives: From New Deal to Bad Deal? 45 HARV. J. ON LEGIS. 335, 343 (2008).

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In addition, as some of the members were considering these 10-year extensions to

their respective Member Wholesale Power Agreement, the Tri-State Board considered and ultimately adopted Board Policy No. 514, which is attached hereto as Exhibit B. Board Policy No. 514 unmistakably signaled that any member who did not sign the 10-year extension would likely be held individually responsible for whatever additional costs Tri-State might incur as a consequence. 97.

Specifically, Board Policy No. 514 provides that: “The Board of Directors may

establish a separate rate class and tariff for those members who so elect,” which “tariff shall allocate to that rate class all costs that can reasonably be determined to have been incurred as a result of the individual members electing to be served under a different member contract.” 98.

In other words, Board Policy No. 514 was a less than subtle threat, following

prior coercive communications from Tri-State management to the same effect, that members who refused to extend their All Requirements contract through 2050 would be singled out as a separate rate class, and made to pay higher rates. 99.

While each of the Plaintiffs eventually signed the extensions of their respective

contracts through 2050, they did so with serious misgivings, as expressed in several of the Plaintiff’s respective Board resolutions relating to these contact extensions.

For example,

Panhandle’s Board of Directors submitted a resolution to Tri-State stating that, while Panhandle was approving a wholesale power contract extension, it had “ongoing concerns about [TriState’s] costs of power, rates, and rate structure, and construction of additional generation capacity to meet growth.” Based in no small part on Tri-State’s duress, however, Panhandle and the other Plaintiff systems each ultimately executed their respective contract extensions.

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TRI-STATE’S RATE STRUCTURE 100.

As previously stated, Tri-State supplies all power to Plaintiffs from only one of

two sources, WAPA and Basin. 101.

In the case of Plaintiffs, the WAPA allocations to Tri-State for its Nebraska loads

are governed by a contract executed between Tri-State and WAPA in 1987. Pursuant to that contract, as amended, Tri-State has agreed “that the benefits of firm electric power or energy supplied under the contract shall be made available to its consumers at rates that are established at the lowest possible level consistent with sound business principles, and that these rates will be established in an open and public manner.” 102.

Tri-State also has a firm power purchase agreement dated January 16, 1975 with

Basin to provide all the power requirements of Tri-State’s Nebraska member-customers (including each of the Plaintiffs), beyond the power that is supplied to these Nebraska members through WAPA allocations. 103.

Specifically, Tri-State’s firm power purchase agreement with Basin provides that:

“Basin Electric shall sell and deliver to Tri-State and Tri-State shall purchase and receive from Basin Electric for its Nebraska loads all electric capacity and energy which Tri-State shall require in addition to the capacity and energy available to Tri-State from [WAPA].” 104.

As Tri-State’s supplemental power supplier in Nebraska, Basin is responsible for

planning and supplying Tri-State’s future load growth in Nebraska. 105.

As such, when it engages in future resource planning, Tri-State typically does not

even factor in or consider the supplemental power requirements [beyond WAPA allocations] needed to meet its Nebraska member-systems’ requirements. For instance, in its 2007 Integrated

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Resource Plan, Tri-State observed that the Nebraska member-systems requirements had been excluded from that resource planning effort for precisely this reason.15 106.

For this same reason, in that same 2007 Integrated Resource Plan, Tri-State

observed that it did not appear to need any additional supply-side resources in Nebraska for the foreseeable future.16 107.

Because power supplied by Basin under this firm power purchase agreement with

Tri-State is delivered, by definition, only to Tri-State’s Nebraska member-systems for distribution to those members’ end-user customers, it is possible to know, with precision, how much Tri-State pays to acquire the power that it delivers to its Nebraska member-systems. 108.

In fact, the amounts that Tri-State has paid to both WAPA and Basin on an annual

basis, in order to acquire power to serve Tri-State’s Nebraska member-systems, are discrete and known amounts. That sets the Nebraska member-systems apart from Tri-State’s other member systems in Colorado, New Mexico and Wyoming, where Tri-State’s costs to generate, transmit and acquire power are aggregated, and the cost to acquire power to serve a given system or group of systems therefore cannot be isolated. For these other member-systems, Tri-State’s costs to generate and acquire power to serve those systems are commingled to reflect what Tri-State called in its 2007 Integrated Resource Plan an “integrated, interconnected system of generation and transmission assets.”17 109.

The amounts that Tri-State pays to acquire power from WAPA and Basin to serve

its Nebraska member systems (including each of Plaintiffs), when compared against the total

15

See Tri-State Integrated Resource Plan at 32. See id. 17 Id. at 35. 16

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revenues that Tri-State recovers from the rates it imposes on its Nebraska-member systems, tell a stark tale. 110.

For several years now, the amounts that the Nebraska member-systems have paid

in total rates are nearly double Tri-State’s actual costs to acquire that power. Even allowing some amount for transmission of this power, overhead and reasonable margins, this nearly 100% mark-up on the cost to acquire this power is unconscionable. TRI-STATE’S ATTEMPTS TO JUSTIFY ITS INEQUITABLE RATE STRUCTURE 111.

Tri-State management has repeatedly attempted to justify this situation by

pointing out that one of its Board Policies sets forth an aspirational goal to maintain a “postage stamp” basic rate structure. 112.

Specifically, Board Policy No. 506, entitled “Rate Objectives Policy,” states in

pertinent part that “Management shall propose and the Board shall annually approve rates which, in the judgment of the Board conform to the following goals,” which include “maintain[ing] the ‘postage stamp’ rate structure as the basic structure for rates to Members.” Board Policy No. 506 is attached hereto as Exhibit C. 113.

The essential notion underpinning this “postage stamp” rate philosophy is that all

Members will pay the same rates, irrespective of Tri-State’s actual disparate costs to serve each member. In other words, all costs are stirred into a single pot and divided amongst all members through this “postage stamp” rate-setting policy. 114.

While this approach to rate-setting may make sense where the cost to serve each

member is roughly equivalent, it creates obvious distortions and inequities where there are significant differences in the cost to serve each member. That is the precisely the case here.

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The net effect of Tri-State’s unswerving reliance on this aspirational rate-setting

policy is that, not surprisingly, member-systems with a lower cost to serve—like the Plaintiff member systems—effectively subsidize member-systems with a higher cost to serve. 116.

This result is particularly unsupportable where, as here, the specific cost to

acquire power to serve a given group of systems is knowable, and in fact, known. The cost averaging approach embodied in Board Policy No. 506 might have made sense when all members had roughly similar costs to serve, but it cannot be justified when it visits upon a group of member-systems the obligation to contribute in revenues nearly double what it costs Tri-State to acquire power to serve those systems. 117.

Further, at the outset, Board Policy No. 506 states its objectives, which include

“establish[ing] rates which distribute costs among Members so that Members are served on the basis of mutuality . . . .” (emphasis added). There is no mutuality of benefit, however, to Plaintiffs, who are forced to continue to subsidize other member-systems year after year. 118.

Tri-State’s refusal to acknowledge this problem, let alone take reasonable steps to

correct it, has destroyed any mutuality of benefit, from Plaintiffs’ perspective, to continuing to belong to Tri-State. It has also unfairly destroyed the original “entente cordial,” or mutual confidence in the integrity of the business purpose and effect to carry on the affairs of the business of Tri-State for the benefit of all members. 119.

Despite the fact that Plaintiffs remain members and owners of Tri-State, Tri-State

no longer serves to provide any benefit to Plaintiffs; rather, Tri-State now holds Plaintiffs captive in order to compel Plaintiffs to continue to subsidize other member systems, to the sole benefit of those systems. In similar fashion, through these “postage-stamp” rates, Plaintiffs are made to

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underwrite significant capital investments that benefit only those other systems, and provide no benefit to Plaintiffs. Plaintiffs, who have a minority position in Tri-State, are powerless to change this. 120.

Tri-State clearly understands and embraces the fundamental notion that rates

should, to the extent possible, be based on actual costs. Management’s agitation for all members to agree to the ten-year extension of the All Requirements contracts, along with the contemporaneous adoption of Board Policy No. 514, provides perhaps the clearest illustration of this fact. It was made quite clear to members that any member who caused discrete, identifiable costs (by refusing to extend its All Requirements contract) would be directly responsible, in increased rates, for any additional costs incurred by Tri-State as a consequence. 121.

Tri-State was quick to argue that a given member’s rates should be directly tied to

the costs that it drives when it suited management’s purposes to do so. Within the context of the proposed All Requirements contract extensions, Tri-State not only acknowledged this fundamental precept of utility ratemaking, it wielded it as a cudgel to ensure member compliance and execution of the contract extensions.

When Plaintiffs present these same arguments,

however, to request a rate that bears some reasonable relationship to Tri-State’s actual cost to serve Plaintiffs, Tri-State turns a deaf ear. 122.

Plaintiffs have made every reasonable effort to bring these inequities to Tri-

State’s attention in order to afford Tri-State an opportunity to rectify this situation. Plaintiffs have acted both formally and informally, as detailed below, but Tri-State has rejected every overture.

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Specifically, Plaintiffs have undertaken the following actions to bring this

inequitable situation to the attention of Tri-State’s Board and management, and to attempt to find a solution to this situation: •

On January 8, 2007, Plaintiff Midwest convened a meeting of its Board to discuss the proposed extension of its All Requirements contract with Tri-State, and to present its concerns about Tri-State’s inequitable wholesale power rates to members of Tri-State management. Present on behalf of Tri-State were Chairman Hub Thompson, then General Manager J. M. Shafer, and then Senior Vice President of External Affairs and Member Relations, Mac McLennan.

•

On March 7, 2007, Rolland Skinner (General Manager of Plaintiff Northwest) and Ryan Reiber (General Manager of Plaintiff Panhandle) met with Tri-State’s General Counsel Ken Reif, Mac McLennan, and Tri-State’s Vice Chairman Rick Gordon to discuss their concerns over Tri-State’s inequitable power rates for its Nebraska member systems.

•

On February 5, 2008, representatives from the Plaintiffs’ systems made a presentation to Tri-State’s Board regarding their concerns with the rates Tri-State charged to the Nebraska member systems.

•

On May 5, 2008, Plaintiffs’ rate consultants and counsel met with Tri-State staff to discuss these same issues.

•

On July 15, 2008, Plaintiffs’ negotiating team met with Tri-State management (Messrs. Reif and McLennan, along with General Manager Ken Anderson) to further discuss these issues.

•

On October 21, 2008, this same negotiating team again met with these same representatives of Tri-State’s management team to further discuss these same issues.

•

On November 11, 2008, Plaintiffs made an additional presentation on these rate issues and concerns to Tri-State’s Board.

•

On January 27, 2009, Plaintiffs’ representatives again met with Tri-State management, at management’s request, to try to “work out the differences.” In that meeting, however, Tri-State’s representatives presented no potential solution.

•

On March 2, 2009, Plaintiffs’ representatives again met with Chairman Thompson based on his promise of a potential solution. Again, however, Mr. Thompson presented no potential solution.

•

In its March 3, 2009 Board meeting, Tri-State’s Board considered a joint resolution that had been tendered by each of the Plaintiffs. The resolution requested that the Board work with Plaintiffs to submit this dispute to mediation, or designate a committee to work with Plaintiffs to establish a cost-based rate for Plaintiffs. Alternatively, the resolution asked that the Board begin work to determine equitable terms and conditions to allow Plaintiffs

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to withdraw from Tri-State, as expressly allowed by Tri-State’s Bylaws. The Board rejected all aspects of these resolutions after Tri-State management, including Defendant Thompson, suggested to the Board of Directors that supporting the resolution could constitute a breach of a director’s fiduciary duty to Tri-State, and that Tri-State might accordingly sue any director who supported the resolution. •

On or about April 10, 2009, each of the Plaintiffs sent letters to the Board of Directors reiterating their request that the Board determine equitable terms and conditions to allow each of the Plaintiffs to withdraw from Tri-State.

•

On July 24, 2009, at the request of Tri-State, Plaintiffs held a joint meeting of their collective Boards to listen to a presentation regarding rates by Tri-State General Manager Ken Anderson. Tri-State’s General Counsel Ken Reif was also in attendance.

•

On or about August 17, 2009, each of the Plaintiffs submitted a further resolution for Board consideration, requesting that, in its budget preparation for 2010, the Board consider and establish a cost-based rate for the Plaintiff member systems. The Tri-State Board simply ignored this resolution, and did not vote on or even discuss this item in its September 1, 2009 Board meeting. The August 17, 2009 Joint Resolution is attached as Exhibit D.

•

In its September 1, 2009 Board meeting Tri-State finally presented withdrawal packages to each Plaintiff, including a “buy-out” number and other terms and conditions. As previously detailed, however, the directors for the Plaintiff member systems were barred from participating or voting in this process, and were wrongly excluded from the TriState Board’s executive session relating to this item. Further, the “buy-out” numbers offered to each Plaintiff by Tri-State were, by design, so large, and other conditions of withdrawal so onerous, as to effectively preclude withdrawal.

124.

As this chronology amply demonstrates, Plaintiffs have made exhaustive efforts

to work within the Tri-State system to resolve their concerns, to no avail. In the end the situation deteriorated so badly that Plaintiffs were forced to invoke their absolute right to withdraw from Tri-State.

Even then Plaintiffs could make no headway, as Tri-State first slow-rolled this

request, and when it finally did take action it established terms so unreasonable as to ensure that Plaintiffs could not withdraw on the terms offered. 125.

Defendant Thompson, through his individual actions, ensured this result. He

hand-picked the members of the Nebraska Withdrawal Committee himself, with no input from

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the Tri-State Board. Thompson himself was a member of this committee, but none of the Plaintiff systems were represented on the committee. When it came time for the Tri-State Board to consider the proposal developed by the Nebraska Withdrawal Committee, Thompson barred Plaintiffs’ directors from participating in the discussion or vote on these withdrawal terms, ensuring that the withdrawal terms suggested by the Nebraska Withdrawal Committee would be adopted by the Tri-State Board without any dissension. Chairman Thompson’s actions ensured that Plaintiffs would remain captive to Tri-State. Plaintiffs were left no recourse but to file this Complaint in order to vindicate their rights. 126.

This is far from the only example of Chairman Thompson’s oppressive actions

designed to keep the Plaintiff systems in line. The following examples are illustrative, but not exhaustive. 127.

Chairman Thompson ensured that the February 13, 2009 Joint Resolution

submitted by Plaintiffs would not pass, by suggesting to Tri-State directors who voted to support that resolution that they might be in breach of their fiduciary duty, and that Tri-State might sue them if they voted to support that resolution. 128.

On information and belief, Chairman Thompson and his staff directed one of Tri-

State’s accountants in April 2009 to alter Tri-State’s accounting treatment with respect to bill credits from Basin, in order to increase Tri-State’s apparent cost to serve the Plaintiffs. The change unilaterally requested by Chairman Thompson, without input from the Tri-State Board or Tri-State’s Finance Committee, would have increased Tri-State’s apparent cost to acquire power from Basin to serve Plaintiffs by nearly $2.0 million per year.

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129.

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In Tri-State’s March 3, 2009 Board meeting, Chairman Thompson executed a

“pocket-veto” on a request from Stuart Morgan, the director of the Wheat Belt member system, for a rate study. Director Morgan made a motion for a rate study, and while that motion was awaiting a second, Chairman Thompson abruptly adjourned the meeting, effectively killing the motion before it could be seconded. 130.

In similar fashion, Plaintiffs’ most recent August 17, 2009 Joint Resolution

regarding rates never even made it to the floor in Tri-State’s September 1, 2009 Board meeting. It may be that the Board took up this issue in its executive session, but Plaintiffs have no way of knowing, as their directors were improperly excluded from that executive session. All Plaintiffs know for sure is that this Joint Resolution, which expressly requested that the Board of Directors take action on the resolution in its next regularly scheduled Board meeting, was never discussed, let alone voted upon, in the open portion of the September 1, 2009 Board meeting. 131.

Further, Defendant Thompson routinely hand picks committees in order to control

the work done, and the recommendations, of those committees. In no case was this clearer than in the instance of the Nebraska Withdrawal Committee, where Chairman Thompson appointed himself, but not a single representative from the Plaintiff systems. This assured, of course, that no one in that committee would represent Plaintiffs’ interests, or be able to convey Plaintiffs’ side of the story with regard to their reasons for seeking withdrawal—including but not limited to the tremendous gap between what Tri-State charges Plaintiffs to provide power and what it cost Tri-State to provide power to Plaintiffs.

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THE DISCONNECT BETWEEN TRI-STATE’S STORY AND ITS BUY-OUT NUMBER 132.

As previously stated, on July 24, 2009, at the request of Tri-State, Plaintiffs held a

joint meeting of their collective Boards to listen to a presentation regarding rates by Tri-State General Manager Ken Anderson. 133.

Mr. Anderson’s presentation included estimates of Tri-State’s revenues and costs

for each of the five Plaintiff systems. Mr. Anderson’s presentation suggested that Tri-State’s total costs and revenues recovered for the five Plaintiffs were roughly equivalent, meaning that, in Tri-State’s view, its cost to serve the five Plaintiffs is a “break even” proposition. 134.

While Plaintiffs have reason to believe that Mr. Anderson’s cost estimates at this

presentation were inflated, the terms and conditions that were proffered by the Nebraska Withdrawal Committee at Tri-State’s September 1, 2009 Board meeting would require the five Plaintiffs, collectively, to pay Tri-State approximately $220 million dollars. 135.

Tri-State has derived this $220 million figure by estimating the “lost revenues”

that Tri-State would incur through 2050 if the Plaintiffs withdraw from Tri-State, less Tri-State’s “avoided costs” over the same time period.18 136.

In particular, Tri-State’s estimate of its “lost revenues” assumes that the Plaintiffs

would continue to pay Tri-State pursuant to its “postage stamp” rate methodology through 2050. Tri-State’s proposed buy-out figure is therefore premised on the perpetuation of the same inequitable rate structure that is the genesis of this Complaint. Put another way, the buy-out

18

In so doing, Tri-State included in its “avoided costs” estimate power purchases from WAPA and Basin, as well as “wheeling” charges that it pays to WAPA for the transmission of power to the Nebraska systems. Notably absent from these estimates were any projected costs for capital improvements that would be made by Tri-State for the benefit of the Plaintiffs’ systems. This omission simply reinforces the notion that the Nebraska Plaintiffs are uniquely situated within the Tri-State system, and supports Plaintiffs’ previous observations that they are being wrongly made to subsidize Tri-State’s massive capital improvements in Colorado, New Mexico, and Wyoming.

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terms presented to each of the Plaintiffs cannot be equitable, because they are calculated based on the perpetuation of inequitable rates that violate the All Requirements contracts. 137.

Moreover, Tri-State’s $220 million figure clearly belies Tri-State’s stated position

that its provision of service to Plaintiffs’ systems is a break even proposition. Astonishingly, Tri-State’s $220 million figure identifies the net present value of margins and subsidies that TriState believes it would be entitled to receive from the Plaintiffs over the next four decades. This is hardly the hallmark of a non-profit cooperative association; rather, it plainly illustrates the abuse of monopoly power that is being visited upon each of the five Plaintiffs by a majority of Tri-State’s members. 138.

Finally, Tri-State’s $220 million figure does not compute when one considers that

the Plaintiffs have already offered—and remain willing—to assume Tri-State’s contractual obligations with Basin and WAPA. Plaintiffs therefore believe that an equitable buy-out figure should be based on the reasonable cost of Tri-State’s transmission facilities used to serve the Plaintiffs.

PLAINTIFFS’ CLAIMS FOR RELIEF FIRST CLAIM FOR RELIEF (Against Defendant Tri-State: Breach of Contract in Setting of Plaintiffs’ Rates) 139.

Plaintiffs incorporate by reference as though fully set forth herein the allegations

of paragraphs 1 through 138 of this Complaint. 140.

The All Requirements contracts between Tri-State and each of the Plaintiffs

provide that Tri-State shall supply, and each Plaintiff shall purchase, all power that each Plaintiff shall require to serve its customers.

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141.

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The All Requirements contracts between Tri-State and each of the Plaintiffs

further provide that each Plaintiff shall purchase such power at the rates that may be set from time to time by Tri-State’s Board of Directors. 142.

The rates that Tri-State has set pursuant to these All Requirements contracts,

through the action of its Board of Directors, have been and remain inherently unreasonable and unfair to Plaintiffs, in light of Tri-State’s actual costs to acquire and provide power to each of the Plaintiffs. 143.

The All Requirements contracts between Tri-State and each of the Plaintiffs are

governed by Colorado law. Under Colorado law, every contract includes an implied covenant of good faith and fair dealing, pursuant to which each party’s performance of its obligations under a contract must be evaluated. 144.

In establishing and in persisting to impose on each Plaintiff rates under their

respective All Requirements contracts that are unreasonable, unfair, and recover revenues from each Plaintiff that far exceed Tri-State’s actual cost to serve, Tri-State has not acted in good faith in its performance of its obligations under these contracts. 145.

In establishing and in persisting to impose on each Plaintiff rates under their

respective All Requirements contracts that are unreasonable, unfair, and recover revenues from each Plaintiff that far exceed Tri-State’s actual cost to serve, Tri-State has not dealt fairly with Plaintiffs in its performance of its obligations under these contracts. 146.

Tri-State accordingly breaches these All Requirements contracts with Plaintiffs

each time that its Board of Directors establishes, imposes and enforces these unfair and inequitable rates on Plaintiffs.

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147.

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Most recently, Tri-State breached these agreements when it rejected Plaintiffs’

renewed requests for cost-based rates, and instead determined to continue to impose a non costbased “postage stamp” rate on Plaintiffs, in Tri-State’s approval of its budget in its September 1, 2009 Board of Director meetings. Plaintiffs’ directors voted against the proposed continuation of the “postage-stamp” rate.19 148.

These past and continuing breaches of Tri-State’s obligations under its All

Requirements contracts with each of the Plaintiffs have damaged, and continue to damage each Plaintiff, by requiring each Plaintiff to pay rates that recover far more revenue from each Plaintiff than Tri-State’s actual cost to serve that Plaintiff. 149.

Tri-State’s overcharging of Plaintiffs, and its resulting ongoing breach of its All

Requirements contract with each Plaintiff, accordingly continues unabated. 150.

Each of the Plaintiffs has fully performed its obligations under its respective All

Requirements contract with Tri-State. 151.

Tri-State’s repeated breach of its obligation to deal fairly and in good faith with

Plaintiffs in setting rates under the All Requirements contracts has significantly harmed each of the Plaintiffs, causing them to pay millions of dollars in overcharges over time. 152.

Each of the Plaintiffs has been damaged by Tri-State’s breach of the All

Requirements contracts in an amount that exceeds millions of dollars for each Plaintiff, such damages to be specifically determined at trial. WHEREFORE, Plaintiffs pray for relief as hereinafter set forth.

19

The director for Plaintiff Roosevelt, Ralph Hilyard, was not in attendance at the September 1, 2009 Board meeting. Shortly thereafter, however, Mr. Hilyard sent a letter notifying Tri-State of his dissent from the continuation of the postage stamp rate.

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SECOND CLAIM FOR RELIEF (Against Defendant Tri-State: Breach of Covenant of Good Faith and Fair Dealing) 153.

Plaintiffs incorporate by reference as though fully set forth herein the allegations

of paragraphs 1 through 152 of this Complaint. 154.

The All Requirements contracts between Tri-State and each of the Plaintiffs are

governed by Colorado law. Under Colorado law, every contract includes an implied covenant of good faith and fair dealing, which requires the parties to act in good faith and to deal fairly with each other in performing the express terms of the contract. 155.

In establishing and in persisting to impose on each Plaintiff rates under their

respective All Requirements contracts that are unreasonable, unfair, and recover revenues from each Plaintiff that far exceed Tri-State’s actual cost to serve, Tri-State has not acted in good faith in its performance of its obligations under these contracts. 156.

In establishing and in persisting to impose on each Plaintiff rates under their

respective All Requirements contracts that are unreasonable, unfair, and recover revenues from each Plaintiff that far exceed Tri-State’s actual cost to serve, Tri-State has not dealt fairly with Plaintiffs in its performance of its obligations under these contracts. 157.

In establishing and in persisting to impose on each Plaintiff rates under their

respective All Requirements contracts that are unreasonable, unfair, and recover revenues from each Plaintiff that far exceed Tri-State’s actual cost to serve, Tri-State has acted contrary to the agreed common purpose of the All Requirements contracts and the Parties’ reasonable expectations. 158.

Tri-State accordingly has breached, and continues to breach, the covenant of good

faith and fair dealing embodied in each of these All Requirements contracts with Plaintiffs each

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time that its Board of Directors establishes, imposes and enforces these unfair and inequitable rates on Plaintiffs. 159.

Most recently Tri-State breached the covenant of good faith and fair dealing

contained within these All Requirements contracts when it rejected Plaintiffs’ renewed requests for cost-based rates, and instead determined to continue to impose a non cost-based “postage stamp” rate on Plaintiffs, in Tri-State’s approval of its budget in its September 1, 2009 Board of Directors meeting. 160.

Tri-State’s past and continuing breaches of the covenant of good faith and fair

dealing implied in its All Requirements contracts with each of the Plaintiffs have damaged, and continue to damage each Plaintiff, by requiring each Plaintiff to pay rates that recover far more revenue from each Plaintiff than Tri-State’s actual cost to serve that Plaintiff. 161.

Tri-State’s overcharging of Plaintiffs, and its resulting ongoing breach of the

covenant of good faith and fair dealing implied within each of its All Requirements contracts with each Plaintiff, accordingly continues unabated. 162.

Each of the Plaintiffs has fully performed its obligations under its respective All

Requirements contract with Tri-State. 163.

Tri-State’s repeated breach of its obligation to deal fairly and in good faith with

Plaintiffs in setting rates under the All Requirements contracts has significantly harmed each of the Plaintiffs, causing them to pay millions of dollars in overcharges over time. 164.

Each of the Plaintiffs has been damaged by Tri-State’s breach of the covenant of

good faith and fair dealing implied in each of its All Requirements contracts, in an amount that exceeds millions of dollars for each Plaintiff, such damages to be specifically determined at trial.

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WHEREFORE, Plaintiffs pray for relief as hereinafter set forth. THIRD CLAIM FOR RELIEF (Against Defendant Tri-State: Common Law Obligation to Fairly Set Rates) 165.

Plaintiffs incorporate by reference as though fully set forth herein the allegations

of paragraphs 1 through 164 of this Complaint. 166.

Defendant Tri-State has a common law obligation to set rates for its member-

customers, including each of the Plaintiffs, which are fair and reasonable. 167.

The rates that Tri-State has set, and imposes on each of the Plaintiffs, are not fair

and reasonable, because they are not based on Tri-State’s actual cost to serve Plaintiffs, and because they recover from Plaintiffs an unreasonable amount of revenue, compared against TriState’s actual cost to serve Plaintiffs. 168.

Tri-State’s breach of this common law obligation has significantly harmed each of

the Plaintiffs, by requiring each Plaintiff to pay far in excess of a reasonable amount for the power that Tri-State supplies. 169.

Each of the Plaintiffs has been damaged by Tri-State’s breach of this common law

obligation to impose only fair and reasonable rates for the power that Tri-State provides. 170.

These damages exceed millions of dollars for each Plaintiff, such damages to be

specifically determined at trial. WHEREFORE, Plaintiffs pray for relief as hereinafter set forth. FOURTH CLAIM FOR RELIEF (Against Defendant Tri-State: Breach of Contract – Failure to Establish Equitable Terms and Conditions to Allow Plaintiffs to Withdraw from Tri-State) 171.

Plaintiffs incorporate by reference as though fully set forth herein the allegations

of paragraphs 1 through 170 of this Complaint.

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Tri-State’s Bylaws represent a contract of governance between Tri-State and its

member systems. 173.

Article I, Section 3(a) of Tri-State’s Bylaws provides that a member of Tri-State

has the right to withdraw from Tri-State upon such equitable terms and conditions as established by the Board of Directors provided, however, that no member shall be permitted to withdraw until it has met all of its contractual obligations to Tri-State. 174.

Beginning in February of 2009, Plaintiffs have repeatedly asked that Tri-State

provide such equitable terms and conditions to allow Plaintiffs to withdraw from Tri-State. 175.

In particular, Tri-State’s Board of Directors voted down resolutions tendered by

each of the Plaintiffs requesting, among other things, that Tri-State undertake negotiations with Plaintiffs or agree to mediation with Plaintiffs to determine such equitable terms and conditions to allow Plaintiffs to withdraw from Tri-State. 176.

Each of the Plaintiffs followed with letters to the Tri-State Board of Directors,

dated on or around April 10, 2009, again requesting that the Board take action to determine such equitable terms and conditions for withdrawal, as required by Tri-State’s Bylaws. 177.

In its July 7, 2009, Board meeting, Tri-State Chairman and Defendant Hub

Thompson indicated that he had formed a “Nebraska Withdrawal Committee” to study and consider this issue. No representatives from Plaintiffs’ systems were included as part of this committee. 178.

More than six months passed after Plaintiffs’ first request for equitable terms and

conditions to allow them to withdraw from Tri-State. Finally, on September 1, 2009, the Tri-

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State Board purported to adopt the recommendations of the Nebraska Withdrawal Committee. Plaintiffs’ directors were excluded from the consideration, discussion and vote on that item. 179.

Tri-State’s submission to Plaintiffs of the terms and conditions proposed by the

Nebraska Withdrawal Committee, which are not equitable, constituted a breach of Tri-State’s Bylaws. Further, Tri-State did not deal fairly with Plaintiffs, nor did it deal in good faith, in the manner in which it developed these terms and conditions, nor in the substance of these terms and conditions, as dictated to Plaintiffs. 180.

In particular, the terms and conditions would require Plaintiffs to collectively pay

Tri-State approximately $220 million dollars, an amount that not only greatly exceeds any reasonable estimate of Tri-State’s cost to serve the Plaintiffs, but one that is belied by Tri-State’s own previous statements. In addition, Plaintiffs’ respective “buy-out” figures were developed based on a projected perpetuation of the inequitable rates that are a primary subject of this action, making those buy-out figures, by definition, inequitable. 181.

Tri-State’s buyout figure was, in fact, designed to hold Plaintiffs captive to Tri-

State through 2050. 182.

In addition, Tri-State’s withdrawal package includes conditions that would permit

Tri-State to retain the Plaintiffs’ WAPA power allocations, and would effectively impose a transition deadline on the Plaintiffs that would be impossible to meet. 183.

Tri-State’s breach of its Bylaws has harmed, and continues to harm Plaintiffs in

an amount to be determined at trial. WHEREFORE, Plaintiffs pray for relief as hereinafter set forth.

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FIFTH CLAIM FOR RELIEF (In the Alternative: Against Defendants Thompson, Schlagel, Bason, Hammond, Holgerson, Michie and Soehner: Breach of Fiduciary Duty as Tri-State Directors and members of the Nebraska Withdrawal Committee) 184.

Plaintiffs incorporate by reference as though fully set forth herein the allegations

of paragraphs 1 through 183 of this Complaint. 185.

Defendants Harold “Hub” Thompson, Brian Schlagel, James “Jimmy” Bason,

Jack Hammond, Tom Holgerson, Thaine Michie and Charles “Jim” Soehner all serve as Directors of Tri-State. 186.

In addition, collectively these Defendants constituted the membership of the

Nebraska Withdrawal Committee. 187.

Article I, Section 3(a) of Tri-State’s Bylaws provides that a member of Tri-State

has the right to withdraw from Tri-State upon such equitable terms and conditions as established by the Board of Directors provided, however, that no member shall be permitted to withdraw until it has met all of its contractual obligations to Tri-State. 188.

These Defendants all received a delegation of the Tri-State Board’s responsibility,

and fiduciary duty, to determine equitable terms and conditions for the withdrawal of the Plaintiff systems from Tri-State. 189.

On information and belief, the withdrawal terms and conditions that Tri-State

presented to each of the Plaintiffs came directly from the work done by the Nebraska Withdrawal Committee, and the Tri-State Board of Directors made no changes whatsoever to those proposed terms and conditions. Rather, the terms and conditions for withdrawal were passed on to each

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of the Plaintiffs unchanged from the proposal developed by the Nebraska Withdrawal Committee. 190.

Further, Defendant Thompson’s improper exclusion of the Plaintiffs’ directors

from the Tri-State Board meeting on September 1, 2009, calls into question whether there was even valid action by the Tri-State Board of Directors as to these withdrawal terms and conditions. 191.

It is the Nebraska Withdrawal Committee, therefore, that has specified the terms

and conditions upon which Plaintiffs may withdraw from Tri-State. 192.

By approving terms and conditions for withdrawal that are not equitable, in

violation of Tri-State’s Bylaws, the members of the Nebraska Withdrawal Committee breached their fiduciary duty to each of the Plaintiffs. 193.

Specifically, the members of the Nebraska Withdrawal Committee breached this

fiduciary duty by prescribing withdrawal terms that are not equitable in several key regards, including, but not limited to: •

The withdrawal terms and conditions prescribed by the Nebraska Withdrawal Committee include a “buy-out” figure for each Plaintiff that is developed based on a projected perpetuation until 2050 of the inequitable rates that Plaintiffs pay today, making these buy-out figures in turn, by definition, inequitable.

•

The withdrawal terms and conditions prescribed by the Nebraska Withdrawal Committee would deprive Plaintiffs of their respective allocations of WAPA power, which Plaintiffs are entitled to retain if they withdraw from Tri-State, as alleged herein in Plaintiffs’ Seventh Claim for Relief and related factual allegations.

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The withdrawal terms and conditions prescribed by the Nebraska Withdrawal Committee are an obvious attempt to capture and retain the substantial cross-subsidies that Plaintiffs currently provide to other Tri-State member systems. Plaintiffs could, for instance, fulfill their contractual obligations to Tri-State by taking an assignment of the contracts that TriState has in place with WAPA and Basin to supply power to Plaintiffs, and paying TriState reasonable transmission charges to transmit that power to each Plaintiff system. Plaintiffs have made clear their willingness to do just that, but the Nebraska Withdrawal Committee instead dictated withdrawal terms and conditions designed to drive a buy-out figure for each Plaintiff as daunting as possible. 194.

Each of the Plaintiffs has been damaged by the Defendants’ breach of fiduciary

duty, such damages to be specifically determined at trial. WHEREFORE, Plaintiffs pray for relief as hereinafter set forth.

SIXTH CLAIM FOR RELIEF (Against Defendant Thompson: Breach of Fiduciary Duty as Chairman and President of the Board of Tri-State) 195.

Plaintiffs incorporate by reference as though fully set forth herein the allegations

of paragraphs 1 through 194 of this Complaint. 196.

Defendant Thompson serves as Chairman and President of Tri-State, and,

separately, as a Director of Tri-State representing High Plains. 197.

As an officer and director of Tri-State, Mr. Thompson owes each of the Plaintiffs

a fiduciary duty to discharge his duties in good faith, and to act impartially with respect to TriState’s members.

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Under Colorado law, the officers of a cooperative association “shall have such

authority and perform such duties in the management of the association as may be provided in the bylaws, or as may be determined by resolution of the board of directors not inconsistent with the bylaws.” § 7-55-105, C.R.S. (2008). 199.

Article VI, Section 4(c) of Tri-State’s Bylaws state, in relevant part, that the

Chairman and President shall “[i]n general perform . . . duties as may be prescribed by the Board of Directors from time to time.” 200.

In turn, Tri-State Board Policy No. 304, which is attached as Exhibit E, confers

the following duties, among others, on the position of Chairman and President. 201.

First, the Chairman and President is required to ensure that all matters proper for

discussion by the Board of Directors are included on the Board’s agenda. 202.

Defendant Thompson failed to discharge this duty in good faith when he buried

the joint resolution submitted by the Plaintiffs to Tri-State on or about August 17, 2009. 203.

Second, the Chairman and President is required to conduct meetings of the Board

of Directors so as to ensure adequate opportunity of discussion of all agenda items. 204.

Defendant Thompson failed to discharge this duty in good faith when, during the

consideration of the Plaintiffs’ joint resolutions at Tri-State’s March 3, 2009 Board meeting, he threatened to sue any Board member who supported Plaintiffs’ joint resolution dated February 12, 2009, thereby suppressing Board discussion of that agenda item. 205.

He further breached this duty when he improperly excluded Plaintiffs’ directors,

or any other representative of Plaintiffs, from participating in the Board’s discussion and consideration of the work and recommendation of the Nebraska Withdrawal Committee in the

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Board’s September 1, 2009 meeting. 206.

Third, the Chairman and President is required to conduct meetings of the Board so

as to make sure the rights of all members are respected. 207.

Defendant Thompson failed to discharge this duty in good faith when he

intimidated Board members at the March 3, 2009 Board meeting; when he buried Plaintiffs’ August 17, 2009 joint resolution; and when he improperly excluded Plaintiffs’ directors from participating in the Board’s consideration and vote on the Nebraska Withdrawal Committee’s recommendations at the September 1, 2009 Board meeting. 208.

By improperly excluding the Plaintiffs’ Board members from the September 1,

2009 Board meeting, Defendant Thompson also disenfranchised these directors from exercising their corporate voting rights, in violation of Tri-State’s Articles of Incorporation, its Bylaws and Colorado law. 209.

Defendant Thompson’s failure to discharge his fiduciary duties as Chairman and

President of Tri-State in good faith have defied the reasonable expectations of Plaintiffs, who are minority shareholders in Tri-State, that Tri-State’s management will follow the law and promote the cooperative purposes of the corporation. 210.

Defendant Thompson’s actions as Chairman and President have, at all times,

derived benefits for high-load, high-growth members of Tri-State’s system, including the system that he represents as a Director, and these actions have resulted in a detriment to other Tri-State systems, most particularly the Plaintiffs in this action. 211.

Defendant Thompson’s abuse of his authority, which is evidenced by his

domination of the Tri-State Board and his manipulation of Board outcomes in advance to benefit

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the high-load, high-growth members of Tri-State, has injured each of the Plaintiffs. 212.

Each of the Plaintiffs has been damaged by Defendant Thompson’s numerous

breaches of his fiduciary duty, such damages to be specifically determined at trial. WHEREFORE, Plaintiffs pray for relief as hereinafter set forth. SEVENTH CLAIM FOR RELIEF (Against Defendant Tri-State: Declaratory Judgment Regarding Entitlement to WAPA Allocations ) 213.

Plaintiffs incorporate by reference as though fully set forth herein the allegations

of paragraphs 1 through 212 of this Complaint. 214.

Tri-State receives allocations of cost-based hydroelectric power from WAPA

pursuant to a contract that was executed between these parties in 1987, as amended. 215.

The Tri-State/WAPA contract reserves specific amounts of WAPA power for

distribution to Tri-State’s Nebraska members. 216.

Each of the Plaintiffs has received federal power allocations from WAPA and its

predecessor, the Bureau of Reclamation, for decades. Federal hydroelectric power allocations were the Plaintiffs’ primary—if not exclusive—source of electric power long before the formation of Tri-State. 217.

The reservation of federal power for Tri-State’s Nebraska systems in the Tri-

State/WAPA contract reflects this historical arrangement. 218.

Each of the Plaintiffs, as charter members of Tri-State, joined with other rural

electric cooperatives in Nebraska, Colorado and Wyoming in the 1950s to secure additional sources of power for the future. 219.

As part of this cooperative effort, on information and belief, the charter members

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assigned their federal power allocations to Tri-State. 220.

Article I, Section 3(a) of Tri-State’s Bylaws provides that a member of Tri-State

has the right to withdraw from Tri-State upon such equitable terms and conditions as established by the Board of Directors provided, however, that no member shall be permitted to withdraw until it has met all of its contractual obligations to Tri-State. 221.

The terms and conditions for withdrawal issued by Tri-State to each of the

Plaintiffs state that the WAPA power allocations “will remain the property of and under the control of Tri-State.” 222.

This condition is not equitable in light of the historical context behind the

Plaintiffs’ federal power allocations and the purposes of Tri-State, which exists to serve its members—not the other way around. 223.

Plaintiffs accordingly seek a declaration adjudicating that, in the event that

Plaintiffs withdraw from Tri-State, any allocations of WAPA power to Plaintiffs belong to Plaintiffs, not Tri-State, and Plaintiffs are therefore entitled to retain their respective allocations of WAPA power. WHEREFORE, Plaintiffs pray for relief as hereinafter set forth. EIGHTH CLAIM FOR RELIEF (Against Defendant Tri-State: Breach of Contract with WAPA) 224.

Plaintiffs incorporate by reference as though fully set forth herein the allegations

of paragraphs 1 through 223 of this Complaint. 225.

Tri-State receives allocations of cost-based hydroelectric power from WAPA

pursuant to a contract that was executed between these parties in 1987, as amended.

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The Tri-State/WAPA contract reserves specific amounts of WAPA power for

distribution to Tri-State’s Nebraska members. 227.

Plaintiffs, who are among the intended beneficiaries of the Tri-State/WAPA

contract, are therefore third-party beneficiaries to the Tri-State/WAPA contract and may bring an action based on that contract.20 228.

Pursuant to the Tri-State/WAPA contract, as amended, Tri-State has agreed “that

the benefits of firm electric power or energy supplied under the contract shall be made available to its consumers at rates that are established at the lowest possible level consistent with sound business principles, and that these rates will be established in an open and public manner.” 229.

The Tri-State/WAPA contract therefore prohibits Tri-State from inflating or

“marking up” the rates for WAPA power allocations to its customers. 230.

For many years now, Tri-State has recovered revenues from Plaintiffs through its

rates that, collectively, are nearly double what it costs Tri-State to actually acquire the power that it provides to Plaintiffs. 231.

On information and belief, Tri-State has breached its contractual obligation to

charge cost-based rates for WAPA power to each of the Plaintiffs through its existing rate structure. 232.

As third-party beneficiaries to the Tri-State/WAPA contract, each of the

Plaintiffs, along with Plaintiffs’ end-user customers, has been damaged by Tri-State’s breach of its contract with WAPA, such damages to be specifically determined at trial. 20

In their Seventh Claim for Relief Plaintiffs contend that they are entitled to take their respective WAPA allocations if they withdraw from Tri-State. Regardless of the resolution of that Seventh Claim for Relief, Plaintiffs have been, and remain, at a minimum, third-party beneficiaries of Tri-State’s contract with WAPA, with regard to each Plaintiff’s respective allocation of WAPA power.

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WHEREFORE, Plaintiffs pray for relief as hereinafter set forth.

PRAYER FOR RELIEF AND JURY DEMAND WHEREFORE, Plaintiffs pray that this Court grant them relief, as follows: a.

A judgment in their favor declaring that Tri-State has breached the All

Requirements contracts with each of the Plaintiffs based on the manner in which Tri-State has set rates under these contracts; b.

A judgment in their favor declaring that Tri-State has breached the

covenant of good faith and fair dealing implied in each of the All Requirements contracts with Plaintiffs, based on the manner in which Tri-State has set rates under these contracts; c.

A judgment in their favor declaring that Tri-State has breached its

common law obligation to set and impose only fair and equitable rates upon Plaintiffs; d.

A judgment in their favor that Tri-State has breached its Bylaws by failing

to provide equitable terms and conditions that would allow Plaintiffs to withdraw from Tri-State; e.

A judgment in their favor that the individual defendants who are members

of the Nebraska Withdrawal Committee have breached their fiduciary duty to Plaintiffs by failing to provide equitable terms and conditions that would allow Plaintiffs to withdraw from Tri-State; f.

A judgment in their favor that Chairman and President Hub Thompson has

breached his fiduciary duty owed to Plaintiffs through his various actions in violation of Colorado law, Tri-State’s Articles of Incorporation and Bylaws, and Tri-State’s Board policies. g.

A judgment that all federal hydroelectric power allotments originally

allocated to each of the Plaintiffs by the Bureau of Reclamation, and now administered by

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WAPA, belong to Plaintiffs, and that each of the Plaintiffs retains its rights to its respective allocation should it withdraw from Tri-State; h.

A judgment that Tri-State has breached its contract with WAPA requiring

that the power or energy supplied under the contract shall be made available to its consumers at rates that are established at the lowest possible level consistent with sound business principles, and that these rates will be established in an open and public manner, and further finding that Plaintiffs, each a third-party beneficiary under this Tri-State contract with WAPA, have been damaged by this breach. i.

Money damages in an amount to be proven at trial, plus all applicable late

fees and prejudgment interest; j.

A judgment setting forth equitable terms and conditions for Plaintiffs to

withdraw from Tri-State, if Plaintiffs so elect, based on Tri-State’s Bylaws. k.

All costs and attorney’s fees incurred by Plaintiffs as may be allowed by

l.

A declaratory judgment, and permanent injunctive relief, enjoining Tri-

law;

State from continuing to engage in the conduct alleged herein; and m.

Such further relief as this Court deems appropriate and just.

JURY DEMAND PLAINTIFFS HEREBY REQUEST A JURY TRIAL IN NORTH PLATTE, NEBRASKA, AS TO ALL CLAIMS FOR RELIEF SO TRIABLE.

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Dated this 28th day of September, 2009. Respectfully submitted, _s/ Raymond L. Gifford ___________ Raymond L. Gifford, CO Bar No. 21853 Philip J. Roselli, CO Bar No. 20963 Adam M. Peters, CO Bar No. 34099 Kamlet Reichert, LLP 1515 Arapahoe Street, Tower 1 Suite 1600 Denver, CO 80202 Tel: (303) 825-4200 Fax: (303) 825-1185 [email protected] [email protected] [email protected] ATTORNEYS FOR PLAINTIFFS

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