City of Jacksonville v. Mun. Elec. Auth. of Ga.
| Citation | 608 F.Supp.3d 1262 |
| Decision Date | 17 June 2020 |
| Docket Number | CIVIL ACTION FILE NO. 1:19-CV-3234-MHC |
| Parties | CITY OF JACKSONVILLE, FLORIDA, a Florida municipal corporation, and JEA, a body politic and corporate, Plaintiffs/Counterclaim Defendants, v. MUNICIPAL ELECTRIC AUTHORITY OF GEORGIA, a public body corporate and politic of the State of Georgia, Defendant/Counterclaim Plaintiff. |
| Court | U.S. District Court — Northern District of Georgia |
Jacob J. Payne, Pro Hac Vice, City of Jacksonville, Jacksonville, FL, Rachel B. Cash, Pro Hac Vice, Rik S. Tozzi, Pro Hac Vice, Burr & Forman LLP, Birmingham, AL, Gregory F. Harley, Jennifer Ziemann, Burr & Forman, LLP, Atlanta, GA, for Plaintiff/Counterclaim Defendant City of Jacksonville, Florida.
Jennifer Ziemann, Burr & Forman, LLP, Atlanta, GA, Rachel B. Cash, Pro Hac Vice, Rik S. Tozzi, Pro Hac Vice, Burr & Forman LLP, Birmingham, AL, for Plaintiff/Counterclaim Defendant JEA.
Andrew D. Silverman, Pro Hac Vice, Jonathan A. Direnfeld, J. Peter Coll, Jr., Pro Hac Vice, Orrick, Herrington & Sutcliffe LLP, New York, NY, Michael R. Levinson, Pro Hac Vice, Seyfarth Shaw LLP, Chicago, IL, Rebecca Woods, Pro Hac Vice, Alexander Joseph Bartko, Ryan Frank Swindall, Seyfarth Shaw, LLP, Atlanta, GA, Lee Deneen, Steven M. Collins, Alston & Bird, LLP, Atlanta, GA, Brian David Boone, Alston & Bird, LLP, Charlotte, NC, for Defendant/Counterclaim Plaintiff.
MARK H. COHEN, United States District Judge This case comes before the Court on Defendant Municipal Electric Authority of Georgia ("MEAG")’s Motion for Judgment on the Pleadings [Doc. 206].
This case arises from a dispute between Plaintiffs City of Jacksonville, Florida (the "City") and JEA, and MEAG, over the validity of a Power Purchase Agreement ("PPA") between MEAG and JEA. Am. Compl. for Declaratory J. ("Am. Compl.") [Doc. 22] ¶ 1. JEA is an independent agency of the City, created and established pursuant to the Charter of the City of Jacksonville. Id. ¶ 4. MEAG is a public corporation of the state of Georgia that generates and transmits wholesale electric power to forty-nine communities across Georgia. Id. ¶ 5; see also O.C.G.A. § 46-3-110 et seq. (the "MEAG Act").
In 2005, MEAG and the other joint owners of the Alvin W. Vogtle Electric Generating Plant ("Plant Vogtle") (collectively, "the Co-Owners") agreed to develop two additional nuclear power generating units, Plant Vogtle Units 3 and 4 (the "Additional Units") (generally, "the Vogtle Project"). Id. ¶¶ 13-15. MEAG holds an undivided 22.7% ownership interest in the Additional Units and is responsible for that proportion of the Vogtle Project's construction costs. Id. ¶¶ 16, 18. Georgia Power Company ("Georgia Power") owns the largest share of the Additional Units and acts as agent for the Co-Owners, including MEAG. Id. ¶ 19. Because the projected electrical output of the Additional Units over their forty-year life was expected to exceed MEAG's needs, MEAG divided its undivided interest in the Additional Units into three separately undivided interests, one of which, Project J, is relevant to this case. Id. ¶ 20. MEAG created MEAG Power SPVJ LLC (the "Project J Entity") as a wholly-owned, direct subsidiary and transferred to it approximately 41.175% of MEAG's ownership interest in the Additional Units. Id. ¶ 22.
MEAG and JEA entered into a PPA dated May 12, 2008, by which MEAG agreed to sell and JEA agreed to purchase all the capacity and energy generated through Project J during the first twenty years of the Additional Units’ operation. Id. ¶¶ 23, 28. On December 31, 2014, MEAG and JEA executed an amended and restated PPA [Doc. 22-1], which is the current operative agreement between them. Id. ¶ 24. The Jacksonville City Council did not approve or ratify either the original or the amended and restated PPA. Id. ¶¶ 25-26. JEA did not acquire an ownership interest in the Additional Units themselves or in the interest created by Project J, and JEA has no control over any decisions concerning the construction or operation of Project J or the Vogtle Project generally. Id. ¶ 29.
In order to finance Project J's portion of the construction of the Additional Units, MEAG authorized and validated approximately $6 billion in revenue bonds to be secured by JEA's payments under the PPA. Id. ¶ 32. MEAG issued a portion of these bonds in 2010 and 2015, and approximately $1.43 billion in principal was outstanding as of December 31, 2017. Id. ¶ 33. MEAG also applied to the United States Department of Energy ("DOE") for loans guaranteed by the DOE, and the DOE issued a commitment to guarantee loans of up to $577.4 million. Id. ¶¶ 34-35. As of December 31, 2017, approximately $337.9 million of these loans for Project J construction costs had been drawn and were outstanding. Id. ¶ 36.
The PPA unconditionally requires JEA to pay MEAG for capacity and energy at the full cost of production of Project J, including debt service on the bonds and DOE-guaranteed loans. Id. ¶ 37. JEA is obligated to fix the rates for its electric utility and charge its ratepayers at levels sufficient to meet these obligations. Id. ¶ 38. Further, JEA must pay these obligations before making debt service payments on JEA's own debt. Id. The PPA contains a "hell-or-high-water clause" that obligates JEA to pay unconditionally, regardless of whether the electricity is ever delivered, whether the Additional Units are completed or operating or operable, and whether their output is suspended, interrupted, interfered with, reduced or curtailed or terminated in whole or in part. Id. ¶ 39; see PPA § 204(g).
In 2008, Georgia Power, for itself and as agent for the other Co-Owners, entered into a contract ("the EPC Contract") in which Westinghouse Electric Company LLC ("Westinghouse") and its affiliate WECTEC Global Project Services Inc. ("WECTEC") agreed to design, engineer, procure, construct, and test the Additional Units. Id. ¶ 40. The EPC Contract was a fixed-cost contract, which required Westinghouse and WECTEC to absorb most of the construction cost overruns from the Vogtle Project. Id. ¶ 41. After significant construction delays and cost overruns with the Vogtle Project, Westinghouse and WECTEC filed for bankruptcy on March 29, 2017. Id. ¶¶ 42-43.
Effective October 23, 2017, Georgia Power, for itself and as agent for the other Co-Owners, entered into the Construction Completion Agreement ("Construction Agreement") with Bechtel Corporation ("Bechtel"), who serves as the primary construction contractor for the remainder of the Vogtle Project. Id. ¶ 45. The Construction Agreement is a cost-reimbursement arrangement under which the Co-Owners agreed to reimburse Bechtel for its actual construction costs plus certain additional fees, and each Co-Owner is liable for its proportionate share of all amounts owed to Bechtel. Id. ¶ 46. Since the Construction Agreement was made, the estimated cost to complete Project J has increased from $1.387 billion to $2.918 billion and the estimated completion date has been pushed from April 2016 to November 2021. Id. ¶ 47. JEA was not permitted to participate in negotiation of the terms of the Construction Agreement or the decision to continue construction of the Additional Units. Id. ¶ 48. Plaintiffs contend that the change from a fixed-cost to a cost-reimbursement contract changed the nature of JEA's obligations and risks with respect to Project J because MEAG was able to pass along a substantial part of the theoretically unlimited costs to construct the Additional Units, while JEA was still required to satisfy this obligation pursuant to the PPA. Id. ¶ 49.
On September 11, 2018, Plaintiffs sued MEAG in the Circuit Court, Fourth Judicial Circuit, in and for Duval County, Florida, seeking a declaratory judgment that the PPA between JEA and MEAG violates Florida's constitution, laws, and public policy and is therefore ultra vires , void ab initio , and unenforceable.1 See Compl. for Declaratory J. [Doc. 1-1]. On October 2, 2018, MEAG removed the case to the United States District Court for the Middle District of Florida. See Def. Mun. Elec. Auth. of Ga.’s Notice of Removal [Doc. 1]. Plaintiffs filed their Amended Complaint on October 25, 2018. See Am. Compl.
The case was transferred to this Court on July 17, 2019. See generally July 16, 2019, Order [Doc. 104]. On July 26, 2019, MEAG answered the Amended Complaint and counterclaimed for (1) a declaratory judgment that the PPA is enforceable, and (2) breach of contract. See Def.’s Answer and Countercl. to Pl.’s Am. Compl. [Doc. 109]. MEAG seeks a declaration that the PPA is enforceable, an order requiring that JEA specifically perform, an award of damages for JEA's alleged breach of contract, and reasonable attorney's fees, costs, and expenses. Id. at Prayer for Relief. On August 16, 2019, Plaintiffs answered MEAG's counterclaim, and JEA asserted its own alternative counterclaims2 for (1) breach of fiduciary duty, (2) failure to perform in good faith, and (3) negligent performance of undertaking. See JEA's Answer and Defenses to Countercl. of Mun. Elec. Auth. of Ga. and Alternative Countercls. of JEA against MEAG [Doc. 126]; City of Jacksonville, Fla.’s Answer and Defenses to Countercl. [Doc. 127].
On November 25, 2019, the Court granted in part MEAG's Motion to Dismiss JEA's Counterclaims [Doc. 140], dismissing JEA's alternative counterclaims for breach of fiduciary duty and failure to perform in good faith. Nov. 25, 2019, Order [Doc. 198] at 29. However, the Court did not dismiss JEA's alternative counterclaim for negligent performance of undertaking. Id. On December 19, 2019, the Court granted MEAG's request to file a motion for judgment on the pleadings and denied without prejudice JEA's request to file a motion for summary judgment. See Dec. 19, 2019, Order [Doc. 205] at 10. On December 27, 2019, MEAG filed the present Motion for Judgment on the Pleadings, requesting that the Court (1) declare that the PPA is valid and...
To continue reading
Request your trial