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Noco Inc. v. Rochester Gas and Electric Corporation

United States District Court, W.D. New York

March 11, 2015

NOCO INC., NOCO ELECTRIC, LLC, Plaintiffs,
v.
ROCHESTER GAS AND ELECTRIC CORPORATION, AMERICAN POWER PARTNERS LLC, U.S. ENERGY PARTNERS, LLC, Defendants.

DECISION AND ORDER

DAVID G. LARIMER, District Judge.

This case was brought by plaintiffs NOCO Inc. and NOCO Electric, LLC (collectively "NOCO"), in New York State Supreme Court, Monroe County, against Rochester Gas and Electric Corp. ("RG&E"), American Power Partners LLC ("APP") and U.S. Energy Partners, LLC ("USEP"). RG&E removed the case to this Court based on this Court's original jurisdiction under 28 U.S.C. § 1331.

The factual allegations will be explained in more detail below, but in short, NOCO contends that due to certain actions of RG&E, it has overpaid, to the tune of over one million dollars, for electric capacity provided by RG&E. NOCO further alleges that its overpayment has inured to the benefit of USEP (which is a subsidiary of APP). NOCO asserts several claims under state law to recover damages from defendants. NOCO has not asserted any claims under federal law.

RG&E has moved to dismiss the complaint, on several grounds. NOCO has moved to remand the action to state court. APP and USEP, which have answered the complaint, oppose NOCO's motion to remand.

BACKGROUND

NOCO is an energy service company ("ESCO") that provides electric power to consumers. USEP is also an ESCO, and is a competitor of NOCO. RG&E is a utility company that is engaged in the business of distributing electricity and natural gas in a nine-county service area in upstate New York.

The relevant contractual and regulatory framework is not disputed here, which is not to say that it is entirely simple. As a result of legislative changes affecting the energy industry in New York in the late 1990s, consumers can now choose which ESCO to use to supply their electric power. ESCOs, however, typically do not themselves generate electric power; rather, they purchase power generated by utilities such as RG&E (also referred to as "generators"), and deliver it to end users by means of the infrastructure owned by the generators. To that end, NOCO has entered into "partnering" agreements with several utility companies, including RG&E, under which NOCO is permitted to use the utilities' transmission lines to deliver electricity to NOCO's customers.

To ensure that they will be able to provide adequate power to their customers, ESCOs must obtain a reliable supply of electric capacity on a regular basis. Electric capacity is not the same as electric power. "Capacity" refers to the amount of electricity that a generator of power, such as RG&E, commits to make available to the ESCO at an agreed-upon time. How much power the ESCO actually uses, i.e., transmits to its customers, depends on the customers' actual usage. But to avoid service interruptions, it is important for the ESCO to secure enough capacity from the generator to make sure that the ESCO will be able to satisfy its customers' demands. In short, the ESCO needs to ensure that the generator will provide it with enough capacity to meet the ESCO's customer's needs.

ESCOs obtain electric capacity by bidding in monthly wholesale auctions of electric power. These auctions are conducted by the New York Independent System Operator ("NYISO"), a nonprofit company that is responsible for overseeing certain aspects of New York's electricity industry.

NYISO, then, conducts monthly auctions of wholesale electric capacity. The sellers are generators, like RG&E. The buyers are ESCOs, like NOCO. Complaint ¶ 19. NYISO acts as an intermediary between the two. Complaint ¶ 20.

Pursuant to agreements between the ESCOs and the generators, prior to every monthly auction, each generator, i.e., owner of transmission lines, advises NYISO of the specific capacity that it expects will be required by each ESCO with which it does business. That estimate is based on the historical consumption of the customers of each ESCO. Using those estimates, NYISO then prepares a "Capacity Load Forecast" for the coming month. Complaint ¶ 25.

Two days before the auction, NYISO discloses the electric capacity allocated to each ESCO. Based on that figure, each ESCO submits a bid for the capacity assigned to it. Complaint ¶¶ 25, 26. NYISO then conducts the auction and determines the settlement price, i.e., the price at which the generator must sell and the buyers must buy electric capacity. If the ESCO's bid price is lower than the settlement price, then the ESCO must buy additional capacity to meet its needs in a "spot" auction, which is also conducted by NYISO. Complaint ¶ 27.

NOCO alleges that, in accordance with this general arrangement, it had entered into an "Operating Agreement" with RG&E (Dkt. #8-3), pursuant to which RG&E agreed to provide specified services to NOCO, including making available electric capacity. NOCO further alleges that under the Operating Agreement, RG&E was required to provide NOCO with RG&E's "capacity load forecasts, " i.e., the figures submitted by RG&E to NYISO in advance of each monthly auction, regarding the anticipated capacity requirements for NOCO in the coming month. According to the complaint, this provision in the agreement would allow[] NOCO to verify that RG&E was giving NYISO accurate information regarding NOCO's capacity requirements.

The present dispute relates to NOCO's allegation that in November 2007, RG&E began combining the electric power capacity requirements of NOCO and USEP together. In other words, RG&E was giving NYISO the combined expected energy needs of both NOCO and USEP, and representing them as the needs of NOCO alone. Complaint ¶ 32. At least for purposes of the present motions, RG&E does not appear to deny these allegations.

NOCO alleges that it did not realize that this was occurring, for some time. NOCO assumed that RG&E's submissions to NYISO, insofar as they related to NOCO, were based solely on NOCO's figures, as they should have been.

Unaware that RG&E was combining NOCO's and USEP's numbers, NOCO prepared and submitted its monthly bids for the capacity auction based on the capacity requirements reported by NYISO two days before each auction. In effect, then, NOCO was unknowingly paying for both its and USEP's capacity requirements.

NOCO alleges that it was not until June 2013 that it became aware that RG&E had been combining its capacity requirements with USEP's. NOCO states that it has determined that as a result of its overpayments from 2007 to 2013, USEP received a windfall of over $1 million. NOCO alleges that RG&E has expressly conceded its error in combining NOCO's and USEP's capacity requirement. Complaint ¶ 36. Nevertheless, both RG&E and USEP have refused NOCO's demands that they reimburse NOCO for its overpayments.

NOCO filed this action in state court in August 2013. NOCO asserts claims for: (1) breach of contract by RG&E; (2) conversion by RG&E; (3) breach of implied contract by USEP; (4) unjust enrichment by USEP; and (5) conversion by USEP.

RG&E removed the action to this Court about a month later. RG&E then filed its motion to dismiss, and NOCO cross-moved to ...


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