Appeal from the United States Court for the Southern District of Illinois, Alton Division. No. 86 C 3419--William D. Stiehl, Judge.
Cummings and Flaum, Circuit Judges, and Fairchild, Senior Circuit Judge.
This action was filed by the United States (on behalf of the Rural Electrification Administration (REA)), the National Rural Utilities Cooperative Finance Corporation (CFC), and Soyland Power Cooperative, Inc. (Soyland) against Southwestern Electric Cooperative, Inc. (Southwestern). The plaintiffs sought a declaration that the 1976 contract under which Southwestern promised to purchase all its electric power requirements from Soyland until 2015 is binding and enforceable. Southwestern counterclaimed for a declaration that the contract is void under the doctrines of mutual mistake of fact and frustration of purpose.
The plaintiffs filed a motion for summary judgment and Southwestern filed a cross-motion for partial summary judgment. On December 28, 1987, the district court released a memorandum opinion holding that plaintiffs' motion for summary judgment should be granted and that Southwestern's counterclaim should be dismissed and its cross-motion for partial summary judgment should be denied. 676 F. Supp. 897.
The REA is a government agency which makes or guarantees loans to implement the rural electrification program encompassed by the Rural Electrification Act (7 U.S.C. §§ 901-950b). Plaintiff CFC, a not-for-profit District of Columbia association of mostly rural electric cooperatives created to supplement the REA loan programs, has similar interests to REA's. Soyland and Southwestern are members of CFC.
Since the passage of the Rural Electrification Act in 1936, the REA has financed approximately 800 distribution cooperatives across the nation. The members of those cooperatives are rural consumers to whom the cooperatives distribute electric power. Southwestern, located in Greenville, Illinois, has been serving as such a cooperative since 1939.
Soyland, whose principal office is in Decatur, Illinois, is one of 60 generation and transmission cooperatives also financed by the REA loan program. Generation and transmission cooperatives sell their power wholesale to their member distribution cooperatives, such as Southwestern. Although organized in 1963, Soyland was inactive until 1975.
In 1975 Southwestern and fourteen other distribution cooperatives decided to acquire an 8.42% interest*fn1 in the Clinton Power Station,*fn2 a nuclear generating plant to be built in DeWitt County, Illinois, by the Illinois Power Company of Sangamon County, Illinois. Soyland was chosen as both the entity through which they would acquire that interest and the generation and transmission cooperative for the fifteen distribution cooperatives' share of the power to be generated by the Clinton plant.
The construction of the plant was marred by a series of delays and cost increases. Although commercial production of power from the Clinton plant was scheduled to commence in June 1980, production of power did not commence until November 1987 (Soyland Br. 8-9). Construction cost estimates of the plant rose from an initial projection of $361,195,000 in February 1976 to $666,654,000 in August 1976 and then to $3,250,000,000 in November 1985. The final cost of the power plant upon completion exceeded $5,000,000,000.
Southwestern and the other fourteen distribution cooperatives acquiring an ownership interest in the Clinton plant financed their acquisition through loans to Soyland made or guaranteed by REA and CFC. By March 1986, REA had advanced $23,815,000 to Southwestern for construction of its electrical distribution system and CFC had loaned it an additional $5,838,000 for the same purpose. Substantial amounts of these loans remain outstanding (663 F. Supp. 538 at 539). REA has also guaranteed the repayment of $480,000,000 in construction loans made to Soyland of which $474,000,000 is still outstanding. Similarly CFC has advanced $63,000,000 to Soyland, and $58,707,606 remains outstanding (Soyland Br. 5).
As a condition of making these loans to Soyland, REA and CFC required Southwestern and its fourteen sister distribution cooperatives to execute long-term all-requirements wholesale power contracts with Soyland. Under these contracts, the fifteen cooperatives promised to purchase all their power from Soyland at a rate based on the maintenance and generation of power costs, as well as retirement of the debt incurred in construction of the plant as specified in paragraph 4(b) of the contract (676 F. Supp. at 901-902). As a result of keying the pricing formula to the cost of the plant construction, the cost of electricity supplied by the plant to distribution cooperatives such as Southwestern greatly exceeded the projected rates.
All-requirements contracts, such as the Soyland-Southwestern one, secure approximately $40 billion in loans committed by REA to cooperatives throughout the country. As Judge Stiehl found in his first memorandum opinion in this case, this particular long-term all-requirements contract, which REA and CFC required Southwestern and Soyland to negotiate, remains the primary security to ensure the repayment of the extremely large loans which REA and CFC made to Soyland and Southwestern. 663 F. Supp. at 540. He concluded that requiring Southwestern and Soyland to enter into this contract to secure their loans was within the power of the REA administrator under 7 U.S.C. § 904. 663 F. Supp. at 541.
The particular all-requirements contract involved in this lawsuit was executed by Southwestern and Soyland on May 26, 1976. According to Southwestern, Soyland started selling power to Southwestern under this contract in 1983. (Southwestern Br. 15.) On March 24, 1986, Southwestern executed a "deferral agreement" with Soyland, postponing until December 31, 1986, Southwestern's obligation to make further payments commencing with the March 1986 billing. Soyland's complaint admits that Southwestern paid Soyland for power under the contract from March 1984 through October 1985, but ...