Central Iowa Power v. Midwest Independent Trans.

• Citation: 561 F.3d 904
• Decision Date: 27 March 2009
• Docket Number: No. 07-3426.,07-3426.
• Parties: CENTRAL IOWA POWER COOPERATIVE, Appellant, v. MIDWEST INDEPENDENT TRANSMISSION SYSTEM OPERATOR, INC.; Afton, Iowa; Amana Society Service Co.; Anita Municipal Utilities; Anita, IA; Coggon Municipal Light Plant; Coggon, IA; Dysart, IA; Farmers Electric Cooperative; Frytown, IA; Grand Junction Municipal Light Plant; Grand Junction, IA; Hopkinton Municipal Utility; Hopkinton, IA; LaPorte City Utilities; LaPorte City, IA; Long Grove, IA; Maquoketa, IA; New London Municipal Utilities; New London, IA; Ogden Municipal Utilities; Ogden, IA; Preston, IA; Resale Power Group of Iowa; Stanhope, IA; State Center, IA; Story City Municipal Electric Utilities; Story City, IA; Strawberry Point Utilities; Strawberry Point, IA; Tipton, IA; Traer Municipal Utilities; Traer; Vinton Municipal Electric Utility; Vinton, IA; West Liberty, IA, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

561 F.3d 904

CENTRAL IOWA POWER COOPERATIVE, Appellant, v. MIDWEST INDEPENDENT TRANSMISSION SYSTEM OPERATOR, INC.; Afton, Iowa; Amana Society Service Co.; Anita Municipal Utilities; Anita, IA; Coggon Municipal Light Plant; Coggon, IA; Dysart, IA; Farmers Electric Cooperative; Frytown, IA; Grand Junction Municipal Light Plant; Grand Junction, IA; Hopkinton Municipal Utility; Hopkinton, IA; LaPorte City Utilities; LaPorte City, IA; Long Grove, IA; Maquoketa, IA; New London Municipal Utilities; New London, IA; Ogden Municipal Utilities; Ogden, IA; Preston, IA; Resale Power Group of Iowa; Stanhope, IA; State Center, IA; Story City Municipal Electric Utilities; Story City, IA; Strawberry Point Utilities; Strawberry Point, IA; Tipton, IA; Traer Municipal Utilities; Traer; Vinton Municipal Electric Utility; Vinton, IA; West Liberty, IA, Appellees.

No. 07-3426.

United States Court of Appeals, Eighth Circuit.

Submitted: May 12, 2008.

Filed: March 27, 2009.

Lawrence Paul McLellan, argued, West Des Moines, IA, Charles A. Patrizia, on the brief, Washington, DC, for appellant.

Howard Eliot Shapiro, argued, Washington, DC, Patricia F. Godley, Brian M. Zimmet, on the brief, for appellee Resale Power Group.

Karl Zobrist, argued, Kansas City, MO, James P. Craig, Brenda K. Wallrichs, on the brief, Cedar Rapids, IA, for appellee Midwest Independent Transmission.

Before RILEY, BOWMAN, and HANSEN, Circuit Judges.

HANSEN, Circuit Judge.

Appellant Central Iowa Power Cooperative (CIPCO), a generation and transmission electrical power cooperative, sued the appellees Midwest Independent Transmission System Operator, Inc. (MISO), the Resale Power Group of Iowa (RPGI), and members of RPGI in Iowa state court. CIPCO raised state law implied contract and tort claims, generally alleging that the appellees had either used CIPCO's transmission system without authorization and compensation or benefitted from that allegedly wrongful use without compensating CIPCO. The appellees removed the suit to federal court, and CIPCO moved to remand the case to state court. The district court denied the remand motion, concluding that it had subject-matter jurisdiction over the suit because CIPCO's state law claims necessarily depended on the resolution of substantial and disputed issues of federal law. Thereafter, the district court granted the appellees' motion to dismiss because it concluded that CIPCO's state law claims were preempted by the Federal Power Act (FPA). CIPCO appeals both the denial of the motion to remand and the dismissal. We conclude that the district court erred by denying CIPCO's motion to remand, and we therefore reverse.

I.

A. The Regulatory Backdrop

Due to the technical and complicated nature of this case, we begin by describing the general transformation from "the bad old days" of local monopolization of the electricity market, Midwest ISO Transmission Owners v. FERC, 373 F.3d 1361, 1363 (D.C.Cir.2004), to the "brave new regulatory world" that provides the backdrop for this appeal, E. Ky. Power Co-op, Inc. v. FERC, 489 F.3d 1299, 1301 (D.C.Cir.2007). We describe this transition in some detail at the outset because it is helpful to an understanding of the parties' relationships to each other, the parties' relationships to the Federal Energy Regulatory Commission (FERC), and the precise legal issues before this court.

In the not-so-distant past, single utilities generally controlled electricity generation, transmission, and distribution for a particular region and charged a combined or "bundled rate" for providing those services. The result was minimal competition among wholesale electricity providers. See New York v. FERC, 535 U.S. 1, 5, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002) ("Competition among utilities was not prevalent."). As technology advanced, however, it became "possible for power companies to transmit electric energy over long distances at a low cost," id. at 7-8, 122 S.Ct. 1012; as a result, robust nationwide competition in the bulk-power market—and lower costs for consumers—became more realistic. But without open, nondiscriminatory access to regional transmission facilities to deliver that power from generators to buyers, this potential competitive marketplace was largely unrealized.

In response to the anticompetitive effects of vertically integrated utility monopolies, in 1996 the FERC issued Order No. 888, fundamentally altering the wholesale electricity market. Order No. 888 "required public utilities to `functionally unbundle' their wholesale generation and transmission services by stating separate rates for each service in a single tariff and offering transmission service under that tariff on an open-access, non-discriminatory basis." Midwest ISO, 373 F.3d at 1364; see Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities, 61 Fed.Reg. 21,540, 21552 (FERC May 10, 1996) (hereinafter Order No. 888). As a result, wholesale energy generators gained open, non-discriminatory access to public utilities' transmission facilities at rates that the transmission providers are required to file with the FERC under Order No. 888.

In a further attempt to create a more efficient and competitive electricity market, the FERC encouraged utilities to cede control over their individual transmission facilities to one entity—a newly created regional transmission organization operated by an independent system operator (ISO). "As envisioned by FERC, an ISO would assume operational control—but not ownership—of the transmission facilities owned by its member utilities, thereby `separating operation of the transmission grid and access to it from economic interests in generation.'" Midwest ISO, 373 F.3d at 1364 (quoting Order No. 888 at ¶ 31,654). The ISO then offers service over the regional transmission system at the rates set out in a single, grid-wide, open-access transmission tariff (OATT), which applies to all electricity generators seeking to use the regional transmission system to deliver power. See Regional Transmission Organizations, 65 Fed.Reg. 810, 811 (FERC Jan. 6, 2000) (Order No.2000) (describing the benefits of regional transmission organizations). Under the FPA, the FERC is vested with exclusive jurisdiction to review the reasonableness of these regional transmission rates. See 16 U.S.C. §§ 824(b)(1), 824d(a), 824e(a); AEP Tex. N. Co. v. Tex. Indus. Energy Consumers, 473 F.3d 581, 584 (5th Cir.2006) ("The Federal Power Act (`FPA') gives FERC exclusive jurisdiction to regulate the transmission and wholesale sale of electric energy in interstate commerce."), cert. denied, ___ U.S. ___, 128 S.Ct. 59, 169 L.Ed.2d 14 (2007).

Appellee Midwest Independent Transmission System Operator, Inc. (MISO) is one such ISO. MISO is a FERC-approved "public utility" that "link[s] up the transmission lines of the member transmission-owning utilities ... into a single interconnected grid stretching across the northern border of the U.S. from Michigan to eastern Montana, and reaching as far south as Kansas City, Missouri and Louisville, Kentucky." Midwest ISO, 373 F.3d at 1365. MISO exercises functional control over its members' facilities by calculating available transmission capability over the interconnected grid and by receiving, approving, and coordinating transmission-service requests for wheeling power over the grid. MISO members retain ownership of their individual transmission facilities and physically operate those facilities subject to MISO's overriding direction and functional control.

The change effected by this new regulatory regime was far-reaching and important, but not unlimited in scope. Under § 201(f) of the FPA, 16 U.S.C. § 824(f), governmental entities and electric cooperatives receiving financing under the Rural Electrification Act of 1936 are exempt from the FPA and by extension, are outside of the FERC's jurisdiction. These entities are considered non-public utilities for purposes of the FPA and are not required to file open-access transmission tariffs with the FERC. The FERC's rate and refund jurisdiction under § § 205 and 206 of the FPA does not apply to non-public utilities. See Bonneville Power Admin. v. FERC, 422 F.3d 908, 918 (9th Cir.2005) ("FERC's rate jurisdiction under § 205 and its refund jurisdiction under § 206 expressly apply only to public utilities." (emphasis added)), cert. denied, ___ U.S. ___, 128 S.Ct. 804, 169 L.Ed.2d 606 (2007). Appellant CIPCO is one such exempt non-public "non-jurisdictional" utility.

B. CIPCO, IPL, and the Operating and Transmission Agreement

CIPCO is a generation and transmission electrical power cooperative based in Cedar Rapids, Iowa. CIPCO owns power lines, substations, and related facilities that it uses to provide power and transmission service to its customers. Its transmission system is interconnected with the transmission system of Interstate Power & Light (IPL), a subsidiary of Alliant Energy.¹ This CIPCO-Alliant interconnected network is referred to as the Integrated Transmission System (ITS), and the central factual allegation in these proceedings is that CIPCO's elements of the ITS have been used without authorization and without compensation by MISO, RPGI, and its members.

In 1991, CIPCO and Iowa Electric Light and Power (Alliant's predecessor in interest) entered into an Operation and Transmission Agreement (O & T Agreement). The O & T Agreement governs CIPCO's and Alliant's operation, maintenance, and use of the ITS. Under § 5.01 of the O & T Agreement, CIPCO and Alliant each maintain ownership of their own separate and discrete elements of the ITS, but pursuant to § 5.06 Alliant "provide[s] all management, supervision, operating supplies, services and labor for the operation of CIPCO's transmission facilities included in the [ITS]." (J.A. at 66.) Under § 5.14 of the Agreement, both CIPCO and Alliant may use the ITS, including the other party's facilities, to wheel power for their own...