Antitrust Law Daily Filed rate doctrine bars claims that energy companies manipulated pipeline capacity and inflated prices
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Thursday, September 10, 2020

Filed rate doctrine bars claims that energy companies manipulated pipeline capacity and inflated prices

By Nicole D. Prysby, J.D.

A wholesale energy purchaser’s claims that energy companies manipulated pipeline capacity and prices for natural gas were controlled by a ruling in a similar case filing by electricity consumers and thus barred by the filed rate doctrine.

A wholesale electricity purchaser’s claims that energy companies manipulated pipeline capacity and artificially inflated prices for natural gas transmission failed because they are identical to claims filed by electricity consumers that were dismissed in 2019, held the U.S. Court of Appeals in Boston. The prior case, Breiding v. Eversource Energy, dismissed the consumers’ claims on the basis of the filed rate doctrine, because the challenged conduct (neither using nor releasing reserved pipeline capacity) occurred pursuant to a tariff approved by the Federal Energy Regulatory Commission (FERC). The wholesaler’s complaint sought to impose antitrust liability for the exact same conduct at issue in Breiding: the alleged withholding of transmission capacity under defendants’ contracts with pursuant to a FERC-approved tariff. The court also declined to revisit Breiding’s conclusion that the filed-rate doctrine applies to the defendants’ capacity-reserving decisions. A market-based rate or tariff term allowed by FERC under its rate-setting authority is still a rate approved by FERC, albeit with a rate-setting measure (the market) other than cost-of-service to achieve the requisite assurance that the rate is just and reasonable (PNE Energy Supply LLC v. Eversource Energy, September 9, 2020, Kayatta, W.).

Background. PNE Energy Supply LLC (PNE), a wholesale electricity purchaser, filed a class action lawsuit against Eversource Energy and Avangrid, Inc., alleging that the defendants manipulated pipeline capacity for natural gas transmission and, as a result, artificially inflated the price of natural gas and electricity at wholesale in New England. The district court dismissed the claims, holding that the claims failed under the filed rate doctrine because they would require the court to question the reasonableness of wholesale electric rates and conduct mandated by the FERC as part of no-notice natural gas transmission contracts. PNE appealed.

Breiding controls. In 2019, the First Circuit affirmed the dismissal of similar claims brought by electricity consumers (Breiding v. Eversource Energy, 939 F.3d 47), on the grounds that the challenged conduct, in neither using nor releasing reserved pipeline capacity in the Algonquin pipeline transmission capacity market, all occurred pursuant to a tariff approved by the FERC. The claims were therefore barred by the filed rate doctrine.

The court found that Breiding controls PNE’s claims. PNE’s complaint sought to impose antitrust liability for the exact same conduct at issue in Breiding: the alleged withholding of transmission capacity under defendants’ contracts with Algonquin pursuant to Algonquin’s FERC-approved tariff. The court rejected PNE’s argument that the challenged activity took the form of a "refusal to deal" in the short-term secondary capacity market, a market not alleged in Breiding and not regulated by the FERC tariff. Labeling behavior as "refusing to deal" or "refusing to sell" is just another way of saying that the defendants reserved excess capacity without using or reselling it—the exact issue in Breiding. In both cases, the challenged conduct was the alleged over-reserving of and then failure to release gas transportation rights exercised under the defendants’ contracts with the Algonquin pipeline, the terms of which were specifically allowed by FERC. FERC has issued an order determining that market-based rates for short-term capacity releases are just and reasonable. Releases of capacity fall within FERC's jurisdiction, and a market-based system is simply the mechanism that FERC has opted to use to secure just and reasonable rates. It does not follow that this market is "unregulated."

The court also rejected PNE’s argument that the defendants manipulated the Algonquin Citygate Price, which PNE contended differs from failing to release excess capacity. The manipulation described in the complaint centers on the defendants’ refusal to promptly release or sell transmission capacity, which purportedly drove up the average price of natural gas, thereby also increasing the index price. This is but another way of saying that defendants drove up prices by not releasing pipeline capacity.

PNE argued that the tariff itself includes a clause (stating that the parties to the tariff are subject to valid law and regulations) that allowed PNE to bring an antitrust claim to enforce the tariff. The court saw nothing in the language granting PNE any right to enforce the tariff. Nor did PNE explain how this clause grants jurisdiction to review tariff terms, rather than confirming that the tariff does not eliminate the obligation to comply with the many laws whose application does not run afoul of the filed-rate doctrine.

The court declined to revisit Breiding’s conclusion that the filed-rate doctrine applies to the defendants’ capacity-reserving decisions. PNE claimed that by defaulting to the market-based rates in lieu of cost-of-service rate-making, FERC has eliminated a justification for the filed-rate doctrine and increased the importance of ensuring that the pertinent markets are functioning properly. At base, though, a market-based rate or tariff term allowed by FERC under its rate-setting authority is still a rate approved by FERC, albeit with a rate-setting measure (the market) other than cost-of-service to achieve the requisite assurance that the rate is just and reasonable. Given that Congress allowed the use of market-based rates without eliminating the filed-rate doctrine, and given that Congress in the wake of the California energy crisis enacted remedial legislation that also contained no such provision limiting the doctrine’s applicability or, allowing enforcement in federal district courts, there is no license to embark on such a substantial change of course from that marked out by precedent.

This case is No. 19-1678.

Attorneys: Austin Blair Cohen (Levin Sedran & Berman LLP) for PNE Energy Supply, LLC. Shannen Wayne Coffin (Steptoe & Johnson LLP) for Eversource Energy. Richard P. Bress (Latham & Watkins LLP) for Avangrid, Inc.

Companies: PNE Energy Supply, LLC; Eversource Energy; Avangrid, Inc.

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