Simon v. Keyspan Corp..
| Decision Date | 22 March 2011 |
| Docket Number | No. 10 Civ. 5437(SAS).,10 Civ. 5437(SAS). |
| Citation | 785 F.Supp.2d 120,2011 Trade Cases P 77396 |
| Parties | Charles SIMON, on behalf of himself and all others similarly situated, Plaintiff,v.KEYSPAN CORPORATION and Morgan Stanley Capital Group Inc., Defendants. |
| Court | U.S. District Court — Southern District of New York |
OPINION TEXT STARTS HERE
Judith L. Spanier, Esq., Abbey Spanier Rodd & Abrams, LLP, New York, NY, Daniel J. Sponseller, Esq., Sewickley, PA, for Plaintiff.John H. Lyons, Esq., Tara S. Emory, Esq., Skadden, Arps, Slate, Meagher & Flom LLP (DC), Jon R. Roelike, Esq., Anthony R. Van Vuren, Esq., Bingham McCutchen, LLP, Washington, D.C., for Defendants.
Charles Simon (“Simon” or “plaintiff”) brings this action against KeySpan Corporation (“KeySpan”) and Morgan Stanley Capital Group Inc. (“Morgan Stanley”) (collectively, the “defendants”) pursuant to Section 4 of the Clayton Antitrust Act (the “Clayton Act”) on his own behalf and on behalf of other similarly situated consumers.1 Simon is a retail consumer of electricity in New York City. KeySpan is a provider of wholesale electricity and electricity generating capacity (“ICAP” or “installed capacity”).2 Morgan Stanley is a provider of financial services. Plaintiff alleges that by entering into a financial transaction referred to as the “KeySpan Swap,” 3 KeySpan and Morgan Stanley violated the following statutes: Section 1 of the Sherman Act; 4 Section 2 of the Sherman Act; 5 Section 7 of the Donnelly Act; 6 and Section 349 of the New York General Business Law.7 Plaintiff also alleges that KeySpan violated Section 7 of the Clayton Act 8 and that both defendants were unjustly enriched at his expense. Defendants move to dismiss the Complaint, in its entirety, on the following grounds: (1) the filed rate doctrine; (2) the doctrine of implied repeal; (3) lack of standing/antitrust injury; (4) field and conflict preemption; and (5) failure to allege facts sufficient to state a plausible claim upon which relief may be granted. For the reasons that follow, defendants' motion is granted and the Complaint is dismissed in its entirety, with prejudice and without leave to amend.
I. BACKGROUND 9A. The NYC Installed Capacity Market and the Governing Regulatory Scheme
Congress empowered the Federal Energy Regulatory Commission (“FERC” or the “Commission”), an independent commission, with plenary and exclusive authority over wholesale electricity markets under the Federal Power Act (“FPA”). 10 In particular, section 201 of the FPA 11 delegates to FERC the “exclusive authority to regulate the transmission and sale at wholesale of electric energy in interstate commerce.” 12 Sellers of retail electricity, such as Consolidated Edison Company of New York, Inc. (“Con Ed”), must purchase a product from electricity generators known as “installed capacity.” “Installed capacity” does not represent an actual unit of physical energy. Rather, it is a regulatory construct created by the New York Independent System Operator (“NYISO”) that measures the “capability to generate or transmit electrical power,” in units that wholesale electricity buyers like Con Ed must buy to ensure stable sources of supply.13 FERC requires retail sellers of electricity such as Con Ed, who are called “Load Serving Entities” or “LSEs,” to purchase installed capacity from suppliers such as KeySpan.14 These Load Serving Entities are required to make installed capacity payments that relate to their expected peak demand plus a share of reserve capacity.15 These payments provide energy suppliers such as KeySpan with a revenue stream sufficient to encourage the construction of new energy generating facilities, as needed, and maintain adequate and reliable sources of electricity.16
FERC created and regulates the New York City Installed Capacity Market (hereinafter, the “NYC Capacity Market”) pursuant to its exclusive authority over the “transmission of electric energy in interstate commerce” and the “sale of electric energy at wholesale in interstate commerce” by public utilities. 17 Congress vested FERC with the power to determine whether wholesale electricity rates are “just and reasonable” and not unduly discriminatory or preferential.18 FERC's plenary authority also extends to any “practice” or “contract” that affects a jurisdictional rate.19 Because capacity is part of the “sale of electric energy at wholesale,” FERC's authority encompasses capacity markets as well as any “practices” or “contracts” that could affect those markets.20
The price for installed capacity is set through FERC-approved market auctions administered by the NYISO. FERC regulates these auctions through its approval of, and ongoing modifications to, the New York Independent System Operator Market Administration and Control Area Services Tariff (the “NYISO Tariff”). 21 The NYISO Tariff sets the rules for conducting auctions, authorizes the prices that suppliers can offer in the auctions, and specifies how the offer prices at auction are used to determine the prices that LSEs pay for installed capacity. In each auction, capacity suppliers offer price and quantity bids. Supplier bids are “stacked” from lowest to highest priced and then compared to the total amount of capacity demanded in a particular auction. The offering price of the last and highest bid in the “stack” needed to meet the total demand establishes the market price for all of the capacity bid in that auction. Capacity bid at a price higher than this market price is unsold.
FERC authorized the rate that KeySpan, under the NYISO Tariff, could offer capacity in the NYC Capacity Market auctions. Specifically, FERC authorized KeySpan to offer its capacity at or below FERC-specified price caps, otherwise known as “bid caps,” which set the highest price KeySpan could charge during the relevant time period.22 At the time FERC approved these rates, it expressly stated that it expected KeySpan to “bid the price cap and set the market clearing price at that level even as new generation is added and supply increases.” 23
Because of constraints limiting the amount of energy that can be imported into the New York City area from the power grid, the NYISO requires sellers of retail electricity (like Con Ed) to purchase eighty percent of their capacity from generators in the New York City region.24 Thus, at all relevant times, the NYC Capacity Market was highly concentrated with three companies—KeySpan, NRG Energy, Inc. (“NRG”), and Astoria Generating Company (“Astoria”)—controlling a substantial portion of generating capacity.25 These companies, which were subject to bid caps for nearly all of their generating capacity in New York City, were not allowed to sell that capacity outside of the NYISO auction process. The NYISO-set bid cap for KeySpan was the highest, followed by NRG and Astoria.
B. KeySpan's Market–Based Filed Rate Approval
FERC also governs the NYC Capacity Market through separate “market-based rate tariffs” (“MBR Tariffs”) that each seller must file and have approved by FERC as a condition to selling capacity and wholesale electricity, whether such sales are made through market auctions or through independently negotiated contracts with LSEs. Instead of issuing rate schedules or rate-fixing contracts, the MBR Tariffs “simply state that the seller will enter into freely negotiated contracts with purchasers.” 26 The MBR Tariffs authorize a seller to determine its prices for both capacity and wholesale electricity, subject to the conditions set forth in the MBR Tariff, the NYISO Tariff, and FERC's other rules and regulations. FERC will approve an MBR Tariff only if a seller complies with extensive FERC filing and related requirements and can demonstrate that it either lacks market power or has market power that has been adequately mitigated such that it cannot unjustly or unreasonably impact market prices.27
Market-based rate sellers also are required to adhere to specific conduct rules, including the obligation to “bid supply in a manner that complies with the Commission-approved rules and regulations of the applicable power market,” and refrain from engaging in “actions or transactions ... that are intended to or foreseeably could manipulate market prices, market conditions, or market rules for electric energy or electricity products.” 28 After Congress vested FERC with specific anti-manipulation enforcement authority under the Energy Policy Act of 2005, FERC issued a rule prohibiting any entity from engaging in fraudulent or deceptive conduct in connection with the purchase or sale of electricity.29 Compliant with these requirements, KeySpan was authorized by FERC to sell capacity and wholesale electricity pursuant to its MBR Tariff.30
C. FERC's Review of the KeySpan Swap
FERC conducted a comprehensive review of the Capacity Market that included an assessment of the KeySpan Swap and its potential impact on the Capacity Market. FERC concluded that KeySpan and Morgan Stanley acted lawfully and that prices in the auctions were authorized under the NYISO Tariff and consistent with FERC's expectations.31 FERC therefore concluded that there was no basis on which to order any refunds or restitution to Con Ed (or any other purchasers in the auctions).32
In conjunction with these proceedings, FERC ordered its Enforcement Staff to investigate the “issue of whether any entity has engaged in manipulation of the [Capacity Market].” 33 Among the matters considered by FERC was whether the KeySpan Swap caused KeySpan to “consistently offer[ ] its capacity at its bid cap and, as a result, raise[ ] prices in [the capacity] market.” 34 This included an assessment of whether KeySpan engaged in “economic withholding” of its capacity in violation of FERC's anti-manipulation regulations, i.e., whether KeySpan offered its capacity “at a sufficiently high price” such that it would not sell all of its capacity and “as a result, the market clearing price [was] raised.” 35
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