Mich. Elec. Transmission Co. v. Midland Cogeneration Venture, Ltd. P'ship

• Decision Date: 25 August 2010
• Docket Number: Case No. 10-10661-BC
• Citation: 737 F.Supp.2d 715
• Parties: MICHIGAN ELECTRIC TRANSMISSION COMPANY, Plaintiff, v. MIDLAND COGENERATION VENTURE, LIMITED PARTNERSHIP, Defendant.
• Court: U.S. District Court — Eastern District of Michigan

737 F.Supp.2d 715

MICHIGAN ELECTRIC TRANSMISSION COMPANY, Plaintiff,

v.MIDLAND COGENERATION VENTURE, LIMITED PARTNERSHIP, Defendant.

Case No. 10-10661-BC.

United States District Court,

E.D. Michigan,

Northern Division.

Aug. 25, 2010.

Gary P. Gordon, Shaun M. Johnson, Dykema Gosset PLLC, Lansing, MI, for Plaintiff.

Peter A. Poznak, Currie, Kendall, Midland, MI, for Defendant.

OPINION AND ORDER DENYING DEFENDANT'S MOTION TO DISMISS, DENYING PLAINTIFF'S MOTION TO REMAND, DENYING AS MOOT PLAINTIFF'S MOTION TO STAY, AND DIRECTING THE FILING OF BRIEFS

THOMAS L. LUDINGTON, District Judge.

Plaintiff Michigan Electric Transmission Company ("METC") commenced this lawsuitin Midland County Circuit Court on January 19, 2010, against Defendant Midland Cogeneration Venture LP ("MCV") alleging the following claims under state law: (1) unjust enrichment; (2) promissory estoppel; (3) quantum meruit; (4) breach of contract implied in fact; and, (5) breach of contract. METC seeks to recover over one million dollars in operation and maintenance expenses, as well as to receive reimbursement for property taxes it has paid for the operation of electric transmission equipment that enables MCV to transmit power generated by its power plant for distribution.

MCV removed the case to this Court on February 16, 2010, purporting to invoke this Court's federal question subject matter jurisdiction under 28 U.S.C. §§ 1331 and 1441. MCV asserts that METC is a public utility whose rates are subject to the jurisdiction of the Federal Energy Regulatory Commission ("FERC") and regulation under the Federal Power Act ("FPA"), 16 U.S.C. §§ 792 et seq.; and that METC's claims implicate substantial federal questions thereunder.

Shortly after removal, on February 23, 2010, MCV filed a motion to dismiss [Dkt. # 2] arguing, inter alia, that METC's claims are barred by the "filed rate" doctrine. METC filed a response to MCV's motion to dismiss [Dkt. # 9] on March 23, 2010; and MCV filed a reply [Dkt. # 16] on April 6, 2010.

Meanwhile, on March 18, 2010, METC timely filed a motion to remand for lack of subject matter jurisdiction [Dkt. # 7]. METC acknowledges that FERC's regulation of its rates may be relevant to a federal defense that may be argued by MCV, but contends that such a federal defense does not create federal question jurisdiction. MCV filed a response to METC's motion to remand [Dkt. # 12] on April 1, 2010; and METC filed a reply [Dkt. # 17] on April 15, 2010.

Finally, the same day that METC filed its motion to remand, it filed a motion to stay [Dkt. # 8], requesting that the Court resolve its motion to remand before considering the merits of MCV's motion to dismiss. The Court held a hearing on the pending motions on May 17, 2010. For the reasons explained hereafter, both MCV's motion to dismiss and METC's motion to remand will be denied, and METC's motion to stay will be denied as moot. In addition, the parties will be directed to brief the issue of whether this Court should defer, or must defer, to the primary jurisdiction of FERC to resolve all, or some, of the questions presented in this action.

I

The electric utility industry consists of three main vertical stages: "(1) power production, which is the generation of electricity; (2) the transmission of high voltage electric power from the points of generation to substations for conversion to delivery voltages; and (3) the distribution of low voltage electricity to individual homes and businesses." See Town of Norwood v. New England Power Co., 23 F.Supp.2d 109, 112 (D.Mass.1998) (citing Town of Concord v. Boston Edison Co., 915 F.2d 17, 19-20 (1st Cir.1990)). Historically, electric utilities were vertically integrated monopolies, meaning that "electricity generation, transmission, and distribution for a particular geographic area were generally provided by and under the control of a single regulated utility." Midwest ISO Transmission Owners v. F.E.R.C., 373 F.3d 1361, 1363 (D.C.Cir.2004). In addition, "consumers paid a single price for generation, transmission and distribution [because] services were 'bundled.' " Id. Generally, "[c]ompetition among utilities was not prevalent," New York v. F.E.R.C., 535 U.S. 1, 5, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002), and the industry was "subject toabuses of market power," Morgan Stanley Capital Group Inc. v. Pub. Util. Dist. No. 1 of Snohomish County, 554 U.S. 527, 128 S.Ct. 2733, 2737, 171 L.Ed.2d 607 (2008).

In recent decades, FERC has taken steps to increase competition and reduce market power abuses by electric utilities by exercising the regulatory authority granted it by the FPA. See Snohomish, 128 S.Ct. at 2740 (explaining that FERC "has sought to promote competition in those areas of the industry amenable to competition, such as the segment that generates electric power, while ensuring that the segment of the industry characterized by natural monopoly, namely, the transmission grid that conveys the generated electricity-cannot exert monopolistic influence over other areas"). Generally, the FPA governs "the transmission of electric energy ... and ... the sale of electric energy at wholesale in interstate commerce." 16 U.S.C. § 824(b)(1). Pursuant to the FPA, FERC has jurisdiction "over all facilities for such transmission or sale of electric energy," excluding local distribution and exclusively intrastate transmission. Id.

Pertinent to this case, § 203 of the FPA requires public utilities to obtain FERC's approval to sell facilities subject to FERC jurisdiction, and FERC must determine that such a sale is "consistent with the public interest." Id. § 824b(a). Even more pertinent to this case, § 205 tasks FERC with ensuring that "[a]ll rates and charges made, demanded, or received by any public utility for or in connection with the transmission or sale of electric energy subject to the jurisdiction of the Commission ... shall be just and reasonable." Id. § 824d(a). FERC has exclusive jurisdiction to review rates and charges to ensure that they are "just and reasonable." See id. §§ 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."); Pub. Util. Dist. No. 1 v. IDACORP, Inc., 379 F.3d 641, 646 (9th Cir.2004).

To give FERC the opportunity to evaluate the reasonableness of rates and charges, § 205(c) of the FPA requires all public utilities to file with FERC all tariffs, or "schedules showing all rates and charges for any transmission or sale subject to the jurisdiction of the Commission, and the classifications, practices, and regulations affecting such rates and charges." 16 U.S.C. § 824d(c). Public utilities must also file all contracts "which in any manner affect or are related to such rates, charges, classifications, and services." Id. "No public utility may enforce any rates or charges or any contracts relating thereto until 60 days after it has publicly filed them with FERC, thereby giving FERC and any other interested parties an opportunity to review them." Id. § 824d(d).

The Supreme Court has emphasized that "[t]he statutory requirement that rates be 'just and reasonable' is obviously incapable of precise judicial definition," that FERC is "afford[ed] great deference ... in its rate decisions," and that FERC "is not bound to any one ratemaking formula." Snohomish, 128 S.Ct. at 2738. Traditionally, FERC "reviewed and set tariff rates under the 'cost-of-service' method, which ensures that a seller of electricity recovers its costs plus a rate of return to attract necessary capital." Id. Eventually, however, FERC began to approve "market-based" tariffs, which "simply state that the seller will enter into freely negotiated contracts with purchasers." Id. at 2741. Contracts entered under a market-based tariff need not immediately be filed with FERC, arguably because "the requirement has been satisfiedby the initial filing of the market-based tariffs themselves." Id. at 2741. But see id. at 2746 (noting that FERC's "passive permission for a rate to go into effect does not constitute a finding that the rate is just and reasonable"). FERC permits a utility to operate under a market-based tariff, subject to ongoing reporting requirements, if it "demonstrates that it lacks or has adequately mitigated market power, lacks the capacity to erect other barriers to entry, and has avoided giving preference to its affiliates." Id. at 2741 (citation omitted).

In 1996, to encourage competition, FERC issued Order No. 888, which "required all transmission owning utilities to provide transmission service for electricity generated by others on the same basis that they provided transmission service for the electricity they themselves generated." Midwest ISO, 373 F.3d at 1363-64 (citing Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities, F.E.R.C. Stats. & Regs. 31036, 31635-36 (1996)). "To effectuate this introduction of competition, FERC 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." Id. at 1364 (citations omitted).

In the same order, FERC encouraged "the development of multi-utility regional transmission organizations (RTOs)," which would "place[ ] control of the grid in one entity," to decrease inefficiencies caused by "segmentation of the transmission grid among different utilities." Id. (citations omitted). FERC also encouraged the development of independent system operators ("ISOs") to "assume operational control of the RTOs—but not ownership—of the transmission facilities owned by its member utilities" thereby separating "operation of the transmission grid and access to it from...