Last week, the Ninth Circuit affirmed the dismissal of a RICO suit by consumers alleging that an energy supplier fraudulently manipulated wholesale energy rates in California. In an unpublished decision in Woolsey v. JP Morgan Ventures Energy Corp., the court agreed that the filed rate doctrine bars consumers from seeking damages for the higher rates caused by a seller’s allegedly anti-competitive or manipulative conduct, if those rates are set or approved by a regulatory body. The court held that the consumers had to seek relief from the regulatory body—in this instance FERC.
The Woolsey lawsuit was an outgrowth of a settlement FERC reached with JP Morgan Ventures Energy in 2013 for the company’s offers into the CAISO and MISO centralized markets. FERC asserted that the seller’s offers were uneconomic and designed to generate make-whole payments. With the settlement, the seller paid a $285 million penalty and disgorged $125 million in profits. FERC directed that $124 million of the disgorged profits be distributed to current CAISO customers.
The Woolsey plaintiffs filed suit in 2015, claiming that they were entitled to seek damages on behalf of all affected retail consumers in California. They contended that the seller’s allegedly manipulative conduct inflated locational marginal prices in the wholesale markets, which were then passed on to retail consumers in the form of higher rates. The plaintiffs argued that they fell within an exception to the filed rate doctrine recognized by the Ninth Circuit in Carlin v. Dairy America, Inc., 705 F.3d 856 (9th Cir. 2012).
In Carlin, the Ninth Circuit had declined to apply the filed rate doctrine in a suit alleging price manipulation by milk producers. The court found that the Department of Agriculture could retroactively reset rates, but lacked the ability to force the seller to pay damages for inflating the rates. According to the court, allowing the antitrust suit to proceed was the only mechanism to compensate the milk producers for their injuries. 705 F.3d at 878-80.
In Woolsey, the district court found Carlin inapposite, for several reasons. First, unlike the Department of Agriculture, which lacked the ability to sanction the offending milk seller, FERC had—and used—its statutory authority to sanction the power seller. Second, although the Department of Agriculture could change rates to negate the impact of the sellers’ manipulation, FERC did not have the authority to reset market prices retroactively. Third, asking the court to determine what the CAISO or MISO LMP would have been in the absence of the allegedly manipulative conduct would invade FERC’s exclusive jurisdiction over ratemaking.
The Ninth Circuit agreed that the Woolsey plaintiffs could not invoke the Carlin exception to the filed rate doctrine. According to the court, the plaintiffs had to seek relief from FERC. Because FERC does not allow third parties to intervene in its investigations, the Woolsey plaintiffs would have been required to file a formal complaint. At this juncture any claim is probably time-barred, as complaints must be brought within five years of the alleged wrongdoing.
What is murkier is what relief the plaintiffs could have obtained had they timely sought relief from FERC. The Ninth Circuit’s intimation in Woolsey that FERC did not have the power to grant any retroactive relief is at odds with the court’s pronouncements in other cases. For example, in Cal., ex rel. Lockyer v. FERC, 383 F.3d 1006, 1015 (9th Circ. 2004), the court noted that “FERC possesses broad remedial authority to address anti-competitive behavior” and rejected FERC’s argument that it could not order retroactive refunds. The D.C. Circuit similarly has agreed that while FERC lacks authority to revise rates retroactively, it has the power to order retroactive refunds for tariff violations. Consolidated Edison Co. of New York v. FERC, 347 F.3d 964, 962-73 (D.C. Cir. 2003). Yet in both cases, ordering a refund would have been tantamount to adjusting the rate.
In Lockyer and Consolidated Edison, the courts agreed that FERC has the discretion whether to order refunds in a given case. FERC likely would have declined to exercise that discretion to order refunds on the scale sought by the Woolsey plaintiffs—compensation for the higher prices that all customers paid. Calculating such refunds depends on calculating what the LMP would have been in the absence of manipulation by the seller. FERC, however, typically has not asked ISOs and RTOs to re-run their markets to determine a series of new LMPs, and few complainants have the necessary information to do so.
Even on the few occasions when FERC has allowed the use of an alternate price (such as a price proxy), it did so for the purpose of determining what profits should be disgorged by the miscreant seller. See, e.g., San Diego Gas & Elec. Co. v. Sellers of Energy and Ancillary Servs., Opinion No. 536, 149 FERC ¶ 61,116 (2014) (ordering sellers to disgorge payments made above the marginal cost-based proxy price). In no case has FERC ordered a seller to pay damages reflecting the higher costs that all consumers—rather than just those who purchased from the seller—incurred because of the seller’s misconduct.