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denying a motion to dismiss a breach of contract claim on the basis of the filed rate doctrine
Summary of this case from Occidental Chemical Corp. v. Louisiana Pub. Serv. CommOpinion
C.A. No. C-03-249.
June 24, 2004
ORDER GRANTING IN PART DEFENDANTS' MOTIONS TO DISMISS
On this day came on to be heard: (1) "Defendant Electric Reliability Council of Texas, Inc.'s Motion to Dismiss Second Amended Complaint, or, in the Alternative, to Stay Proceedings," (2) "TXU Defendants' Motion to Dismiss TCE's Second Amended Complaint and Brief in Support," (3) "Texas Genco Defendants' Motion to Dismiss Plaintiff's Second Amended Complaint and Brief in Support," (4) "Defendants TECO EnergySource, Inc. and Frontera Generation L.P.'s Motion to Dismiss Plaintiff's Second Amended Complaint and Brief in Support," (5) "American Electric Power Defendants' Motion to Dismiss the Second Amended Complaint and Memorandum in Support," (6) "Defendant APX's Motion to Dismiss the Second Amended Complaint and Brief in Support," (7) "TIE Defendants' Motion to Dismiss Plaintiff's Second Amended Complaint and Brief in Support," (8) "Reliant Resources Defendants' Motion to Dismiss Plaintiff's Second Amended Complaint and Supporting Memorandum," (9) "Defendant Tractebel Energy Marketing, Inc.'s Motion to Dismiss Second Amended Complaint and Memorandum in Support," and all corresponding responses and replies. For the reasons stated below, this Court GRANTS these motions in part and DISMISSES Plaintiff's Second Amended Complaint.
I. JURISDICTION
This Court has federal question jurisdiction over this antitrust action pursuant to 28 U.S.C. § 1331, and supplemental jurisdiction over Plaintiff's state law claims pursuant to 28 U.S.C. § 1367.
II. FACTS AND PROCEEDINGS
Plaintiff Texas Commercial Energy ("TCE") began selling electric power to retail customers in Texas in January 2002. Initially, TCE entered into bilateral contracts with wholesale providers of electricity to obtain the electric power it sold in the consumer market. However, TCE increasingly relied on the Balancing Energy Service ("BES") market, a bid-based market for short-term power, to meet its electricity needs. In early 2003, prices in the BES market for electricity increased substantially, and as a result, TCE sustained extensive losses before eventually declaring bankruptcy in March 2003. TCE claims that Defendants contributed to the rise in BES market prices through federal and state antitrust violations, fraud, negligent misrepresentation, breach of contract, defamation, business disparagement, civil conspiracy, and malicious and willful/flagrant conduct.
A. REGULATORY BACKGROUND
The state of Texas operates an independent and self-contained electric production and transmission grid that serves nearly 85 percent of the state. The Federal Energy Regulatory Commission ("FERC") does not regulate Texas' independent electric grid and electric utility companies operating in the Texas electricity market are exempt from the Federal Power Act. The Public Utility Commission of Texas ("PUCT") regulates the Texas electric and transmission grid.
Historically, electric power in Texas was generated and sold by integrated electric utilities that supplied specific geographic areas, and retail rates for electricity were set by the state. But in 1999, the Texas Legislature, with the passage of Senate Bill 7, amended the Public Utility Regulatory Act ("PURA"), and began the deregulation of the Texas electricity market. The law required that rates for electric power in Texas be set by a competitive market, and called for each integrated electric utility to partition itself into three companies: (1) a Power Generation Company ("PGC"), (2) a Transmission and Distribution Provider ("TDSP"), and (3) a Retail Electric Provider ("REP"). Senate Bill 7 did not require a full divestiture by each electric utility, but each of the three resulting companies was required to be operated by separate management. The Texas Legislature also granted PUCT jurisdiction over the Texas electricity market.
ERCOT, under a contract with PUCT, is the Independent System Operator ("ISO") of the Texas electricity market, and is charged with insuring (1) system reliability, (2) nondiscriminatory access to transmission and distribution systems, (3) access to market information, and (4) clearance of all market transactions. The ERCOT protocols, which are created and adopted by the ERCOT board, provide the framework for the administration of the Texas electricity market. These protocols divide participants in Texas' wholesale electricity market into three categories: (1) Load Serving Entities ("LSE"), (2) Qualified Scheduling Entities ("QSE"), and (3) Resource Entities ("RE"). LSEs (which include REPs, municipal electric utilities, and co-op electric utilities) sell electricity, REs (which include PGCs) generate electricity, and QSEs serve as intermediaries between LSEs and REs. QSEs are responsible for submitting both (1) schedules of procured energy for LSEs to ERCOT and (2) resource plans for REs to ERCOT. In addition, QSE's must possess either an investment grade credit rating or post collateral with ERCOT in the form of letters of credit or cash equivalents.
Prior to November 2002, the ERCOT protocols required that QSEs submit a "Balance Schedule" demonstrating that the scheduled generation of the REs that a QSE represents is equal to the retail obligations of the LSEs that the QSE represents However, on November 1, 2002, ERCOT implemented the Relaxed Balancing Schedules protocol. This new protocol eased restrictions in the Texas electric market by eliminating the requirement that the scheduled generation of a QSE match its obligations in the retail power market. This revision was designed to increase competition in the market by allowing REPs to also serve their retail load requirements through purchases in the BES market.
The wholesale electricity market in Texas is for both electric power and electric capacity, both of which are available through (1) bilateral agreements among market participants and (2) the BES market. Forward power contracts for future electricity are available only through bilateral agreements, and bilateral agreements are the only source of (1) short-term, one-day to one-month, and (2) long-term, over one-month wholesale purchases. The BES market is a market for same day purchases made in fifteen-minute intervals. Prices in the BES market are capped at $1,000.00 per MWh.
In addition, the ERCOT wholesale market is divided into a number of Congestion Zones ("CZ"). The geographic area of each CZ is re-determined each year, and is established according to three factors: (1) transmission capacity, (2) generation capacity, and (3) electricity demand Each CZ participates in both the bilateral market and the BES market. Both bilateral market prices and BES market prices are separately quoted for each of the CZs. Before 2004, there were four CZs in Texas; a fifth CZ was added in 2004.
Electric capacity, an Ancillary Service, is a critical component of the wholesale market, and each LSE is required to supply reserve capacity, an Ancillary Service Requirement. Ancillary Services are purchased either through (1) bilateral agreements with other market participants, or (2) directly through ERCOT in the Ancillary Services market, a bid-based market. In both the BES market and the Ancillary Services market, ERCOT serves as an intermediary, matching offers and bids. A REP can buy or sell energy on the BES market as the need arises to satisfy its retail obligations. ERCOT also administers a day-ahead capacity market.
Senate Bill 7 requires that PUCT monitor and remedy market power abuses. PUCT, through injunctions, fines, and the revocation of the right to participate in the market, possesses the authority to punish those who abuse their market power. PUCT also created the Market Oversight Division ("MOD") to ensure compliance with the statutory requirements of the amended PURA. The MOD itself does not possess decision-making power, but reports directly to PUCT. As part of its compliance activities, in June 2002 the MOD required all participants in the Texas electricity market to file an affidavit with PUCT pledging that they would not engage in market manipulation. These affidavits were a direct response to market manipulation that occurred during August 2001 as a result of improper scheduling practices. The MOD also required market participants to return the $30,000,000.00 obtained as a result of these improper practices.
B. FACTUAL BACKGROUND
TCE began operating as a REP in the State of Texas on January 1, 2002. As a REP, TCE purchased energy and electric capacity from other market participants, and then sold this energy directly to retail customers. Initially, TCE purchased its supply of energy through a bilateral contract with Bryan Texas Utilities. However, on June 20, 2002, TCE became a certified QSE, and began to both purchase electric power directly from ERCOT in the BES market and self-schedule bilateral purchase agreements for power in the wholesale market.
During January 2003, TCE noted that the percentage of electricity in the ERCOT-controlled electric market supplied by the BES market began to rise. During January and February 2003, TCE regularly observed price spikes in the BES market that were three to five times the price of day-ahead power. Concerned about these observations, TCE met with the MOD, and alleged that both anticompetitive bids and manipulation of scheduled generation drove prices in the BES market to $241.15 per MWh on January 25, 2003. On that day, the price for day-ahead power was $40.30 per MWh. As a result of these price spikes, TCE paid higher prices in the BES market, and was forced to withdraw credit-based collateral from its bilateral partners to meet its increasing collateral requirements with ERCOT.
TCE alleges that prices spiked to $241.15 per MWh on January 25, 2003 (SAC ¶ 186), but then later alleges that prices rose to $273.64 per MWh at 10:30 a.m. on January 25, 2003. (SAC ¶ 191.)
TCE claims that these high prices occurred as a result of market manipulation by Defendants, and notes that TXU controlled 75 percent of the BES market on February 24, 2003, 99 percent of the BES market on February 25, 2003, and 85 percent of the BES market on February 26, 2003. On February 24, 2003, TCE contends that Defendants implemented a squeeze on the market for short-term and BES energy. The BES market price for the 8:30 a.m. interval initially cleared $990.01 per MWh before being recalled from the market. Then at 6:00 p.m., the price for BES energy cleared $990.01 per MWh for ten intervals. TCE alleges that on February 25, 2003, Defendants TXU and Reliant, despite possessing excess generation capacity, withheld energy from the market in order to manipulate BES market prices. At 7:00 a.m. on February 25, 2003, the BES market ran out of offers, and the market-clearing price for energy ("MCPE") was again $990.00 per MWh. As a result, at 7:30 a.m., ERCOT issued a market advisory and requested additional up-balancing bids in an effort to provide more electricity in the BES market. TCE contends that throughout the day, ERCOT gave several verbal dispatch instructions to Defendant TXU to raise its level of electric power output into the system. TCE alleges that these verbal instructions failed to follow ERCOT protocols requiring ERCOT to identify the specific generation unit of a plant that is to be raised or lowered. TCE also contacted the Chief Operating Officer ("COO") of ERCOT, and requested an explanation for the price spikes in the BES market that morning. ERCOT's COO could not explain the price spikes given that generation and load forecasts were correct, a weather emergency had not been declared, there were no natural gas curtailments, the transmission system suffered from no operational problems, and there were no generation unit outages.
During the week of February 25, 2003, with the rise in BES market prices, TCE was forced to increase its posted collateral with ERCOT from $16,200,000.00 to approximately $24,000,000.00. In addition, to have complied with ERCOT protocols when the invoice for the last week of February was to come due in March 2003, TCE would have had to increase its collateral with ERCOT from approximately $24,000,000.00 to $102,000,000.00. On February 25, 2003, TCE began to contact other market participants in attempt to sell all or part of its customer portfolio. TCE obtained Confidentiality Agreements from these contacted market participants, and alleges that several Defendants violated their Confidentiality Agreements by distributing sensitive and proprietary financial information in an effort to defame and disparage TCE.
On March 3, 2003, the MOD issued "Report on February 24-26, 2003 Balancing Energy Price Spikes," and concluded that market manipulation had increased the price of energy in the BES market by two to three times, at an additional cost to the market of $17,000,000.00. During this week, ERCOT agreed to give TCE until March 6, 2003 to post additional collateral. Then on March 4, 2003, ERCOT offered to reduce TCE's credit requirement to roughly $59,000,000.00. However, on March 5, 2003, despite ERCOT's agreement to wait until March 6, 2003, ERCOT tendered TCE's Letters of Credit for payment. On March 6, 2003, TCE filed for Chapter 11 bankruptcy and requested a Temporary Restraining Order ("TRO") to prevent ERCOT from drawing upon its Letters of Credit.
On March 7, 2003, TCE and ERCOT agreed to the terms of an injunction during the hearing for the TRO. The agreement provided that TCE transfer customers representing 80 percent of its revenue to other REPs participating in the Texas electricity market. In return, ERCOT agreed to release TCE's Letters of Credit and assist TCE in collecting its accounts receivable. In addition, during a March 10, 2003 meeting with representatives of participants in the Texas electricity market, two additional requirements were incorporated into the agreement: (1) TCE would not be allowed to purchase more than 10 percent of its energy requirements in the BES market and (2) the largest of TCE's released customers would be placed on Provider of Last Resort ("POLR") rates. TCE alleges that the second additional requirement is a violation of PUCT rules.
POLR rates are indexed to the MCPE of the BES market.
In late March 2003, the Chief Executive Officer ("CEO") of ERCOT issued a number of public statements about TCE. TCE alleges that these statements violated ERCOT protocols by releasing confidential financial and business information. In addition, TCE contends that these statements were false and intentionally misleading.
In a report issued on May 19, 2003, the MOD reported that "bidders using the APX QSE and Mirant `acknowledged that their extreme bids did not reflect production costs during the weather event, but claimed that the sporadic windfall revenues were intended to improve the long-term profitability of a plant.'" (Pl.'s Second Amend. Compl. ("SAC") ¶ 292.) On January 27, 2004, the MOD published "Staff Inquiry into Allegations made by Texas Commercial Energy regarding ERCOT Market Manipulation." TCE alleges that this report supports its allegations of market manipulation. The MOD continues to investigate TCE's allegations of market manipulation.
C. PROCEDURAL BACKGROUND
TCE filed its Second Amended Complaint ("SAC") on February 3, 2004. In its SAC, TCE sues twenty-four defendants that can be classified into ten groups: (1) TXU Energy, Inc., TXU Generation Services Company, L.P., TXU Portfolio Management Company, L.P., and TXU Energy Solutions Management Company (collectively the "TXU Defendants"); (2) American Electric Power, Inc., AEP Texas Central Company, AEP Texas North Company, American Electric Power Service Corp., and AEP Texas Commercial Industrial Retail, L.P. (collectively the "AEP Defendants"); (3) CenterPoirt Energy, Inc., CenterPoint Energy Houston Electric, L.L.C., and Texas Genco, L.P. (collectively the "Texas Genco Defendants"); (4) Reliant Resources, Inc., Reliant Energy Electric Solutions, L.L.C., Reliant Energy Retail Services, L.L.C., and Reliant Energy Solutions, L.L.C. (collectively the "Reliant Defendants"); (5) Automated Power Exchange, Inc. ("APX"); (6) the Electric Reliability Counsel of Texas ("ERCOT"); (7) TECO Energy Source, Inc. ("TES"); (8) Texas Independent Energy, L.P., Odessa-Ector Power Partners, L.L.P., and Guadalupe Power Partners, L.P. (collectively the "TIE Defendants"); (9) Frontera Generation L.P. ("Frontera"); and (10) Tractebel Energy Marketing, Inc. ("Tractebel"). In its SAC, TCE alleges violations of §§ 1 and 2 of the Sherman Antitrust Act, § 15.05(a)(c) and § 15.10 of the Texas Free Enterprise and Antitrust Act ("TFEAA"), fraud, negligent misrepresentation, breach of contract, defamation, business disparagement, civil conspiracy, and malicious and willful/flagrant conduct.
The AEP Defendants contend that TCE's Bankruptcy Plan, ¶ 4.4.1(11), dismissed AEP Texas Central Company and AEP Texas North Company from this action. (AEP's Reply at 3 n. 1.)
In its Response to Defendants' Motions to Dismiss, TCE states that it "respectively agrees with Centerpoint's argument that TCE's bankruptcy counsel, Harlin Womble, apparently released Centerpoint during the bankruptcy proceedings. Accordingly, TCE agrees with Centerpoint that it should be dismissed." (Pl.'s Resp. to Def.'s Mot. to Dismiss at 140 n. 511.) However, TCE fails to state which one of the two CenterPoint companies is to be dismissed. In its Reply to TCE's Response to Defendants' Motions to Dismiss, the Texas Genco Defendants state that the company in question is CenterPoint Energy Houston Electric, L.L.C. (Def.'s Reply at 2.)
In its SAC, TXU collectively refers to CenterPoint Energy, Inc., CenterPoint Energy Houston Electric, L.L.C., Texas Genco, L.P., Reliant Resources, Inc., Reliant Energy Electric Solutions, L.L.C., Reliant Energy Retail Services, L.L.C., and Reliant Energy Solutions, L.L.C. as the "Reliant Defendants." However, the Texas Genco Defendants and the Reliant Defendants contend that they are separate entities and filed separate motions to dismiss. As a result, this Order will also refer to the Texas Genco Defendants and the Reliant Defendants separately. Therefore, whenever TCE, in its SAC, refers to the Reliant Defendants, this Court will assume that TCE is referring to both the Texas Genco Defendants and the Reliant Defendants.
In its SAC, TCE references §§ 1, 2, 3 and 13a of the Sherman Antitrust Act. (SAC ¶ 337.) In its response, TCE clarifies that it is asserting only §§ 1 and 2 Sherman Act claims. (Pl.'s Resp. at 76 n. 253.)
ERCOT filed "Defendant Electric Reliability Council of Texas, Inc.'s Motion to Dismiss Second Amended Complaint, or in the Alternative, to Stay Proceedings," on March 15, 2004. The TXU Defendants filed their Motion to Dismiss on March 15, 2004. The Texas Genco Defendants, Frontera, TES, the AEP Defendants, APX, the TIE Defendants, the Reliant Defendants, and Tractebel filed their Motions to Dismiss on March 16, 2004. TCE filed "TCE's Response to Defendants' Motions to Dismiss and, in the Alternative, Motion for Leave to Amend" on April 15, 2004. The Court held a hearing on the motions on May 20, 2004. This Court now considers the motions.
This Court struck TCE's response on April 27, 2004. However, the Court is aware of TCE's arguments and has fully addressed them herein TCE refiled its response on April 28, 2004.
III. DISCUSSION
A. MOTION TO DISMISS
Rule 12(b)(6) of the Federal Rules of Civil Procedure authorizes the court to dismiss a claim on the basis of dispositive law. Neitzke v. Williams, 490 U.S. 319, 326, 109 S.Ct. 1827, 1832 (1989). When ruling on a 12(b)(6) motion to dismiss, the Court must accept the plaintiff's factual allegations as true, and view these allegations in a light most favorable to the plaintiff. Capital Parks, Inc. v. S.E. Adver. Sales Sys., 3) F.3d 627, 629 (5th Cir. 1994). In a 12(b)(6) motion, the Court should not look beyond the pleadings. McCartney v. First City Bank, 970 F.2d 45, 47 (5th Cir. 1992). A 12(b)(6) motion should not be granted "unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which entitle him to relief." Coneley v. Gibson, 335 U.S. 41, 45-46, 78 S.Ct. 99, 102 (1957); Mitchell v. McBryde, 944 F.2d 229, 230 (5th Cir. 1991). The question before the Court in examining a Rule 12(b)(6) motion is whether the plaintiff's complaint states any valid claim for relief. Coneley v. Gibson, 335 U.S. 41, 45-46, 78 S.Ct. 99, 102 (1957); Lowrey v. Texas AM Univ. Sys., 117 F.3d 242, 247 (5th Cir. 1997). Since federal courts simply require "notice pleading," the Court construes Plaintiff's pleading liberally, and lack of detail does not constitute a sufficient ground to dismiss a complaint under Rule 12(b)(6).Strauss v. City of Chicago, 760 F.2d 765, 767 (7th Cir. 1985).
B. FEDERAL ANTITRUST CLAIMS
In its SAC, TCE alleges that Defendants violated §§ 1 and 2 of the Sherman Antitrust Act. Specifically, TCE alleges that the TXU Defendants, the AEP Defendants, the Texas Genco Defendants, the Reliant Defendants, APX, TES, the TIE Defendants, Frontera, and Tractebel violated the Sherman Antitrust Act by engaging in economic withholding, physical withholding, and market manipulation. TCE further alleges that the TXU Defendants, the AEP Defendants, the Texas Genco Defendants, and the Reliant Defendants violated the Sherman Antitrust Act by exercising monopoly power, attempting to monopolize, and/or conspiring to monopolize. Defendants move to dismiss TCE's federal antitrust claims under the filed rate doctrine.
1. The Sherman Antitrust Act Generally
a. Section 1 of the Sherman Antitrust Act
Section 1 of the Sherman Act states that "[e very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is declared to be illegal." 15 U.S.C. § 1. In order to recover under § 1 of the Sherman Act, a `plaintiff must prove (1) the existence of an agreement (2) which unreasonably restrains trade (3) to the damage of the plaintiff.' J.T. Gibbons, Inc. v. Crawford Fitting Co., 704 F.2d 787, 791 (5th Cir. 1983). "Section one applies only to concerted action; unilateral conduct is excluded from its purview."Johnson v. Hosp. Corp. of Am., 95 F.3d 383, 392 (5th Cir. 1996). To prove a conspiracy or concerted action, the plaintiff must prove that the conspirators had a "conscious commitment to a common scheme designed to achieve an unlawful objective."Spectator's Communication Network v. Colonial Country Club, 253 F.3d 215, 220 (5th Cir. 2001).
b. Section 2 of the Sherman Antitrust Act
Section 2 of the Sherman Act states that "[e]very person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, on with foreign nations, shall be deemed guilty of a felony. . . ." 15 U.S.C. § 2. This section of the Sherman Act denounces three actions: "monopolization, attempt to monopolize, and conspiracy to monopolize." N. Mississippi Communications, Inc. v. Jones, 792 F.2d 1330, 1335 (5th Cir. 1986).
Under § 2 of the Sherman Act, the offense of monopoly consists of two elements: "the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." Alcatel USA, Inc. v. DGI Technologies, Inc., 166 F.3d 772, 781 (5th Cir. 1999). Specifically, the monopoly power element concerns the "power to control prices or exclude competition." Stewart Glass Mirror, Inc. v. U.S. Auto Glass Disc. Ctrs., Inc., 200 F.3d 307, 315 (5th Cir. 2000).
An attempted monopoly in violation of Section 2 consists of three elements: "(1) that the defendant engaged in predatory or exclusionary conduct, (2) that the defendant possessed the specific intent to monopolize, and (3) that there was a dangerous probability that the defendant would succeed in his attempt."Bell Atl. Corp. v. ATT Corp., 339 F.3d 294, 302 (5th Cir. 2003).
A conspiracy to monopolize can be established only through proof of "(1) the existence of specific intent to monopolize; (2) the existence of a combination or conspiracy to achieve that end; (3) overt acts in furtherance of the combination or conspiracy; and (4) an effect upon a substantial amount of interstate commerce." Stewart Glass Mirror, Inc., 200 F.3d at 316.
c. Private Causes of Action
Section 4 of the Clayton Act, 15 U.S.C. § 15, provides a private right of action to enforce the Sherman Act and requires a plaintiff to seek recovery for injury "in his business or property." Dillard v. Merrill Lynch, 961 F.2d 1148, 1159 (5th Cir. 1992). In order to show standing, the private claimant must demonstrate injury to business and property of a type that antitrust laws were intended to prevent. Id. Pleadings need not explain how the injury occurred; that the claimant sustained injury to business or property is a sufficient allegation. Id.
Private antitrust liability under Section 4 of the Clayton Act requires the showing of (1) a violation of the antitrust laws, (2) that it was the defendant's conduct that actually caused injury to his business or property, and (3) some indication of the amount of damage. Bell Atl. Corp., 339 F.3d at 302;Nichols v. Mobile Bd. of Realtors, Inc., 675 F.2d 671, 675 (5th Cir. 1982). The plaintiff need only provide "a just and reasonable estimate of the damage based on relevant data." Bell Atl. Corp., 339 F.3d at 303.
2. The Filed Rate Doctrine Generally
The filed rate doctrine "bar[s] antitrust recovery by parties claiming injury from the payment of a filed rate for goods or services." County of Stanislaus v. Pac. Gas and Elec. Co., 114 F.3d 858, 862 (9th Cir. 1997) (holding that the filed rate doctrine barred federal antitrust price fixing claims brought under § 1 of the Sherman Antitrust Act); see also Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409, 424, 106 S.Ct. 1922, 1931 (1986) (holding that the filed rate doctrine barred federal antitrust claims brought under § 1 of the Sherman Antitrust Act); Town of Norwood, Massachusetts v. New England Power Co., 202 F.3d 408, 419 (1st Cir. 2000) (holding that the filed rate doctrine barred federal antitrust claims brought under §§ 1 and 2 of the Sherman Antitrust Act). The doctrine "holds that any filed rate — that is, one approved by the governing regulatory agency — is per se reasonable and unassailable in judicial proceedings brought by ratepayers." Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17, 18 (2nd Cir. 1994). In other words, "the filed rate doctrine bars suits against regulated utilities grounded on the allegation that the rates charged by the utility are unreasonable." Id. Moreover, "application of the filed rate doctrine in any particular case is not determined by the culpability of the defendant's conduct or the possibility of inequitable results."Marcus v. ATT Corp., 138 F.3d 46, 58 (2nd Cir. 1998).
One legal scholar traces the Supreme Court's analysis of filed rates to 1906 when the Court reasoned that the Interstate Commerce Act had the purpose "to secure equality of rates as to all and to destroy favoritism." Jim Rossi, Lowering the Filed Tariff Shield: Judicial Enforcement for a Deregulatory Era, 56 VANO. L.REV. 1591, 1599 (Nov. 2003) (quoting New York, New Haven Hartford R.R. v. Interstate Commerce Comm'n, 200 U.S. 361 (1906). The Supreme Court first articulated the filed rate doctrine as a deferse to antitrust liability in Keogh v. Chicago N.W. Ry. Co., 260 U.S. 156, 43 S.Ct. 47 (1922). In Keogh, the plaintiff alleged that shipping rates filed by the defendant interstate freight carriers with the Interstate Commerce Commission ("ICC") were fixed at arbitrary and unreasonable high levels as a result of a conspiracy in violation of § 7 of the Anti-Trust Act of July 2, 1890. Keogh, 260 U.S. at 159-60. The Supreme Court held that since the shopping rates in question had been filed with and approved by the ICC, the plaintiff failed to state a cause of action under the Anti-Trust Act. Id. at 162.
In rejecting the plaintiff's antitrust claim, the Court inKeogh articulated a number of reasons in support of its holding. First, the regulatory structure governing rates charged by carriers provided a mechanism for the recovery of damages.Id. at 162. Second, antitrust liability requires an injury or violation of a legal right. "The legal rights of shipper as against carrier in respect to a rate are measured by the published tariff," and the plaintiff suffered no injury as a result of paying the published tariff. Id. at 163. Third, the award of antitrust damages to the plaintiff "might, like a rebate, operate to give [the plaintiff] a preference over his trade competitors." Id. Fourth, determining damages would require the court to "reconstitut[e] the whole rate structure for many articles moving in an important section of the country." Id. at 164. Finally, "the damages alleged [by the plaintiff were] purely speculative." Id.
Since Keogh, the Supreme Court has revisited the filed rate doctrine on a number of occasions. See e.g., Montana-Dakota Util. Co. v. N.W. Public Serv. Co., 341 U.S. 246, 71 S.Ct. 692 (1951); Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 101 S.Ct. 2925 (1981); Maislin Indus., U.S. v. Primary Steel, Inc., 497 U.S. 116, 110 S.Ct. 2759 (1990). In these decisions, the Supreme Court has been concerned with two corresponding interests: (1) "potential `discrimination' in rates as between ratepayers," Wegoland, 27 F.3d at 19, and (2) "the `justiciability' of determining reasonable rates." Id.
The filed rate doctrine was established to protect consumers from discrimination by monopolies. Rossi, 56 VAND. L.REV. at 1599. Price discrimination is condemned because "it maximizes the monopolist's profits . . . while also encouraging the monopolist to waste resources in maintaining its dominant market position."Id. at 1600. "A utility with a filed tariff is prohibited from offering customers rebates and discounts that are at odds with the filed (and often approved) tariff." Jim Rossi, Beyond Goldwasser: Ex Post Judicial Enforcement in Deregulated Markets, 2003 MICH. ST. DCL L.REV. 717, 720 (Fall 2003). With respect to rate discrimination, the filed rate doctrine prohibits a party "from recovering damages measured by comparing the filed rate and the rate that might have been approved absent the conduct in issue."H.J. Inc. v. N.W. Bell Tel. Co., 954 F.2d 485, 488 (8th Cir. 1992).
As the Supreme Court explained in Keogh, any attempt by a court to determine relief from previously assessed rates would lead to complaining parties paying less than those who are not suing. Keogh, 260 U.S. at 163. Therefore, the filed rate doctrine prevents price discrimination between suing and non-suing parties. Wegoland, 27 F.3d at 21. In addition, theKeogh decision reasoned, "[u]niform treatment would not result, even if all [customers] sued, unless the highly improbably happened, and the several juries and courts gave to each the same measure of relief." Keogh, 260 U.S. at 163.
As a practical matter, the availability of class action litigation has developed since the Keogh decision and uniform treatment is more readily available now. Square D, 476 U.S. at 423. Additionally, "the greater sophistication in evaluating damages, . . . might mitigate the expressed fears about the speculative nature" of antitrust damages. Id. "To be sure, the concerns for discrimination are substantially alleviated in . . . putative class action[s]." Wegoland, 27 F.3d at 22.
In regards to the justiciability of determining reasonable rates, the filed rate doctrine "preserves the exclusive role of . . . agencies in approving rates for . . . services that are reasonable by keeping courts out of the rate-making issues."Marcus v. ATT Corp., 138 F.3d 46, 58 (2nd Cir. 1998). As explained by the Second Circuit in Sun City Taxpayers' Ass'n v. Citizens Util. Co., 45 F.3d 58, 62 (2nd Cir. 1995), "(1) legislatively appointed regulatory bodies have institutional competence to address rate-making issues; (2) courts lack the competence to set utility rates; and (3) the interference of courts in the rate-making process would subvert the authority of rate-setting bodies and undermine the regulatory regime." Sun City, 45 F.3d at 62.
In light of criticisms, the Supreme Court directly addressed the continuing viability of the filed rate doctrine in antitrust actions in Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409, 106 S.Ct. 1922 (1986). In Square D, the Supreme Court admitted that it could assume "the Keogh decision was unwise as a matter of policy." Id. at 420. Nonetheless, the Court declined to overrule Keogh, stating, "[s]tare decisis is usually the wise policy because in most matters, it is more important that the applicable rule of law be settled than that it be settled right." Id. at 424. "If there is to be an overruling of the Keogh rule, it must come from Congress, rather than from this Court." Square D Co., 476 U.S. at 424, 106 S.Ct. at 1931.
3. The Texas Electric Industry is a Regulated Industry
TCE contends that the filed rate doctrine does not apply to the instant action since FERC possesses no regulatory authority over the Texas electricity market. TCE describes the filed rate doctrine as a consequence of Congressional intent to vest exclusive jurisdiction over federal power issues to FERC. (Pl.'s Resp. ¶ 2.18.) "Because Texas' electric power supply is strictly `intrastate', FERC has no authority pursuant to the Interstate Commerce Clause" (Pl.'s Resp. at 11) and the Court "should look to the Texas legislature's statutory intent not to invoke the filed rate doctrine." (Id. ¶ 2.18.)
TCE's emphasis on the intra-state nature of the Texas energy market is noteworthy given that TCE is suing under federal antitrust laws. If the Texas energy market is truly intra-state, then this Court has no jurisdiction over the Sherman Antitrust Act Claims that require a nexus to interstate commerce. 15 U.S.C. §§ 1 and 2 (protecting "trade and commerce among the several states").
Although the filed rate doctrine is commonly used to uphold rates approved by federal agencies such as FERC or the ICC, the doctrine was developed as a common law defense to federal antitrust litigation. See Keogh, 260 U.S. 156 (discussed in Section III.B.2 above). "[T]he rationale underlying the filed rate doctrine applies whether the rate in question is approved by a federal or state agency." H.J. Inc., 954 F.2d at 494; see also Wegoland, 27 F.3d at 20; M.R. Taffet v. S. Co., 967 F.2d 1483, 1494 (11th Cir. 1992).
PUCT, as the regulatory agency charged with overseeing the Texas electricity market, possesses the institutional competence to address rate-making issues in the BES market, one of the principles underlying the filed rate doctrine. See Sun City, 45 F.3d at 62. Upon a finding of market power abuse by a participant in the Texas electricity market, PUCT is empowered by the Texas Legislature to remedy the situation by "seeking an injunction or civil penalties as necessary to eliminate or to remedy the market power abuse or violation as authorized by Chapter 15, by imposing an administrative penalty as authorized by Chapter 15, or by suspending, revoking, or amending a certificate or registration as authorized by Section 39.356." TEX. UTIL. CODE § 39.157(a). PUCT has demonstrated its institutional competence in addressing rate-making issues when the MOD ordered market participants to return $30 million in illicit profits obtained as a result of abusive and improper scheduling practices in the BES market during August 2001. It must also be noted that MOD continues to investigate the market abuses alleged by TCE.
4. Savings Clause Does Not Bar Filed Rate Defense
The arguments of TCE focused on the savings clause and the intent of the Texas Legislature in drafting Senate Bill 7. TCE alleges that the filed rate doctrine should not apply to the Texas electricity market since the Texas Legislature did not intend for the restructuring of the Texas electricity market to prohibit civil antitrust lawsuits. Specifically, TCE cites to the savings clause in Section 39.158(b) of the Texas Public Utility Code:
Nothing in [the chapter governing the restructuring process of the Texas electricity market] shall be construed to confer immunity from state or federal antitrust laws. This chapter is intended to complement other state and federal antitrust provisions. Therefore, antitrust remedies may also be sought in state or federal court to remedy anticompetitive activities.
TEX. UTIL. CODE § 39.158(b). The Fifth Circuit has stated that "the primary rule in statutory interpretation [is] that a court must give effect to legislative intent." In re CPDC, Inc., 337 F.3d 436, 442 (5th Cir. 2003). TCE's argument is that the savings clause expresses the Texas Legislature's intent that the filed rate doctrine does not apply because nothing in the Act "shall be construed to confer immunity from state or federal antitrust laws." TEX. UTIL. CODE § 39.158(b).
As an initial matter, the filed rate doctrine does not provideimmunity from antitrust liability. Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409, 422, 106 S.Ct. 1922, 1929 (1986). Instead, the doctrine only acts to bar private antitrust suits seeking damages stemming from rates paid to a regulated utility. Id. Companies that engage in illegal antitrust activities regarding filed rates are still subject to criminal sanctions or equitable relief, neither of which TCE has sought in the instant suit. Id. Furthermore, the filed rate doctrine does not bar antitrust challenges based on mergers or sales of assets by regulated utilities. Town of Norwood, 202 F.3d at 422. Therefore, in accordance with the intent of the Texas Legislature, the filed rate doctrine does not confer immunity from federal or state antitrust laws.
In arguments before the Court, TCE relied on Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, ___ U.S. ___, 124 S.Ct. 872 (2004) for the proposition that the savings clause found in § 39.158(b) precludes the application of the filed rate doctrine in the instant action. In Verizon Communications, Inc., a case not involving the filed rate doctrine, the Supreme Court interpreted the following antitrust savings clause from the Telecommunications Act of 1996: "nothing in this Act or the amendments made by this Act shall be construed to modify, impair, or supersede the applicability of any of the artitrust laws."Verizon Communications, Inc., 124 S.Ct. at 878 (citing 47 U.S.C. § 152). The Supreme Court found that the Telecommunication Act's savings clause "barred a finding of implied immunity,"Id., and "preserves those claims that satisfy established antitrust standards." Id. The Supreme Court further stated that "just as the 1996 [Telecommunication] Act preserves claims that satisfy existing antitrust standards, it does not create new claims that go beyond existing antitrust standards; that would be equally inconsistent with the saving clause's mandate that nothing in the Act `modify, impair, or supersede the applicability' of the antitrust laws." Id.
TCE argues that the savings clause found in § 39.158(b) should be interpreted in the same manner as the savings clause found in the Telecommunications Act of 1996. The Court agrees with TCE's contention. By its own terms, the savings clause in § 39.158(b) does not purport to modify the application of existing state and federal antitrust provisions that include the well-established common law defense of the file rate doctrine.
The Fifth Circuit has held that for a legislature to "abrogate a federal common law provision . . . [the legislature] must speak directly to the question addressed by the common law."Resolution Trust Corp. v. Miramon, 22 F.3d 1357, 1360 (5th Cir, 1994). TCE argues that in absence of FERC regulation, the Court must look to the state legislative intent to determine the applicability of the filed rate doctrine. What TCE fails to address is that the filed rate doctrine is a recognized part of federal antitrust law and the United States Congress is best situated to abrogate the filed rate doctrine. Seeing no amendments to the Sherman Antitrust Act addressing the filed rate doctrine, the Court concludes that the legislative intent of the United States Congress is that the filed rate doctrine is a valid defense to federal antitrust claims.
In conclusion, application of the filed rate doctrine in the instant action does not contravene the intent of the Texas Legislature because it does not confer immunity against antitrust liability. Additionally, the legislative intent of the Sherman Antitrust Act presumably is that the file rate doctrine is a valid defense to liability.
5. Rates Paid in the BES Market are Filed Rates
TCE also asserts that the filed rate doctrine does not bar its antitrust claims since the Texas legislature did not include a filed rate requirement in the BES market. Prior to the 1999, electricity rates were set by the state, but Senate Bill 7 created market-based rates. The First Circuit has stated that the filed rate doctrine applies to market based rates. Town of Norwood, Massachusetts v. New England Power Co., 202 F.3d 408, 419 (1st Cir. 2000); see also In re California Wholesale Elec. Antitrust Litig., 244 F.Supp.2d 1072, 1079-80 (S.D. Cal. 2003); T E Pastorino Nursery v. Duke Energy Trading and Mktg., No. MDI 1405, 2003 WL 22110491, *4 (S.D. Cal. Aug 27, 2003); Campbell v. San Diego Gas Elec. Co., No. Civ 00-2382-RHW, 2001 WL 1860381, *3 (E.D. Wash. Sept. 19, 2001). As explained in Town of Norwood, rates are considered filed rates and subject to agency review if the responsible regulatory agency is charged with "ensuring just and reasonable rates." Id. However, the court in Town of Norwood recognized that if "rates were truly left to the market, with no filing requirement or FERC supervision at all, the filed rate doctrine would by its terms no longer operate." Id.
In contrast, the Ninth Circuit had to decide whether insurance rates filed with Arizona and Wisconsin state regulatory agencies were entitled to protection under the filed rate doctrine. Brown v. Ticor Title Ins. Co., 982 F.2d 386, 394 (9th Cir. 1992). In both states, insurance companies were required to file their insurance rates with state regulatory agencies that have the power to disprove the rates. Id. at 393. The Court observed that the "absence of meaningful state review allows the insurers to file any rates they want." Id. at 394. "[I]f those rates were the product of unlawful activity prior to their being filed and were not subjected to meaningful review by the state, there the fact that they were filed does not render them immune from challenge." Id. Therefore, the filed rate doctrine was not applicable.
Unlike the insurance rates at issue in Ticor Title, the BES market based rates are subjected to meaningful review by PUCT. PUCT is required to ensure "safe, reliable, and reasonably priced electricity." TEX. UTIL. CODE § 39.101(a)(1). PUCT is also required to ensure that Ancillary Services are available at "reasonable prices with terms and conditions not unreasonably preferential, prejudicial, discriminatory, predatory, or anticompetitive." TEX. UTIL. CODE § 39.004(e). In addition, rates in the BES market are capped at $1,000 per MWh. Therefore, wholesale power rates in Texas continue to be filed with PUCT since PUCT is charged with ensuring reasonably priced electricity, and the filed rate doctrine applies to market based rates in the ERCOT-administered electricity market.
6. The Competitor Exception to the Filed Rate Doctrine Does Not Apply to TCE's Claims
Finally, TCE asserts that its antitrust claims are exempt from the filed rate doctrine as a result of the "competitor exception" to the doctrine. The "competitor exception" to the filed rate doctrine holds that "an anticompetitive practice embodied in a [filed] tariff may violate the antitrust laws if it . . . impacts upon competitors as opposed to customers." City of Groton v. Connecticut Light Power Co., 662 F.2d 921, 929 (2nd Cir. 1981). As explained in City of Groton, "if a utility that competes with a wholesale customer engages in a price squeeze by charging the wholesale customer more than its retail customers, the filed rate doctrine may not be applicable."Id. However, TCE does not complain of a price squeeze. "The traditional price squeeze involves a defendant who as a monopolist supplies the plaintiff at one level (e.g., wholesale), competes at another (e.g., retail), and seeks to destroy the plaintiff by holding up the wholesale price to the plaintiff while depressing the retail price to common customers." Town of Norwood, 202 F.3d at 418. TCE only complains of rates paid for electricity as a wholesale customer in the BES market.
TCE cites Essential Communications Sys., Inc. v. Am. Tel. Tel Co., 610 F.2d 1114, 1122 (3rd Cir. 1979), for its support of the competitor exception. In Essential Communications, the Third Circuit justified the competitor exception by stating:
In this case the plaintiff is not suing in the capacity of a customer for communication services. Essential seeks recovery for injury to its business or property from actions taken by the defendants in formulating a tariff, and in rendering customer services. The Bell System will not be asked to disgorge to any customers any revenues derived under the filed tariff. Indeed, it can continue to collect those revenues until a new tariff is filed. There is no policy conflict, actual or potential, therefore, between the Section 4 Clayton Act remedy and the antidiscrimination purposes of the filed tariff rule.Essential Communications, 610 F.2d at 1122. The instant suit can be distinguished from the action in Essential Communications. Here, TCE is requesting damages based on the rate it paid for wholesale electricity in the BES market, and Defendants will be "asked to disgorge to [TCE] any revenues derived under the filed tariff." Id. Therefore, the competitor exception to the filed