Circuit Court rules utility contract falls in state jurisdiction

A dispute between a power generator and an electricity wholesaler should be heard in the state court, the 7th Circuit Court of Appeals ruled after finding the central issues did not arise under federal law.

The appeal involves two Indiana organizations and the issue of whether a claim for breach of a long-term requirements contract for wholesale electricity is governed by federal law or state law.

Since entering into a contract in 1977, Northeastern has purchased electricity from Wabash Valley. Under terms of a contract, Northeastern agreed to pay for the electricity at rates set by the Wabash Valley board of directors, subject to approval from what is now the Indiana Utility Regulatory Commission.  

When Wabash Valley took action in 2004 to transfer regulation of its rates from the IURC to the Federal Energy Regulatory Commission, Northeastern filed suit in Indiana state court seeking a declaration judgment that Wabash materially breached the original contract.

Wabash Valley removed the case to federal court on the theory that the claim for breach of contract necessarily arises under the Federal Power Act. Subsequently, the district court granted Wabash Valley’s motion for a preliminary injunction, agreeing that federal jurisdiction exists because Northeastern’s suit raises a question of federal law.

In Northeastern Rural Electric Membership Corp. v. Wabash Valley Power Association, Inc., 12-2037, the Circuit court found the dispute to be a question of state law. It vacated the preliminary junction granted by the U.S. District Court for the Southern District of Indiana and remanded the case so the District court may remand it to state court.

The Circuit court found Wabash Valley’s alleged breach took place before the filing of a federal tariff which means the complaint is not a federal question.

“For Northeastern to obtain its requested declaratory judgment it must show only that it has a valid contract and that Wabash Valley’s submission to the regulatory jurisdiction of FERC breached on the contract,” wrote Judge David Hamilton.. “Federal law is not at issue in either of these questions. The duty Northeastern claims Wabash Valley breached was not created by federal law or a filed tariff. And Northeastern does not seek to directly alter any duty or liability created by a filed tariff.”