Old Dominion Elec. Coop. v. PJM Interconnection, LLC

• Decision Date: 19 January 2022
• Docket Number: No. 20-1483,20-1483
• Citation: 24 F.4th 271
• Parties: OLD DOMINION ELECTRIC COOPERATIVE, Plaintiff – Appellant, v. PJM INTERCONNECTION, LLC, Defendant – Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

24 F.4th 271

OLD DOMINION ELECTRIC COOPERATIVE, Plaintiff – Appellant,

v.PJM INTERCONNECTION, LLC, Defendant – Appellee.

No. 20-1483

United States Court of Appeals, Fourth Circuit.

Argued: October 28, 2021

Decided: January 19, 2022

ARGUED: Joseph Michael Rainsbury, MILES & STOCKBRIDGE PC, Richmond, Virginia, for Appellant. Lucas M. Walker, MOLOLAMKEN, LLP, Washington, D.C., for Appellee. ON BRIEF: Thomas M. Wolf, MILES & STOCKBRIDGE PC, Richmond, Virginia, for Appellant. Robert M. Rolfe, Brian A. Wright, HUNTON ANDREWS KURTH LLP, Richmond, Virginia; Jeffrey A. Lamken, Washington, D.C., Jennifer E. Fischell, MOLOLAMKEN LLP, New York, New York, for Appellee.

Before MOTZ, KING, and HARRIS, Circuit Judges.

Affirmed by published opinion. Judge King wrote the opinion, in which Judge Motz and Judge Harris joined.

KING, Circuit Judge

In this appeal, plaintiff Old Dominion Electric Cooperative challenges the district court's dismissal of its state law claims seeking nearly $15 million in damages from defendant PJM Interconnection, LLC. Following a severe cold weather outbreak in January 2014, Old Dominion unsuccessfully sought to recover certain electricity generation costs from PJM in an administrative proceeding before the Federal Energy Regulatory Commission ("FERC"). Old Dominion subsequently instituted the underlying litigation in Virginia state court, pursuing four putative state law claims against PJM which seek the same relief unsuccessfully claimed before FERC.

PJM timely removed the state court proceedings to the Eastern District of Virginia, pursuant to 28 U.S.C. § 1441(a). PJM maintained therein that Old Dominion's complaint contests electricity transmission rates set forth in PJM's federally filed tariff and that the district court was vested with federal question jurisdiction under 28 U.S.C. § 1331. PJM promptly moved to dismiss the complaint for failure to state a claim, while Old Dominion moved for a remand to state court.

On March 31, 2020, the district court denied Old Dominion's remand motion and dismissed each of its claims with prejudice. See Old Dominion Elec. Coop. v. PJM Interconnection, LLC , No. 3:19-cv-00233, 2020 WL 1545882 (E.D. Va. Mar. 31, 2020), ECF No. 26 (the "Dismissal Opinion"). In so ruling, the court determined that, consistent with our 2004 decision in Bryan v. BellSouth Communications, Inc. , 377 F.3d 424 (4th Cir. 2004), Old Dominion's putative state law claims effectively challenge the terms of PJM's federal tariff. As such, and in accord with the principles enunciated by the Supreme Court in Gunn v. Minton , 568 U.S. 251, 133 S.Ct. 1059, 185 L.Ed.2d 72 (2013), and Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing , 545 U.S. 308, 125 S.Ct. 2363, 162 L.Ed.2d 257 (2005), the court ruled that the claims present a substantial federal question. In granting PJM's motion to dismiss, the court further resolved that the so-called "filed-rate doctrine" barred it from awarding damages on Old Dominion's claims. On appeal, Old Dominion maintains that PJM's tariff stands only as a defense to its putative state law claims and that the district court consequently lacked subject matter jurisdiction over those claims. As explained herein, Old Dominion's contentions are unpersuasive and are rejected. We therefore affirm the judgment of the district court.

I.

A.

Old Dominion is a nonprofit electric utility that serves customers in Virginia, Maryland, and Delaware. It generates and markets wholesale electric power, in part from the operation of three natural-gas-fired power plants in Virginia and Maryland. PJM, on the other hand, is not a utility but is instead a "regional transmission organization," an entity that operates the electrical grid in a defined geographic area and in accord with extensive regulatory oversight by FERC. PJM is charged with supervising the transmission of electricity in its market region, which consists of 13 states and the District of Columbia. In fulfilling that responsibility, PJM controls the transmission facilities owned by its member utilities — including Old Dominion. See 18 C.F.R. § 35.34(j), (k).

PJM's relationship with each of its member utilities is governed by FERC's regulatory framework. The Federal Power Act vests FERC with exclusive regulatory authority over "the transmission of electric energy in interstate commerce and the sale of such energy at wholesale in interstate commerce," directing FERC to ensure that all "rates and charges made, demanded, or received by any public utility for or in connection with the transmission or sale of electric energy" be "just and reasonable." See 16 U.S.C. §§ 824(a), 824d(a). Accordingly, FERC requires regional transmission organizations like PJM to file schedules of proposed electricity transmission rates with the agency for its approval. Once authorized by FERC, those rates are set forth in tariffs, which "[c]arry the force of federal law," in the same sense as ordinary federal regulations. See Bryan v. BellSouth Commc'ns, Inc. , 377 F.3d 424, 429 (4th Cir. 2004). Further, under the regulatory rule known as the "filed-rate doctrine," the transmission rates charged by utilities in association with the generation and sale of electric power may not be higher or lower than those set forth in FERC-approved tariffs. See Ark. La. Gas Co. v. Hall , 453 U.S. 571, 576, 101 S.Ct. 2925, 69 L.Ed.2d 856 (1981).

PJM's FERC-approved tariffs include (1) its Open Access Transmission Tariff (the "PJM Tariff," or simply "the Tariff") and (2) its Amended and Restated Operating Agreement (the "Operating Agreement"). The PJM Tariff prescribes rules controlling PJM's management of the mid-Atlantic energy market and, as relevant in this appeal, fixes the price at which power generators may offer their energy production to PJM in standard electricity auctions — specifically at $1000 per megawatt-hour. See J.A. 127.¹ The Operating Agreement, to which participating utilities like Old Dominion subscribe, reflects the terms of the Tariff. The Operating Agreement further affords PJM expansive powers to take "measures appropriate to alleviate an Emergency, in order to preserve reliability" in the electric market, principally by calling on its member utilities "to start, shutdown, or change output levels of [their] generation units" at any time. See Old Dominion Elec. Coop. v. FERC , 892 F.3d 1223, 1228 (D.C. Cir. 2018). As the relevant regulatory tariffs, the PJM Tariff and Operating Agreement together "conclusively and exclusively enumerate the rights and liabilities of the contracting parties." See Marcus v. AT&T Corp. , 138 F.3d 46, 56 (2d Cir. 1998) (internal quotation marks omitted). That is, all business that PJM conducts with electric utilities in its extensive market region must conform to the terms of its FERC-approved tariffs.

The standards established and imposed by the PJM Tariff and Operating Agreement became particularly significant during the January 2014 "polar vortex," a weather disturbance that brought uncharacteristically frigid temperatures to much of the eastern United States. See J.A. 25. The polar vortex prompted abrupt increases in consumer demand for electricity, which, in turn, required utilities and transmission organizations like Old Dominion and PJM to take swift actions to ensure that reliable supplies of power were available for use in heating homes and businesses. As temperatures plummeted, PJM directed its member utilities to prepare for increases in their electric generation output. With respect to Old Dominion, PJM issued specific instructions for the utility to purchase sufficient quantities of natural gas to begin operating its Virginia and Maryland power plants at full capacity. Old Dominion maintains that — at that time — PJM also represented to Old Dominion's agents that the company would "make [Old Dominion] whole for its fuel and other costs associated with purchasing the natural gas." Id. at 26; see also Br. of Appellant 5.

When PJM issued its directives to Old Dominion, the price of natural gas had spiked above its pre-polar vortex levels due to the weather-related strains on energy production resources. Once paired with the costs of operating the Virginia and Maryland facilities, the heightened gas purchase price forced Old Dominion's net costs for electricity generation to approximately $1200 per megawatt-hour — well north of the $1000 maximum rate fixed by the PJM Tariff. In compliance with PJM's orders, Old Dominion nevertheless purchased the needed fuel at the inflated price. After it did so, however, PJM repeatedly cancelled its operation requests or scaled them back in duration because of overestimates of consumer demand for power. The weather-driven market conditions compelled Old Dominion to sell generation capacity to PJM at a substantial loss, and Old Dominion ultimately incurred an aggregate sum of $14,925,669.58 in costs that exceeded the rate that it could legally charge PJM under the Tariff. In the disputes that followed, neither party contested that those losses — sustained because Old Dominion's sales exceeded PJM's tariffed rate — were unrecoverable under the express terms of the Tariff.

B.

Old Dominion first sought relief from the excess incurred costs by way of a June 2014 administrative proceeding before FERC. See Old Dominion Elec. Coop. , 151 FERC ¶ 61,207 (2015). Relying on its facility operation expenses and the excessive costs of natural gas purchased but not burned, the utility petitioned FERC for the full amount of its excess costs and damages — again, $14,925,669.58. Old Dominion did not dispute that its January sales to PJM fell within the scope of the Tariff and Operating Agreement provisions that control the entities’ relationship. Indeed, Old Dominion "repeatedly conceded" before FERC that the PJM Tariff "categorically precluded" the compensation it sought. See Old Dominion , 892 F.3d at 1231. Old Dominion nevertheless petitioned FERC for a retroactive...