Fulton Cogeneration Associates v. Niagara Mohawk Power Corp.

• Decision Date: 15 May 1996
• Docket Number: D,No. 700,700
• Citation: 84 F.3d 91
• Parties: FULTON COGENERATION ASSOCIATES, Plaintiff-Appellee, v. NIAGARA MOHAWK POWER CORP., Defendant-Appellant. ocket 95-7540.
• Court: U.S. Court of Appeals — Second Circuit

Page 91

84 F.3d 91

FULTON COGENERATION ASSOCIATES, Plaintiff-Appellee, v. NIAGARA MOHAWK POWER CORP., Defendant-Appellant.

No. 700, Docket 95-7540.

United States Court of Appeals, Second Circuit.

Argued Feb. 2, 1996.

Decided May 15, 1996.

Robert A. Barrer, Syracuse, NY (Hiscock & Barclay, LLP; Brian K. Billinson, Niagara Mohawk Power Corporation, of counsel), for Defendant-Appellant.

Leonard H. Singer, Albany, NY (Couch, White, Brenner, Howard & Feigenbaum, of counsel), for Plaintiff-Appellee.

Before OAKES, KEARSE and WINTER, Circuit Judges.

OAKES, Senior Circuit Judge:

Niagara Mohawk Power Corporation ("Niagara") appeals from a summary judgment entered by the United States District Court for the Northern District of New York, Frederick J. Scullin, Jr., Judge, in favor of Fulton Cogeneration Associates ("Fulton") on its claim against Niagara for breach of contract. The district court held that Niagara was obligated under the contract to purchase all electricity generated by an electric generating facility operated by Fulton in the Town of Fulton, New York, so long as such quantities were not unreasonably disproportionate to the stated estimates within the contract, and that, as a matter of law, Fulton never produced an amount of electricity that exceeded commercially reasonable expectations. Niagara argues on appeal that the district court should have dismissed or stayed the action until the New York Public Service Commission ("PSC") ruled on the matter, that the district court erred in granting Fulton summary judgment because several genuine issues of material fact exist, and that the district court erred in not granting summary judgment to Niagara because Niagara acted properly under the Agreement and PSC rules. We find that this case presents material issues that must be determined by a trier of fact, and we therefore reverse and vacate in part the summary judgment in favor of Fulton and remand. In all other respects, we affirm the district court.

BACKGROUND

In 1978, Congress passed the Public Utility Regulatory Policies Act ("PURPA"), 16 U.S.C. § 824, et seq., in an effort to reduce United States dependence on foreign oil by encouraging the development of alternative energy sources. To further this goal, PURPA requires electric utilities to purchase all electricity produced by independent power producers operating so-called Qualifying Facilities ("QF"). See 16 U.S.C. § 824a-3(b); 18 C.F.R. § 292.304. State agencies such as the PSC are empowered to regulate the facilities and approve the contracts covered by PURPA. See 16 U.S.C. § 824a-3; N.Y.Pub.Serv.Law § 66-c(1) (McKinney Sup.1995).

In December 1987, Turner Power Group, Inc., Fulton's predecessor-in-interest and an independent power producer operating a QF (the "Plant"), entered into a power purchasing agreement (the "Agreement") with Niagara pursuant to the provisions of PURPA. The first "WHEREAS" clause of the Agreement describes the size of Fulton's Plant:

SELLER will own and operate an electric generating plant ... with a capacity of approximately 47.0 megawatts, and with expected annual production of approximately 392,000 Megawatt-hours (individually and together referred to as "ELECTRICITY")

....

Under the terms of the Agreement, Fulton agreed to deliver and Niagara agreed to accept all of the "electricity" produced by the Plant, net of any amounts used by Fulton itself. ¹ The Agreement further provides that Niagara must pay for the electricity "on the basis of energy, or kwh, delivered" to Niagara at the rate established in Niagara's tariff The Plant is designed to deliver electricity to Niagara and steam to a Nestle Chocolate & Confections Company factory located nearby. The Plant's gas turbine generator set burns natural gas or # 2 distillate oil to produce electricity. Exhaust heat from the turbine is captured and used to generate steam, some of which can be injected back into the turbine to boost capacity levels, and therefore ultimate energy production, after Fulton has sent the required amount of steam to the Nestle factory.

                which is 6cents/Kwh.   The PSC approved the contract in April 1988
                

The distinction between capacity and energy is crucial to an understanding of the dispute between these two parties. As explained in affidavits submitted by both parties, the term "capacity" refers to the amount of electric power that an electric generator can produce, and is measured in kilowatts (Kw) or megawatts (Mw). The term "energy" is the usage of capacity over a period of time and is measured in kilowatthours (Kwh) or megawatthours (Mwh). Thus, the two concepts are linked and dependent upon one another. As the contract states, the terms are referred to individually and collectively as "ELECTRICITY."

Upon completion of the Plant in July 1991, Fulton began delivering electricity to Niagara. From July 1991 through April 1992, Niagara bought all delivered electricity from Fulton at the rate of 6cents/Kwh.

On March 13, 1992, Niagara informed Fulton that the Plant was producing above a 47 megawatt capacity. ² Because Niagara believed it was not required to pay for production above that level, it stated that it would use a formula called "Demonstrated Maximum Net Capability," or "DMNC," to measure the seasonal capacity of the Plant and prorate payments to Fulton. Under this formula, if the capacity climbed over the 47 megawatts provided in the contract, Niagara would calculate a seasonal capacity rate based upon the four peak hour capacity output in the summer and winter--in other words, the highest average consecutive four-hour output--and would pay the 6cents/Kwh rate only for that proportion of electricity attributable to a 47 megawatt capacity. Any excess would be paid at a market rate, which was lower than the 6cents/Kwh contract rate. The DMNC formula was mentioned nowhere within the Agreement between Niagara and Fulton, but Niagara chose it because it had been utilized by the PSC in connection with other PURPA contracts.

Niagara thus measured the seasonal capacity of the Plant in terms of the DMNC formula at 50 megawatts. Niagara thereafter paid for 47/50ths of the energy at the 6cents/Kwh rate and the rest at a market rate. Niagara used this DMNC formula from May 1992 through October 1992. After October 1992, it began paying the 6cents/Kwh rate again. The use of the formula resulted in Niagara paying Fulton $279,691.19 less in 1992 than it would have been obligated to do at the contract rate. ³

Fulton commenced this breach of contract action based upon diversity of citizenship on October 30, 1992, seeking both equitable and monetary relief. After denying Niagara's motion to dismiss the complaint due to the doctrines of abstention and primary jurisdiction, the district court ordered that discovery proceed. After the close of discovery, both parties moved for summary judgment. In an order dated October 11, 1994, the district court denied both parties' motions. ⁴ The Niagara's motion for reconsideration was subsequently denied, and this appeal ensued.

                case was scheduled for a final pre-trial conference and a bench trial to commence on March 27, 1995.   On the morning of the first day of trial, the district court decided to reconsider the summary judgment motions sua sponte, based in large part upon a recently decided case of the Appellate Division, Third Department, Philadelphia Corp. v. Niagara Mohawk Power Corp., 207 A.D.2d 176, 621 N.Y.S.2d 237 (3d Dept.1995).   After hearing oral argument, the district court granted summary judgment to Fulton
                

DISCUSSION

Niagara raises three issues in its appeal. First, it claims that the district court should have declined jurisdiction in this case based upon the doctrine of abstention or, alternatively, the doctrine of primary jurisdiction. Second, Niagara asserts that the district court erred in granting summary judgment to Fulton because material issues of fact regarding the alleged breach of contract remain in dispute. Finally, Niagara argues that the district court should have entered summary judgment in favor of Niagara because Niagara acted properly under the terms of the Agreement and PSC rules. We will address each of these issues in turn.

I. Exercise of Jurisdiction

Niagara moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss Fulton's complaint on the basis of the doctrine of abstention, or, in the alternative, the doctrine of primary jurisdiction. The district court denied Niagara's motion, finding that no state policy problems of substantial importance were involved and that this breach of contract action did not fall within the particular expertise and regulatory duties of the PSC. We agree with the district court and therefore affirm its denial of Niagara's motion to dismiss.

A. Doctrine of Abstention

Federal courts have a "virtually unflagging obligation ... to exercise the jurisdiction given them." In re Joint Eastern and Southern District Asbestos Litigation, 78 F.3d 764, 775 (2d Cir.1996) (quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 1246, 47 L.Ed.2d 483 (1976)). A district court's decision to abstain is appropriate only in order:

(1) to avoid a federal constitutional issue where that issue may be mooted or altered by a state-court ruling on the state-law question; or (2) to avoid hindrance of such state functions as criminal prosecutions or the collection of state taxes; or (3) to conserve federal judicial resources in those "exceptional circumstances" where there is concurrent state-court litigation whose resolution could result in "comprehensive disposition of litigation"; or (4) to defer to state resolution of difficult state-law questions that involve local regulation and administration or important matters of local public policy.

Id. (citations omitted). A district court abuses its discretion if it abstains from jurisdiction in a case that is not covered by one of these four narrow...