Texas Commercial Energy v. TXU Energy, Inc.

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED JUNE 30, 2005
June 17, 2005
UNITED STATES COURT OF APPEALS
Charles R. Fulbruge III
FIFTH CIRCUIT Clerk
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No. 04-40962
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TEXAS COMMERCIAL ENERGY, A TEXAS LIMITED
LIABILITY COMPANY
Plaintiff-Appellant
versus
TXU ENERGY, INC; ET AL
Defendants
TXU ENERGY INC; TXU GENERATION SERVICES COMPANY
LP; TXU PORTFOLIO MANAGEMENT COMPANY LP, formerly
known as TXU Energy Trading Company LP; TXU ENERGY
SOLUTIONS MANAGEMENT COMPANY, formerly known as
TXU Energy Services Co; AMERICAN ELECTRIC POWER INC;
AEP TEXAS CENTRAL COMPANY; AEP TEXAS NORTH
COMPANY; AMERICAN ELECTRIC POWER SERVICE CORP;
AEP TEXAS COMMERCIAL INDUSTRIAL RETAIL LP;
RELIANT ENERGY INC; RELIANT RESOURCES INC;
RELIANT ENERGY ELECTRIC SOLUTIONS LLC; RELIANT
ENERGY RETAIL SERVICES LLC; RELIANT ENERGY
SOLUTIONS LLC; AUTOMATED POWER EXCHANGE INC;
ELECTRIC RELIABILITY COUNSEL OF TEXAS; TEXAS
GENCO LP; CENTERPOINT ENERGY INC; CENTERPOINT
ENERGY HOUSTON ELECTRIC LLC; TEXAS INDEPENDENT
ENERGY LP; ODESSA-ECTOR POWER PARTNERS LLP;
GUADALUPE POWER PARTNERS LLP; TRACTEBEL ENERGY
MARKETING, INC.
Defendants-Appellees
Appeal from the United States District Court
for the Southern District of Texas
Before GARZA and BENAVIDES, Circuit Judges.*
EMILIO M. GARZA, Circuit Judge.
Texas Commercial Energy (“TCE”), an energy retailer, appeals the district court’s dismissal
of its lawsuit against TXU Energy, Inc. (“TXU”), a generator of electric power, and twenty-three
other defendants. TCE argues that the district court erred by applying the filed rate doctrine to
preclude it from recovering damages it sustained when TXU allegedly manipulated its market position
to create substantial price increases in the short-term energy market.
I
Texas deregulated its energy market in 1999 with the passage of Senate Bill 7. Act of May
27, 1999, 76th Leg., R.S., ch. 405, 1999 Tex. Gen. Laws 2543. Bill 7 amended the Public Utility
Regulatory Act (“PURA”) and split the state’s integrated utilities into three groups: electric
generation companies, transmission and distribution companies, and retail electric providers. TEX.
UTIL. CODE ANN. § 39.051(b). The statute also gives the Public Utility Commission of Texas
(“PUCT”) authority to regulate the state’s electric grids and to monitor and remedy market power
abuses.1 Specifically, PUCT has broad power to maintain “safe, reliable, and reasonably priced
electricity” and to “ensure that ancillary services necessary to facilitate the transmission of electric
*
Judge Garwood recused himself after oral argument in this case. As a result, this opinion
is being entered by quorum pursuant to 28 U.S.C. § 46.
1
Texas’ electrical system is independent from the rest of the United States’ which is
administered through the Federal Energy Regulatory Commission (“FERC”). PUCT fulfills a similar
role as FERC.
2
energy are available at reasonable prices with terms and conditions that are not unreasonably
preferential, prejudicial, discriminatory, predatory, or anticompetitive.” TEX. UTIL. CODE ANN. §§
39.101(a)(1), 35.004(e). PUCT is also empowered to remedy market abuses by “seeking an
injunction or civil penalties as necessary to eliminate or to remedy the market power abuse or
violation as authorized by Chapter 15, by imposing an administrative penalty as authorized by Chapter
15, or by suspending, revoking, or amending a certificate or registration as authori zed by Section
39.356.” TEX. UTIL. CODE ANN. § 39.157(a).
TCE is a retail electric provider that sells electricity to customers in Texas by entering into
bilateral agreements with generators and by purchasing electricity through the ancillary Balancing
Energy Service (“BES”) market. The BES market is a bid-based wholesale market for short-term
electricity power. PUCT contracted with a private organization, the Electric Reliability Council of
Texas, Inc. (“ERCOT”), to administer the BES market. Under the terms of the contract, ERCOT
was required to ensure system reliability, nondiscriminatory access to transmission and distribution
systems, access to market information, and clearance of all market transactions. PUCT also created
the Market Oversight Division (“MOD”) to ensure general compliance with the requirements of
PURA. In 2002, MOD required all participants in the Texas electricity market to file an affidavit with
PUCT pledging that they would not engage in market manipulation.
In February 2003, during severe winter weather, the price for electricity on the BES market
soared. As a result, TCE was forced to pay considerably higher sums for the energy it had to supply
its customers. The resulting losses led TCE to meet with MOD and express their concern that the
price spikes were the result of anti-competitive bids and market manipulation. TCE alleged that, at
the time of the price fluctuations, TXU controlled anywhere from seventy-five to ninety-nine percent
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of the BES market and that it used its market strength to purposefully withhold energy from the
market in order to increase the price. TCE argues that while ERCOT made some attempts to force
TXU to rectify the situation, it failed to follow its own protocols. Due to the mounting losses, TCE
was forced to file for Chapter 11 bankruptcy.
TCE filed suit against twenty-four market participants including TXU, its subsidiaries, and
ERCOT. According to the complaint, TCE alleges that the defendants violated the federal Sherman
Antitrust Act and the Texas Free Enterprise and Antitrust Act (“TFEAA”). TCE also alleges fraud,
negligent misrepresentation, breach of contract, defamation, business disparagement, and civil
conspiracy. The defendants filed motions to dismiss. After holding a hearing on the motions, the
district court dismissed TCE’s fraud, negligent misrepresentation, and state and federal antitrust
claims on the basis of the filed rate doctrine. The court also dismissed some of the breach of contract
and civil conspiracy claims, and denied ERCOT’s motion to dismiss the defamation and business
disparagement claims. Having dismissed the federal claims, the district court dismissed the entire
case, finding that there was no basis for diversity jurisdiction on the remaining state law claims. TCE
now appeals the district court’s dismissal of its antitrust claims.2
II
We review a district court’s grant of a motion to dismiss de novo. Martin K. Eby Const. Co.
v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004). A complaint “should not be
dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set
of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41,
2
TCE does not challenge the district court’s decision to dismiss their negligent
misrepresentation and fraud claims under the filed rate doctrine.
4
45-46 (1957).
The district court held that, even if the defendants had engaged in market manipulation, the
filed rate doctrine precluded TCE from recovering for its losses under federal and state antitrust law.
The filed rate doctrine bars judicial recourse against a regulated entity based upon allegations that the
entity’s “filed rate” is too high, unfair or unlawful. See, e.g., Square D Co. v. Niagara Frontier Tariff
Bureau, Inc., 476 U.S. 409 (1986) (filed rate doctrine bars damage action against motor carriers
under antitrust laws even though carriers colluded to set artificially high filed rate). The Supreme
Court established this doctrine in Keogh v. Chicago & Northwestern Railway, Co., 260 U.S. 156
(1922). In Keogh, the Supreme Court held that a shipper could not bring an antitrust action against
carriers in connection with tariffs paid because those tariffs had been filed and approved by the
Interstate Commerce Commission. Id. at 163. The Court reasoned that even if the carriers had
conspired to eliminate competition, the shipper could not recover under antitrust law because it could
receive a rebate that might give the shipper “preference over his trade competitors.” Id.
Furthermore, the Court held that it was up to the respective governmental agency to determine
whether the rates were discriminatory or unlawful, not the courts. Id. at 164.
Since Keogh, courts have consistently applied the filed rate doctrine in a number of energy
cases to preclude lawsuits against companies based on rates that were filed with a government
agency. See, e.g., Ark. La. Gas Co. v. Hall, 453 U.S. 571, 578 (1981) (filed rate doctrine prohibits
seller of natural gas to collect a rate different than the one it filed with the Federal Power
Commission.); Tex. E. Transmission Corp. v. Fed. Energy Regulatory Comm’n, 102 F.3d 174, 189
(5th Cir. 1996) (natural gas pipeline precluded from retroactively assessing customer rates based on
a new and different rate methodology because the prior rates had been filed with a federal agency).
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“Simply stated, the doctrine holds that any ‘filed rate’))that is, one approved by the governing
regulatory agency))is per se reasonable and unassailable in judicial proceedings brought by
ratepayers.” Wegoland, Ltd. v. NYNEX Corp., 27 F.3d 17, 18 (2d Cir. 1994).
III
TCE argues that the district court was erroneous in applying the doctrine because: 1) the
legislature clearly intended for aggrieved parties to bring private claims under PURA; 2) wholesale
energy rates in the BES market are not filed with PUCT; 3) antitrust exemptions should be narrowly
construed; and 4) the filed rate doctrine cannot be applied because PURA does not create a substitute
damages mechanism.
A
TCE argues that, under Bill 7, the Texas state legislature expressly intended to allow private
antitrust claims to be brought under PURA and that the district court’s decision violates “[t]he
primary rule in statutory interpretation [))] that a court must give effect to legislative intent.” In re
CPDC, Inc., 337 F.3d 436, 442 (5th Cir. 2003) (quoting Crown Life Ins. Co. v. Casteel, 22 S.W.3d
378, 383 (Tex. 2000)). In support, TCE cites to PURA’s savings clause which states that “[n]othing
in this chapter shall be construed to confer immunity from state or federal antitrust laws. This chapter
is intended to complement other state and federal antitrust provisions. Therefore, antitrust remedies
may also be sought in state or federal court to remedy anticompetitive activities.” TEX. UTIL. CODE
ANN. § 39.158(b).
TCE asserts that the application of the filed rate doctrine violates this provision of the statute
by conferring immunity on the defendants. In Square D Co., the Supreme Court rejected this position
by explicitly stating that the application of the filed rate doctrine “is far different from the creation of
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an antitrust immunity.” 476 U.S. at 422; see also Wegoland, 27 F.3d at 22 (“filed rate doctrine does
not leave regulated industries immune from suit under the RICO or antitrust statutes.”). Rather, as
the Court noted, defendants who engage in anticompetitive activities based on filed rates are “still
subject to scrutiny under the antitrust laws by the Government and to possible criminal sanctions or
equitable relief.” Square D Co., 476 U.S. at 422. Moreover, contrary to TCE’s assertions, the filed
rate doctrine is very much a part of current federal antitrust law. It has been consistently applied as
a defense to antitrust actions by various circuits and by the Supreme Court for decades. Id. at 423
(“the Keogh rule has been an established guidepost at the intersection of the antitrust and interstate
commerce statutory regimes for 6 ½ decades . . . [and is] an essential element of the settled legal
context in which Congress has repeatedly acted in this area”). Thus, we find that applying the filed
rate doctrine, along with other common-law defenses that are normally part of the federal antitrust
legal landscape, gives effect to the legislature’s intent to have PURA “complement other state and
federal antitrust provisions.” TEX. UTIL. CODE ANN. § 39.158(b).
Similarly, TCE’s state antitrust arguments))that applying the filed rate doctrine would
displace provisions set out in the TFEAA, or that the filed rate doctrine as a whole does not apply
to the TFEAA))are misplaced. “[C]ourts have uniformly held . . . that the rationales underlying the
filed rate doctrine apply equally strongly to regulation by state agencies.” Wegoland LTD., 27 F.3d
at 20; see also H.J. Inc. v. Northwestern Bell Tel. Co., 954 F.2d 485, 494 (8th Cir. 1992) (“the filed
rate doctrine applies whether the rate in question is approved by a federal or state agency”); Taffet
v. Southern Co., 967 F.2d 1483 (11th Cir. 1992); Korte v. Allstate Ins. Co., 48 F. Supp. 2d 647
(E.D.Tex. 1999). Moreover, state antitrust claims do not need to be addressed separately because
the TFEAA explicitly “mandates that its provisions be interpreted in harmony with federal antitrust
7
law.” Johnson v. Hosp. Corp. of Am., 95 F.3d 383, 391 n.7 (5th Cir. 1996). Thus, the filed rate
doctrine applies with equal force to TCE’s state antitrust claims.3
B
TCE contends that the filed rate doctrine is inapplicable because PURA does not require rates
in the BES market to be filed with PUCT, which does not set or approve these rates. We agree with
the approach taken by other circuits who have addressed this issue in the context of rates filed with
PUCT’s federal counterpart, FERC. In Town of Norwood, Massachusetts v. New England Power
Co., the First Circuit concluded that the filed rate doctrine applied to market-based energy rates
because FERC was “responsible for ensuring ‘just and reasonable’ rates and, to that end, wholesale
power rates continue to be filed and subject to agency review.” 202 F.3d 408, 419 (1st Cir. 2000).
The Ninth Circuit echoed this view, noting that while FERC had waived many requirements that it
had applied under a cost-based system, the filed rate doctrine continued to apply to market-based
energy rates because the agency continued to “oversee wholesale electricity rates . . . by reviewing
and approving a variety of documents filed by [market actors].” Pub. Util. Dist. No. 1 of Snohomish
County v. Dynegy Power Marketing, Inc., 384 F.3d 756, 760-61 (9th Cir. 2004). Similarly, under
Bill 7, PUCT is required to ensure “safe, reliable, and reasonably priced electricity” and “that ancillary
services necessary to facilitate the transmission of electric energy are available at reasonable prices
with terms and conditions that are not unreasonably preferential, prejudicial, discriminatory,
3
TCE also contends that the district court erred by ruling that only the U.S. Congress has the
authority to determine the applicability of the filed rate doctrine and that the doctrine may only be
abrogated through an amendment to the Sherman Act. The defendants, however, “do not dispute
that the Texas legislature, had it chosen to do so, could have repealed the application of the filed rate
doctrine to cases brought under the TFEAA.” Since we conclude there is no evidence that the state
legislature sought to eliminate this doctrine from state antitrust suits, this argument is moot.
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predatory, or anticompetitive.” TEX. UTIL. CODE ANN. §§ 39.101(a)(1), 35.004(e). PUCT also
requires electricity generators to file detailed information to assess market power and even a market
power mitigation plan for those generators that control more than 20% of the electricity market in
a specific region. TEX. UTIL. CODE ANN. §§ 39.155-156. Accordingly, PUCT’s oversight over the
market is sufficient to conclude that the BES energy rates are “filed” within the meaning of the filed
rate doctrine.
C
TCE argues that the filed rate doctrine should not be applied because antitrust exemptions
should be narrowly construed. It morphs this general assertion into a more specific allegation that
its claims are exempt from the filed rate doctrine under the “competitor exception.” The competitor
exception, which has never been recognized by this court or the Suprem e Court, holds that “an
anticompetitive practice embodied in a [filed] tariff may [still] violate the antitrust laws if it . . .
impacts upon competitors as opposed to customers.” City of Groton v. Conn. Light and Power Co.,
662 F.2d 921, 929 (2d Cir. 1981); see also Utilimax.com, Inc. v. PPL Energy, LLC, 378 F.3d 303,
307 (3d Cir. 2004) (competitor exception exists “because competitors are not the intended
beneficiaries of that rule of public utility regulation”) (quoting Essential Communications Sys. v. Am.
Telephone & Telegraph Co., 610 F.2d 1114, 1121 (3d Cir. 1979)). But cf. Pinney Dock & Transp.
Co. v. Penn Central Corp., 838 F.2d 1445-47 (6th Cir. 1988) (rejecting competitor exception).
Assuming, without deciding, that such an exception exists, we find that the competitor
exception is not applicable to this case. TXU has affiliated retail electric providers as part of its
subsidiaries. However, TCE is not a competitor to TXU in the context of this case because all of its
claims of market manipulation are focused solely on TXU’s actions as an electric generation
9
company. Thus, the court did not err in refusing to apply the exception.
D
Finally, TCE argues that the filed rate doctrine is inapplicable because PURA did not create
a “substitute mechanism for the recovery of damages.” It also alleges that the “implication doctrine”
warrants reversal and that the application of the filed rate doctrine violates the state constitution.
TCE failed to raise these arguments before the district court. Accordingly, they are waived. Horton
v. Bank One, N.A., 387 F.3d 426, 435 (5th Cir. 2004).
IV
For the above stated reasons, we AFFIRM the district court’s judgment.
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