filed-rate doctrine Archives

Despite Potential Market Manipulation, FERC Declines to Reject Power Auction Results

The Federal Energy Regulatory Commission (FERC or the Commission) recently opted not to take action to set aside the results of a power auction that was allegedly manipulated. In the face of significant public complaints, the Commission ordered revisions to tariff provisions governing future auctions. While it opted not to take action here, the opinions of the commissioners effectively gave notice to capacity owners that rate increases alone may be a sufficient basis for investigating auction results, even if the auction is conducted pursuant to tariff.

The matter involved the impacts of actions taken by an energy provider that altered the outcome of a competitive auction. Energy Capital Partners, a private equity firm, allegedly exercised and abused market power by announcing the impending shutdown of its coal-fired plant just prior to the auction and after the deadline for new resources to participate (thereby leaving a significant power deficit, triggering certain administrative pricing rules and driving up auction prices). Multiple consumer groups intervened at FERC, seeking action by FERC to set aside the auction results, asserting that the auction had been manipulated.

FERC has authority to ensure that regional wholesale electricity markets served by regional transmission operators operate competitively. Pursuant to ISO-New England Inc.’s (ISO-NE’s) applicable tariff, FERC is responsible for determining whether the results of ISO-NE’s annual Forward Capacity Market Auctions—through which power generators bid to sell their future capacity to ISO-NE—are “just and reasonable.” Intervening consumer advocate groups opposed the capacity rates resulting from FCA-8 (ISO-NE’s most recent auction).

FERC—deadlocked 2-2—allowed FCA-8’s rates to become effective by operation of law and issued statements explaining their positions. Despite the lack of a formal FERC order, these statements provide insight regarding the commissioners’ opinions on the scope of FERC’s authority, regulatory/rate certainty, market power and the filed rate doctrine. Under the filed rate doctrine, a regulated entity may not charge a rate “different from the one on file with the Commission” so long as the filed rate was reached via proper implementation of the applicable tariff.[1]

Two commissioners (Clark and Bay), troubled by allegations and evidence of market power abuse, emphasized that FERC must “deter and mitigate market power abuses for the benefit of consumers.” They further did not see the filed rate doctrine as an obstacle to FERC’s examination of the justness and reasonableness of FCA-8’s rates. In their view, the Commission should have rejected FCA-8’s rates and taken a closer look by means of fast-tracked hearing and settlement procedures. They expressed strong objection to “precluding an examination of capacity prices when evidence suggests that the exercise of market power may have contributed to those prices.”

By contrast, the other two commissioners would have accepted FCA-8’s rates as just and reasonable, but their differing approaches are noteworthy. Chairman LaFleur argued that ISO-NE followed its tariff and that FERC thereby lacks authority to inquire further. Under that view, any analysis of resulting rates—rather than review only of compliance with the tariff provisions—“would constitute retroactive ratemaking in violation of the [...]

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6th Circuit Limits Applicability of the Filed-Rate Doctrine and Holds that Electricity is a “Commodity” under Robinson-Patman

by Nick Grimmer, Gregory E. Heltzer and Shauna A. Barnes

On June 6, 2012, in Williams v. Duke Energy Int’l, Inc., the U.S. Court of Appeals for the 6th Circuit reversed a dismissal of Robinson-Patman Act (price discrimination) claims, amongst others. In the district court, a class of electricity purchaser plaintiffs alleged that defendant electricity providers gave an unfair competitive advantage to several of the defendants’ largest customers by paying them undisclosed rebates in side agreements, such that the favored customers paid effective rates below those approved by the governing agency, while the plaintiffs still had to pay higher agency-approved rates. The plaintiffs alleged that while the favored customers initially objected to the defendants’ proposed rate plan, they withdrew their objections in exchange for the undisclosed rebates. The district court dismissed the plaintiffs’ claims under the filed-rate doctrine, which bars challenges to the reasonableness of a “filed rate” (i.e., a rate approved by the governing regulatory agency).

The 6th Circuit reversed, holding that while the “filed-rate doctrine bars challenges to the reasonableness of a filed-rate,” the plaintiffs were not challenging the filed (i.e., approved) rate. Instead, the court explained that the plaintiffs challenged “the lawfulness and purpose of payments made . . . pursuant to various side agreements” that were “made outside of the [approved] rate scheme” – that is, these side agreements “were not filed with any agency, including the [governing agency].” The court held that the plaintiffs properly stated a cause of action by alleging that via rebate payments, the defendants charged certain favored customers less than the actual filed rate, thereby harming the plaintiffs by giving the favored customers an unfair competitive advantage.

The extent to which other circuits will follow Williams is not clear, particularly if award of damages would have the effect of altering the filed rate (a point argued by the Williams defendants, but unaddressed by the 6th Circuit). In the 8th Circuit (FirstCom, Inc. v. Qwest Corp.), for instance, “to the extent [a plaintiff] seeks recovery for a price discount it was allegedly entitled to, its claims are barred by the filed rate doctrine.” And in the 11th Circuit (Hill v. BellSouth Telecomms., Inc.), the filed-rate doctrine bars claims where “an award of damages to the customer-plaintiff would, effectively, change the rate paid by the customer to one below the filed rate paid by other customers.” However, these cases (and similar cases, for instance, the 2nd Circuitin Marcus v. AT & T Corp.) did not involve allegations that side deals caused the effective rates to vary from the filed rates.

Another noteworthy holding of Williams is that electricity is a commodity for purposes of the Robinson-Patman Act – a statute that makes it unlawful to price discriminate between purchasers of commodities of like grade and quality.” This holding is in conflict with district courts in other circuits (Delaware, for instance, in City of Newark v. Delmarva Power & Light Co.) holding that under the Robinson-Patman Act, electricity is not a commodity. The [...]

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Despite Potential Market Manipulation, FERC Declines to Reject Power Auction Results

6th Circuit Limits Applicability of the Filed-Rate Doctrine and Holds that Electricity is a “Commodity” under Robinson-Patman

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