City of Prescott v. Sw. Elec. Power Co.

438 F.Supp.3d 943

CITY OF PRESCOTT, Arkansas, et al., Plaintiffs

v.SOUTHWESTERN ELECTRIC POWER COMPANY, Defendant

Case No. 4:19-cv-4036

United States District Court, W.D. Arkansas, Texarkana Division.

Signed February 7, 2020

A. Glenn Vasser, McKenzie, McRae, Vasser & Barber, Prescott, AR, Jim L. Julian, Mark W. Hodge, Barber Law Firm PLLC, Little Rock, AR, for Plaintiffs.

David R. Matthews, Matthews, Campbell, Rhoads, McClure, Thompson & Fryauf, P.A., Rogers, AR, David DeBruin, Jenner & Block LLP, Washington DC, for Defendant.

ORDER

Susan O. Hickey, Chief United States District Judge

Before the Court is Defendant's Motion to Dismiss. (ECF No. 12). Plaintiffs have filed a response. (ECF No. 21). Defendant has filed a reply. (ECF No. 25). The Court finds this matter ripe for consideration.

BACKGROUND

Plaintiff the City of Prescott, Arkansas ("Prescott") operates the Prescott Water and Light Company, which provides electric utility service to approximately 1,435 residential customers, 335 commercial customers, and 6 industrial customers. Prescott does not generate its own electric power, meaning it must purchase wholesale capacity and energy from the electric grid maintained throughout the United States.

Prescott relies upon third-party agents to purchase and manage the load and capacity directly from the market to meet the needs of its customers. Historically, Prescott relied upon its agreements with Entergy Arkansas, Inc. ("Entergy"), formerly Arkansas Power & Light, Inc., to serve as its wholesale power supplier. Entergy has and continues to own and maintain an electric supply substation in Prescott. In January 2006, Entergy terminated the contract under which it supplied wholesale power to Prescott. Prescott then purchased electric power from the Arkansas Electric Cooperative Corporation on a temporary basis until January 2009.

Defendant Southwestern Electric Power Company is a wholly owned subsidiary of American Electric Power Company, Inc. Defendant owns and operates facilities for the generation, transmission, and distribution of electric capacity and energy in the states of Arkansas, Louisiana, and Texas, and serves approximately 530,000 retail customers.

On June 30, 2008, Prescott entered into a Power Supply Agreement with Defendant, under which Defendant became Prescott's exclusive wholesale electric provider through 2038. On December 10, 2008, Prescott and Defendant entered into a Network Integration Transmission Service Agreement ("the NITS Agreement") setting out the terms for Prescott to receive Defendant's wholesale power transmitted through the Southern Power Pool ("SPP")¹ system at the Entergy-owned substation. On October 15, 2010, Prescott and Defendant entered into a Revised and Restated Power Supply Agreement (the "PSA"), which did not materially change Defendant's obligations or duties. All of these contracts were approved by the Federal Energy Regulatory Commission ("FERC"), which has exclusive authority to regulate the wholesale power market.

Prescott lays within the geographic footprint of several Regional Transmission Organizations ("RTO"), which are FERC approved entities that coordinate, control, and monitor multi-state electric grids. Defendant is within the RTO SPP's footprint and is a member entity of SPP. SPP directs and oversees the flow of electric capacity over the transmission lines of the member entities (such as Defendant) within the territory granted to SPP by FERC. In exchange for these services, SPP collects charges from Prescott for the transmission of electric capacity over and across the transmission system operated by SPP, which includes the transmission system owned by Defendant.

Entergy was not a member of an RTO when Prescott and Defendant entered into the PSA or the NITS Agreement. However, on December 19, 2013, Entergy became a member of the RTO known as MISO. MISO manages the delivery of electricity throughout fifteen (15) states in the Midwest, and portions of Arkansas are within MISO's service area.

After Entergy joined MISO, Prescott began incurring increased transmission charges. Because Defendant (a member of SPP) relies on Entergy's (now a MISO member's) substation and transmission lines to supply Prescott with power, Prescott had to pay transmission charges to both MISO and Entergy whereas before Prescott paid transmission fees to Entergy alone. Having to pay transmission charges from multiple entities at the same time is known as rate "pancaking." Entergy joining MISO also led to Prescott experiencing "congestion" charges—increased rates during times of peak electricity demand.

On April 5, 2019, Plaintiffs brought the instant action, alleging claims of detrimental reliance, breach of fiduciary duty, and negligence.² Specifically, Plaintiffs allege that Defendant made oral promises to reduce Prescott's pancaking and congestions costs, including promises to build new transmission lines and a substation to serve Prescott. Plaintiffs further allege that Prescott forewent certain administrative and other remedies in reliance on Defendant's assurances. Also, on April 5, 2019, Prescott filed a complaint against Defendant with FERC, alleging, inter alia , that certain provisions of the PSA are unjust and unreasonable.

On May 28, 2019, Defendant filed the instant Motion to Dismiss, arguing that Plaintiffs' claims should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6). Defendant also argues that Plaintiffs' state-law claims are subject to federal preemption and that the Court should relinquish primary jurisdiction in this matter to FERC. Plaintiffs oppose the motion. On September 19, 2019, FERC issued its ruling on Prescott's complaint, finding in part that the PSA did not impart any broad agency or fiduciary duty onto Defendant.³

LEGAL STANDARD

To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a pleading must provide "a short and plain statement of the claim that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The Court must accept as true all factual allegations set forth in the complaint, drawing all reasonable inferences in the plaintiff's favor. See Ashley Cnty., Ark. v. Pfizer, Inc. , 552 F.3d 659, 665 (8th Cir. 2009). However, the complaint "must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.

"The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are ‘merely consistent with’ a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.’ " Id. (quoting Twombly , 550 U.S. at 557, 127 S.Ct. 1955 ). "Determining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679, 129 S.Ct. 1937. In considering a motion to dismiss under Rule 12(b)(6), "the complaint should be read as a whole, not parsed piece by piece to determine whether each allegation, in isolation, is plausible." Braden v. Wal-Mart Stores, Inc. , 588 F.3d 585, 594 (8th Cir. 2009).

"A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’ Nor does a complaint suffice if it tenders ‘naked assertions’ devoid of ‘further factual enhancement.’ " Id. (internal citations and alterations omitted) (quoting Twombly , 550 U.S. at 555, 557, 127 S.Ct. 1955 ). In other words, "the pleading standard Rule 8 announces does not require ‘detailed factual allegations,’ but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Id. (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’ " Id. (quoting Fed. R. Civ. P. 8(a)(2) ).

DISCUSSION

Defendant argues that Plaintiffs' case should be dismissed because they have failed to allege facts sufficient to state claims for detrimental reliance, breach of fiduciary duty, and negligence and because these claims are time-barred. Defendant alternatively argues that Plaintiffs' state-law claims are preempted by FERC's authority to regulate the wholesale power market under the Federal Power Act, 16 U.S.C. § 824 et seq. (the "FPA") and that the Court should yield primary jurisdiction in this matter to FERC. The Court will first address Defendant's jurisdictional arguments. Then, if necessary, the Court will proceed to Defendant's pleading and timeliness arguments.

I. Jurisdiction

Defendant argues that Plaintiffs' state-law claims are preempted by FERC's grant of authority under the FPA. Defendant also argues that the Court should yield primary jurisdiction to FERC. The Court will separately address these arguments.

A. Preemption

The Court first addresses Defendant's argument that Plaintiffs' state-law claims are preempted by FERC's authority under the FPA.

Federal preemption doctrine derives from the Constitution's Supremacy Clause, which states that laws of the United States made pursuant to the Constitution are the "supreme Law of the Land." U.S. Const. Art. VI, cl. 2. "[S]tate laws that interfere with, or are contrary to the laws of congress, made in pursuance of the constitution are invalid," or preempted. Wis. Pub. Intervenor v. Mortier , 501 U.S. 597, 604, 111 S.Ct. 2476, 115 L.Ed.2d 532 (1991)....