WABASH VALLEY POWER ASS'N v. RURAL ELECTRIFICATION
| Decision Date | 19 September 1991 |
| Docket Number | No. IP-90-1858-C.,IP-90-1858-C. |
| Citation | 773 F. Supp. 1178 |
| Parties | WABASH VALLEY POWER ASSOCIATION, INC., an Indiana not-for-profit corporation, Plaintiff, v. RURAL ELECTRIFICATION ADMINISTRATION, Defendant. |
| Court | U.S. District Court — Southern District of Indiana |
Don F. Morton, Wabash Valley Power Ass'n, Larry J. Wallace, Parr, Richey, Obremskey & Morton, David H. Kleiman, Dann, Pecar, Newman, Talesnick & Kleiman, Indianapolis, Ind., Lee A. Freeman, Jr., John F. Kinney, James T. Malysiak, Freeman, Freeman & Salzman, Chicago, Ill., for plaintiff.
J. Christopher Kohn, James G. Bruen, John T. Stemplewicz, Asst. Attys. Gen., Civ. Div., Dept. of Justice, Washington, D.C., Deborah J. Daniels, U.S. Atty., Jeffrey L. Hunter, Gerald A. Coraz, Asst. U.S. Attys., Indianapolis, Ind., Michael W. Kelly, Frank Clover, Office of Gen. Counsel, Dept. of Agriculture, Washington, D.C., for defendant.
ENTRY
This matter comes before the Court on cross-motions for summary judgment, on the defendant's motion to stay the proceedings, and on three non-parties' motions to intervene as party-plaintiffs. For the reasons set forth below, the Court grants the plaintiff's motion for summary judgment, and denies the defendant's cross-motion for summary judgment, the defendant's motion to stay and the three motions to intervene.
Today the Court revisits the Rural Electrification Administration's (REA's) struggle to recoup some half a billion dollars outstanding of a total of one billion dollars owed to it by Wabash Valley Power Association, Inc. (Wabash). The facts material to the claims before the Court are not in dispute. Because they have been thoroughly described in the prior proceedings, they will be only briefly summarized here. See Wabash Valley Power Ass'n v. Rural Electrification Administration, 903 F.2d 445 (7th Cir.1990) (Wabash IB); Wabash Valley Power Assoc. v. Rural Electrification Admin., 713 F.Supp. 1260 (S.D.Ind. 1989) (Wabash IA), aff'd, 903 F.2d 445 (7th Cir.1990).
Wabash is a non-profit generation-and-transmission electric cooperative that produces and supplies wholesale electricity. Its customer-owners operate in three states, including Indiana. REA is a federal agency established in 1935 to bring electric power to rural America, which it does by making, insuring and guaranteeing loans to rural electric cooperatives. In Wabash's case, REA executed guarantees so that Wabash could obtain loans with which to purchase a seventeen percent interest in the Marble Hill nuclear power generation station, being built by the for-profit Public Service Company of Indiana (PSI).
The trouble that has caused so much litigation involving the present parties began when PSI abandoned construction of Marble Hill, in January, 1984. Wabash lost the borrowed money it had invested, defaulted on the loans, and eventually, in May of 1985, filed for bankruptcy. Meanwhile, REA, as guarantor, had to pay back the loans in Wabash's stead. It instructed Wabash, in accordance with the contract between them, to petition for rate increases sufficient to ensure repayment to REA. Wabash did so, in April of 1984, but the Indiana Public Service Commission, now called the Indiana Utility Regulatory Commission, (the Indiana Commission) dismissed the petition. In re Wabash Valley Power Association, Inc., 82 PUR 4th 18 No. 37472 (Ind.Pub.Serv.Comm'n Jan. 28, 1987). On appeal, the state courts affirmed the Indiana Commission's dismissal by extending the "used-or-useful" rule to customer-owned utilities. National Rural Util. Co-op. Fin. Corp. v. Public Serv. Comm'n of Indiana, 528 N.E.2d 95 (Ind. Ct.App.1988), aff'd, 552 N.E.2d 23 (Ind. 1990). Under this rule, a utility cannot raise its rates to recover the costs of failed construction or of other expenses not "used or useful in the generation, production, transmission, or distribution of energy." 528 N.E.2d at 102 (quoting Ind.Code § 8-1-13-3(e)).
A second round of litigation began when REA attempted, shortly after the Indiana Court of Appeals issued its decision, to force a rate increase by writing a letter to Wabash informing it that REA was preempting the Indiana Commission's jurisdiction and requiring Wabash to raise its rates by nine percent. Wabash filed suit in this Court, seeking a declaratory judgment that REA had no such authority. We granted summary judgment in Wabash's favor, Wabash IA, 713 F.Supp. 1260, and the Seventh Circuit affirmed. Wabash IB, 903 F.2d 445. The Seventh Circuit held, inter alia, that even if REA had statutory authority to preempt state regulation of Wabash's ratemaking, it could not do so by writing a letter and ignoring the formalities of rulemaking required by the Administrative Procedure Act (APA), 5 U.S.C. § 553.
Subsequently, REA did go through the formal rulemaking process set out in the APA, and, after allowing for notice and comment, adopted two new regulations (the preemptive regulations). The first provides, in principal part:
(a) State regulatory authority jurisdiction over a power supply borrower's rates shall be preempted by the Rural Electrification Act if the Administrator shall have determined that the borrower's rates approved by the state regulatory authority are, after taking into account the borrower's costs and expenses, inadequate to produce revenues sufficient to permit the borrower to make required payments on its secured loans and the borrower has failed to make required payments on its secured loans.
7 C.F.R. § 1717.305 (1991). The second provides:
Wabash then filed the present action and thereby initiated yet another round of litigation concerning the Marble Hill failure. This time, Wabash seeks a declaratory judgment that the preemptive regulations are invalid. It seeks summary judgment on one or more of the following grounds: 1) Congress has given REA no authority to preempt state rate regulation; 2) the preemptive regulations cannot be applied retroactively to change the law applicable to Wabash's loan guarantees, which were entered into before the regulations were adopted; 3) REA made a contractual commitment to allow state regulation of Wabash's rates and cannot abrogate that commitment by regulation; 4) REA lacks authority to amend the Bankruptcy Code administratively to create a preference for REA; and 5) the preemptive regulations violate the automatic stay provision of the Bankruptcy Code.
REA filed a counterclaim against Wabash in which it seeks enforcement of the preemptive regulations. After the summary judgment motions were fully briefed, REA filed a motion to stay these proceedings until the bankruptcy court had ruled on its motions in that court to appoint a trustee or an examiner. Since then, the bankruptcy court has confirmed Wabash's proposed plan of reorganization, under which about 65% of Wabash's pre-petition debt to REA is to be repaid, and denied confirmation of REA's plan, which would have required repayment in full. In re Wabash Valley Power Association, Inc., No. 85-2238-RWV-11 (Bankr.S.D.Ind. Aug. 7, 1991).
Three non-parties have filed motions to intervene as party-plaintiffs and in support of Wabash's motion for summary judgment. One of these was filed by the Indiana Office of Utility Consumer Counselor, another by the National Association of Regulatory Utility Commissioners, and the third by the Indiana Utility Regulatory Commission.
Finally, the National Rural Electric Cooperative Association (NRECA) has filed an amicus curiae brief in support of the defendant's position on the summary judgment motions.
The bankruptcy court's confirmation of Wabash's reorganization plan has apparently mooted REA's motion in this Court to stay the proceedings. In any case, the summary judgment motions have been fully briefed for more than seven months and the Court finds no just reason for delaying a ruling on them. Accordingly, REA's motion to stay is denied as moot or, in the alternative, on the merits.
The court may grant summary judgment only if there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202, 211 (1986). Because the material facts are not in dispute, and because both parties have moved for summary judgment, the Court need only consider which of the parties is entitled to judgment as a matter of law.
The Court begins and ends its analysis with the question whether the preemptive regulations lawfully preempt the Indiana Commission's ratemaking authority over Wabash. Preemption of state regulation usually takes one of three forms. "Express preemption" arises when Congress or a federal agency has stated in express terms its intention to preempt state regulation in a given area. "Implied preemption" arises when Congress has regulated so pervasively or has regulated in a field in which federal interests are so dominant that it has impliedly displaced state regulation by occupying the field. Finally, "conflict preemption" arises when Congress did not necessarily intend to preclude all state regulation in a given area but a particular state regulation conflicts directly with a federal law, so that compliance with both is impossible, or stands as an obstacle to the accomplishment of federal objectives. Pacific Gas & Elec. Co. v. State Energy Resources...
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