Utilimax.Com, Inc. v. Ppl Energy Plus, LLC

• Decision Date: 18 July 2003
• Docket Number: No. 02-CV-7160.,02-CV-7160.
• Citation: 273 F.Supp.2d 573
• Parties: UTILIMAX.COM, INC., Plaintiff, v. PPL ENERGY PLUS, LLC, PPL Corporation, ABC Corps. 1-10, John Does 1-10, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

273 F.Supp.2d 573

UTILIMAX.COM, INC., Plaintiff, v. PPL ENERGY PLUS, LLC, PPL Corporation, ABC Corps. 1-10, John Does 1-10, Defendants.

No. 02-CV-7160.

United States District Court, E.D. Pennsylvania.

July 18, 2003.

Brian J. Fruehling, Fruehling & Stevens, Madison, NJ, James K. Fruehling, Philadelphia, PA, for Plaintiff.

David L. Meyer, James R. Atwood, Vijay Shanker, Covington & Burling, Washington, DC, John G. Harkins, Jr., Karin E. Davis, Steven A. Reed, Harkins Cunningham, Philadelphia, PA, for Defendants.

MEMORANDUM & ORDER

ANITA B. BRODY, District Judge.

During the period covered by this action, the plaintiff, Utilimax.com, Inc. ("Utilimax"), was licensed to purchase wholesale electricity and resell it in Pennsylvania's newly deregulated retail electricity market. The defendant, PPL Energy Plus ("PPL"),¹ sells retail electric energy, but also trades in the wholesale electricity market. In the complaint, Utilimax alleges that PPL violated the Sherman Act, the Clayton Act, and numerous state laws. Utilimax seeks monetary damages.

PPL moves to dismiss the complaint under Fed.R.Civ.P. 12(b)(6) on the ground that its actions are protected under the "filed rate doctrine", a doctrine that bars claims that ask courts to review a rate set by a federal regulatory agency. I will grant the motion.

I. Regulatory Background²

In 1935, Congress enacted the Federal Power Act ("FPA"), 16 U.S.C. §§ 791a-828c, which "established the Federal Power Commission to oversee the wholesale transmission and sale of interstate electric power." 49 Stat. 838 (1935) (codified as amended at 16 U.S.C. §§ 791a-825r). Congress gave the Federal Power Commission (now the Federal Energy Regulatory Commission ("FERC"))³ plenary and exclusive jurisdiction over "the transmission of electric energy in interstate commerce" and "the sale of electric energy at wholesale in interstate commerce." 16 U.S.C. § 824(b).

FERC "fulfills a critical part of its mandate by setting `just and reasonable' wholesale electric rates under §§ 205 and 206 of the Federal Power Act (`FPA'), 16 U.S.C. §§ 824d & 824e." Ohio Power Co. v. FERC, 954 F.2d 779, 781 (D.C.Cir.1992). The Act provides that:

All rates and charges made, demanded, or received by any public utility for or in connection with the transmission or sale of electric energy subject to the jurisdiction of the Commission [FERC], and all rules and regulations affecting or pertaining to such rates or charges shall be just and reasonable, and any such rate or charge that is not just and reasonable is hereby declared to be unlawful.

16 U.S.C. § 824d(a); FPA § 205(a). In order to guarantee "just and reasonable" rates, Section 205(c) of the FPA mandates that

every public utility shall file with the Commission, within such time and in such form as the Commission may designate ... schedules showing all rates and charges for any transmission or sale subject to the jurisdiction of the Commission.

16 U.S.C. § 824d(c), FPA § 205(a). FERC regulations specify that no public utility

"shall directly or indirectly, demand, charge, collect or receive any rate, charge or compensation ... which is different from that provided in a rate schedule required to be on file with the Commission." 18 C.F.R. § 35.1(e).

As a regulatory agency, FERC has wide discretion to permit different types of rates. See, e.g., Farmers Union Cent. Exch., Inc. v. FERC, 734 F.2d 1486, 1501 (D.C.Cir.1984)("FERC is not required to adhere rigidly to a cost-based determination of rates.") Traditionally, however, FERC regulation involved a cost-based determination of rates. In other words, rates were decided by FERC based upon the cost of the electric energy involved. More recently, in the case of wholesale electricity, FERC has moved to a rate-based market mechanism for pricing electricity. In other words, rates are determined based upon the price obtained when electricity is traded on the market.⁴ These rates paid by wholesale buyers remain subject to FERC jurisdiction and review. While utilities do not necessarily file specific rates with FERC prior to selling energy, they sell pursuant to the terms, conditions and formulas established by FERC's regional wholesale electricity rules. FERC approves those rules in advance of authorizing the wholesale electricity markets to operate.

PJM Interconnection ("PJM") is a regional wholesale electricity market authorized by the Energy Policy Act of 1992 and established by FERC. Pursuant to rules approved by FERC and subject to FERC's on-going regulation of wholesale electricity markets, PJM coordinates the continuous buying, selling, and delivery of wholesale electricity through various auction markets designed to match supply with demand.

From January through April 2001, the time period involved in this case, PJM's control area included all of New Jersey, Delaware and Washington, D.C., and substantial portions of Pennsylvania and Maryland. Any entity in PJM's control area with transmission assets, generation assets or that wishes to purchase or sell electric power for resale, must be a member of PJM. Each member of PJM must also be a signatory to the PJM Operating Agreement. Many of the PJM's governance, market and operations structures are defined in a series of agreements and rules filed with and approved by FERC. Electric energy must be sold, purchased and transmitted according to the PJM's tariff agreements, operating manuals, and approved business practices.

Under rules approved by FERC and in operation throughout the time period covered in this controversy, each retail seller of electricity in the PJM must hold "capacity"-or capacity credits. Capacity is not the electric energy used to generate light and to power electrical equipment, but rather is the ability to generate electric energy when called upon to do so. Retail electric energy is the energy used by the retail public for lighting homes and by industry to power electrical equipment. The retail public is known as end-users of electricity. Those entities that supply electric energy to end-users are Load Serving Entities ("LSEs"). All LSEs are obliged to own, or acquire at wholesale, sufficient capacity resources to cover, as back-up, one day of energy sales that it has contracted to provide to its retail customers. This obligation is known as the "installed capacity," or "ICAP," obligation. The ICAP obligation is designed to ensure system reliability by requiring that all retail energy obligations be backed up by sufficient generation to produce the energy in question.

The structure of PJM's market for capacity is governed by a series of rate agreements filed with and approved by FERC under §§ 205 and 206 of the Federal Power Act. 16 U.S.C. §§ 824d & 824e. Under PJM rules, capacity requirements for each LSE are established in advance by PJM. An LSE can satisfy its capacity obligation by either self-supplying (using its own generation facilities) or purchasing capacity. LSEs that are unable to self-supply have the option of purchasing capacity by any of three methods: (a) acquiring capacity through bilateral contracts with other entities; (b) purchasing capacity credits in the PJM long-term auction market; or (c) purchasing capacity credits in the PJM daily auction market. All three of these methods are regulated by FERC and authorized by the PJM.

In the daily auction market, a party that has capacity in excess of its needs for the next day may set a price at which it offers to sell, through the PJM, its excess credits (a "Sell Offer"). An LSE that needs additional capacity to meet its capacity obligation for the upcoming day may make a bid, through the PJM, to buy the amount of capacity credits it needs ("a Buy Bid"). After receiving all the Sell Offers and Buy Bids for the day in question, the PJM staff ranks the Sell Offers from the lowest to the highest and the Buy Bids from the highest to the lowest and thereby establishes the market-clearing price. The market-clearing price is the price at which the next Sell Offer is equal to or less than the next Buy Bid.⁵ Sellers who offered to sell below the market-clearing price receive the market-clearing price and buyers who offered to buy above the market-clearing price pay the market-clearing price. During periods of tight supply, ICAP prices can reach relatively high levels. During periods of low demand, ICAP daily auction market prices often approached zero.

If an LSE fails to secure its needed capacity in time to meet its retail energy obligation, that LSE will — under FERC approved PJM rules — be assessed a "capacity deficiency rate" ("CDR").⁶ That charge is based on a rate that has been approved and reviewed by FERC. Under PJM rules that were in effect in early 2001,⁷ capacity deficient charges were assessed on a daily basis against deficient LSEs. The revenues from these charges were distributed to holders of unsold capacity to the extent the holders of unsold capacity had made their capacity available to the PJM pool. Those holders of capacity, in effect, sold the needed capacity to the deficient LSEs at the FERC-approved rate.⁸ Once deficient LSEs paid the CDR to the PJM, they were deemed to have met the requirement for sufficient capacity. In the first quarter of 2001, deficient LSEs paid capacity deficiency charges equal to $177.30/MW-day for all days on which they were deficient.⁹ The capacity market rules further provided that a deficient LSE must pay twice the CDR, that is $354/MW-day, on days when the overall market was deficient. The overall market might become deficient during periods of high demand or when owners of generation "delist." Owners of generation are not required to commit their generation resources to PJM as ICAP but rather can "delist" those resources, that is, export them from the PJM control area.

The PJM daily auction market for capacity — in which prices increased in early 2001 — is subject to FERC rate regulation. Moreover, because PJM capacity is...