United States District Court, N.D. New York
ERIC T. SCHNEIDERMAN, C. HARRIS DAGUE, ESQ., Ass't Attorney General Attorney General for the State of New York, Albany, NY, Attorneys for Plaintiff.
SARAH E. ZGLINIEC, ESQ., STEPHEN P. YOUNGER, ESQ., JASON R. VITULLO, ESQ., PATTERSON BELKNAP WEBB & TYLER LLP, New York, NY, Attorneys for Defendant.
DECISION and ORDER
DAVID N. HURD, District Judge.
Plaintiff Hudson River-Black River Regulating District ("plaintiff" or "the District") initiated this action in New York State Supreme Court, Fulton County, on January 21, 2014, seeking declaratory relief. Defendant Erie Boulevard Hydropower, L.P. ("defendant" or "Erie") removed the action to federal court in the Northern District of New York on February 20, 2014.
Erie has now filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). The District responded in opposition, Erie replied, and the District was permitted to file a sur-reply. Oral argument was heard on October 29, 2014, in Utica, New York. Decision was reserved.
The following factual and procedural background is not in dispute and has been gleaned from the complaint and defendant's memorandum of law. The District is a public authority that operates the Conklingville Dam ("the Dam") and its related body of water, the Great Sacandaga Lake. Erie operates several hydropower facilities located downstream from the Dam. During the relevant time period, and pursuant to New York state law, Erie paid assessments to the District for "headwater benefits" or "downstream benefits" resulting from the Dam.
In September 2002, the Federal Energy Regulatory Commission ("FERC") issued a license to the District permitting the continued operation of the Dam pursuant to the Federal Power Act, 16 U.S.C. §§ 791a-828c ("FPA"). Section 10(f) of the FPA recognizes headwater benefits and allows public authorities, such as the District, to impose assessments on downstream facilities, such as Erie, for such benefits. See 16 U.S.C. § 803(f). However, the rates permitted under the FPA are significantly less than those allowed by New York law.
Erie initiated six separate Article 78 proceedings in state court between 2000 and 2006 challenging the amount of the assessments the District had imposed under New York state law. In May 2006, the District and Erie entered into a Settlement Agreement resolving these consolidated proceedings ("the 2006 Settlement Agreement"). As part of the settlement, the District agreed to provide Erie with over $800, 000 in credits to reduce future assessments between July 2006 and June 2009, and Erie waived all claims related to the assessments during that time period. The 2006 Settlement Agreement also indicates that the parties "executed a document entitled Amendment to Reservoir Operating Agreement and Letter Agreement' dated May 19, 2006 as part of the consideration for entering into this Stipulation of Settlement and Order." Compl., Ex. B, ECF No. 1-1, ¶ 14. The agreement also contains a severability clause.
In July 2006, Albany Engineering Corporation, a FERC-licensed operator of a downstream facility similar to Erie, filed an administrative complaint with FERC arguing the District lacked authority to impose assessments greater than that permitted by section 10(f) of the FPA. See Albany Eng'g Corp. v. F.E.R.C., 548 F.3d 1071, 1073 (D.C. Cir. 2008). The case made its way to the D.C. Circuit, which noted "Congress's clear intent to limit the total amount of charges imposed on downstream operators" and ultimately held that section 10(f) of the FPA preempted " all state headwater benefits assessments." Id. at 1079. Thus, from the time FERC issued its license to the District in 2002, "the District never had such authority to exact any compensation from Albany for headwater benefits." Id. The Court remanded the matter to FERC for consideration of an appropriate remedy. Id. at 1081.
Subsequent to the Albany Engineering Corp. decision, the District and the downstream operators have attempted to resolve their disputes regarding alleged overpayments. Citing a July 2012 FERC Order, Erie claims it overpaid the District approximately $7.3 million in assessments between September 2002 and June 2009. Erie and the District have been unable to amicably resolve their dispute and are currently engaged in administrative proceedings before FERC. The District initiated this action after the FERC proceedings began.
In its complaint, the District reports that Erie refuses to pay additional headwater benefits assessments until the full amount of its $7.3 million overpayment has been offset. The District claims the 2006 Settlement Agreement "expressly operates to extinguish any claimed entitlement by Erie to any State law-based assessment that Erie paid the Regulating District between 2002-2008." Compl. ¶ 23. In accordance with that conclusion, plaintiff seeks a declaration that the 2006 Settlement Agreement "precludes Erie's claim for a ...