Opinion
MDL No. 1405, NQS.CV-02-2176-RHW, CV-02-217T-RHW, CV-02-2178-RHW, CV-02-2180-RHW CV-02-2181-RHW CV-02-2182-RHW CV-02-2O59-RHW
August 25, 2003.
ORDER GRANTING MOTION TO DISMISS
Before the Court is Defendants' Joint Motion to Dismiss Complaints (Ct. Rec. 28). A telephonic hearing was held on July 31, 2003, to hear oral argument on the motion.
BACKGROUND
As noted on previous occasions, the Court is intimately familiar with the procedural and factual background of these cases, as they stem from the same circumstances concerning the California energy crisis that the Court addressed in the Hendricks v. Dynergy Power Mktg., 160 F. Supp.2d 1155 (S.D. Cal. 2001), group of cases. Also, Defendants motion to dismiss is premised on the same grounds-federal preemption and the filed rate doctrine-that this Court addressed at length in its recent decision in In re California Wholesale Elec. Antitrust Litig., Util Dist. No. 1 of Snohomish County v. Dynegy Power Mktg., Inc., 244 F. Supp.2d 1072 (S.D. Cal. 2003) (" Snohomish").
A discussion about the nature and operation of California's deregulated energy market, which forms the backdrop of Plaintiffs' allegations in this case, was also included in the Court's decision in Snohomish, 244 F. Supp.2d at 1074.
The allegations in Plaintiffs' complaints are very similar to those the Court has addressed in prior cases. In sum, Plaintiffs' complaints allege unfair business practices by the Defendants in California's wholesale energy market, in violation of California Business and Professions Code § 17200, et seq. Specifically, Plaintiffs allege that "[a]ll the Defendants are energy suppliers that, at all relevant times, distributed and/or sold electricity into California." Pastorino Complaint, ¶ ll. Plaintiffs state:
The complaints in these consolidated cases are nearly identical in their allegations. Thus, the Court only cites to the Pastorino Complaint, as it is representative of all the complaints.
By 2000, the defendants, and others, had learned how to game the system. Taking advantage of market conditions that helped disguise the exercise of market power . . . the defendants began to systematically exercise market power to increase prices above competitive levels. For example, the defendants engaged in both physical withholding of energy (taking plants off-line) and economic withholding of energy (bidding capacity at prices that it knows will not be accepted) in order to artificially restrict supply, and, thereby, increase prices.Id. at ¶ 51. Thus, Plaintiffs claim that:
[D]efendants . . . have engaged in a course of conduct . . . of unfair, unlawful, and deceptive practices, the purpose and effect of which is to (1) create an anti-competitive market structure, (2) facilitate the exercise of market power, (3) facilitate efforts to manipulate both the supply and the price of electricity, and (4) force the State, and consumers in California to pay excessive prices for electricity in both the short and long term."Id. at ¶ 59. Plaintiffs seek "injunctive relief and restitution pursuant to the provisions of California Unfair Business Practices Act §§ 17203." Id. at ¶ 68 Defendant maintains that Plaintiffs' state law claims are federally preempted because the relief Plaintiffs seek interferes with exclusive federal authority under the Federal Power Act ("FPA"). In addition, Defendants assert that the filed rate doctrine likewise bars Plaintiffs' claims because the recovery sought by Plaintiffs under the complaints requires the Court to assume "just and reasonable" wholesale electricity rates that differ from the rates adopted by the Federal Energy Regulatory Commission ("FERC"). Plaintiffs seek to avoid dismissal on theses grounds by arguing that their complaints only allege intrastate transactions, thus circumventing the jurisdictional reach of the Federal Power Act. Moreover, Plaintiffs claim the filed rate doctrine has no application here because Defendants have failed to show that the rates at issue were ever properly filed with FERC. For the reasons stated below, the Court agrees with Defendants, and dismisses Plaintiffs' complaints in their entirety.
DISCUSSION
A. Federal Preemption
In this Court's recent decision in Snohomish, the Court engaged in a lengthy discussion as to the intricacies of federal preemption law. See 244 F. Supp.2d at 1079-82. The Court need not again set out that discussion in full, as it simply adopts it here. Nonetheless, some of the core principles of federal preemption doctrine bear repeating.
Under substantive preemption analysis, federal law may pre-empt state law in three different ways. First, Congress may preempt state law by so stating in express terms. Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977). Second, preemption may be inferred when federal regulation in a particular field is "so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it." Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947). Third, preemption may be implied when state law actually conflicts with federal law. Fidelity Fed. Sav. Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153 (1982). Such a conflict arises when "compliance with both federal and state regulations is a physical impossibility," Florida Lime Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43 (1963), or when state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67 (1941).
If the federal government occupies a field, or an identifiable portion of it, any state regulation or state court action within the same, select area is necessarily preempted. See Pacific Gas Elec. Co. v. State Energy Resources Conservation Dev. Comm., 461 U.S. 190, 212-213 (1983). Federal courts have held that "[t]hrough the FPA, Congress preempted states, state courts, and even federal courts from acting in areas reserved exclusively for the FERC." See Gulf States Utilities Co. v. Alabama Power Co., 824 F.2d 1465, 1470 (5th Cir. 1987). The FPA gives the FERC exclusive jurisdiction over interstate wholesale electricity rates. See 16 U.S.C. § 824-824e.
Even if Congress has not completely occupied a field, preemption exists if
enforcement of state law could "stand as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 298 (1988). Even if Congress has permitted concurrent regulation within a particular field, state action is preempted if it interferes with, or even potentially interferes with, federal authority. See id. at 310 ("When a state regulation presents the `prospect of interference with the federal regulatory power,' then the state law may be pre-empted even though `collision between the state and federal regulation may not be an inevitable consequence.'") (internal citations omitted). Not surprisingly, then, the Supreme Court has repeatedly found federal preemption wherever enforcement of state law would encroach on FERC's exclusive jurisdiction over wholesale interstate electricity rates. See, e.g., Mississippi Power Light v. Mississippi, 487 U.S. 354, 371 (1988) (holding state proceedings affecting interstate rates were preempted because "FERC has exclusive authority to determine the reasonableness of wholesale rates.")
The claims made by Plaintiffs in their complaints are nearly identical to those addressed by the Court in Snohomish. Here, as in Snohomish, Plaintiffs bring claims under California's Unfair Competition Law alleging overcharges for wholesale electricity through misconduct in the California PX and ISO markets. The Plaintiffs claim that the Defendants exercised market power to "game" the PX and ISO systems, and to obtain double payments under the ancillary services agreements, which are the very same type of claims raised in Snohomish. And, in Snohomish, this Court noted that under the FPA, FERC had exclusive jurisdiction over interstate wholesale electricity rates. Snohomish, 244 F. Supp.2d at 1081. Thus, the Court held that both field and conflict preemption existed, precluding suit by California wholesale electricity buyers claiming that sellers artificially enhanced rates in violation of California unfair competition laws. Id. at 1081-84. In this regard, Snohomish is directly on point.
Nevertheless, Plaintiffs try to avoid Snohomish by distinguishing their claims on the grounds that a "significant portion of the transactions at issue concern sales of electricity generated in California and sold in California- intrastate sales of electricity." (Ct. Rec. 36). The Court, however, sees no distinguishing "intrastate" element in the present cases.
The fact that the complaints in reality only deal with wholesale transactions in interstate commerce is borne out in several ways. The Defendants themselves only engage in wholesale energy transactions-a point conceded in the complaints when Plaintiffs' state "[a] 11 the Defendants are energy suppliers that, at all relevant times, distributed and/or sold electricity into California." Pastorino Complaint, ¶ 11. The fact that Defendants are only involved in wholesale transactions confirms that the sales at issue were "in interstate commerce." 16 U.S.C. § 824(a).
This is because most power generated and sold for transmission in the continental United States moves on interconnected grids that cross state lines and constitutes interstate commerce subject to FERC jurisdiction. See New York v. FERC, 535 U.S. 1, 7-8 (2002) (holding that "transmission on the interconnected national grids constitutes transmissions in interstate commerce.").
The fact of the existence and operation of the national electricity grid is so well established, it is an appropriate subject for the Court to take judicial notice. See Fed.R.Evid. 201. Courts are allowed to take judicial notice of matters in the general public record, including records and reports of administrative bodies and records of prior litigation, without converting a motion to dismiss into a motion for summary judgment. Emrich v. Touche Ross Co., 846 F.2d 1190, 1198 (9th Cir. 1988). Thus, this Court takes notice of the prior U.S. Supreme Court decision in New York v. FERC, 535 U.S. 1 (2002) and prior FERC decision in 93 F.E.R.C. ¶ 61121 (Nov. 1, 2001) as establishing that transmissions on the California electricity grid are "in interstate commerce."
The fact that a significant portion of the transactions at issue concern sales of electricity generated in California and sold in California does not alter the conclusion that the wholesale transactions are still interstate in nature. The Supreme Court's decision in Federal Power Comm'n v. Southern Cal. Edison Co., 376 U.S. 205 (1964) makes this point clear. In Southern Cal. Edison, the Court considered whether sales of electricity by Southern California Edison to the city of Colton, both located in California, were subject to regulation by the Federal Power Commission, FERC's predecessor. Id. at 208-16. The lower court held that "since the energy subsequently sold by Edison to Colton for resale was to be consumed wholly within California . . . the sale was . . . exempt from FPC regulation." Id. at 211. The Supreme Court overturned the lower court, and held that all such sales were "in interstate commerce" and thus under FPC jurisdiction because a small portion of the electricity marketed by Edison originated in Nevada, even though deliveries to Colton during most hours included no out-of-state power. Id. at 208-09.
Here, as in Southern Cal. Edison, the sales at issue are also interstate in their nature. Even though a large portion of the energy at issue was generated in California and sold in California, the generating plants the Defendants own and operate are connected to the interstate electricity grid. See New York, 535 U.S. at 7-8 ("any electricity that enters the grid immediately becomes a part of a vast pool of energy that is constantly moving in interstate commerce."). Energy from the grid flows in interstate commerce and was sold in the FERC-regulated ISO and PX markets. There are no retail sales alleged in the complaints, which might be indicative of intrastate transactions. Rather, the complaints only allege misconduct in the FERC-supervised wholesale energy markets, and in bilateral contracts for wholesale power that are subject to FERC jurisdiction. See Pastorino Complaint, ¶ 45. Because electric energy sales into the FERC-regulated ISO and PX markets are wholesale sales of electricity in interstate commerce, they fall within FERC's subject matter jurisdiction, thereby preempting Plaintiffs' claims. See Snohomish, 244 F. Supp.2d at 1082.
In its briefing, and at oral argument on Defendants' joint motion, Plaintiffs placed great emphasis on FERC's June 25, 2003, Show Cause Order, claiming that the order indicates that FERC is unclear whether it has jurisdiction over some of the "gaming practices" of the Defendants in this case. The Show Cause Order, however, does not state, or even imply, that FERC does not have jurisdiction over this matter. Plaintiffs' characterization of the order is unfounded and does not support their position that Defendants' "gaming practices" are intrastate in nature. See Order to Show Cause, 103 F.E.R.C. ¶ 61345 (June 25, 2003).
B. Filed Rate Doctrine
Even if Plaintiffs' complaints were limited to "intrastate" transactions, their claims are nonetheless barred by the filed rate doctrine. The filed rate doctrine "bars all claims-state and federal-that attempt to challenge a rate that a federal agency has reviewed and filed." County of Stanislaw v. Pacific Gas Elec. Co., 114 F.3d 858, 863 (9th Cir. 1997). As noted above, in Snohomish, this Court confronted the same exact type of claim under California's Unfair Competition Law and the same exact type of request for relief sought by Plaintiffs here-restitution and disgorgement of payments already made and injunctive relief as to pricing conduct in the future. This Court in Snohomish held categorically that the filed rate doctrine barred such claims, and, as a result, Plaintiffs' claims here are likewise barred. See Snohomish, 244 F. Supp.2d at 1078.
Plaintiffs' attempt to avoid this result by arguing that the filed rate doctrine only applies where there are validly filed rates, and that Defendants have made no showing that the relevant wholesale rates were properly filed pursuant to § 824d of the FPA. Thus, in essence, Plaintiffs are simply rehashing the argument this Court already addressed in Snohomish that the filed rate doctrine does not apply to a market-based rate scheme, as employed in the California deregulated energy market. This Court flatly rejected any such notion in Snohomish, stating "[t]his argument-that the introduction of a market-based rate system skirts the reach of the filed rate doctrine-has been uniformly rejected by the courts." This Court concluded "the filed rate doctrine applies to bar the claims challenging rates set by FERC in a market-based rate system." See 244 F. Supp.2d at 1079. As such, Plaintiffs' claims are likewise subject to dismissal under the filed-rate doctrine as well.
Accordingly, IT IS HEREBY ORDERED that Defendants' Joint Motion to Dismiss Complaints (Ct. Rec. 28) is GRANTED.
IT IS SO ORDERED. The District Court Executive is directed to enter this order and to provide copies to counsel,