                                                                                                                           Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-9-2004

Utilimax.com Inc v. PPL Energy Plus LLC
Precedential or Non-Precedential: Precedential

Docket No. 03-3339




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Recommended Citation
"Utilimax.com Inc v. PPL Energy Plus LLC" (2004). 2004 Decisions. Paper 375.
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                          PRECEDENTIAL                 (Filed : August 9, 2004)

   UNITED STATES COURT OF                                   ___________
APPEALS FOR THE THIRD CIRCUIT                 Brian J. Fruehling, Esq. (Argued)
         ___________                          Fruehling & Stevens
                                              66-68 Main Street
              No. 03-3339                     P. O. Box 476
              ___________                     Madison, NJ 07940

        UTILIMAX.COM, INC.,                   James K. Fruehling, Esq. (Argued)
                 Appellant,                   Fruehling & Stevens
                                              66-68 Main Street
                    vs.                       P. O. Box 476
                                              Madison, NJ 07940
   PPL ENERGY PLUS, LLC; PPL                         Counsel for Appellant
 CORPORATION; ABC CORPS. 1-10;
        JOHN DOES 1-10,
          ___________                         James R. Atwood, Esq. (Argued)
                                              Covington & Burling
   APPEAL FROM THE UNITED                     1201 Pennsylvania Avenue, N.W.
STATES DISTRICT COURT FOR THE                 Washington, DC 20004
     EASTERN DISTRICT OF
        PENNSYLVANIA                          John G. Harkins, Jr., Esq.
                                              Harkins Cunningham
         (D.C. No. 02-cv-07160)               2005 Market Street
                                              2800 One Commerce Square
District Judge: The Honorable                 Philadelphia, PA 19103
          Anita B. Brody                            Counsel for Appellees
               ___________
                                                            ___________
      ARGUED MARCH 11, 2004
                                                    OPINION OF THE COURT
BEFORE: SLOVITER and NYGAARD,                            ___________
         Circuit Judges.
   and SHADUR,* District Judge.

                                              NYGAARD, Circuit Judge.
                                                      In this appeal, Utilimax argues that
*Honorable Milton I. Shadur, Senior           the District Court erred when it dismissed
District Judge for the United States          its claims against PPL Energy Plus, LLC
District Court for the Northern District of   and PPL Energy Corporation (collectively
Illinois, sitting by designation.
“PPL”) based on the filed rate doctrine.            contract with an entity that could supply it
We will affirm the District Court’s order.          with capacity, or it could purchase its
                                                    needed capacity in an auction market.
                     I.
                                                    Both the contractual and auction market
A. The Regulatory Scheme                            options were regulated by FERC and
                                                    authorized by PJM Interconnection, the
        The factual underpinnings of this
                                                    FERC-established regional wholesale
suit involve the wholesale and retail
                                                    electricity market that coordinated the
electrical energy markets in Pennsylvania.
                                                    buying, selling and delivery of wholesale
The wholesale market for electrical energy
                                                    electricity.
is regulated by the Federal Energy
Regulatory Commission (“FERC”). See                         In the PJM daily auction market,
Federal Power Act, 16 U.S.C. §§ 791a-               which is the market relevant to this appeal,
828c. One of FERC’s duties is to set “‘just         entities with excess capacity were able to
and reasonable’” wholesale electric rates.          sell capacity credits to retail suppliers
See 16 U.S.C. §§ 824d, 824e. During the             seeking to meet their daily obligations.
period relevant to this appeal, FERC                Those sellers offered their excess capacity
utilized a market-based rate to determine           at a price they set – a “sell offer.” The
the cost of wholesale electricity. Under            retail suppliers purchasing capacity credits
this scheme, any retail supplier of                 made an offer to purchase capacity by
electricity in Pennsylvania had to have             placing a bid called a “buy bid.” Once all
sufficient capacity1 to provide one day’s           the sell offers and buy bids were placed,
worth of the electrical energy to those             PJM set the market-clearing price by
customers the retail supplier had                   ranking all sell offers and buy bids and
contracted to serve.                                determining at what price the next sell
                                                    offer is equal to or less than the next buy
        A retail supplier could satisfy its
                                                    bid. Once the market-clearing price was
capacity obligations in one of two ways. It
                                                    set, sellers who offered energy at or below
could cover its retail contractual obligation
                                                    that price received the market-clearing
by having the ability to generate its own
                                                    price and buyers who bid at or above that
electrical energy. Alternatively, it could
                                                    price paid it to obtain the capacity they
purchase capacity credits from other
                                                    need.
entities. If the retail supplier chose to
purchase energy to satisfy its capacity                     A regulatory penalty for failing to
obligations, it again had two general               meet capacity obligations added an
choices. It could enter into a bilateral            additional dimension to this auction
                                                    mechanism.       If a retail supplier of
                                                    electricity failed to meet its capacity
1.                                                  obligations for a given day, it then had to
 Capacity refers to the retail supplier’s
                                                    pay a penalty (the “capacity deficiency
ability to generate electrical energy.
                                                    rate” or “CDR”). During the time period

                                                2
relevant to this appeal, the FERC-                   CDR for its excess energy either by
approved CDR was $177.30/MW-day.                     offering it for sale in the daily auction
This penalty was doubled on days when                market at the CDR price or by simply
there was an overall shortage of available           collecting CDR revenues from any retail
capacity.                                            supplier that failed to meet its capacity
                                                     obligations. According to Utilimax, PPL
       The revenue from the CDR was
                                                     engaged in these practices during the first
given by PJM to entities that had unused
                                                     quarter of 2001. As a result of this
excess capacity and had made that capacity
                                                     conduct, CDR revenues during that quarter
available to the PJM. Thus, in essence, the
                                                     were $11,767,541, compared to CDR
penalty system forced deficient retail
                                                     revenues of $1,000 or less during the
suppliers of electricity to purchase their
                                                     fourth quarter of 2000. PPL received
needed capacity from entities with
                                                     almost all of the CDR revenues for the
available excess capacity at the CDR.
                                                     first quarter of 2001.
B. Utilimax and PPL’s roles in the
                                                            Utilimax claims that PPL’s actions
electrical energy market and the
                                                     violated § 2 of the Sherman Act, §§ 1 and
complained of conduct.
                                                     3 of the Clayton Act and various
        Utilimax was a retail supplier of            Pennsylvania state laws. The District
electricity that was licensed to purchase            Court dismissed Utilimax’s complaint
electrical energy in the wholesale market            because it found that the filed rate doctrine
and resell that energy to end-users of               barred the claims.
electricity in Pennsylvania. Utilimax was
                                                                          II.
not capable of generating its own
electricity and, therefore, had to purchase                 We have jurisdiction over this
sufficient capacity to meet its capacity             appeal under 28 U.S.C. § 1291 and
obligations. During the relevant period of           exercise de novo review over the District
time, it used the PJM daily auction market           Court’s decision to dismiss Utilimax’s
as its primary method for satisfying its             complaint pursuant to Federal Rule of
capacity obligations.                                Civil Procedure 12(b)(6). Mariana v.
                                                     Fisher, 338 F.3d 189, 195 (3d Cir. 2003).
        PPL is both a retail supplier of
electricity and a seller of electricity in the              The filed rate doctrine, and its
wholesale market.            According to            exceptions, are central to this appeal. That
Utilimax’s complaint, during the first               doctrine bars antitrust suits based on rates
quarter of 2001 PPL was the only entity              that have been filed and approved by
that had excess capacity available that              federal agencies. In re Lower Lake Erie
Utilimax could purchase to satisfy its               Iron Ore Antitrust Litig., 998 F.2d 1144,
capacity obligations. Thus, under the                1157-58 (3d Cir. 1993); Keogh v. Chicago
regulatory system described above, PPL               & N.W. Ry. Co., 260 U.S. 156, 162-63
was able to ensure that it received the              (1922). The doctrine operates to bar both

                                                 3
federal antitrust actions and state law              competitor exception to the filed rate
claims. See Arkansas Louisiana Gas Co.               doctrine exists because “competitors are
v. Hall, 453 U.S. 571, 580 (1981). Under             not the intended beneficiaries of that rule
the filed rate doctrine, a plaintiff may not         of public utility regulation.” 610 F.2d
sue the supplier of electricity based on             1114, 1121 (3d Cir. 1979). Based on this
rates that, though alleged to be the result of       reason, we refused to apply the filed rate
anticompetitive conduct, were filed with             doc trine to bar the suit o f a
the federal agency responsible for                   communications company’s competitor
overseeing such rates. See Montana-                  based on the company’s actions in
Dakota Utils. Co. v. N. W. Pub. Serv. Co.,           formulating a tariff and in customer
341 U.S. 246, 251-52 (1951).                         service. Id. at 1122. Similarly, in Lower
                                                     Lake Erie, we held that the railroads’
       Utilimax is claiming that PPL
                                                     competitors were not precluded by the
exerted undue market influence over the
                                                     filed rate doctrine from suing the railroads
wholesale capacity market and, as a result,
                                                     for their antitrust activities. Lower Lake
was able to charge excessive rates for its
                                                     Erie, 998 F.2d at 1161.
capacity. Those rates, though allegedly
excessive, were the result of PPL’s                          Utilimax claims that because it
temporary monopolistic position in the               competes with PPL in the retail energy
wholesale capacity market that was                   supply market, it is a competitor and,
established and approved by FERC and                 therefore, the filed rate doctrine does not
PJM. Other than a brief and unconvincing             prevent its antitrust claims. PPL argues
argument that PPL violated the “sound                that while Utilimax is a competitor of PPL
utility practices” and “good faith”                  in the retail electrical energy market, it is a
requirements of PJM, Utilimax makes no               customer in the wholesale market and it is
claim that PPL charged rates that were not           PPL’s actions in the wholesale market that
in conformity with the requirements of the           Utilimax is alleging were anticompetitive.
FERC and PJM -approved market model.                 Thus, we must determine whether
Thus, absent an exception, the filed rate            Utilimax is suing as a competitor of PPL
doctrine precludes Utilimax’s claims                 or as a customer.
against PPL.
                                                            We are not the first court to have to
       Utilimax argues the District Court            parse the capacity in which a plaintiff was
erred in not accepting either of the two             suing. In Georgia v. Pennsylvania R.R.
pertinent exceptions to the doctrine – the           Co., the State of Georgia sued the
com petit o r a n d t h e n o n - ra te              defendant railroads for what it alleged to
anticompetitive activity exceptions.                 be a conspiracy to fix their rates “so as to
                                                     prefer the ports of other States over the
         In Essential Communications
                                                     ports of Georgia.” 324 U.S. 439, 443
Systems, Inc. v. American Telephone &
                                                     (1945). Georgia sued the railroads in two
Telegraph Co., we explained that a
                                                     relevant capacities: In its parens patriae

                                                 4
capacity on behalf of its residents and as                  crushed and eviscerated by
the owner of a competing railroad                           the artificially inflated
company.       Id.   The Supreme Court                      prices set by PPL.
determined that Georgia’s real claims were
                                                     J.A. at 47.
in its parens patriae capacity, and its claim
as a compet it or w as m er ely a                            The only fair reading of these
“makeweight.” Id. at 450. Having so                  allegations is that Utilimax, as a customer
concluded, the Court went on to hold that            in the wholesale electricity market, could
in its parens patriae capacity Georgia was           not afford to pay the rates that PPL was
suing on behalf of Georgia citizens who              able to charge because of its allegedly
were customers of the railroad. Therefore,           anticompetitive conduct. The result of
based on the filed rate doctrine, it could           Utilimax’s inability to buy capacity offered
not maintain its antitrust claims to the             by PPL in the wholesale market was that it
extent they were seeking damages based               went out of business in the retail market
on the defendant railroads’ alleged                  and PPL had one fewer competitor in that
conspiracy to fix rates. Id. at 453 (relying         latter market. That result, however, came
on Keogh, 260 U.S. at 161-63).                       about because Utilimax (as a customer of
                                                     PPL) could not afford to buy capacity.
       The Supreme Court in Georgia had
                                                     While the ramifications were felt in its
the benefit of the plaintiff expressly stating
                                                     competitor role, the damage to Utilimax
the two different capacities in which it was
                                                     occurred because of its status as a
suing. Here, Utilimax argues that it is
                                                     customer of PPL. As Utilimax states in its
suing only as a competitor, not as a
                                                     complaint, “[Utilimax] was required to
customer. Its complaint, however, belies
                                                     cover its capacity requirements per PJM
this argument. In describing the conduct
                                                     rules and was compelled to buy capacity
of PPL that Utilimax claims violated the
                                                     delivered by PPL under these
Sherman Act, the Clayton Act and various
                                                     anticompetitive conditions.” J.A. at 48
state laws, Utilimax alleges that PPL
                                                     (emphasis added).
exercised undue market power over the
wholesale electricity market and, as a                       It hardly needs stating that when an
result                                               entity buys something from another entity
                                                     there is a customer/seller relationship for
       65. Utilimax was effectively
                                                     that transaction, even if the two entities are
       put out of business, as it
                                                     competitors under other circumstances.
       could not operate under the
                                                     See, e.g., Montana-Dakota Utils., 341 U.S.
       burden of the artificially
                                                     at 251-52 (applying the substance of the
       inflated capacity prices . . .
                                                     filed rate doctrine, without calling it such,
       66. Utilimax and many                         to a suit where the plaintiff, who was a
       other [retail suppliers of                    competitor of the defendant in the electric
       electricity] simply were                      utility business, was suing based on rates it


                                                 5
negotiated with the defendant to purchase           wholly separate from rates, here Utilimax
electric energy and those rates were filed          alleges that PPL simply positioned itself in
with and accepted by FERC’s predecessor             the wholesale capacity market to be able to
commission).         Based on Utilimax’s            charge exorbitant rates for capacity.
allegations, it is clear that although it may       Utilimax does not allege any non-rate
have been a competitor with PPL in one              anticompetitive activity, but simply claims
market, it was a customer in the wholesale          that PPL exploited its market position by
market. And it is PPL’s actions in that             raising its rates. Therefore, Utilimax’s
latter market that form the corpus of               claims are not saved from the filed rate
Utilimax’s complaint. Therefore, Utilimax           doctrine by the non-rate anticompetitive
does not qualify as a competitor of PPL             activity exception.
with respect to its claims, and the
                                                                        III.
competitor exception to the filed rate
doctrine does not apply.                                   For the foregoing reasons, we will
                                                    affirm the District Court’s order.
        Utilimax also argues that the filed
rate doctrine should not apply because its
claims allege non-rate anticompetitive
activity on the part of PPL. In Lower Lake
Erie, several groups of plaintiffs sued
various railroad companies alleging that
those companies engaged in activities
designed to prevent a new technology from
entering the iron ore transportation market.
988 F.2d at 1154. According to the
plaintiffs, this new technology would have
allowed lower cost, non-railroad owned
docks to enter the market for transporting
iron ore from the shores of Lake Erie to
inland sites. Id. We held that even those
plaintiffs who were customers of the
railroads, and who did not therefore
qualify for the competitor exception to the
filed rate doctrine, could maintain their
suit against the railroads because their
claims rested on non-rate anticompetitive
activity. Id. at 1161.
       Whereas Lower Lake Erie dealt
with the defendant railroads’ activities
related to a technological innovation

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