Cabot LNG Corp. v. Puerto Rico Elec. Power Authority
| Decision Date | 27 March 1996 |
| Docket Number | Civil No. 94-2036 (DRD). |
| Citation | 922 F. Supp. 707 |
| Parties | CABOT LNG CORPORATION, Plaintiff, v. PUERTO RICO ELECTRIC POWER AUTHORITY, et al., Defendants. |
| Court | U.S. District Court — District of Puerto Rico |
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Luis Sanchez-Betances, Sanchez Betances & Sifre, San Juan, PR, John C. Traficonte, Cabot Corporation, Boston, MA, Robert S. Frank, Jr., Choate Hall & Stewart, Boston, MA, for Cabot LNG Corp.
Miriam Soto-Contreras, Pedro Santiago-Torres, San Juan, PR, for Puerto Rico Electrical Power Authority (PREPA).
Pending before this Court are cross motions for summary judgment. Plaintiff Cabot LNG Corp. ("Cabot") has moved for summary judgment requesting that defendant Puerto Rico Electric Power Authority ("PREPA") be enjoined from executing or performing under any contract for the sale of electricity unless that contract results from public bidding pursuant to section 15 of PREPA's Organic Act, P.R.Laws Ann. tit. 22, § 205 (1987) (Docket No. 5). Defendant PREPA and intervenors EcoEléctrica, L.P. ("EcoEléctrica") and AES Puerto Rico L.P. ("AES-PR") (collectively referred to as "Defendants") have filed a reply to Plaintiff's motion and moved for summary judgment requesting that Cabot's complaint be dismissed.1 (Docket Nos. 11, 20, 31, 43). Subsequently, Plaintiff filed an opposition thereto. (Docket Nos. 45, 46). The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332. For the reasons set forth below, this Court grants summary judgment in favor of the Defendants and dismisses Cabot's complaint with prejudice.2
The material facts regarding this case are not complex and are not in dispute. Rather, the dispute turns on questions of law. The following factual description is based on the affidavits, uncontested statements of material fact, and other pertinent materials submitted to this Court.
Defendant PREPA is a public corporation of the Commonwealth of Puerto Rico. It generates, transmits, and distributes electricity to consumers in Puerto Rico. PREPA was formed in 1941; its powers are enumerated by its Organic Act, 22 L.P.R.A. §§ 191-247.
Intervenor EcoEléctrica is a Bermuda limited partnership whose general partners are Buenergia B.V. (a Dutch B.V.) and KES Bermuda, Inc. (a Delaware corporation).
Intervenor AES-PR is a limited partnership organized pursuant to the Laws of the State of Delaware and duly registered to do business in Puerto Rico. Its partners are AES Puerto Rico, Inc. and AES Las Mareas, Inc. (both Delaware corporations).
Plaintiff Cabot is a Delaware corporation engaged in the business of importing and selling liquefied natural gas (LNG) in the United States, and related business activities.
Prior to 1978, most of the electric energy that electric utilities sold was generated at power plants developed and constructed by themselves. Slusser Aff. ¶ 8. To the extent that utilities purchased electricity, they purchased it from other electric utilities. In 1978, however, Congress enacted the Public Utility Regulatory Policies Act ("PURPA"), which transformed the electric utility industry. Id. Section 210 of PURPA, 16 U.S.C. § 824a-3, requires utilities to purchase electricity from independently-owned generation facilities that meet certain qualifications, known as "qualifying facilities" or "QFs." The Federal Energy Regulatory Commission ("FERC") promulgated regulations implementing PURPA. Among other things, these regulations establish the rates that utilities must pay for electricity. 18 C.F.R. § 292.304.3
Since PURPA was enacted into law, a whole new independent power industry has evolved in the United States. Slusser Aff. ¶ 8. Most new generating capacity constructed in the United States is now independently-owned, instead of being owned by electric utilities. Independently-owned electric generation facilities have allowed utilities to diversify their sources of generation and uses of fuel. Such facilities have also allowed utilities to avoid incurring the large capital costs associated with the construction of electric generation facilities because independently-owned generation facilities are also independently financed. Samson Aff. ¶ 5.
It is undisputed that a wide variety of skills and expertise are required to develop and operate an independently owned electric generation facility. Slusser Aff. ¶ 9; Samson Aff. ¶ 6. Financial expertise is necessary to obtain the complex, off-balance sheet financing typically employed by these facilities, which cost hundreds of millions of dollars. Scientific and engineering expertise is required to successfully apply the advanced technologies that are frequently employed. Environmental expertise is required to satisfy the numerous federal, state and local environmental requirements. Specialized business expertise is required to finalize the fuel supply, power sales, and other contractual arrangements necessary for the operation of the facility. Finally, operational expertise is required to run the facility in an efficient, reliable, and economic fashion. Slusser Aff. ¶ 10; Samson Aff. ¶ 6.
By 1993, after it became evident that the Cogentrix project would not go forward,4 PREPA received numerous additional unsolicited proposals from private developers, including submittals from EcoEléctrica, AESPR and Cabot, and evaluated them for possible incorporation into PREPA's electric system expansion plan. Samson Aff. ¶¶ 11-14. These proposals encompassed a wide variety of technologies and included locations throughout Puerto Rico.
The project developers made presentations regarding their projects to the Cogeneration Task Force, a group formed by the Government of Puerto Rico and consisting of the directors of several governmental agencies and other persons from the Executive Branch that were or might be involved in the formulation of Puerto Rico's public policy on energy. Id. Presentations also were made to the Puerto Rico House of Representatives' Committee on Socioeconomic Development and Planning. The presentations before the House committee were open to the public and were widely reported in the press. Id.
Of the proposals submitted to PREPA, five, including the submittals by EcoEléctrica, AES-PR, and Cabot, were selected by PREPA for additional evaluation. Samson Aff. ¶ 19. In order to evaluate the proposals in depth, PREPA sent identical letters on September 29, 1993, to the five proponents requesting detailed additional information and enclosing a draft power purchase contract. Id. After PREPA received and evaluated each of the five responses, PREPA invited all proponents to individual meetings for further discussion of issues related to the project. Id. ¶¶ 20-22.
On February 25, 1994, PREPA informed EcoEléctrica and AES-PR by letter that they had been selected to supply electricity to PREPA in accordance with their proposals, pending the successful negotiation of a contract. One day later, PREPA informed Cabot by letter that its proposal had not been among those selected for inclusion in PREPA's expansion plan and advised Cabot that PREPA would consider a revised proposal in future expansion plan revisions.
Cabot did not easily accept the loss. In a letter to PREPA dated April 20, 1994, Cabot's counsel urged PREPA to "initiate negotiations with the third, fourth or fifth finalist," and "if the presently selected LNG project is rejected, then PREPA would turn to the next LNG alternative." This letter contained no suggestion that Cabot understood that PREPA was required to engage in a formal bidding process.
Almost three months later in a letter to PREPA dated June 15, 1994, Cabot stated to PREPA its belief that formal bidding was required. Complaint ¶ 14. Although having fully participated in PREPA's evaluation process, Cabot now expressed "considerable doubts and concerns ... about the process by which PREPA selected the projects for the supply of electricity ... announced in February," and, for the very first time, requested that PREPA initiate a public competitive bidding process pursuant to section 205 of PREPA's Organic Act.5 PREPA responded by informing Cabot that section 205 was inapplicable to the process of selecting entities to supply electricity. Cabot then filed its complaint in this Court on July 29, 1994.
Subsequent to the filing of Cabot's complaint, EcoEléctrica and AES-PR continued negotiations with PREPA, and each company ultimately executed long-term contracts in which they agreed to finance, engineer, construct, and operate cogeneration plants generating electricity to be sold to PREPA well into the next century. They have also continued their development activities, including the following: (1) arranging for nonrecourse "project financing" for their projects; (2) completion of conceptual engineering to support the filing of permits and other applications requiring agency approvals; (3) follow-up meetings with, and hearings before, those agencies responsible for granting permits and approvals; (4) conducting environmental, geotechnical, seismic, and marine studies in the proposed site areas; (5) preparation and submittal of permit and approval applications; (6) negotiation of fuel supply arrangements; (7) continuation of public education campaigns, including creation of education materials and organization of meetings with various groups to present the project; (8) analysis of tax issues and filing of requests and clarifications regarding those issues; (9) analysis of legal issues related to various aspects of the project including contract negotiations, land acquisition, etc.; (10) formation of the project entities; and (11) coordination with PREPA regarding project development. Samson Aff. ¶ 25. All of these activities require the involvement of...
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