Imperial Irrigation Dist. v. Cal. Indep. Sys. Operator Corp.
| Decision Date | 24 November 2015 |
| Docket Number | Case No.: 15-CV-1576-AJB-RBB |
| Citation | 146 F.Supp.3d 1217 |
| Court | U.S. District Court — Southern District of California |
| Parties | Imperial Irrigation District, Plaintiff, v. California Independent System Operator Corporation, Defendant. |
John Cardinal Parks, Nicole M. Black, Todd R. Seelman, Lewis Brisbois Bisgaard & Smith LLP, Denver, CO, R. Gaylord Smith, Lewis Brisbois Bisgaard and Smith, San Diego, CA, Ross G. Simmons, Imperial Irrigation District, Imperial, CA, for Plaintiff.
Neil R. O'Hanlon, Hogan Lovells U.S. LLP, Los Angeles, CA, Robert B. Wolinsky, Hogan Lovells U.S., LLP, Washington, DC, for Defendant.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS (Doc. No. 16)
Presently before the Court is Defendant California Independent System Operator Corporation's (“CAISO”) motion to dismiss Plaintiff Imperial Irrigation District's (“IID”) complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6)
. (Doc. No. 16.) IID opposes the motion. (Doc. No. 18.) The Court finds the matter suitable for decision on the papers, without oral argument, pursuant to Local Civil Rule 7.1. The Court GRANTS IN PART AND DENIES IN PART CAISO's motion.
This dispute centers on nondiscriminatory access to California's electric transmission grid. To fully understand the issues underlying the instant motion, some background concerning the electric power transmission industry must be laid.
Up until the late 20th Century, electricity was largely a matter of local concern, with local generating facilities serving their respective geographic regions. The utility companies that owned and controlled these facilities were predominately vertically integrated, in that they sold generation, transmission, and distribution services as a bundled package to their local retail customers. While technological advances and changes in the law increased entry into wholesale markets for electric power generation and created a need for greater access to transmission services, the vertically-integrated utilities were able to use their monopoly control to exclude potential competitors.
In response, Congress enacted the Federal Energy Policy Act (“FEPA”) in 1992, which fundamentally changed how the electric transmission system (also referred to as “electric transmission grid” or “grid”) was owned and operated nationally. FEPA enabled entities known as independent system operators (“ISOs”) to enter energy markets. The Federal Energy Regulatory Commission (“FERC”) encouraged the vertically-integrated utilities to relinquish control over their transmission systems to the ISOs for independent operation to facilitate the goal of nondiscriminatory access to the grid.
Subsequently, FERC Order No. 888 required all jurisdictional public utilities to unbundle wholesale electric power services and to file open access, nondiscriminatory transmission tariffs, thereby allowing all market participants to gain competitive and nondiscriminatory access to the electric transmission system, which was required for electric generators to serve wholesale customers and end consumers. Although not required, FERC strongly encouraged ISO formation so as to provide transmission services separate from sales of electric energy.
ISOs coordinate, control, and monitor the operation of electric power systems. They manage, but do not own, the transmission assets within their geographic areas. Those assets are owned by independent transmission companies, generation and transmission cooperatives, transmission agencies, and local utility companies, including for-profit investor-owned utilities (“IOUs”).
In California, there are eight entities (“balancing authorities”) providing electric power transmission services and transmission operations services, each serving a separate balancing authority area (“BAA”) within the state. IID and CAISO are two of these entities. IID is headquartered in Imperial, California, and provides electric power primarily to customers in the Imperial Valley and parts of Riverside and San Diego counties. CAISO is a non-governmental entity that the State of California created pursuant to California Assembly Bill 1890. It was incorporated in California in 1997 and is headquartered in Folsom, California.
IID alleges it competes with CAISO in two markets: the transmission service market and the transmission operations services market. The transmission service market is “the market for transmitting electricity across high voltage, long-distance, power lines within the state of California, for delivery to customers outside California taking service on interconnected electricity transmission systems.” The transmission operations services market is a market where the balancing authorities perform operations services within their respective BAAs, including (1) managing the operation, supervising the maintenance, and planning the expansion of a high-voltage electric transmission network; (2) granting transmission service to wholesale electricity customers; and (3) managing the process of interconnection of new generation and transmission to a high-voltage electric transmission network. IID alleges CAISO controls at least 80 percent of each market within California. CAISO's participating transmission owners (“PTOs”) own the vast majority of electric transmission assets in California.
CAISO controls access to its transmission grid, having the power to grant or deny access to services on its grid and to determine the terms under which such access is granted. Access to CAISO's grid is necessary for customers on the CAISO system who wish to purchase electricity from any electric generation source. Access to the CAISO system's transmission service is likewise necessary for sellers of electricity from any generation source who wish to deliver the energy from their facilities to customers located on the CAISO grid. IID alleges it cannot provide existing and potential customers electric transmission service that originates within its BAA and terminates within or travels across CAISO's grid absent CAISO's express permission.
CAISO also has the authority, under FERC Order No. 888 and its FERC-approved tariff, to calculate an entity's “maximum import capability” (“MIC”), that is, the maximum amount of power that can be safely and reliably imported from one entity's control area to another's. CAISO has historically set IID's access to the CAISO system to a MIC of 462 megawatts (“MW”). In other words, IID can export from its BAA onto or through the CAISO grid only 462 MW of electric power.
In 2011, CAISO's management provided its Board of Directors with a memorandum identifying certain elements of the “2010/2011 Transmission Plan” to support California's renewable energy goals, one element being the reconductoring of Path 42, a transmission line that runs from IID's Coachella Valley station to Southern California Edison Companys (“SCE”) Devers substation.2 Undertaking certain upgrades on both IID's and SCE's sides of the line “would allow IID's MIC to be increased to 1400 MW.” CAISO approved the Transmission Plan, including the Path 42 upgrades. In August 2011, in reliance on CAISO's approval, IID's Board of Directors approved the Path 42 upgrades within IID's territory.
IID alleges CAISO was aware of IID's approval of the upgrades, even discussing the plans in its “2011/2012 Conceptual Statewide Transmission Plan Update.” In its “2012/2013 Transmission Plan,” CAISO acknowledged that IID's target MIC for 2019 was 1400 MW. IID alleges that in reliance on CAISO's approval and statements, IID commenced the Path 42 upgrades on or about October 1, 2013.3 The upgrades were completed and placed into service in January 2015, after IID spent nearly $35 million.
On July 30, 2014, CAISO announced a change in its “forecast for additional deliverability from the Imperial zone above the existing 462 MW,” reducing IID's prospective MIC “from 1700 MW to zero MW.”4 This change in IID's prospective MIC was purportedly based on the closure of the San Onofre Nuclear Generating Station (“SONGS”), which SCE and SDG&E owned and which provided 2200 MW of baseload power. CAISO defined the “Imperial zone” as including both “IID and [CAISO] new generation in the Imperial County,” even though IID's BAA comprised 98 percent of the county. CAISO determined that while “recent transmission additions ‘had restored the future additional amount of deliverability for the overall Imperial zone to up to 1000 MW,’ ... the generation connecting directly to CAISO's grid ‘is expected to fully utilize [all 1000 MW of] transmission capacity.”
IID conducted its own investigation into whether SONGS' closure was the true cause for the reduction to IID's prospective MIC. Through its investigation, IID allegedly discovered that
IID alleges CAISO has extensively used IID's transmission lines and infrastructure to import substantial out-of-state power without compensating IID for this use. IID alleges CAISO's actions were motivated by its intent to further its monopolistic position in the relevant markets by forcing IID to join CAISO as a PTO.
On July 16, 2015, IID filed the instant action, alleging claims for monopolization and attempted monopolization in violation of § 2 of the Sherman Act, as well as state law claims for breach of implied contract, conversion, quantum meruit , and restitution. CAISO now moves to dismiss all claims alleged against it for failure to state a claim upon which relief may be granted. (Doc. No. 16.) IID filed an opposition, (Doc. No. 18),...
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