DAVID N. HURD, District Judge.
Plaintiffs Entergy Nuclear Fitzpatrick, LLC, Entergy Nuclear Power Marketing, LLC, and Entergy Nuclear Operations, Inc. (collectively "Entergy" or "plaintiffs") seek to invalidate a June 13, 2014 Order (the "Order") issued by defendant Commissioners of the New York Public Service Commission ("NYPSC") (collectively the "Commission"), sued here in their respective official capacities.
The challenged Order approves a subsidy-like agreement between non-party National Grid, a retail utility company, and intervenor-defendant Dunkirk Power, LLC ("Dunkirk"), a generating facility that had previously announced plans to shut down due to unprofitability, that would keep Dunkirk in business for at least another decade.
According to Entergy, this agreement will improperly suppress market prices for the sale of wholesale electric energy, causing economic harm to other generating facilities participating in the relevant regional market (such as plaintiffs, as owners and operators of a nuclear power plant based in Oswego, New York). Plaintiffs assert two claims for relief from this alleged harm: Count One seeks a declaration that the Commission's Order is both field- and conflict-preempted by the Federal Power Act ("FPA"), which confers exclusive regulatory jurisdiction over the marketplace for wholesale electric energy on the Federal Energy Regulatory Commission ("FERC"); alternatively, Count Two seeks a declaration that the Commission's Order violates the dormant Commerce Clause.
The Commission has moved pursuant to Federal Rule of Civil Procedure ("Rule") 12(c) seeking a judgment on the pleadings or, in the alternative, partial dismissal of Count One pursuant to the doctrine of primary jurisdiction. The motion has been fully briefed and oral argument was heard on October 16, 2015 in Utica, New York.
For much of the 20th century, local utility companies dominated the burgeoning market for electrical energy, exercising exclusive control over the production, transmission, and delivery of electrical power to their end-user customers. Am. Compl. ¶ 31. These purely intrastate entities were subject only to state and local regulation without interference from the federal government.
However, rapid technological advancements eventually made it possible for some of these companies to begin selling their electrical power to buyers located in neighboring states. Am. Compl. ¶ 32. These interstate sales raised the question of (and generated lawsuits over) whether state and local authorities could properly regulate these new, cross-border transactions without running afoul of the dormant Commerce Clause.
In 1927, the Supreme Court answered that question in the negative, holding in
In 1935, Congress took up the mantle by enacting the FPA, which initially vested FERC's predecessor with broad authority to regulate the transmission and sale of wholesale electric energy in interstate commerce. Am. Compl. ¶ 33. Under this regulatory regime, traditional state authorities, such as NYPSC, retained jurisdiction over the entities, such as National Grid, responsible for intrastate retail sales of power to customers.
Since 1935, FERC's role in the electrical energy business has grown exponentially as the market has shifted away from local utility monopolies toward a competitive, nationwide "grid" system of electrical distribution.
However, FERC prefers not to engage in the direct setting of these energy rates. Am. Compl. ¶ 37. Instead, it has pursued its mandate indirectly: first, by encouraging the creation of regional non-profit entities, known as "regional transmission organizations" or "independent system operators," charged with administering and maintaining portions of the nationwide electrical grid; second, and more importantly, by exercising a measure of control over the competitive auctions for wholesale pricing that these regional operators conduct.
The relevant FERC-approved regional organization in this case is the New York Independent System Operator, Inc. ("NYISO").
NYISO operates its capacity market by conducting monthly "spot market auctions" in four sub-zones within the region. Am. Compl. ¶ 41. In these mandatory auctions, NYISO first issues a determination: it announces the aggregate amount of electrical power it has predicted will be needed by all electricity consumers in a particular area during the coming month.
NYISO "stacks" this list of bids from the lowest to highest price. Am. Compl. ¶ 42. Then, starting with the lowest price offering, NYISO "accepts" each bid in increasing order until the total predicted demand—the aggregate amount of electricity NYISO believes will be needed for consumers in the coming month—has been met.
In industry parlance, any electrical generator that bids at or below this "market-clearing price" is referred to as having "cleared" the market. Am. Compl. ¶ 42. A generator who "clears" the market is rewarded by being paid the "market-clearing price" and, in exchange for this payment from NYISO, the power generator is on the hook to deliver the amount of electric energy it had represented it would be able to provide when it submitted its bid.
In other words, this "stacking" system incentivizes power generators to operate in a cost-effective manner, since generators that bid too high will not "clear the market" and therefore will not make money in the region. Am. Compl. ¶ 44. Importantly, it also provides pricing signals to other generators who may be considering entering the regional market (because they can produce power at or below the "market-clearing price" and thus sell their energy) or considering exiting the power delivery business in that region (because, for example, operating costs have become too high to remain competitive there).
In March 2012, Dunkirk, a coal-fired power plant located in Western New York that participates in NYISO's wholesale capacity market, concluded that it could no longer bid at a competitive rate and would not be profitable going forward. Am. Compl. ¶¶ 3, 50. Accordingly, it announced plans to shut down, or "mothball" its facility, "due to presently unfavorable economic conditions."
The Commission reviewed the situation and concluded that a Dunkirk shutdown raised the possibility that the reliability of electric service in the Western New York area could be negatively impacted. Am. Compl. ¶ 50. Accordingly, NYPSC directed National Grid—the local retail utility that purchases power on the wholesale market and resells it to homeowners and businesses in the Western New York area—to investigate whether a Dunkirk shutdown would actually cause any reliability problems and, if so, how best to address those problems.
The upshot of National Grid's eventual response to these directives was that it had considered a number of scenarios and believed that keeping Dunkirk in business would be far less cost-effective than simply undertaking transmission line upgrades on other aspects of the local power grid. Am. Compl. ¶¶ 52-54. In fact, National Grid believed these infrastructure upgrades would ultimately be necessary regardless of whether Dunkirk was somehow kept operational.
Nevertheless, in late 2013, Governor Cuomo made a surprise announcement that Dunkirk would be saved—the facility's owner, NRG Energy, Inc., had reached an agreement with National Grid to keep Dunkirk operational by partially subsidizing the facility's planned conversion from coal to natural gas to the tune of over $20 million a year for the next decade.
This agreement, referred to by the parties as the "Term Sheet," required final approval by NYPSC. Am. Compl. ¶¶ 56, 61. The Commission approved the Term Sheet on June 13, 2014 over the objections of Entergy, various competing power generators, and a number of public-interest groups.
On July 25, 2014, the Commission issued a "Notice Concerning Petition for Rehearing" indicating NYPSC would conduct a "rehearing evaluation." Weisburst Decl. Ex. A, ECF No. 58-2. However, on October 27, 2014, the Commission denied the petition for rehearing. Am. Compl. ¶¶ 61-62.
According to Entergy, the Term Sheet's provisions amount to out-of-market subsidies that throw a wrench in the finely wrought, FERC-approved system of bidding for a "market-clearing price" in the NYISO capacity market, since a power generator that receives subsidy payments to cover all or part of its generating costs, like Dunkirk, is able to bid below its actual "going-forward costs over the long term." Am. Compl. ¶ 46. As a result, competing power generators (like Entergy) will suffer ongoing pecuniary harm—each month, Dunkirk's below-cost bids will improperly suppress the "market-clearing prices" below what they would have been absent those subsidies.
And while Entergy recognizes that the Commission has some degree of latitude in exercising its traditional state authority of ensuring the reliable functioning of the state power grid, plaintiffs contend that this authority does not give NYPSC license to tamper with areas exclusively reserved to FERC or to use overly broad remedial measures that harm FERC's goal of employing market processes to ensure just and reasonable rates for the wholesale sale of energy.
The Commission has moved pursuant to Rule 12(c), which provides that "[a]fter the pleadings are closed-but early enough not to delay trial-a party may move for judgment on the pleadings." FED. R. CIV. P. 12(c). "On a [Rule] 12(c) motion, the court considers `the complaint, the answer, any written documents attached to them, and any matter of which the court can take judicial notice for the factual background of the case.'"
"The standard for granting a [Rule 12(c)] motion . . . is `identical' to that of a 12(b)(6) motion to dismiss."
Specifically, the Commission has moved for total or partial dismissal of Entergy's operative complaint based on untimeliness, a lack of prudential standing, and the doctrine of primary jurisdiction. Each argument will be addressed in turn.
First, the Commission contends Count One of Entergy's operative complaint, which advances theories of field- and conflict-preemption, is subject to a four-month statute of limitations and therefore, as the complaint was filed eight months after NYPSC's issuance of the June 13, 2014 Order, it must be dismissed as untimely.
Entergy responds by arguing that the NYPSC issued a "Notice Concerning Petition for Rehearing" that tolled the applicable limitations period; alternatively, Entergy asserts a six-year statute of limitations applies to this claim.
The Commission acknowledges the tolling language outlined in its own rehearing notice, but maintains that Entergy cannot take advantage of it because (1) plaintiffs did not participate in that rehearing petition and (2) the rehearing petition concerned different issues than those challenged by plaintiffs here.
On July 25, 2014, subsequent to the issuance of its prior Order approving the Term Sheet, NYPSC issued a "Notice Concerning Petition for Rehearing" in response to a request for rehearing filed by Earthjustice and the Sierra Club. This Notice indicated that:
Weisburst Decl. Ex. A, ECF No. 58-2 (internal citation omitted). In spite of this seemingly unqualified language, the Commission argues that this Notice did not actually toll the four-month statute of limitations as to Entergy, but only as to Earthjustice and the Sierra Club; i.e., those parties who formally petitioned for rehearing.
Assuming, as the Commission urges, that the appropriate limitations period here is four months, "[t]he more difficult question is when the statute of limitations began to run."
According to the New York Court of Appeals, this finality attaches when (1) the agency has reached a definitive position on the issue that inflicts actual, concrete injury; and (2) the injury inflicted may not be "significantly ameliorated by further administrative action or by steps available to the complaining party."
Here, the Commission may be correct to claim that the June 13, 2014 Order inflicted an actual, concrete injury on Entergy. However, the plain language of the Commission's own Notice broadly indicates that NYPSC retained the discretion to modify, reverse, or take any other action it deemed appropriate with respect to its original Order, without any indication that such discretion would be limited to the parties who moved for rehearing or even to the specific issues raised by those parties. In other words, a fair reading of the Notice indicates that the injury plaintiffs claim from the June 13, 2014 Order could still have been "significantly ameliorated by further administrative action"; that is, modification or even reversal of the June 13, 2014 Order.
In their reply memorandum, the Commission claims that the very purpose of issuing a public notice concerning rehearing, such as the one at the center of the dispute here, is to assure
But if anything, accepting that assertion would require the reader to infer limited purpose, scope, and meaning from the broad, straightforward, and plain language contained in the Notice itself. And while a retrospective assessment of the Commission's rehearing decision may indicate the Commission chose to confine its renewed analysis of the issues at play to only those directly concerning Earthjustice or the Sierra Club, no such limitation was stated, or even fairly inferred, in the July 25, 2014 Notice informing the public that the four-month limitations period would not begin to run "until issuance of a Commission decision on rehearing." Indeed, the unnecessary ambiguity such approaches would create are more likely to in fact encourage more, not fewer, "protective" filings, since interested parties to such administrative proceedings would quickly learn to become distrustful of the broad, unqualified language contained in a Notice that actually requires stakeholders to divine the Commission's institutional mind.
In sum, because the Notice indicated the Commission could reaffirm, modify, reverse, or take any other action NYPSC deemed necessary with respect to the June 13, 2014 Order of which Entergy complains, further administrative action, such as reversal or modification of the Order, might reasonably have "significantly ameliorated" Entergy's injury. Therefore, this Notice tolled the applicable limitations period for
Next, the Commission contends Entergy lacks prudential standing to assert the dormant Commerce Clause challenge it brings in Count Two because plaintiffs are not actually engaged in any energy capacity sales that cross state borders.
The dormant Commerce Clause, long inferred from the text of U.S. Const. art. I, § 8, cl. 3, is a doctrine that "restrict[s] permissible state regulation."
More importantly for present purposes, the doctrine of prudential standing embodies "judicially self-imposed limits on the exercise of federal jurisdiction."
According to the Commission, because a dormant Commerce Clause claim must be premised on differential treatment of in-state and out-of-state economic interests, it "logically follows" that a plaintiff must be an
Entergy responds that, where a state law or regulation violates the dormant Commerce Clause, any participant in the affected interstate market has prudential standing to sue, regardless of whether that plaintiff actually alleges harm to any of their
Initially, it bears noting that the Supreme Court's general view of the Commerce Clause's purpose is to "protect[ ] the interstate market, not particular interstate firms, from prohibitive or burdensome regulations."
But ultimately, the discrimination inquiry is one for the merits. Here, Entergy correctly argues that the test for prudential standing is "not a rigorous one," and simply requires that "the interest sought to be protected by [plaintiffs] is arguably within the zone of interests to be protected or regulated by the . . . constitutional guarantee in question."
For example, one district court in our Circuit that has had occasion to interpret the Second Circuit's reasoning in
There is no doubt that Entergy's Amended Complaint sufficiently alleges the Commission's Order unfairly burdens interstate commerce. In particular, plaintiffs claim that the Commission's June 13, 2014 Order approving the Term Sheet is a state action that benefits an in-state participant (Dunkirk) at the alleged expense of both in-state competitors (such as Entergy) and out-of-state competitors. At the very least, then, the challenged state action is a clear gain to Dunkirk, an in-state entity, at the expense of its competitors in an interstate market.
Viewing these facts in light of Entergy's allegations regarding the nationwide nature of the "grid," the reliance by in- and out-of-state market participants on the price signaling function performed by the spot market auctions, and the harm to those market participants flowing from the state's preferential treatment of Dunkirk, plaintiffs have sufficiently alleged harm from state action to an interstate market to satisfy the low threshold requirement imposed by prudential standing at this early juncture. Accordingly, the Commission's second argument will be rejected.
Lastly, the Commission contends that the portion of Count One that asserts a "conflict preemption" theory of relief should be dismissed and referred to FERC pursuant to the doctrine of primary jurisdiction. In support of that position, the Commission notes there is already a FERC proceeding pending on these issues. Entergy responds that the pending administrative proceeding raises different legal issues and seeks remedies that are distinct from those available in this lawsuit.
The doctrine of primary jurisdiction is "neither jurisdictional nor primary" in nature.
To that end, the doctrine aims "to allocate initial decisionmaking responsibility between courts and agencies and to ensure that they `do not work at cross-purposes.'"
Accordingly, "[r]ecourse to the doctrine of primary jurisdiction is thus appropriate 'whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body."
Understandably, the doctrine is a discretionary one and therefore "no fixed formula exists" to aid in determining its proper application.
Here, the Commission argues that the ongoing FERC proceeding, in which one of the plaintiffs in this case is an active participant, deals with, and will resolve, the issue of whether the Term Sheet improperly suppresses prices in the NYISO capacity market.
Entergy responds that this lawsuit and the FERC proceeding are not the same, because FERC's analysis in that proceeding will be limited in an important respect—FERC must assume the lawfulness of the Commission's Order approving the Term Sheet.
Consequently, its proceedings will merely determine whether certain market rules over which FERC exercises control should be adjusted in the NYISO capacity market to mitigate the effects of keeping subsidized generators like Dunkirk in service. By way of contrast, Entergy argues that success in this lawsuit would enable them to enjoin the Commission from enforcing the Order approving the Term Sheet in the first place, thereby invalidating the state action at its source.
After careful consideration, application of the doctrine of primary jurisdiction would be inappropriate here. As to the first factor, the Commission is correct to note that the factual background present in this case, which involves "fairly technical" issues of energy market organization, are indisputably areas within FERC's expertise. But those technical background issues are unrelated to the actual legal question presented by Entergy's claim; that is, whether the state action challenged here impermissibly conflicts with one or more of FERC's objectives.
Entergy's opposition on this point—that the pending FERC proceeding and this federal lawsuit seek different remedies and therefore this lawsuit should proceed—is strengthened by a recent Fourth Circuit decision invalidating a similar state subsidy scheme. In that case, the panel rejected the assertion that FERC's decision in a similar proceeding to ultimately accommodate the participation of certain state-subsidized plants in the regional auction resolved any injury to other generators by noting that "[t]he fact that FERC was forced to mitigate [the state order's] distorting effects using [a mitigation remedy], however,
As to the second and third factors, FERC's proceeding can only determine whether some form of mitigation ruling would be warranted for the NYISO market; a federal agency proceeding cannot reach the underlying validity of the state-issued Order's propriety, the question at issue in this case. Accordingly, the danger of inconsistent rulings is also unlikely to be realized.
As to the fourth factor, there is no meaningful inference to be drawn either way, since, as described in detail above, the already-filed agency application to FERC seeks to resolve different issues. Accordingly, this argument will be rejected.
Finally, Entergy correctly notes that Dunkirk's memorandum in support of NYPSC's motion largely repeats the same arguments already advanced by defendants themselves and those arguments are rejected for substantially the same reasons outlined above.
However, Entergy correctly notes that Dunkirk's memorandum does urge one additional argument: that Count Two, plaintiffs' dormant Commerce Clause challenge brought pursuant to 42 U.S.C. § 1983, is also untimely. Dunkirk argues that this claim should be subject to the four-month statute of limitations applicable to Article 78 petitions in New York.
Dunkirk is incorrect. The Supreme Court has recognized the kind of "chaos and uncertainty" inherent in determining which of various state statutes of limitations should be borrowed and has consequently held that "courts considering § 1983 claims should borrow the general or residual statute for personal injury actions."
The New York state cases cited by Dunkirk provide no indication why Entergy's claim, brought in federal court to vindicate an alleged violation of a federal right, should be somehow excepted from this rule.
"FERC rules encourage the construction of new plants and sustain existing ones. They seek to preclude state distortion of wholesale prices while preserving general state authority over generation sources. They satisfy short-term demand and ensure sufficient long-terms supply. In short, the federal scheme is carefully calibrated to protect a host of competing interests. It represents a comprehensive program of regulation that is quite sensitive to external tampering."
Here, Entergy has timely asserted claims of harm flowing from state action to an interstate market in which it participates to pass the less-than-rigorous test imposed by prudential standing. And while it may seem facially appealing to refer certain of plaintiffs' claims to FERC given the technical nature of the facts presented here, the doctrine of primary jurisdiction is generally applied only in narrow circumstances and, more importantly, FERC's mitigation remedies represent a kind of relief distinct from that promised by a federal court.
Therefore, it is
ORDERED that
1. The Commission's motion to dismiss (ECF No. 36) is DENIED.
IT IS SO ORDERED.