New England Power Co. v. Norwood
| Decision Date | 08 February 2001 |
| Docket Number | 982650A |
| Parties | New England Power Company v. Town of Norwood1 |
| Court | Massachusetts Superior Court |
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Fecteau, J.
The plaintiff, New England Power Company (NEP), brought a one-count breach of contract collection action against the defendant, Town of Norwood (Norwood) pursuant to a power contract between the parties. Norwood answered with several affirmative defenses and fifteen counterclaims: (Count I) impossibility of performance; (Count II) frustration of purpose; (Count III) breach of contract/conversion of regulated cost of service rate to fixed price rates; (Count IV) breach of contract/termination of equal tariff No. 1 service to Norwood; (Count V) breach of contract/imposition of a contract termination charge; (Count VI) breach of contract/not providing equal wholesale service; (Count VI) (sic) declaration that contract did not extend beyond October 31, 1998; (Count VIII) misrepresentation; (Count IX) breach of the implied covenant of good faith and fair dealing (Count X) unfair and deceptive acts and practices in violation of G.L.c. 93A, §§2 and 11; (Counts XI and XII) state antitrust violations; (Counts XIII and XIV) fraud and misrepresentation; and (Count XV) declaration/no meeting of the minds.
NEP now moves to dismiss Norwood's counterclaims, arguing that all of the counterclaims are barred by the res judicata effect of several recent federal appeals court decisions in their favor. NEP also moves for summary judgment on its breach of contract claim, alleging that, as a matter of law it is entitled to recover from Norwood in excess of $60 million resulting from Norwood's failure to pay under their power contract. In opposition, Norwood contends that res judicata does not bar its counterclaims because it is entitled to raised affirmative defenses and counterclaims in connection with NEP's breach of contract claim. Finally, Norwood moves for judgment on the pleadings pursuant to Mass.R.Civ.P. 12(b)(5). For the following reasons, NEP's motion to dismiss the counterclaims is ALLOWED; the motion for summary judgment is ALLOWED in favor of NEP and Norwood's judgment on the pleadings is DENIED.
New England Power Company (NEP) is a major wholesaler of electric power in New England. The Town of Norwood owns and operates a municipal utility that distributes electric power to its retail customers, most of whom are residents and businesses in the town. As it provides only distribution services, other companies must supply and transmit the power from generators to Norwood's local distribution network. These services in New England have historically been provided by "vertically integrated investor-owned" utilities like NEP, which sells power both to municipalities, like Norwood, and its own affiliates, like Massachusetts Electric.
Prior to the 1970s, Norwood purchased both generation and transmission services from Boston Edison Company. During the 1970s, however, Norwood determined that it would purchase its power from NEP, but have the power delivered, or "wheeled," over the transmission network owned by Boston Edison. Norwood brought an anti-trust suit in federal district court against the utilities in 1974 when both utilities resisted the arrangement. On April 12, 1983, the parties settled that suit and the settlement agreement was entered as a court decree.
As a result of the settlement, NEP and the Town of Norwood, via the Norwood Municipal Light Department, entered into a power contract by which NEP agreed to provide "all requirements electric service to Norwood under NEP's FERC Tariff." (Article I, Power Contract.) Norwood would purchase electrical requirements from NEP through October 31 1998 and would transmit the power over Boston Edison's network. The contract was based on NEP's Federal Energy Regulatory Commission Tariff No. 1 (the Tariff), requiring payment in "an amount calculated in accordance with NEP's FERC Tariff," defined "as [it] may be amended from time to time." The rates set on the Tariff were subject to cost of service regulation by FERC, which required that the rates would be based on NEP's actual cost of generating the electric power plus the actual costs in NEP's purchase power contract in addition to a regulated rate of return. NEP also supplied power to its own retail affiliates under that Tariff. The Tariff required that the power contract could only be terminated by written notice and that the written notice could not specify a date any earlier than seven years from the date of the notice.
Originally, the power contract provided that notice of termination could not be given until November 1, 1991 and could not specify a termination date earlier than October 31, 1998. Norwood and NEP amended the contract in 1989 to give Norwood an option to extend the minimum term in two ten-year increments, requiring a one-year notice of each such election prior to the date it is to be extended. In a letter dated July 25, 1990 sent to NEP, Norwood noticed its intention to extend the power contract pursuant to the 1989 amendment, to October 31, 2008.2
As part of the restructuring of the electrical service industry in Massachusetts and Rhode Island in 1996, NEP, along with its affiliates, Massachusetts Electric and Narragansett Electric, reached a settlement agreement with regulators in those states to begin to offer retail choice programs.3 As part of the agreement, NEP agreed to divest itself of its non-nuclear generation facilities and to terminate its wholesale power purchase contracts with its retail affiliates, subject to contract termination charges. NEP filed the settlement agreement with FERC on September 30, 1996, promising to provide the commission with details of the plan no later than October 1, 1997. Norwood moved to intervene in the proceedings in December of 1996. NEP filed its notice with FERC, asserting that it had agreed to divest certain of its generating assets, while at the same time proposing to retain ownership of its transmission network, over Norwood's protests.
FERC approved the divestiture; revisions to the power purchase contracts between NEP and its distribution affiliates, allowing earlier termination of such contracts to achieve the stated purpose of allowing the distributors to obtain other sources of power; and approved the contract termination charges involved in the early termination of the contracts.4 Following this approval, Norwood sent notice to NEP on March 4, 1998 terminating the contract, asserting that NEP had repudiated the power contract by its FERC filings and anticipated action following its approval. FERC later approved an application by NEP authorizing NEP's customers to terminate their contracts early upon payment of a contract termination charge. Norwood petitioned FERC for a declaratory order that its extension of the power contract had not been valid; FERC dismissed the petition, holding that the letter of July 25, 1990 did extend the power contract for ten years, effectively extending the contract between NEP and Norwood to October 31, 2008.5
Norwood petitioned the United States Court of Appeals for the First Circuit for review of orders from FERC which approved NEP's sale of non-nuclear generating facilities and upheld NEP's imposition of a contract termination charge on unaffiliated purchasers who sought to terminate their existing contracts prematurely.6 The First Circuit denied these petitions, stating that: the tariff amendment allowing wholesaler to impose a contract termination charge was not inconsistent with the "stranded cost recovery" provisions adopted in prior FERC order and associated regulations; the amendment did not conflict with the Mobile-Sierra doctrine or the filed rate doctrine; the amendment did not conflict with Federal Power Act's requirement of just and reasonable rates; the amendment and wholesale standard offer rates, offered by electric power wholesaler only to its affiliated retailers, were not shown to violate the "undue preference" prohibition of the Federal Power Act; mere allegations of anti-competitive impact did not trigger an evidentiary hearing; and a non-profit corporation lacked standing to challenge orders approving transfer of electric generating facilities.
In an attempt to block NEP's proposed divestment of its assets, Norwood filed a breach of contract and anti-trust action in the federal district court against NEP and Pacific Gas7 and Electric,8 in April of 1997, asserting that NEP's conduct in relation to the power contract relieved Norwood of any obligations under the contract and entitled it to damages. In the anti-trust action, Norwood alleged that the tariffed rates it was paying for wholesale power under the power contract were higher than the rates NEP offered to its affiliates under the FERC settlement, effectively preventing Norwood from competing on equal terms. Norwood also alleged in its contract claims that by selling generation assets and revising its contracts to charge affiliates different rates and termination charges than Norwood, it breached its contract, thus relieving Norwood of performing its obligations under the contract. The court denied Norwood's motion for a preliminary injunction and summary judgment and took NEP's motion to dismiss under advisement.
The federal district court allowed NEP's motion to dismiss on the basis of the filed rate doctrine, which forbids a regulated entity to charge rates for its...
To continue reading
Request your trial