First Circuit Affirms that Complaints About Gas Pipeline Capacity Hoarding in New England Are Barred by Filed Rate Doctrine, Criticizes FERC for not Policing Markets

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On September 9, 2020, the United States Court of Appeals for the First Circuit (“First Circuit”) affirmed the United States District Court for the District of Massachusetts (“District Court”)  dismissal of a lawsuit alleging Eversource Energy and Avangrid (“Defendants”) manipulated Algonquin Gas Transmission, LLC (“Algonquin”) pipeline capacity and violated federal and state antitrust laws. The First Circuit followed its previous decision addressing a lawsuit challenging the same conduct by Defendants, but brought by different plaintiffs (see September 25, 2019 edition of the WER), which held that because the Defendants’ actions were permitted under a tariff filed with and accepted by FERC, the filed rate doctrine barred any attempt to challenge or change those rates or terms in federal court. Notably, the First Circuit also admonished FERC for being “slow to recognize market defects that create opportunities to exploit market power.”

As background, in 2017, a group of economists published a report alleging that Defendants increased electricity prices in New England by hoarding excess transmission capacity on the Algonquin pipeline. Specifically, the report alleged that Defendants reserved more gas transmission capacity than they needed and cancelled portions of their reservations at the last minute pursuant to their no-notice contracts with Algonquin, rather than releasing the capacity to other pipeline customers, thereby increasing electricity prices by decreasing availability of supply for natural gas-fired generators. In response, a group of electricity-end consumers filed suit alleging violations of federal and state antitrust and unfair competition law. In September 2019, the First Circuit dismissed the electricity consumers’ suit, holding that their claims were barred by the filed rate doctrine. Thereafter, PNE Energy Supply LLC (“PNE”), a wholesale energy purchaser, filed the instant suit challenging Defendants’ conduct for neither using nor releasing reserved pipeline capacity. The District Court dismissed PNE’s suit for failure to state a claim.

On appeal, the First Circuit considered whether the logic from the electricity consumers’ suit also applied to PNE’s lawsuit.  The First Circuit concluded that the identity of the plaintiffs had no bearing on the court’s holding in the first lawsuit. The First Circuit therefore concluded that the holding in the first lawsuit controlled and that the antitrust claims were barred by the filed rate doctrine because Defendants’ conduct occurred pursuant to a FERC-approved tariff.

Despite dismissing the lawsuit, the First Circuit criticized FERC for being “slow to recognize market defects that create opportunities to exploit market power”—citing FERC’s response to California’s 2000 and 2001 energy crisis. The First Circuit noted that in the instant suit, FERC’s “brief and conclusory statement regarding its own investigation of the charges” failed to firmly show that FERC has been “rigorous and thorough in filling the arguable enforcement gap created by the filed-rate doctrine.” But because Congress enacted remedial legislation after the California energy crisis, adding no limits to the filed rate doctrine’s applicability, the First Circuit saw no license to substantially change from the course set out by precedent.  However, the First Circuit asserted that FERC has not necessarily “been diligent in ensuring that the markets it allows to set rates are themselves always properly functioning, a prerequisite for the assumption that the rates produced are just and reasonable.” Lastly, the First Circuit said that complaints regarding whether market-based rates should be presumed just and reasonable if markets are not properly functioning should be raised with FERC and Congress, as opposed to a jury.

Click here to read the complete decision.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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