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Imperial Irrigation District v. California Independent System Operator Corp.

United States District Court, S.D. California

August 1, 2016

IMPERIAL IRRIGATION DISTRICT, Plaintiff,
v.
CALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION, Defendant.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION TO DISMISS

          Hon. Anthony J. Battaglia United States District Judge.

         Presently before the Court is Defendant California Independent System Operator Corporation’s (“CAISO”) motion to dismiss Plaintiff Imperial Irrigation District’s (“IID”) first amended complaint (“FAC”) for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). (Doc. No. 28.) IID opposes the motion. (Doc. No. 34.) The Court heard oral argument on this matter on June 23, 2016, and took the matter under submission. For the following reasons, the Court GRANTS IN PART AND DENIES IN PART CAISO’s motion. IID’s federal antitrust, breach of tariff, and unlawful UCL claims are DISMISSED WITH PREJUDICE. IID’s fraudulent UCL claim is DISMISSED WITHOUT PREJUDICE. Because the Court does not rely on CAISO’s exhibit, introduced at the hearing on this matter, (see Doc. No. 42), to preclude IID from moving forward with its state law claims, the Court DENIES AS MOOT IID’s request to respond to that exhibit. (Doc. No. 44.) See infra note 9.

         Background

         This dispute centers on nondiscriminatory access to California’s electric transmission grid.[1] The parties in this litigation are two of the eight entities (“balancing authority” or “BA”) that provide electric transmission service and transmission operations services within the State of California. (Doc. No. 26 ¶¶ 2, 23.) IID is the third largest public power utility in California and is headquartered in Imperial County, California. (Id. ¶¶ 3, 51.) CAISO is a non-governmental entity created by the State of California and is headquartered in Folsom, California. (Id. ¶¶ 62-63.)

         IID alleges it competes with CAISO in two markets in California: the transmission service market and the transmission operations services market. (Id. ¶ 164.) The transmission service market is the market for interconnecting and transmitting electricity across high voltage, long-distance power lines within California, for delivery to electricity customers located both in California and outside California through interconnected electricity transmission systems. (Id. ¶ 165.) The transmission operations services market is a market where the BAs perform operations services within their respective BAAs, including (1) managing the operation and supervising the maintenance of a high-voltage electric transmission network; (2) granting transmission service to wholesale electricity customers; (3) coordinating the generation and transmission outages; and (4) managing the process of transmission to a high-voltage electric transmission network. (Id. ¶ 166.) CAISO controls at least 80 percent of each market. (Id. ¶¶ 66-67, 169-71.) CAISO’s participating transmission owners (“PTOs”) own the vast majority of electric transmission assets in California. (Id. ¶ 24.) IID controls approximately one percent of each market. (Id. ¶ 54.)

         Each BA controls a separate geographic region within California known as balancing authority areas (“BAAs”). (See Id. ¶¶ 2, 58.) Only one BA operates in any given BAA. (See Id. ¶ 68.) CAISO’s BAA surrounds IID’s BAA on most sides. (See Doc. No. 26-1.) While the BAAs do not overlap geographically, IID alleges the parties compete for the business of generators of renewable energy whose facilities are located within or near IID’s BAA. (Doc. No. 26 ¶¶ 58, 176; see Doc. No. 26-4.) Specifically, the parties compete for connections with these generators to obtain the fees associated with the flow of that electricity across their respective transmission grids. (Doc. No. 26 ¶¶ 58, 176.)

         The parties’ grids are physically connected at two interties. (Id. ¶ 59.) CAISO controls access to the transmission grid within its BAA, having the power to grant or deny access to services on its grid and to determine the terms under which such access is granted. (Id. ¶¶ 4-5.) Access to CAISO’s grid is necessary for entities within CAISO’s BAA that wish to purchase electric generation sources located inside or outside CAISO’s BAA, as well as for electricity sellers within CAISO’s BAA that wish to deliver electricity to entities outside CAISO’s BAA. (Id. ¶¶ 5, 174.) Entities located within IID’s BAA cannot export electricity onto CAISO’s grid without CAISO’s permission. (Id. ¶ 9.E.)

         CAISO also has the authority, under its FERC-approved tariff and its business practice manual (“BPM”), to calculate an entity’s “maximum import capability” (“MIC”), that is, the quantity in megawatts (“MW”) determined by CAISO for each Intertie into its BAA to be deliverable to the BAA based on CAISO study criteria. (Id. ¶¶ 85, 89, 91-92.) CAISO has historically set IID’s access to the grid to a MIC of 462 MW. (See Id. ¶¶ 6, 9.E, 143.) In other words, IID can export from its BAA onto or through the CAISO grid only 462 MW of electric power.[2] (See Id. ¶ 59.)

         The essence of the FAC is that CAISO induced IID, through a series of memoranda and public statements from 2011 through 2014, to invest over $30 million in upgrades to Path 42, one of the two transmission lines that connect IID’s BAA to CAISO’s. (See Id. ¶¶ 39, 103, 107-15, 126-34, 141.) Essentially, CAISO forecasted that if IID made certain upgrades to its side of the line, IID’s MIC would increase to 1400 MW in 2019 (“expanded MIC”). (Id. ¶ 39, 103.) In reliance on CAISO’s statements, IID’s board of directors approved Path 42 upgrades within its BAA in August 2011, which were completed and placed into service in January 2015. (Id. ¶¶ 121-22, 135-37.)

         Notwithstanding its knowledge of IID’s investment, in July 2014, CAISO reduced IID’s expanded MIC to its historic level, citing the closure of the San Onofre Nuclear Generating Station (“SONGS”) as the basis for the change. (Id. ¶¶ 125, 138, 143, 150.) In that statement, CAISO acknowledged that certain transmission additions-not including IID’s upgrades to Path 42-restored future additional amount of deliverability from the Imperial zone up to 1000 MW; however, CAISO reserved that 1000 MW for itself, leaving IID with its historic 462 MIC, notwithstanding the fact that IID’s BAA comprised 98 percent of the Imperial zone. (Id. ¶¶ 145-47, 188.)

         Unconvinced that SONGS’ closure was the true cause for the reduction to its expanded MIC, IID took it upon itself to investigate. (Id. ¶ 153.) Through this investigation, IID discovered CAISO allegedly violated its own BPM and operating procedures, which were promulgated and adopted pursuant to its tariff approved by the Federal Energy Regulatory Commission (“FERC”). (See Id. ¶ 9.A, 154-55.) Due to this violation, CAISO miscalculated the flow from one of its transmission lines. (Id. ¶¶ 155, 173(a).) Had CAISO accurately computed that line’s flow, IID’s expanded MIC would have been correctly set at 1400 MW without the need for additional upgrades. (Id. ¶ 156.)

         The elimination of IID’s expanded MIC, and CAISO’s public misrepresentation of IID’s MIC, has resulted in renewable energy developers located near or within IID’s BAA to bypass the IID system and connect directly with the CAISO system, thus depriving IID of significant revenue from the provision of interconnection services, transmission services, and transmission operations services. (Id. ¶¶ 9.A, 159, 173(a), 183.) It has also left developers of renewable energy with little ability to plan, finance, and build new renewable energy facilities that connect to IID’s transmission system. (Id. ¶ 160.) IID alleges that due to the developers connecting directly to CAISO’s grid, there is a spillover of energy (of which CAISO knew and planned) onto IID’s transmission system, which precludes IID from selling or otherwise using that capacity. (Id. ¶ 9.C.) In addition to the reduction in its expanded MIC, IID alleges CAISO has extensively used IID’s transmission lines and infrastructure to import substantial out-of-state power without compensating IID for this use. (Id. ¶¶ 9.C, 173(g), 193.) IID alleges CAISO’s actions were motivated by, inter alia, its intent to further its monopolistic position in the relevant markets by forcing IID to join CAISO as a PTO. (Id. ¶ 162.)

         On July 16, 2015, IID filed the instant action, alleging claims for monopolization and attempted monopolization in violation of § 2 of the Sherman Act, and state law claims of breach of implied contract, conversion, quantum meruit, and restitution. (Doc. No. 1.) The Court largely granted CAISO’s motion to dismiss the original complaint on November 24, 2015. (Doc. No. 23.) IID filed the FAC on January 6, 2016. (Doc. No. 26.) On February 5, 2016, CAISO filed the instant motion to dismiss. (Doc. No. 28.) IID opposed the motion, (Doc. No. 34), and CAISO replied, (Doc. No. 35). The Court held a hearing on this matter on June 23, 2016. The Court took the matter under submission, and this order follows.

         Legal Standard

         A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief . . . .” Fed.R.Civ.P. 8(a)(2). Plaintiffs must also plead, however, “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The plausibility standard thus demands more than a formulaic recitation of the elements of a cause of action or naked assertions devoid of further factual enhancement. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Instead, the complaint “must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).

         In reviewing a motion to dismiss under Rule 12(b)(6), courts must assume the truth of all factual allegations and must construe them in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). The court need not take legal conclusions as true “merely because they are cast in the form of factual allegations.” Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987) (quoting W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981)) (internal quotation marks omitted). Similarly, “conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss.” Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998).

         In determining the propriety of a Rule 12(b)(6) dismissal, courts generally may not look beyond the complaint for additional facts. See United States v. Ritchie, 342 F.3d 903, 907-08 (9th Cir. 2003). Where dismissal is appropriate, a court should grant leave to amend unless the plaintiff could not possibly cure the defects in the pleading. Knappenberger v. City of Phoenix, 566 F.3d 936, 942 (9th Cir. 2009).

         Discussion

         CAISO presents four arguments that it asserts require the FAC’s dismissal with prejudice: (1) the filed rate doctrine applies; (2) FERC should have primary jurisdiction over the entire dispute; (3) IID’s state law claims are preempted; and (4) IID fails to state its claims. (See Doc. Nos. 28-1, 35.) IID counters that CAISO’s arguments concerning FERC’s jurisdiction do nothing more than seek reconsideration of the Court’s prior order. (Doc. No. 34 at 7-8.) The Court addresses each of CAISO’s arguments in turn.

         I. Breach of Tariff Claim

         As an initial matter, CAISO points out in its reply that IID failed to oppose CAISO’s motion to dismiss with respect to IID’s breach of tariff claim. (Doc. No. 35 at 2.) The Court agrees with CAISO that IID has apparently abandoned this claim. See Sanchez v. Maricopa Cnty., No. CV 07-1244-PHX-JAT, 2008 WL 4057002, at *7 (D. Ariz. Aug. 27, 2008) (“If a non-moving party only partially responds to a motion . . ., then the party abandons the claims that it does not address in its opposition to the motion.”). At any rate, even had IID defended this claim, it is apparent from the face of the Federal Power Act that it does not permit a private right of action. 16 U.S.C. § 824v(b) (“Nothing in this section [dealing with the prohibition on energy market manipulation] shall be construed to create a private right of action.”); Woolsey v. J.P. Morgan Ventures Energy Corp., No. 15cv530-WQH-BGS, 2015 WL 6455571, at *9 (S.D. Cal. Oct. 26, 2015) (“The FPA does not provide a right of action.”). The Court thus GRANTS CAISO’s motion and DISMISSES the breach of tariff claim WITH PREJUDICE.

         II. Filed Rate Doctrine

         CAISO first argues that FERC has exclusive jurisdiction over IID’s claims pursuant to either the filed rate doctrine or primary jurisdiction. (Doc. No. 28-1 at 13-20.) IID counters that CAISO improperly seeks reconsideration of the Court’s prior rulings, merely rehashing the arguments it first presented to the Court in its motion to dismiss IID’s original complaint, which the Court rejected in part. (Doc. No. 34 at 7.)

         “Under the law of the case doctrine, ‘a court is generally precluded from reconsidering an issue that has already been decided by the same court, or a higher court in the identical case.’” Gallagher v. San Diego Unified Port Dist., 14 F.Supp.3d 1380, 1389 (S.D. Cal. 2014) (quoting United States v. Cuddy, 147 F.3d 1111, 1114 (9th Cir. 1998))). However, the doctrine “should not be applied woodenly in a way inconsistent with substantial justice.” United States v. Miller, 822 F.2d 828, 832-33 (9th Cir. 1987). Accordingly, the Court has the discretion to depart from the law of the case if “(1) [t]he first decision was clearly erroneous; (2) an intervening change in the law has occurred; (3) the evidence on remand is substantially different; (4) other changed circumstances exist; or (5) a manifest injustice would result.” Gallagher, 14 F.Supp.3d at 1389 (citing Cuddy, 147 F.3d at 1114). “Failure to apply the doctrine of the law of the case absent one of the requisite conditions constitutes an abuse of discretion.” United States v. Alexander, 106 F.3d 874, 876 (9th Cir. 1997).

         In the previous ruling finding the filed rate doctrine did not bar IID’s claims to the extent it sought to enforce the tariff, the Court principally relied upon the Ninth Circuit’s decision in Brown v. MCI WorldCom Network Services, Inc. (See Doc. No. 23 at 14-15.) In Brown, in the context of a claim arising under the Federal Communications Act (“FCA”), the Ninth Circuit held that while “[t]he filed-rate doctrine precludes courts from deciding whether a tariff is reasonable, . . . it does not preclude courts from interpreting the provisions of a tariff and enforcing that tariff.” Brown, 277 F.3d 1166, 1171-72 (9th Cir. 2002). However, the Ninth Circuit went on to note that a contrary conclusion “would render meaningless the provisions of the FCA allowing plaintiffs redress in federal court.” Id. at 1172 (citing 47 U.S.C. §§ 206-07).

         Considering the parties’ arguments anew in light of controlling case law decided after the decision in Brown, the Court concludes its reliance on Brown to hold open the door to claims seeking to enforce the CAISO tariff was in error. Unlike the FCA, the FPA does not provide plaintiffs redress in court. 16 U.S.C. § 824v(b); see also Mont.-Dakota Utils. Co. v. N.W. Pub. Serv. Co., 341 U.S. 246, 251 (1951) (“the prescription of the [FPA] is a standard for [FERC] to apply and, independently of [FERC] action, creates no right which courts may enforce”); California ex rel. Lockyer v. Mirant Corp., 266 F.Supp.2d 1046, 1063 (N.D. Cal. 2003) (holding Brown to be inapposite for this reason).

         Furthermore, subsequent Ninth Circuit case law specifically addressing interstate transmission of electricity under the FPA makes clear that FERC enjoys plenary jurisdiction over enforcement of, and providing redress for, violations of FERC-approved tariffs. See Pub. Util. Dist. No. 1 v. Dynergy Power Mktg., Inc., 384 F.3d 756, 762 (9th Cir. 2004) (“if the defendants sold electricity in violation of the filed tariffs, [plaintiff’s] only option is to seek a remedy from FERC”); California ex rel. Lockyer v. Dynergy, Inc., 375 F.3d 831, 851 (9th Cir. 2004) [hereinafter Lockyer] (“our cases specifying the nature and scope of exclusive FERC jurisdiction make clear that the interstate ‘transmission’ or ‘sale’ of wholesale energy pursuant to a federal tariff-not merely the ‘rates’-falls within FERC’s exclusive jurisdiction”); Transmission Agency of N. Cal. v. Sierra Pac. Power Co., 295 F.3d 918, 931 (9th Cir. 2002) [hereinafter TANC] (“We [] hold that FERC’s exclusive jurisdiction over the interstate transmission of electricity extends to any claims of entitlement to a specific allocation of interstate transmission capacity[.]”). Like the plaintiff in Lockyer, “[t]o the extent [IID] is seeking ...


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