Lawrenceburg Power, LLC v. Lawrenceburg Mun. Utilities

• Decision Date: 30 September 2019
• Docket Number: Case No. 4:18-cv-00232-TWP-DML
• Citation: 410 F.Supp.3d 943
• Parties: LAWRENCEBURG POWER, LLC, Plaintiff, v. LAWRENCEBURG MUNICIPAL UTILITIES, and City of Lawrenceburg, Defendants.
• Court: U.S. District Court — Southern District of Indiana

410 F.Supp.3d 943

LAWRENCEBURG POWER, LLC, Plaintiff,

v.LAWRENCEBURG MUNICIPAL UTILITIES, and City of Lawrenceburg, Defendants.

Case No. 4:18-cv-00232-TWP-DML

United States District Court, S.D. Indiana, New Albany Division.

Signed September 30, 2019

Andrew M. McNeil, J. Christopher Janak, Jeffery A. Earl, Bose McKinney & Evans, LLP, Bart A. Karwath, Nicholas Kevin Kile, Barnes & Thornburg, LLP, Indianapolis, IN, Brookasany Barrowes, Pro Hac Vice, Kirkland & Ellis LLP, Emil Barth, Pro Hac Vice, Baker Botts LLP, Washington, DC, for Plaintiff.

Cynthia S. Bogorad, Peter J. Hopkins, Pro Hac Vice, Spiegel & McDiarmid LLP, Washington, DC, Delmar D. Weldon, III, Pillar Law Group, LLP, Lawrenceburg, IN, Gregory A. Neibarger, Bingham Greenebaum Doll LLP, Indianapolis, IN, for Defendants.

ORDER ON MOTION TO DISMISS, MOTION TO STAY AND MOTION FOR LEAVE TO FILE SURREPLY

This matter is before the Court on a Motion to Dismiss Complaint filed pursuant to Federal Rule of Civil Procedure 12(b)(6) by Defendants Lawrenceburg Municipal Utilities ("LMU") and the City of Lawrenceburg ("City") (collectively, "Defendants") (Filing No. 31), and Defendants' Motion to Stay (Filing No. 33). Also before the Court, is a Motion for Leave to File Surreply in Opposition to Defendants' Motion to Dismiss and Motion to Stay (Filing No. 48), filed by Plaintiff Lawrenceburg Power, LLC ("Plaintiff"). This case surrounds a dispute over the provision of utility services in Lawrenceburg, Indiana. Plaintiff initiated this action, requesting declaratory and injunctive relief to avoid irreparable harm that would result from the termination of water and sewer services at its Lawrenceburg facilities. For the following reasons, the Defendants' Motion to Dismiss is granted , the Motion to Stay is denied as moot , and Plaintiff's Motion for Leave to File Surreply is denied .

I. BACKGROUND

The following facts are not necessarily objectively true, but as required when reviewing a motion to dismiss, the Court accepts as true all factual allegations in the complaint and draws all inferences in favor of Plaintiff as the non-moving party. See Bielanski v. County of Kane , 550 F.3d 632, 633 (7th Cir. 2008).

Plaintiff Lawrenceburg Power is a Delaware limited liability company with its principal office in Princeton, New Jersey. It is authorized to do business in Indiana as a foreign limited liability company. Plaintiff owns and operates a natural gas-fired electric generating facility located in Lawrenceburg, Indiana (the "Plant"). It operates the Plant to sell electric energy, capacity, and other services in the federally-regulated wholesale electric power market (Filing No. 1 at 1, 5).

The City is a third-class city within the meaning of Indiana Code § 36-4-1-1, and it is located in Dearborn County, Indiana. The City is authorized to define its corporate limits and boundaries, and it owns and operates LMU, a municipal utility company. LMU provides retail electric, water, and waste water services on an unbundled basis for the Defendants' community within its service territory. LMU has withdrawn from the Indiana Utility Regulatory Commission's jurisdiction respecting its electric utility services rates (Filing No. 1 at 5). As a result, LMU's provision of water and sewer services within its service territory is not subject to the rate jurisdiction of the Indiana Utility Regulatory Commission.

The federally-regulated wholesale electric power market for the Mid-Atlantic region, including relevant parts of Indiana, is managed by PJM Interconnection, LLC ("PJM"). To deliver the electricity it generates to the grid, Plaintiff is directly interconnected to the high-voltage transmission system owned by Indiana & Michigan Power Company ("Indiana & Michigan Power"), a subsidiary of the American Electric Power Corporation ("AEP") and an affiliate of the Plant's prior owner, AEP Generating Company ("AEP GenCo"). Indiana & Michigan Power's transmission lines and related facilities are part of a larger, regional high-voltage interstate transmission system, which is controlled and operated by PJM. Both the wholesale electric power market and the interstate transmission system, including the market managed by PJM, are comprehensively regulated by the Federal Energy Regulatory Commission ("FERC") pursuant to the Federal Power Act, 16 U.S.C. § 791a et seq. ("FPA") (Filing No. 1 at 1–2).

The Plant requires electricity to operate certain equipment located on-site such as its controls, computers, lighting, heating, and air conditioning. These electrical requirements are commonly referred to as "station power". When the Plant is generating electricity, it uses some of the power it generates to directly satisfy its station power requirements. During the infrequent hours when the Plant is not generating electricity, the Plant obtains electricity from its direct interconnection to the FERC-regulated high-voltage interstate transmission system to satisfy its station power requirements. Id. at 2.

Plaintiff receives lower-voltage retail service from LMU for some of its facilities at the same location as the Plant, but those other facilities are not used in the generation of electricity at the Plant. The Plant itself does not have any electrical interconnection to the electric distribution system owned and operated by LMU. Thus, LMU does not and cannot directly supply the Plant itself with any electricity required for station power. Id. at 2.

Under the terms of a mutual settlement agreement to resolve a lawsuit among LMU, the City, and AEP GenCo (Plaintiff's predecessor in interest and the prior owner of the Plant), AEP GenCo voluntarily entered into an agreement for electric service on December 23, 2015, with LMU and the City. This agreement for electric service was entered into just months before AEP GenCo began the process of selling the Plant.¹ Under the agreement, LMU agreed to furnish the Plant with some form of deemed electric power plant service (although LMU is not electrically interconnected with the Plant), and AEP GenCo agreed to make payments to LMU. Furthermore, the agreement allowed Plaintiff to unilaterally terminate the agreement on the first day of the calendar year with a one-year notice. Plaintiff exercised that right on December 21, 2017, and provided timely notice to LMU for the termination of the agreement effective January 1, 2019. After providing the notice of termination, Plaintiff continued to pay the amounts owing to LMU under the terms of the agreement and intended to do so during the remaining term of the agreement (Filing No. 1 at 2–3).

After the termination of the agreement, Plaintiff intended to self-supply all of its station power requirements, including during those limited time periods when the Plant is not generating, under the provisions of the federally-approved Open Access Transmission Tariff that governs PJM's operation of the wholesale market and the regional transmission system ("PJM Tariff"). The PJM Tariff comprehensively regulates the wholesale market and transmission system and is approved by FERC pursuant to the FPA. Under the federally-approved PJM Tariff, a generator participating in the wholesale market may elect to "self-supply" station power during "negative" intervals—those time periods when the generator is not generating—provided the generator has generated more electricity during a calendar month than it obtains from the high-voltage interstate transmission system. Thus, under the PJM Tariff, a generator can "net" its station power requirements against its cumulative generation across a calendar month, provided it has "banked" enough electricity during that month. This self-supply option is available to any generator that participates in PJM's wholesale market. Alternatively, a generator may elect to have its station power requirements served by a third-party under a contract, such as what AEP GenCo did when it entered into the agreement with LMU. A generator may change its election between these options by giving notice to PJM. Id. at 3.

After receiving the written notice that Plaintiff was exercising its right to terminate the agreement, LMU responded that it might terminate the provision of water and sewer services to the Plant, which services are a necessary and integral part of the Plant's operations. LMU has been providing the necessary water and sewer services to Plaintiff. LMU advised Plaintiff that it would undertake a cost-of-service study as part of an effort by the City and LMU to adopt a new rate ordinance that would impose increased rates on Plaintiff. LMU and the City advised that they may also take other action in an attempt to subject Plaintiff to the terms of the agreement or a subsequent rate ordinance passed by the City and implemented by LMU. Id. at 4.

If the City and LMU terminate the water and sewer services to Plaintiff, Plaintiff would effectively have to cease operations.

The Plant would be rendered unworkable because of a lack of water and sewer services, and Plaintiff would be unable to sell electricity in the PJM wholesale market. Plaintiff asserts that any such action by the City and LMU would serve to impermissibly frustrate Plaintiff's rights under the FPA to participate in the wholesale markets operated by PJM and Plaintiff's right to self-supply its station power requirements under the FERC-approved PJM Tariff. Plaintiff asserts that it would suffer irreparable harm, and the wholesale electricity market administered by PJM also would be harmed because the Plant's generated electricity would not be available to be sold in the market. Id. at 4.

In response to the City's and LMU's threat to terminate water and sewer services, Plaintiff filed this lawsuit on December 13, 2018, asserting a single claim for equitable relief to prevent LMU and the City from taking such actions in contravention of federal law by attempting to force Plaintiff to remain subject to the terms of the agreement or a new rate ordinance or forcing...