Fed. Energy Regulatory Comm'n v. Vitol Inc.

• Decision Date: 20 December 2021
• Docket Number: 2:20-CV-00040-KJM-AC
• Court: U.S. District Court — Eastern District of California
• Parties: Federal Energy Regulatory Commission, Plaintiff, v. Vitol Inc., et al., Defendants.

Federal Energy Regulatory Commission, Plaintiff,
v.
Vitol Inc., et al., Defendants.

No. 2:20-CV-00040-KJM-AC

United States District Court, E.D. California

December 20, 2021

ORDER

The Federal Energy Regulatory Commission (FERC) found that Vitol Inc. (Vitol) and one of its employees, Federico Corteggiano, manipulated wholesale electrical power prices to reduce Vitol's losses in California's specialized electricity market allowing for the offsetting of risks of high congestion costs. The Federal Power Act (FPA) permits FERC, as here, to seek this court's review of FERC's finding and the civil penalties FERC assessed against Vitol and Corteggiano. Vitol and Corteggiano have moved to dismiss and to stay. As explained in this order, Vitol's motion to dismiss is denied, its motion to stay is denied as moot, and Corteggiano's motion is denied for the most part, but granted to the extent the court finds FERC may not assess a larger penalty than it previously proposed.

I. REQUEST FOR JUDICIAL NOTICE

The court begins by clarifying the record on which its decision rests, by addressing Vitol's requests for judicial notice of several documents. See Req. J. Notice, ECF No. 31 & Suppl. Req.

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J. Notice, ECF No. 54. A court may “take judicial notice of adjudicative facts ‘not subject to reasonable dispute.'” United States v. Chapel, 41 F.3d 1338, 1342 (9th Cir. 1994) (quoting Fed.R.Evid. 201(b)). “Adjudicative facts are simply the facts of the particular case.” Advisory Notes to Fed.R.Evid. 201. Judicial notice may be taken at any stage, Fed.R.Evid. 201(d), including when resolving a motion to dismiss for failure to state a claim under Rule 12(b)(6), and doing so does not convert such a motion into a motion for summary judgment, see United States v. Ritchie, 342 F.3d 903, 907-08 (9th Cir. 2003).

Although Rule 201 refers to facts, litigants often request judicial notice of documents wholesale, as Vitol does here. This practice, although often an efficient method of avoiding unnecessary evidentiary wrangling, can also lead to confusion and disputes. For example, Rule 201 permits judicial notice of facts that are “not subject to reasonable dispute” because they “can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned, ” and a document might serve as such a source. See Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018). An investor conference call transcript submitted to a regulator might therefore be an accurate and reliable source of information about when the conference call occurred, for example. See Id. at 999-1000. A litigant who wishes to rely on that fact could request judicial notice of the date and could cite the transcript as a “source” under Rule 201(b)(2). But a document that can serve as a proper source to “accurately and readily determine” some facts might not be a proper source for other facts. For example, the investor call transcript might not show what listeners actually learned on that call, so judicial notice of their knowledge would not be appropriate, even if every word had been recorded accurately. See Id. The sheer volume of information that can often be derived from a “source” document presents another problem. A great deal of that information might be irrelevant and thus outside the boundaries of “adjudicative” facts. See Id. at 1000 n.5.

To avoid these potential pitfalls, the court will not grant or deny Vitol's request for judicial notice generally; the court instead considers specific facts. When those facts are relevant, when they are not subject to reasonable dispute, and when they can accurately and readily be determined from the documents attached to Vitol's requests for judicial notice, the court takes

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judicial notice of them and relies on them. The court does not cite or rely on facts that do not meet the Rule 201 standard. Vitol's requests for judicial notice are granted in part and denied in part to this extent.

Two parts of Vitol's requests for judicial notice require more detailed discussion. First, Vitol requests judicial notice that a certain pricing algorithm could produce “artificial” prices. See Vitol Mot. at 10 n.6, ECF No. 30; Req. J. Not. Ex. A at 8, ECF No. 31-4. This request for judicial notice can be resolved without considering the details of the algorithm or whether the prices it produces are truly “artificial.” For now, it is enough to recognize that Vitol's request is part of its argument that “artificial” prices are not “market” prices, so if a trading strategy brings an “artificial” price in line with a “market” price, that strategy would not be manipulative or deceptive. See Mot. at 10. The source document Vitol cites does not establish the facts it wants noticed beyond dispute. The document shows only that its author described certain prices as “artificial.” See Req. J. Not. Ex. A at 8. FERC's complaint will not stand or fall on that word choice, but rather on the overall plausibility of its allegations that Vitol and Corteggiano manipulated power markets. Nor does a word choice show beyond dispute that a price is truly “artificial” in the sense Vitol contends.

Second, Vitol requests judicial notice that in another case, FERC described a “price-taker” as “an individual or company that must accept prevailing prices in a market, lacking the market share to influence market price on its own.” See PPL Elec. Util. Corp., 147 FERC ¶ 61, 028 (2016), Req. J. Notice Ex. D at 2 n.5. The court takes judicial notice that FERC used this definition of “price-taker” in its previous decision. The fact of usage is beyond dispute. It is also relevant: FERC used the term “price-taker” in this case as well when it described Vitol's allegedly manipulative bids. See Penalty Order ¶ 101, ECF No. 1-1. Its previous definition can show what it meant when it used that term. The court does not take judicial notice, however, that “price-takers, ” so defined, cannot violate the FPA's antimanipulation rules. As described later in this order, that is a disputed legal question not amenable to notice.

With these preliminary matters resolved, the court turns to FERC's allegations against Vitol and Corteggiano.

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II. BACKGROUND

Traditionally, markets for wholesale electrical power were vertically integrated. See Fed. Energy Reg. Comm'n, “Electric Power Markets” (July 20, 2021);^[1] F.E.R.C. v. Elec. Power Supply Ass'n, 577 U.S. 260, 267 (2016). Utilities owned the power plants, the electrical lines and other parts of the infrastructure that transmits power to the people who use it. Supply Ass'n, 577 U.S. at 267. But since the FPA was passed in the 1930s, “electricity has increasingly become a competitive interstate business.” Id. In the 1990s, FERC also issued rules promoting competitive change to the traditional structure. See supra “Electric Power Markets” (citing Fed. Energy Reg. Comm'n Order No. 888, 75 FERC ¶ 61, 000 (Apr. 24, 1996)). Its goal was to increase competition in power markets by separating transmission from production and consumption. See Id. In response to these rules, separate entities began operating transmission systems; they are known as independent system operators, or “ISOs.” See Id. Today, about two thirds of the electricity in the United States is distributed in areas managed by ISOs and similar regional organizations. See id.

An ISO known as the California Independent System Operator, “CAISO” for short, operates the power transmission infrastructure in most of California and some of Nevada. See id.; Compl. ¶¶ 1, 15, ECF No. 1. CAISO also operates a market for power transmitted within, into, and out of its borders. Id. ¶ 15. In these markets, buyers and sellers trade power transmitted to and from specific locations. See Id. ¶ 16. Trading locations within CAISO's control are called “nodes, ” and trading locations at the borders between CAISO's boundaries and areas controlled by other entities are called “interties.” Id. At interties, power is exported when it leaves the area controlled by CAISO, and it is imported when it enters. Id. These trading locations correspond to real places: they are on the power grid in California and Nevada. See Id. ¶ 24. The events described in FERC's complaint concern electricity transmissions at a node located in Siskiyou and Shasta Counties and over an intertie with a neighboring zone. See Id. ¶¶ 9, 24. That node,

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the “Cragview node, ” is associated with the Cragview electrical bus, ^[2] which connects CAISO's system to a neighboring grid via the “Cascade intertie, ” which is a power transmission line with a relatively small import and export capacity. Id. ¶ 24.

Markets for electricity are unlike many others. Electricity cannot be stored effectively in large quantities, so it must be generated at almost exactly the moment it is consumed. See Id. ¶ 17. And unlike the demand for many other goods, the demand for electricity changes relatively little in response to price changes. See Id. People turn on their air conditioners when it is hot, no matter what price signals might be flashing. See Elec. Power Supply Ass'n, 577 U.S. at 269-70. This means CAISO must transmit exactly the amount of power that consumers demand exactly when they demand it, even when prices are swinging. See Compl. ¶ 17. To do this, CAISO forecasts the amount of electricity available for sale and demanded for purchase, and it schedules generators on an hourly basis the day before power will be transmitted. Id. Buyers and sellers are then matched in a “day-ahead” market. Id. Predictions are rarely perfect, so CAISO also operates a second market for real-time transmissions, and it adjusts generation schedules to account for the differences between the day-ahead market and real-time power needs. Id.

Trades in CAISO's markets settle at prices determined by software algorithms. See Id. ¶ 18. These algorithms take into account the trading location, the bids CAISO...