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March 15, 1991


The opinion of the court was delivered by: Curtin, District Judge.


The central issue in both of these cases is whether the Power Authority of the State of New York ("PASNY") is authorized under the Niagara Redevelopment Act ("NRA"), 16 U.S.C. § 836, 836a, and/or its license issued thereunder by the Federal Power Commission ("FPC"), 19 F.P.C. 186 (Jan. 30, 1958),*fn1 to independently raise utility rates for Replacement Power as defined in the NRA. 16 U.S.C. § 836(b)(3). Plaintiffs in both cases allege that PASNY was without authority to raise rates and therefore violated section (b)(3) of the NRA, 16 U.S.C. § 836(b)(3),*fn2 and Article 22 of its federal license, 19 F.P.C. 186, and the Federal Power Act ("FPA"), 16 U.S.C. § 791a et seq. GM Item 7, ¶¶ 56-57; OCC Item 1, ¶¶ 43-44. In addition, plaintiffs in the General Mills case append three causes of action alleging that PASNY violated state law. GM Item 7, ¶¶ 58-82.

Plaintiffs seek a declaratory judgment that PASNY's increased Replacement Power rate is illegal, a declaration prohibiting PASNY from setting rates above the cost of producing Replacement Power from PASNY's Niagara Power Project, an injunction holding PASNY to these rulings, and damages for any revenue collected in excess of such costs. Defendants move to dismiss plaintiffs' complaints under Fed.R.Civ.P. 12(b) on the grounds that (1) plaintiffs fail to state a claim upon which relief can be granted, Fed.R.Civ.P. 12(b)(6), (2) the court should abstain from entertaining jurisdiction of this matter in the interest of comity, and (3) in General Mills,*fn3 once the federal claims are dismissed, the court should also decline pendant jurisdiction over the state law claims. Plaintiffs oppose the motion.


There appear to be no facts in dispute. To understand this controversy, however, a bit of history is in order. See Federal Power Comm'n v. Tuscarora Indian Nation, 362 U.S. 99, 100-06, 80 S.Ct. 543, 545-48, 4 L.Ed.2d 584 (1960) (detailing history surrounding passage of NRA). Under the Boundary Waters Treaty of 1909, 36 Stat. 2448, the United States and Canada agreed to permit each country to divert some of the flow of the Niagara river to produce electric power. In 1950, a new treaty was ratified ("1950 Treaty") which authorized the United States to divert a larger portion of water from the river. 1 U.S.T. 694. In ratifying the treaty, the United States Senate attached a provision requiring express Congressional authorization to develop the river.

Prior to June 7, 1956, the Niagara Mohawk Power Corporation ("Niagara Mohawk"), a public utility company, operated two hydroelectric power-generating stations on the Niagara River: the Adams Plant and the Schoellkopf Station. These plants, known as FPC Project 16 ("Project 16"), were operated pursuant to a license issued to Niagara Mohawk by the FPC. 1 F.P.C. 16. A number of industries, including the plaintiffs in these actions, located in the Niagara region to take advantage of the low cost power generated by Project 16. On June 7, 1956, however, a rockslide destroyed the Schoellkopf Station, dramatically reducing the power output of Project 16.

In response to the sudden loss of power-generating capacity in the Niagara region, Congress enacted the NRA, 16 U.S.C. § 836, 836a, in 1957 directing the FPC to issue a license to PASNY "for the construction and operation of a power project with capacity to utilize all of the United States share of the water of the Niagara River permitted to be used by international agreement." 16 U.S.C. § 836(a). Congress also directed that the FPC include in that license, in addition to those conditions deemed necessary by the FPC under the Federal Power Act, 16 U.S.C. § 791a et seq., seven additional conditions governing the distribution and sale of the new project's power. 16 U.S.C. § 836(b)(1)-(7). These congressional conditions required that at least fifty percent of the project's power be available for the benefit of consumers, "to whom such power shall be made available at the lowest rates reasonably possible and in such manner as to encourage the widest possible use," § 836(b)(1), that a "reasonable" portion of the project's power, but not more than twenty percent, be sold to neighboring states, § 836(b)(2), and that

    (3) The licensee [PASNY] shall contract, with
  the approval of the Governor of the State of New
  York, pursuant to the procedure established by New
  York law, to sell to the licensee of Federal
  Energy Regulatory Commission ("FERC") project 16
  [Niagara Mohawk] for a period not ending later
  than the final maturity date of the bonds
  initially issued to finance the project works
  herein specifically authorized, four hundred and
  forty-five thousand kilowatts of the remaining
  project power, which is equivalent to the amount
  produced by project 16 prior to June 7, 1956,
  for resale generally to the industries which
  purchased power produced by project 16 prior to
  such date, or their successors, in order as nearly
  as possible to restore low power costs to such
  industries and for the same general purposes for
  which power from project 16 was utilized. . . .

§ 836(b)(3) (emphasis added). This last block of power was designed to "replace" power lost to local industries as a result of the slide, and thus came to be called "Replacement Power."

In February, 1961, PASNY, in accordance with the NRA, entered into a contract with Niagara Mohawk — Contract NS-1 — to sell a total of 1,190,000 kilowatts ("kW") of power to Niagara Mohawk for resale to various customers in compliance with the NRA.*fn4 Of this power, 445,000 kW was designated as Replacement Power to be sold, "in accordance with [the NRA]," to industrial customers within thirty miles of PASNY's Niagara switchyard. GM Item 9, Exh. 1, Part Two, Art. VI [hereinafter Contract NS-1]. PASNY specifically reserved the right within Contract NS-1 to adjust rates charged to Niagara Mohawk for Replacement Power.

  The rate schedules specified in this contract
  shall be subject to successive modification by the
  Authority [PASNY] through the promulgation of
  superseding rate schedules.

Contract NS-1, supra, General Power Contract Provisions, Part E.

Also in February, 1961, when Replacement Power was first sold to Niagara Mohawk, PASNY set the price for such power at $1.00 per kilowatt month for demand and less than three-tenths of a cent (2.67 mills)*fn5 per kilowatt hour ("kWh") for energy, for an average cost to industry of less than one-half cent per kWh (4.38 mills). Contract NS-1, supra, Schedule NP-F1. This rate remained constant until 1990. GM Item 8, ΒΆ 19. Plaintiffs receive this Replacement Power pursuant to resale contracts with Niagara Mohawk at ...

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