Municipal electric customers can't sue over rate hike caused by supplier 'misrepresentations'

By Scott Holland | Aug 18, 2015

A federal judge in Chicago has rejected an attempt by residents of a west suburban community to win relief after their city’s municipal electric utility was forced to increased rates and taxes because a downstate electricity supplier had allegedly misled the city, and, by extension, its electric utility customers and residents, about the electricity it would supply.

The plaintiffs seeking class action are residents of Batavia, Ill., in Kane County, who purchase electricity from the Prairie State Energy Campus, a power plant in Southern Illinois. They claim, before they bought their power from PSEC, the defendants — including partial PSEC owner Indiana Municipal Power Agency — “made various misrepresentations and omissions regarding, among other things, the cost and quality of the power PSEC would generate.”

The putative class action was filed in state court, alleging the defendants’ actions substantially increased the customers’ electric rate. The PSEC defendants moved the case to federal court pursuant to the Class Action Fairness Act of 2005, and federal Judge Rebecca R. Pallmeyer denied the plaintiffs’ motion to return the action to state court. Further, she said the plaintiffs “failed to allege an adequate state law claim for negligent misrepresentation against any of the defendants,” leading her to grant the motion to dismiss.

Other named defendants are Rajeshwar G. Rao, IMPA's President and CEO; ISC, a subsidiary of IMPA and a consultant to the city of Batavia; and two consultants, Sargent & Lundy, an Illinois limited liability company, and Skelly and Loy, a Pennsylvania corporation.

The named plaintiffs are Joe and Adlina Marconi, Richard and Louis Denson, Daniel and Margret Soliz, Mary Popiel, Johm Wulff and Emil Goellner.

Their allegations date to a 2006 power sales agreement Batavia entered with the Northern Illinois Municipal Power Agency, a joint municipal power agency including Batavia and two other municipalities. Batavia agreed to purchase through NIMPA a 50-megawatt share of electric capacity generated at PSEC.

According to the complaint, the PSEC group made a series of misrepresentations and omissions to NIMPA and Batavia regarding the power plant. They say the agreement led to a substantial electricity rate hike, a city sales tax increase and a less stable local economy.

Pallmeyer said the case lacked sufficient allegation to consider the negligent misrepresentation claim under state law. The plaintiffs targeted reports provided by the consulting firms as part of the regular course of the energy industry, documents which the plaintiffs allege are the source of the purported negligence and misrepresentation.

However, Pallmeyer ruled Batavia utility customers were never the intended audience for those reports. Therefore, the judge said, it is improper for them to argue they relied in any way on the information provided in those documents, and should be entitled to relief when electric rates increased. Under Illinois law, the maker of an alleged misrepresentation “is subject to liability to only those persons for whose guidance he knows the information is to be supplied and to them only for loss incurred in the kind of transaction in which the information is expected to influence them,” the judge said.

In fact, the judge said the Batavia plaintiffs emboldened the defendants calls for dismissal when clarifying the ratepayers have no choice but to purchase power from the municipal electric utility. Because the ratepayers could not opt out, there was no way for them to argue they would have used the information to make any other decision than to pay the higher rates, because there was no other action for them to take, the judge said.

“Even if it were possible for Batavia's ratepayers to receive information from defendants and take action in reliance upon it, nowhere in plaintiffs’ complaint do they allege — or allege facts to support an inference — that defendants knew, should have known, or should have foreseen that Batavia’s ratepayers, as opposed to the city itself, would rely upon any information defendants provided,” Pallmeyer wrote.

Pallmeyer dismissed the action without prejudice and granted the plaintiffs 21 days to file an amended complaint.

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