United States District Court, D. Massachusetts
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.
MEMORANDUM AND ORDER
J. Casper United States District Judge.
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.
“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'
Standard of Review
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).
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
otherwise noted, the following facts are drawn from
complaint, D. 1, and are accepted as true for the
consideration of the pending motion.
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.
Natural Gas and Electricity Markets
FERC's Authority to Regulate Certain Natural Gas and
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. 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).
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).
Natural Gas Markets
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.
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.
Primary Capacity Market
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).
Secondary Capacity Market
release programs 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.
Wholesale Electricity Market
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.
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.
Alleged Anticompetitive Conduct
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. ¶ 3, (2) PNE alleges that