On September 18, 2019, the First Circuit Court of Appeals (“First Circuit”) affirmed the U.S. District Court for the District of Massachusetts’s (“District Court”) ruling that dismissed twelve New England retail electricity customers’ (“Plaintiffs”) federal antitrust and state-law claims against Eversource Energy and Avangrid, Inc (“Defendants”).  Initially, Plaintiffs filed their lawsuit in District Court, claiming Defendants violated section 2 of the Sherman Act, 15 U.S.C. § 2, as well as various state antitrust and consumer-protection laws (see December 12, 2017 edition of the WER).  The District Court dismissed Plaintiffs’ claims, finding that they were barred by the filed-rate doctrine and, alternatively, that the Plaintiffs lacked antitrust standing and failed to plausibly allege a monopolization claim under the Sherman Act.  On review, the First Circuit agreed with the District Court that the filed-rate doctrine barred Plaintiffs’ federal and state law claims.  Accordingly, the First Circuit found no need to reach the District Court’s alternative grounds for dismissal and dismissed Plaintiffs’ federal and state claims pursuant to the filed-rate doctrine.

Defendants are energy companies that own two of the largest natural gas load-distribution companies (“LDCs”), which purchase natural gas from producers and resell that gas to retail consumers throughout New England.  Defendants also own multiple retail electricity load-serving entities (“LSEs”) in the region and reserve transportation capacity along Algonquin’s interstate pipeline (“Algonquin Pipeline”) to transport gas purchased from producers to Defendants’ own localized system of pipeline infrastructure for delivery to customers.  In their complaint, Plaintiffs alleged that Defendants strategically reserved excess capacity along the Algonquin Pipeline without using or reselling it, which unduly constrained the volume of natural gas flowing through New England and raised wholesale natural gas prices and retail electricity rates New England consumers had to pay.

Though FERC is responsible for implementing and executing the Natural Gas Act (“NGA”), Congress exempted wellhead sales from FERC’s regulatory jurisdiction.  FERC regulations also allow, but do not require, LDCs to resell unneeded transportation capacity to other natural gas purchasers when they adjust their capacity reservations downward.  The Federal Power Act charges FERC with regulating wholesale sales—from power generators to wholesale electricity LSEs—in interstate commerce and ensuring that rates are “just and reasonable.”  Pursuant to this exclusive authority, FERC requires interstate pipeline operators like Algonquin Pipeline to allow LDCs to purchase capacity using “no-notice” contracts, which allow LDCs to adjust capacity reservations downward or upward (up to their daily firm entitlements) at any time without incurring penalties.  In executing this charge, FERC has delegated authority to organizations such as independent system operators to manage auctions for wholesale electricity in the various regional markets.  Because approximately half of New England’s electricity is generated from natural gas-fired generating plants, bids from natural gas generators usually set the clearing price for wholesale electricity in that region, which then drives the retail prices charged by LSEs to retail consumers.

The filed-rate doctrine prohibits antitrust challenges to agency-approved tariffs even in energy markets where FERC has eschewed traditional ratemaking.  During oral argument before the First Circuit, Plaintiffs’ admitted they lacked antitrust standing to bring their federal antitrust damages claim.  Nonetheless, Plaintiffs continued to pursue their state-law claims and their federal antitrust claim for injunctive relief on appeal.

The First Circuit found that Plaintiffs’ amended complaint did not allege that defendants engaged in any conduct other than that allowed by Algonquin Pipeline’s FERC-approved tariff.  It also noted that all Defendants’ alleged misconduct was done in open and plain view of Algonquin Pipeline, the Defendants’ competitors, and FERC.  Furthermore, the Court found that maintaining the efficient use of limited transmission capacity falls squarely within FERC’s regulatory authority; and that Congress has given FERC the tools, such as the NGA, to police anticompetitive conduct in the market for transmission capacity.

The First Circuit also noted that FERC investigated Defendants’ alleged manipulation of their no-notice contracts but found “no evidence of anticompetitive withholding of natural gas pipeline capacity” (see March 5, 2018 edition of the WER).  On the issue of injunctive relief, the First Circuit relied on a prior finding that injunctive relief that “would require the alteration of a tariff that FERC actually scrutinized” is incompatible with the doctrine’s purpose of “protect[ing] the exclusive authority of the agency to accept or challenge such tariffs.”  Accordingly, the First Circuit found that Plaintiffs’ federal antitrust claims failed.

The First Circuit further found that Plaintiffs’ state law claims were also barred by the filed-rate doctrine and were accordingly dismissed.

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