By Lee P. Dunham, J.D.
Putative class action of New England residents alleging that energy company engaged in anticompetitive conduct in the natural gas transmission market dismissed.
The U.S. Court of Appeals in Boston upheld dismissal of a putative class action by New England residents alleging that Eversource Energy and Avangrid engaged in anticompetitive conduct in the natural gas transmission market to artificially inflate the market price of natural gas and the wholesale price of electricity, which raised retail electricity prices for New Englanders, on the basis of the filed rate doctrine. The district court had dismissed the plaintiffs' claims as being barred by the filed-rate doctrine and, alternatively, for lack of antitrust standing and the plaintiffs' failure to plausibly allege a monopolization claim under the Sherman Act. Although the First Circuit’s reasoning differed from the district court’s in several respects, it agreed that the claims were barred by the filed rate doctrine, a form of deference and preemption that precludes a court from interfering with the rate-setting authority of an administrative agency, in this case the Federal Energy Regulatory Commission (FERC) (Breiding v. Eversource Energy, September 18, 2019, Kayatta, W.).
"Wellhead" sales comprise the first step in the chain of market transactions that readies extracted natural gas for consumption in the form of retail electricity. FERC is the agency charged with implementing and executing the Natural Gas Act (NGA), "a comprehensive scheme of federal regulation of 'all wholesales of natural gas in interstate commerce.'" Congress exempted wellhead sales from FERC’s regulatory jurisdiction, and accordingly, market forces dictate the wellhead price of natural gas. While the NGA grants FERC regulatory authority over "sale[s] … for resale" in the spot market for natural gas, FERC has issued a "blanket certificate of public convenience and necessity" that allows such transactions to proceed at market rates.
A group of New England retail electricity consumers alleged that Eversource and Avangrid abused their power in the New England retail electricity market to artificially raise the prices that New Englanders would pay for their electricity (which, in New England, is generated mostly by natural gas). Their putative class action alleged violations of Section 2 of the Sherman Act, as well as various state consumer protection and antitrust laws, and they alleged that consumers paid almost $3.6 billion in additional costs for their electricity. More specifically, they alleged that Eversource and Avangrid raised the price of electricity in New England by restricting the amount of natural gas flowing into the region, which restricted the amount of natural gas available to fuel natural-gas-fired electricity generators. Eversource and Avangrid filed motions to dismiss the complaint. The motions were granted by the district court on several alternative grounds, one of which was that the filed-rate doctrine barred their federal antitrust and derivative state suits.
The filed rate doctrine is a set of rules that have evolved over time but revolve around the notion that utility filings with the regulatory agency prevail over other claims seeking different rates or terms than those reflected in the filings with the agency. It holds that once filed, a rate may not be collaterally attacked in the courts, and prohibits antitrust challenges to agency-approved tariffs even in energy markets in which FERC has eschewed traditional ratemaking. Just as FERC might approve a specified rate as just and reasonable, it might also determine that rates produced in a competitive market that it oversees are just and reasonable.
The plaintiffs argued that the filed-rate doctrine should not bar their claims because they challenge the defendants' anticompetitive conduct in the spot market for natural gas, a market in which "FERC has abdicated its regulatory oversight." The district court rejected that argument, reasoning that the plaintiffs' requested relief would require it to determine "the reasonableness of wholesale electricity prices exclusively regulated by FERC" and "the difference between wholesale electricity rates during the class period and hypothetical rates that would have been charged but for [the defendants'] purported anticompetitive conduct," an analysis the district court reasoned was prohibited by the filed rate doctrine. The "filed rate" upon which the district court primarily relied was FERC's approval of market-based rates in the electricity market administered by ISO-NE.
The court of appeals held that the district court’s analysis was in tension with Town of Norwood v. New Eng. Power Co., 202 F.3d 408, 416 (1st Cir. 2000) and case law from other circuits deeming the filed-rate doctrine inapplicable to challenges to upstream, nonjurisdictional activity that indirectly affects downstream FERC-approved tariffs. However, the court of appeals nonetheless held that the plaintiffs’ clams were barred by the doctrine, because the only conduct alleged in the complaint was in compliance with Algonquin’s FERC-approved tariff. The court held that FERC expressly declined to require direct purchasers to release excess capacity in recognition of the fact that direct purchasers facing variable demand for natural gas might need to retain that capacity to ensure reliability, and the filed-rate doctrine prohibits courts from questioning that reasoned judgment.
The case is No. 18-1995.
Attorneys: Thomas M. Sobol (Hagens Berman Sobol Shapiro LLP) for Scott Breiding. Richard P. Bress (Steptoe & Johnson LLP) and Chong S. Park (Ropes & Gray LLP) for Eversource Energy and Avangrid, Inc.
Companies: Eversource Energy; Avangrid, Inc.
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