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PNE Energy Supply LLC v. Eversource Energy

United States District Court, D. Massachusetts

June 7, 2019

PNE ENERGY SUPPLY LLC, on behalf of themselves and others similarly situated, Plaintiffs,
EVERSOURCE ENERGY, a Massachusetts voluntary association, and AVANGRID, INC., a New York corporation, Defendants.


          Denise J. Casper United States District Judge.

         I. Introduction

         PNE Energy Supply LLC (“PNE”), on behalf of a putative class of wholesale electricity purchasers located in New England, has filed this lawsuit against Eversource Energy (“Eversource”) and Avangrid, Inc. (“Avangrid”) (collectively, “Defendants”), alleging violations of the Sherman Act, 15 U.S.C. § 2, and various state consumer protection and antitrust laws. D. 1. Specifically, PNE asserts that Defendants manipulated pipeline capacity for natural gas transmission and, as a result, artificially inflated the price of natural gas and electricity at wholesale in New England. Id. ¶ 1. PNE seeks damages and injunctive relief, including under the Clayton Act, 15 U.S.C. § 26. Id. (Request for Relief). Defendants have filed a joint motion to dismiss. D. 21. For the reasons set forth below, the Court ALLOWS Defendants' motion.

         II. Standard of Review

         To survive a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a pleading must allege claims that are plausible. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To satisfy this standard, the pleading must provide “for more than a sheer possibility that a defendant has acted unlawfully.'” Saldivar v. Racine, 818 F.3d 14, 18 (1st Cir. 2016) (quoting Iqbal, 556 U.S. at 678). A claim must contain sufficient factual matter that, accepted as true, would allow the Court “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).

         As with other claims, “it is not enough merely to allege a[n] [antitrust] violation in conclusory terms.” E. Food Servs., Inc. v. Pontifical Catholic Univ. Servs. Ass'n, Inc., 357 F.3d 1, 9 (1st Cir. 2004). Instead, the “complaint must make out the rudiments of a valid claim.” Id. Therefore, “[w]hen the requisite elements are lacking, the costs of modern federal antitrust litigation and the increasing caseload of the federal courts counsel against sending the parties into discovery when there is no reasonable likelihood that the plaintiffs can construct a claim from the events related in the complaint.” In re Carbon Black Antitrust Litig., No. Civ.A.03-10191-DPW, 2005 WL 102966, at *5 (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984)). Still, the Court should dismiss a complaint “only if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Id. (citations and internal quotation marks omitted).

         III. Factual Background

         Unless otherwise noted, the following facts are drawn from complaint, D. 1, and are accepted as true for the consideration of the pending motion.

         PNE is an energy supplier that purchases electricity at wholesale to be resold to retail customers in New England. D. 1 ¶ 4. The price of natural gas in New England heavily influences the price of wholesale electricity for purchasers like PNE because natural gas-fired power plants generate forty-eight percent of electricity in the region. Id. ¶¶ 97, 102. Accordingly, an increase in natural gas prices due to a shortage in natural gas supply will cause the price of wholesale electricity to increase as well. Id. ¶ 102. PNE alleges that Defendants used their influence over the transmission of natural gas to New England to restrict the supply of gas available for other purchasers, inflating the commodity market price of natural gas and, in turn, resulting in higher wholesale electricity prices. See, e.g., id. ¶ 15. The Court now turns to the New England energy markets purportedly impacted by Defendants' alleged anticompetitive conduct.

         A. Natural Gas and Electricity Markets

         1. FERC's Authority to Regulate Certain Natural Gas and Electric Rates

         As part of the Natural Gas Wellhead Decontrol Act of 1989, Congress eliminated the Federal Energy Regulatory Commission's (“FERC”) authority to impose price regulations on “first sales” of natural gas at the wellhead.[1] Id. ¶ 55. The commodity price of natural gas thereafter has been determined by market forces. Id.; see E. & J. Gallo Winery v. EnCana Corp., 503 F.3d 1027, 1038 (9th Cir. 2007). In 1992, FERC issued Order No. 636, which permanently severed the sale of natural gas as a commodity from the sale of natural gas transportation as a service. D. 1 ¶ 56. By contrast to the sale of gas as a commodity, FERC retains the authority to regulate the sale of natural gas transmission services. See 15 U.S.C. § 717(b).

         The Federal Power Act (“FPA”), 16 U.S.C. § 791a et seq., authorizes FERC to regulate both 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)(1). In particular, the FPA obligates FERC to “oversee all prices for those interstate transactions and all rules and practices affecting such prices.” F.E.R.C. v. Elec. Power Supply Ass'n, ___ U.S. ___, 136 S.Ct. 760, 782 (2016).

         2. Natural Gas Markets

         The natural gas market encompasses two transactions: (1) the purchase of natural gas; and (2) the transmission of natural gas from seller to purchaser. With respect to sales of the commodity itself, natural gas is sold to consumers either directly from gas producers via contracts called “gas futures” or in the “spot market.” D. 1 ¶ 61. Futures contracts allow gas producers to sell a specific quantity of gas at some predetermined future time. Id. Purchasers with a steady natural gas demand, such as load distribution companies (“LDCs”), which distribute gas to retail customers, id. ¶ 17 n.11, typically utilize futures contracts, id. ¶ 61. Entities with variable or less predictable natural gas demand, including natural gas-fired electricity generators, purchase gas on the spot market. Id. ¶ 61. LDCs and other direct purchasers often find themselves holding title to excess amounts of natural gas that can be resold to other purchasers on the spot market. Id. ¶ 62. According to PNE, the spot market price of natural gas is not regulated by FERC and is, instead, determined by supply and demand, i.e. the spot market price of natural gas increases when the amount of available natural gas decreases. Id. ¶ 63.

         As mentioned, purchasers must also pay for the transmission (or transportation) of natural gas to its destination. In New England, a network of pipelines facilitates the transmission of natural gas from the wellhead to a destination determined by the purchaser. Id. ¶ 76. The Algonquin Gas Transmission Pipeline (“Algonquin Pipeline”), which is partially owned by Defendant Eversource, is a major pipeline that transmits natural gas to New England. Id. Similar to the process for purchasing natural gas as a commodity, reserving pipeline transmission capacity in New England differs depending upon the nature of the purchaser. Id. ¶¶ 78, 80. According to PNE, purchasers with long-term capacity needs utilize the primary capacity market whereas short-term capacity transactions occur in the secondary capacity market. See id. ¶¶ 32, 78.

         a) Primary Capacity Market

         As part of the primary capacity market, LDCs have the option to enter “no-notice” transportation contracts, which give them the power to reserve transmission capacity on a pipeline for a given day and time, and to adjust that reservation “upward or downward” throughout the day without penalty. D. 1 ¶ 59. Transmission capacity reservations play an important role in determining the supply of natural gas available to gas purchasers in New England because there is a fixed amount of pipeline capacity on any given day. Id. ¶ 79. In other words, the transmission capacity reserved by one purchaser limits how much capacity is available for other purchasers' natural gas needs. See id. Even when LDCs adjust their capacity reservations downward or cancel a reservation, that capacity is not automatically released for others to use. Id. ¶ 116 (explaining that “shrinking [a capacity] reservation does not make . . . now-empty [pipeline] capacity available to be filled by others;” rather, “capacity must be affirmatively released by the contract-holder” before it can be resold).

         b) Secondary Capacity Market

         Capacity release programs[2] allow LDCs and other pipeline customers who have flexibility to adjust their capacity reservations to release excess capacity into what PNE describes as the “secondary capacity market, ” id. ¶¶ 60, 64, and this excess capacity is then used to transport natural gas for purchasers in the spot market, including gas-fired electricity generators. Id. ¶ 64. The “secondary capacity market” includes all short-term natural gas and capacity transactions, including the spot market for natural gas and the excess capacity release market through which excess capacity holders can sell or transfer capacity along a given pipeline. Id. ¶ 1 n.3 (explaining that the “term ‘secondary capacity market' refers to all short-term transactions for pipeline capacity, including the gas ‘spot market' for bundled transportation and commodity transactions and the ‘excess capacity release market' administered by the pipeline for gas transportation capacity, exclusive of the physical commodity”); id. ¶ 32 (explaining that the “‘secondary capacity market' . . . includes the spot market for the sale of natural gas and the related ‘excess capacity release' market for gas transmission services”). PNE alleges that the secondary capacity market is not regulated by FERC and, instead, is subject to supply and demand. Id. ¶ 17.

         3. Wholesale Electricity Market

         Wholesale electricity is typically sold by electricity generators to load serving entities (“LSEs”), which then deliver electricity to retail consumers. Id. ¶ 83 n.22. Wholesale electricity is primarily purchased through auctions between electricity generators and LSEs. See id. ¶¶ 82- 83. The auctions are administered and overseen by intermediaries called Independent System Operators (“ISOs”) or Regional Transmission Organizations (“RTOs”), which are independent non-profit organizations that FERC has charged with facilitating an efficient market for wholesale electricity while also ensuring reliability for consumers. Id. ¶¶ 70-72.

         In the six states constituting the New England region, wholesale electricity is bought and sold in auction markets administered by ISO-New England (“ISO-NE”) under a tariff approved by FERC. See id. ¶ 74. The auction process is as follows. ISO-NE first obtains orders from LSEs indicating how much electric energy is needed over a given period of time. Id. ¶ 85. It also obtains bids from electricity generators specifying how much electricity can be produced during the relevant time period and how much they propose to charge for it. Id. Then, ISO-NE matches the offers and bids to set the Locational Marginal Price (“LMP”) to reflect the relevant market clearing price. Id. ¶ 86.

         B. Alleged Anticompetitive Conduct

         PNE asserts that Defendants “each coordinated the activities of their member companies to restrict the supply of natural gas, thereby driving up the prices of natural gas, with the purpose and intent of raising prices and realizing excessive profits on their sales of electricity in New England's wholesale electricity market.” Id. ¶ 1. The complaint acknowledges that this alleged anticompetitive conduct “stem[s] from the same [allegations of] misconduct” considered in Breiding v. Eversource Energy et al., 344 F.Supp.3d 433 (D. Mass. 2018), D. 1 ¶ 2, where this Court dismissed all claims, including state and federal antitrust claims, against Defendants Avangrid and Eversource. Breiding, 344 F.Supp.3d at 460. PNE nevertheless contends that the allegations here differ from those at issue in Breiding in at least the following ways: (1) whereas the Breiding plaintiffs claimed injury as retail electricity consumers, PNE is a purchaser in the wholesale electricity market allegedly targeted by Defendants' scheme, id. ΒΆ 3, (2) PNE alleges that ...

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