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Lawrenceburg Power, LLC v. Lawrenceburg Municipal Utilities

United States District Court, S.D. Indiana, New Albany Division

September 30, 2019




         This matter is before the Court on a Motion to Dismiss Complaint filed pursuant to Federal Rule of Civil Procedure 12(b)(6) by Defendants Lawrenceburg Municipal Utilities (“LMU”) and the City of Lawrenceburg (“City”) (collectively, “Defendants”) (Filing No. 31), and Defendants’ Motion to Stay (Filing No. 33). Also before the Court, is a Motion for Leave to File Surreply in Opposition to Defendants’ Motion to Dismiss and Motion to Stay (Filing No. 48), filed by Plaintiff Lawrenceburg Power, LLC (“Plaintiff”). This case surrounds a dispute over the provision of utility services in Lawrenceburg, Indiana. Plaintiff initiated this action, requesting declaratory and injunctive relief to avoid irreparable harm that would result from the termination of water and sewer services at its Lawrenceburg facilities. For the following reasons, the Defendants’ Motion to Dismiss is granted, the Motion to Stay is denied as moot, and Plaintiff’s Motion for Leave to File Surreply is denied.

         I. BACKGROUND

         The following facts are not necessarily objectively true, but as required when reviewing a motion to dismiss, the Court accepts as true all factual allegations in the complaint and draws all inferences in favor of Plaintiff as the non-moving party. See Bielanski v. County of Kane, 550 F.3d 632, 633 (7th Cir. 2008).

         Plaintiff Lawrenceburg Power is a Delaware limited liability company with its principal office in Princeton, New Jersey. It is authorized to do business in Indiana as a foreign limited liability company. Plaintiff owns and operates a natural gas-fired electric generating facility located in Lawrenceburg, Indiana (the “Plant”). It operates the Plant to sell electric energy, capacity, and other services in the federally-regulated wholesale electric power market (Filing No. 1 at 1, 5).

         The City is a third-class city within the meaning of Indiana Code § 36-4-1-1, and it is located in Dearborn County, Indiana. The City is authorized to define its corporate limits and boundaries, and it owns and operates LMU, a municipal utility company. LMU provides retail electric, water, and waste water services on an unbundled basis for the Defendants’ community within its service territory. LMU has withdrawn from the Indiana Utility Regulatory Commission’s jurisdiction respecting its electric utility services rates (Filing No. 1 at 5). As a result, LMU’s provision of water and sewer services within its service territory is not subject to the rate jurisdiction of the Indiana Utility Regulatory Commission.

         The federally-regulated wholesale electric power market for the Mid-Atlantic region, including relevant parts of Indiana, is managed by PJM Interconnection, LLC (“PJM”). To deliver the electricity it generates to the grid, Plaintiff is directly interconnected to the high-voltage transmission system owned by Indiana & Michigan Power Company (“Indiana & Michigan Power”), a subsidiary of the American Electric Power Corporation (“AEP”) and an affiliate of the Plant’s prior owner, AEP Generating Company (“AEP GenCo”). Indiana & Michigan Power’s transmission lines and related facilities are part of a larger, regional high-voltage interstate transmission system, which is controlled and operated by PJM. Both the wholesale electric power market and the interstate transmission system, including the market managed by PJM, are comprehensively regulated by the Federal Energy Regulatory Commission (“FERC”) pursuant to the Federal Power Act, 16 U.S.C. § 791a et seq. (“FPA”) (Filing No. 1 at 1–2).

         The Plant requires electricity to operate certain equipment located on-site such as its controls, computers, lighting, heating, and air conditioning. These electrical requirements are commonly referred to as “station power”. When the Plant is generating electricity, it uses some of the power it generates to directly satisfy its station power requirements. During the infrequent hours when the Plant is not generating electricity, the Plant obtains electricity from its direct interconnection to the FERC-regulated high-voltage interstate transmission system to satisfy its station power requirements. Id. at 2.

         Plaintiff receives lower-voltage retail service from LMU for some of its facilities at the same location as the Plant, but those other facilities are not used in the generation of electricity at the Plant. The Plant itself does not have any electrical interconnection to the electric distribution system owned and operated by LMU. Thus, LMU does not and cannot directly supply the Plant itself with any electricity required for station power. Id. at 2.

         Under the terms of a mutual settlement agreement to resolve a lawsuit among LMU, the City, and AEP GenCo (Plaintiff’s predecessor in interest and the prior owner of the Plant), AEP GenCo voluntarily entered into an agreement for electric service on December 23, 2015, with LMU and the City. This agreement for electric service was entered into just months before AEP GenCo began the process of selling the Plant.[1] Under the agreement, LMU agreed to furnish the Plant with some form of deemed electric power plant service (although LMU is not electrically interconnected with the Plant), and AEP GenCo agreed to make payments to LMU. Furthermore, the agreement allowed Plaintiff to unilaterally terminate the agreement on the first day of the calendar year with a one-year notice. Plaintiff exercised that right on December 21, 2017, and provided timely notice to LMU for the termination of the agreement effective January 1, 2019. After providing the notice of termination, Plaintiff continued to pay the amounts owing to LMU under the terms of the agreement and intended to do so during the remaining term of the agreement (Filing No. 1 at 2–3).

         After the termination of the agreement, Plaintiff intended to self-supply all of its station power requirements, including during those limited time periods when the Plant is not generating, under the provisions of the federally-approved Open Access Transmission Tariff that governs PJM’s operation of the wholesale market and the regional transmission system (“PJM Tariff”). The PJM Tariff comprehensively regulates the wholesale market and transmission system and is approved by FERC pursuant to the FPA. Under the federally-approved PJM Tariff, a generator participating in the wholesale market may elect to “self-supply” station power during “negative” intervals-those time periods when the generator is not generating-provided the generator has generated more electricity during a calendar month than it obtains from the high-voltage interstate transmission system. Thus, under the PJM Tariff, a generator can “net” its station power requirements against its cumulative generation across a calendar month, provided it has “banked” enough electricity during that month. This self-supply option is available to any generator that participates in PJM’s wholesale market. Alternatively, a generator may elect to have its station power requirements served by a third-party under a contract, such as what AEP GenCo did when it entered into the agreement with LMU. A generator may change its election between these options by giving notice to PJM. Id. at 3.

         After receiving the written notice that Plaintiff was exercising its right to terminate the agreement, LMU responded that it might terminate the provision of water and sewer services to the Plant, which services are a necessary and integral part of the Plant’s operations. LMU has been providing the necessary water and sewer services to Plaintiff. LMU advised Plaintiff that it would undertake a cost-of-service study as part of an effort by the City and LMU to adopt a new rate ordinance that would impose increased rates on Plaintiff. LMU and the City advised that they may also take other action in an attempt to subject Plaintiff to the terms of the agreement or a subsequent rate ordinance passed by the City and implemented by LMU. Id. at 4.

         If the City and LMU terminate the water and sewer services to Plaintiff, Plaintiff would effectively have to cease operations. The Plant would be rendered unworkable because of a lack of water and sewer services, and Plaintiff would be unable to sell electricity in the PJM wholesale market. Plaintiff asserts that any such action by the City and LMU would serve to impermissibly frustrate Plaintiff’s rights under the FPA to participate in the wholesale markets operated by PJM and Plaintiff’s right to self-supply its station power requirements under the FERC-approved PJM Tariff. Plaintiff asserts that it would suffer irreparable harm, and the wholesale electricity market administered by PJM also would be harmed because the Plant’s generated electricity would not be available to be sold in the market. Id. at 4.

         In response to the City’s and LMU’s threat to terminate water and sewer services, Plaintiff filed this lawsuit on December 13, 2018, asserting a single claim for equitable relief to prevent LMU and the City from taking such actions in contravention of federal law by attempting to force Plaintiff to remain subject to the terms of the agreement or a new rate ordinance or forcing Plaintiff to become an electric customer of LMU in order to continue receiving water and sewer services. Id. at 4–5.


         Federal Rule of Civil Procedure 12(b)(6) allows a defendant to move to dismiss a complaint that has failed to “state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). When deciding a motion to dismiss under Rule 12(b)(6), the Court accepts as true all factual allegations in the complaint and draws all inferences in favor of the plaintiff. Bielanski, 550 F.3d at 633; Cozzi Iron & Metal, 250 F.3d at 574 (similar standard for dismissal of a counterclaim). However, courts “are not obliged to accept as true legal conclusions or unsupported conclusions of fact.” Hickey v. O’Bannon, 287 F.3d 656, 658 (7th Cir. 2002).

         The complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). In Bell Atlantic Corp. v. Twombly, the United States Supreme Court explained that the complaint must allege facts that are “enough to raise a right to relief above the speculative level.” 550 U.S. 544, 555 (2007). Although “detailed factual allegations” are not required, mere “labels, ” “conclusions, ” or “formulaic recitation[s] of the elements of a cause of action” are insufficient. Id.; see also Bissessur v. Ind. Univ. Bd. of Trs., 581 F.3d 599, 603 (7th Cir. 2009) (“it is not enough to give a threadbare recitation of the elements of a claim without factual support”). The allegations must “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Twombly, 550 U.S. at 555. Stated differently, the complaint must include “enough facts to state a claim to relief that is plausible on its face.” Hecker v. Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009) (citation and quotation marks omitted). To be facially plausible, the complaint must allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).

         When considering a motion to dismiss, “a court may consider, in addition to the allegations set forth in the complaint itself, documents that are attached to the complaint, documents that are central to the complaint and are referred to in it, and information that is properly subject to judicial notice.” Williamson v. Curran, 714 F.3d 432, 436 (7th Cir. 2013).


         Before the Court are Defendants’ Motion to Dismiss and Motion to Stay discovery pending resolution of the Motion to Dismiss and the Plaintiff’s Motion for Leave to File Surreply in Opposition to Defendants’ Motion to Dismiss and Motion to Stay. The Court will first address Plaintiff’s Motion for Leave to File Surreply and then turn to the Motion to Dismiss. In light of the Court’s ruling on the Motion to Dismiss, Defendants’ Motion to Stay discovery pending resolution of the Motion to Dismiss is denied as moot.

         A. Plaintiff’s Motion for Leave to File Surreply

         Plaintiff requests leave to file a surreply in opposition to the Defendants’ Motion to Dismiss and Motion to Stay for “the limited purpose of addressing an argument that LMU and the City presented for the first time in their reply brief in support of their motion to dismiss and motion to stay.” (Filing No. 48 at 1.) According to the Plaintiff, “Defendants’ reply repeatedly cites an administrative order, Midwest Independent Transmission System Operator, Inc., 139 FERC ¶ 61, 113 (2012) (‘MISO’), that was not presented in their motion to dismiss to support an entirely new argument.” Id. Plaintiff asserts that this entirely new argument is that FERC “affirmatively disclaimed jurisdiction over any and all sales of station power nationwide, including under the PJM Interconnection, L.L.C. (‘PJM’) tariff.” Id. at 2. Plaintiff asks for leave to file a surreply to address MISO and the new argument.

         In response, Defendants point out that Plaintiff advanced the argument (in its response brief opposing the Motion to Dismiss) that FERC’s Duke Energy orders affected only station power in California, a single-state wholesale electric market, and those orders had no effect on the station power provisions in the PJM Tariff. In the reply brief, Defendants cited FERC’s decision in MISO to assert that FERC rejected Plaintiff’s argument and held that its disclaimer of jurisdiction over the provision of station power in the Duke Energy orders applied regardless of the identity of the transmission provider and was not limited to California. Defendants argues that they were entitled to reply to Plaintiff’s response brief and directly address the Plaintiff’s arguments, including citing to ...

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