Town of Norwood v. New England Power Co.

• Decision Date: 28 September 1998
• Docket Number: Civil Action No. 97-10818-PBS.
• Citation: 23 F.Supp.2d 109
• Court: U.S. District Court — District of Massachusetts
• Parties: TOWN OF NORWOOD, Massachusetts, Plaintiff, v. NEW ENGLAND POWER COMPANY, New England Electric System, Pacific Gas & Electric Company and PG & E Corporation, Defendants.

23 F.Supp.2d 109

TOWN OF NORWOOD, Massachusetts, Plaintiff, v. NEW ENGLAND POWER COMPANY, New England Electric System, Pacific Gas & Electric Company and PG & E Corporation, Defendants.

Civil Action No. 97-10818-PBS.

United States District Court, D. Massachusetts.

September 28, 1998.

COPYRIGHT MATERIAL OMITTED

Alan K. Posner, Kenneth M. Barna, Rubin & Rudman, Boston, MA, Charles F. Wheatley, Jr., Wheatley & Ranquist, Annapolis, MD, for Town of Norwood.

David H. Erichsen, Harold Hestnes, Peter A. Spaeth, Vinita Chopra, Rebecca L. Fine, Hale & Dorr, Boston, MA, Edward Berlin, Swidler & Berlin, Washington, DC, for New England Power Co.

George B. Dean, Office of the Attorney General, Boston, MA, for Attorney General, MA.

Alan M. Shoer, Office of the Attorney General, Providence, RI, for the state of Rhode Island.

David H. Erichsen, Harold Hestnes, Peter A. Spaeth, Vinita Chopra, Hale & Orr, Boston, MA, for New England Electic Systems.

Steven W. Phillips, Richard M. Brunell, Foley, Hoag & Eliot, Boston, MA, for U.S. Generating Co., Pacific Gas & Electric Co.

MEMORANDUM AND ORDER ON MOTIONS TO DISMISS

SARIS, District Judge.

This action asserts antitrust and breach of contract claims arising from the comprehensive restructuring of the electric utility industry. The Town of Norwood, Massachusetts ("Norwood") distributes electricity to businesses and residences within its borders. Until recently, Norwood purchased all of its wholesale power requirements from defendant New England Power Company ("NEPCO") pursuant to a long-term contract which arose from a 1983 settlement of an antitrust suit approved by another judge of this Court. The current dispute was sparked when NEPCO, as part of 1996 settlements with the Massachusetts and Rhode Island governments, agreed to sell virtually all of its non-nuclear generation facilities, and to assign wholesale supply contracts with two of its affiliates to the U.S. Generating Company ("USGen"). While NEPCO's retail affiliates were charged market-based wholesale power rates under these assigned contracts, NEPCO was charging cost-of-service rates under its tariff to Norwood and others.

Seeking to enjoin the divestiture and challenging the resulting rate differential, Norwood filed this suit. Subsequently, the Federal Energy Regulatory Commission ("FERC" or the "Commission"), on NEPCO's application, approved the state settlements, divestiture, contract assignments and new rate schedules over Norwood's objections. Norwood reacted to FERC's approval by terminating its contract with NEPCO and signing a long-term wholesale power supply contract with Northeast Utilities Service Company ("NUSCO"). NEPCO, in turn, asked FERC to approve a "contract termination charge" as an amendment to the tariff applicable to Norwood. FERC approved the charge, again over Norwood's objection. In the meantime, Norwood has twice amended its complaint here.¹ All defendants move to dismiss on several grounds, including the preclusive effect of the "filed rate doctrine" in matters pertaining to prices for the wholesale supply of power. After two hearings on the matter, the motions to dismiss are ALLOWED.

BACKGROUND

In considering defendants' motion to dismiss, the Court takes as true all allegations in the complaint and makes reasonable inferences in the plaintiff's favor. See Watterson v. Page, 987 F.2d 1, 3 (1st Cir.1993). In addition to the allegations contained in the four corners of the complaint, the Court considers materials attached to the complaint and matters of public record, including submissions to and decisions of the FERC. See id. (permitting consideration of "official public records" without requiring the conversion of a motion to dismiss into a motion for summary judgment). However, the Court does not consider the affidavits submitted by parties.

1. The Industry

Three major vertical stages exist in the electric utility industry: (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 Concord v. Boston Edison Co., 915 F.2d 17, 19-20 (1st Cir.1990) (describing the organization of the industry).

Under state authority, see Mass.G.L. c. 164, §§ 34 et seq. (1997), Norwood owns and operates an electric distribution system which supplies power to its retail customers, almost all of which are businesses and households located in the town. Since Norwood provides only distribution services, it is dependent on other companies to generate or otherwise supply power and then to transmit it via high-voltage lines from the generators to Norwood's local distribution network. Generation and transmission services in New England have historically been performed by vertically-integrated investor-owned utilities.

Defendant NEPCO is a generation subsidiary of one such utility, defendant New England Electric System ("NEES"). Though some distribution systems in Massachusetts and other New England states are run by municipalities like Norwood, most are owned by vertically-integrated utilities that provide generation and transmission services. NEES is also the parent of two such retail distribution utilities, Massachusetts Electric Company ("Mass.Electric") and Narragansett Electric Company ("Narragansett"). Mass. Electric serves retail customers in Massachusetts, and Narragansett serves retail customers in Rhode Island. In other words, NEPCO has historically sold power that it generates both to municipalities like Norwood and to investor-owned utilities, including its own affiliates.

2. The Antitrust Settlement and Court Order

The story begins in 1974, when Norwood brought an antitrust suit against NEPCO before another judge of this Court. At the time, Norwood received both generation and transmission services from Boston Edison Company, another large vertically-integrated utility. Norwood claimed that NEPCO refused to deal with Norwood and that Boston Edison refused to "wheel" power from NEPCO in violation of the Sherman Act. 15 U.S.C. §§ 1-2. It complained that NEPCO refused to sell firm requirements wholesale power to Norwood under its tariff (Tariff 1) at the same rates that it was charging Mass. Electric and Narragansett. These two affiliates were parties with NEPCO to "wholesale requirements contracts," meaning that NEPCO ensured they were supplied all of the power they needed from either NEPCO-owned generators or power pool supplies available to NEPCO.

On April 12, 1983, NEPCO and Norwood settled the case, and the settlement agreement was entered as a Court decree. By the settlement, the parties entered into a power contract in which NEPCO agreed to "provide all-requirements electric service to Norwood under NEP[CO]'s FERC Tariff," (Power Contract, Article I), and to sell 100 percent of Norwood's electric requirements until October 31, 1998, the end of the contract term, at its "Tariff 1" rate. (Power Contract, Article IV.) This tariff rate, which NEPCO also charged its affiliates, was filed with and approved by the FERC. The parties agreed at the time that "[n]either NEP[CO] nor Norwood has a present intention to terminate all-requirements service." (Power Contract, Article IIIB.) The parties also agreed not to give a notice of termination prior to November 1, 1991, and not to specify a termination date prior to November 1, 1998. (Power Contract, Article IIIB; see also Settlement Agrmt. ¶ 4.6.) In 1989, Norwood exercised its contractual option to extend its contract with NEPCO until October 31, 2008.

3. Restructuring the Industry

Nationally, both state and federal authorities have initiated reforms to make the electric industry more competitive and to implement retail consumer choice. One of the principal means of increasing competition is to break up the vertically-integrated utilities, forcing the separation of the power supply function of generation from the delivery functions of transmission and distribution. The state and federal governments have played interdependent roles in a vast restructuring in New England. The states regulate the retail distribution of electricity occurring within their borders, including the prices charged to households and businesses by distribution systems. The Rhode Island legislature passed the Rhode Island Utility Restructuring Act of 1996, which calls for a restructuring of the industry in order to implement a program of consumer retail choice. See R.I. Gen. Laws §§ 39-1-1 et seq. (1996). Among other things, the plan calls for the "unbundling" of the three stages of the power delivery system, meaning distribution companies have to allow different power supply companies access to their retail customers. See id. § 39-1-27.3.

The Massachusetts Attorney General took similar action in proceedings before the Massachusetts Department of Public Utilities in 1996.² On November 25, 1997, after the precipitating events of this case had taken place, the Massachusetts Legislature passed a law requiring electric companies "to accommodate retail access to generation services and choice of suppliers by retail customers." Mass.G.L. c. 164, § 1A (1997). Municipal light companies have not been required to allow competitive choice of generation supply within their borders. See id. § 47A(a).

Generation and transmission, which have interstate implications, are regulated at the federal level by the FERC. On April 24, 1996, the FERC issued its report on several final rules known collectively as Order No. 888, the goal of which was "to remove impediments to competition in the wholesale bulk power marketplace and to bring more efficient, lower cost power to the Nation's electricity consumers." Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public...