Simon v. Keyspan Corporation 1

1
11-2265-cv
Simon v. Keyspan Corporation
1
UNITED STATES COURT OF APPEALS 2
FOR THE SECOND CIRCUIT 3
4
August Term 2011 5
(Argued: February 28, 2012 Decided: September 20, 2012) 6
Docket No. 11-2265-cv 7
-----------------------------------------------------x 8
9
CHARLES SIMON, on behalf of himself and all others 10
similarly situated, 11
12
Plaintiff-Appellant, 13
14
-- v. -- 15
16
KEYSPAN CORPORATION, MORGAN STANLEY CAPITAL GROUP INC., 17
18
Defendants-Appellees. 19
20
21
-----------------------------------------------------x 22
23
B e f o r e : WALKER, LYNCH, and DRONEY, Circuit Judges. 24
Plaintiff-appellant Charles Simon appeals from an order of 25
the United States District Court for the Southern District of New 26
York (Shira A. Scheindlin, Judge), dismissing his federal and 27
state antitrust claims against defendants-appellees KeySpan 28
Corporation and Morgan Stanley Capital Group Inc. We agree with 29
the district court that plaintiff-appellant lacks standing to 30
pursue his federal claims because he was an indirect purchaser 31

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2
and that his claims are otherwise barred by the filed rate 1
doctrine. AFFIRMED. 2
DANIEL J. SPONSELLER, Law Office of 3
Daniel J. Sponseller, Sewickley, 4
PA, (Karin E. Fisch, Judith L. 5
Spanier, Natalie S. Marcus, Abbey 6
Spanier Rodd & Abrams, LLP, New 7
York, NY, on the brief) for 8
Plaintiff-Appellant. 9
10
John H. Lyons, Tara S. Emory, 11
Skadden, Arps, Slate, Meagher & 12
Flom LLP, Washington, DC for 13
Defendant-Appellee KeySpan 14
Corporation. 15
16
JON R. ROELLKE, Bingham McCutchen 17
LLP, Washington, DC (Anthony R. Van 18
Vuren, Bingham McCutchen LLP, 19
Washington, DC, Jeffrey Q. Smith, 20
Laila Abou-Rahme, Bingham McCutchen 21
LLP, New York, NY, on the brief) 22
for Defendant-Appellee Morgan 23
Stanley Capital Group Inc. 24
25
J. DOUGLAS RICHARDS, Cohen 26
Milstein, New York, NY (Benjamin D. 27
Brown, Cohen Milstein, New York, 28
NY; Richard M. Brunell, American 29
Antitrust Institute, Washington, 30
DC; Christopher L. Sagers, 31
Cleveland-Marshall College of Law, 32
Cleveland State University, 33
Cleveland, OH) for amicus curiae 34
American Antitrust Institute. 35
36
JOHN M. WALKER, JR., Circuit Judge: 37
This appeal requires us to consider whether plaintiff- 38
appellant Charles Simon (“Simon”), a retail consumer of 39
electricity in New York City, can maintain an antitrust action 40
against defendant-appellee KeySpan Corporation (“KeySpan”), a 41

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1 The district court also concluded that Simon’s state law claims
were preempted and insufficiently pled. Because we hold that the
state law claims are barred by the filed rate doctrine, we need
not consider whether the district court was correct on these
points.
3
producer of electricity in New York that allegedly colluded with 1
one of its rivals to increase installed capacity prices, and 2
defendant-appellee Morgan Stanley Capital Group Inc. (“Morgan 3
Stanley”), a financial firm that allegedly facilitated KeySpan’s 4
anticompetitive conduct. The United States District Court for 5
the Southern District of New York (Shira A. Scheindlin, Judge) 6
dismissed plaintiff-appellant’s claims principally on the grounds 7
that he lacked antitrust standing and that his claims were barred 8
by the filed rate doctrine. 1 We agree and conclude that 9
plaintiff-appellant, as an indirect purchaser, lacks standing to 10
bring his federal antitrust claims. We further hold that the 11
filed rate doctrine bars plaintiff-appellant’s state and federal 12
claims even though the allegedly supracompetitive rate was the 13
product of a market-based auction. 14
BACKGROUND 15
In reviewing a motion to dismiss, we accept all factual 16
claims in the complaint as true and draw all reasonable 17
inferences in the plaintiff’s favor. Famous Horse Inc. v. 5th 18
Ave. Photo Inc., 624 F.3d 106, 108 (2d Cir. 2010). Where 19
necessary, we take judicial notice of the regulatory structure 20
governing the New York City electricity market. 21

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2 NYISO is an Independent System Operator (“ISO”) created to
administer the retail electricity market in New York. See
generally Promoting Wholesale Competition Through Open Access
Non-Discriminatory Transmission Services by Public Utilities;
Recovery of Stranded Costs by Public Utilities and Transmitting
Utilities, 61 Fed. Reg. 21,540 (Apr. 24, 1996) (codified at 18
C.F.R. pts. 35 & 385); see also Cal. Indep. Sys. Operator Corp.
v. FERC, 372 F.3d 395, 397 (D.C. Cir. 2004) (describing FERC’s
efforts to encourage public utilities to create ISOs).
4
I. The New York City Electricity Market 1
The market for electricity in New York City is overseen by 2
the New York Independent System Operator (“NYISO”). 2 On the 3
wholesale side, the market is based on the producers’ “installed 4
capacity,” i.e. the amount of electricity that the producer can 5
supply at a given time. Retail sellers of electricity must 6
purchase enough installed capacity from producers to meet their 7
expected peak demand plus a share of reserve capacity. The 8
system is designed to ensure that the amount of electricity 9
eventually sold to consumers is consistent with the total 10
production capacity of the producers. 11
In order to determine the price at which producers can sell 12
their capacity, NYISO has established an auction system that 13
results in a market-based rate (“MBR”). Producers submit bids 14
indicating the amount of capacity they can produce and the lowest 15
per unit price at which they are willing to sell. The bids are 16
then “stacked” from lowest to highest price until the total 17
demand for capacity has been met. The point at which demand is 18
met determines the market price for installed capacity and every 19

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3 These firms were created in 1998 when Consolidated Edison
Company of New York, Inc. (“Con Ed”) divested most of its
generating capacity. The three firms are known collectively as
Divested Generation Owners (“DGOs”). See Order Conditionally
Approving Proposal, 122 FERC ¶ 61,211, ¶ 3 (2008) (“2008 Market
Power Modification Order”).
5
producer stacked below that price point can sell its full 1
capacity for the market price. The producer whose bid set the 2
price can sell as much of its capacity as is necessary to meet 3
demand. The rest remains unsold. Any producer that bid higher 4
than the market price cannot sell its capacity. 5
The New York City capacity market is highly concentrated. 6
Three firms – defendant-appellee KeySpan, NRG Energy, Inc. 7
(“NRG”), and Astoria Generating Company (“Astoria”) – control a 8
substantial portion of the total generating capacity. 3 The total 9
demand for installed capacity cannot be met without at least some 10
of the capacity from each of these three firms. Accordingly, 11
NYISO has imposed a price cap on these firms’ bids and barred 12
them from selling electricity outside of the auction process. 13
KeySpan’s bid cap is the highest of the three. 14
15
II. The Anticompetitive Agreement 16
As a result of the prevailing market conditions from June 17
2003 to December 2005, most of KeySpan’s capacity was necessary 18
to satisfy total demand. KeySpan therefore routinely bid at its 19
price cap and set the market price at that level. However, 20

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4 KeySpan had considered acquiring Astoria’s physical generating
assets, but did not pursue this approach due to antitrust
concerns.
6
because other producers would be bringing new plants online, 1
KeySpan anticipated that in 2006, supply would increase, leaving 2
KeySpan to either bid below its cap or risk selling only a small 3
amount of its capacity. To avoid these unappealing options, 4
KeySpan indirectly entered into an agreement with Astoria (“the 5
agreement”). Using Morgan Stanley as an intermediary, KeySpan de 6
facto agreed to pay Astoria a fixed income in exchange for any 7
potential profits (after a certain point) from Astoria’s 8
generating capacity. 4
9
The agreement consisted of two separate deals: the “KeySpan 10
Swap” and the “Astoria Hedge.” The KeySpan Swap, executed on 11
January 18, 2006, provided that if the market price after auction 12
were set above $7.57 per KW-month (“the fixed price”), Morgan 13
Stanley would pay KeySpan the difference between the market price 14
and the fixed price multiplied by 1800 megawatts (“MW”). If the 15
market price were lower than the fixed price, KeySpan would pay 16
the difference (times 1800 MW) to Morgan Stanley. The “Astoria 17
Hedge,” executed on January 11, 2006, provided that if the market 18
price were higher than $7.07 per KW-month, Astoria would pay 19
Morgan Stanley the difference times 1800 MW. If the price were 20
below $7.07, Morgan Stanley would pay the difference (times 1800 21
MW) to Astoria. The net effect of the agreement was that Astoria 22

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7
was assured of always receiving exactly $7.07 per KW-month for 1
its capacity while KeySpan received any profits (if the market 2
price were above $7.57) and subsidized any losses (if the market 3
price were below $7.07) from the sale of Astoria’s capacity. The 4
combination of the KeySpan Swap and the Astoria Hedge enabled 5
Morgan Stanley to receive a fixed rate of fifty cents per KW- 6
month in exchange for facilitating the deal. 7
As a result of the agreement, it remained lucrative for 8
KeySpan to continue to bid as high as its cap permitted and set 9
the market price at that level. If it then sold only a small 10
amount of its own capacity, it would still receive substantial 11
profits from Astoria’s capacity. Since either all of KeySpan’s 12
or all of Astoria’s capacity would be required by the market, 13
KeySpan stood to make a substantial profit by setting the price 14
as high as possible, i.e., at its cap. In the absence of the 15
agreement, KeySpan would likely have had to bid competitively, 16
which might have lowered the market price of capacity. This was 17
borne out by experience: KeySpan continued to bid at its cap, 18
setting the market price and leaving a significant portion of its 19
capacity unsold. Thus the market price of capacity did not drop 20
despite an industry-wide increase in generating capacity. 21
22

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5 The United States also recently settled a civil suit with
Morgan Stanley arising from these same facts. See United States
v. Morgan Stanley, --- F. Supp. 2d ---, 2012 WL 3194969 (S.D.N.Y.
Aug. 7, 2012). There, the consent decree required Morgan Stanley
to disgorge to the United States Treasury $4.8 million of the net
revenues that it had earned from the agreement. Id. at *2-*3.
8
III. Investigations of the Agreement 1
In May 2007, the United States Department of Justice (“DOJ”) 2
began an investigation into the KeySpan agreement based on its 3
anticompetitive effect. In February 2010, it filed a civil 4
complaint alleging that KeySpan had unlawfully restrained trade. 5
KeySpan entered into a stipulation with the DOJ to settle the 6
case. Pursuant to a consent decree, KeySpan paid the United 7
States $12 million and the case was resolved “without trial or 8
adjudication of any issue of fact or law.” 5
9
FERC also conducted an investigation of the agreement. Its 10
enforcement office issued a detailed report concluding that 11
KeySpan had not violated FERC’s regulations prohibiting market 12
manipulation. The report noted that 13
Market participants in the in-city ICAP [installed 14
capacity] market have always known that KeySpan, 15
pursuant to the applicable market mitigation rules, was 16
permitted to offer at its cap and set the market- 17
clearing price. In addition, as noted, KeySpan’s 18
offering behavior was consistent with market rules and 19
the Commission’s announced expectations that DGOs, such 20
as KeySpan, would (in the absence of sufficient 21
capacity additions) offer their capacity at their caps. 22
23
FERC Enforcement Staff Report, Feb. 28, 2008, at 17; Joint 24
Appendix (“J.A.”) 89. FERC agreed with the enforcement staff’s 25

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9
report and noted that it had expected KeySpan’s cap to set the 1
market price. 2
3
IV. The Complaint 4
Plaintiff-appellant Simon purchased electricity as a retail 5
customer from Con Ed between 2006 and 2009. Con Ed in turn 6
purchased electricity in the form of installed capacity through 7
the previously described New York City auction process. On July 8
16, 2010, Simon filed this complaint in the district court 9
alleging that the defendant-appellees’ conduct had caused him to 10
be unlawfully overcharged for electricity. He sought to 11
represent a class of customers who had purchased electricity from 12
Con Ed between 2006 and 2009. The complaint claimed violations 13
of federal antitrust law as well as New York law. 14
On March 22, 2011, the district court dismissed all of 15
Simon’s federal and state claims with prejudice. Simon v. 16
KeySpan Corp., 785 F. Supp. 2d 120 (S.D.N.Y. 2011). The district 17
court concluded that Simon lacked standing to bring his federal 18
claims because he was an indirect purchaser. Id. at 134-37. It 19
further found that all of his claims were barred by the filed 20
rate doctrine, which precludes legal challenges to rates set or 21
approved by federal agencies, because the rate he sought to 22
challenge was authorized by FERC. Id. at 138-39. The district 23
court also held that Simon’s state law claims were preempted and 24

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10
denied leave to amend on the basis of futility. Id. at 139-41. 1
On May 27, 2011, it denied Simon’s motion for reconsideration. 2
Simon v. KeySpan Corp., No. 10 Civ. 5437 (SAS), 2011 WL 2135075 3
(S.D.N.Y. May 27, 2011). It reiterated its holding that Simon’s 4
claims were barred by the filed rate doctrine even though it 5
acknowledged that those rates were set at a market-based auction 6
rather than filed directly with FERC. See generally id. Simon 7
appeals. 8
9
DISCUSSION 10
We review a district court’s decision to grant a motion to 11
dismiss under Rule 12(b)(6) de novo, accepting all factual claims 12
in the complaint as true and drawing all reasonable inferences in 13
the plaintiff’s favor. Famous Horse Inc., 624 F.3d at 108. “To 14
survive a motion to dismiss, a complaint must contain sufficient 15
factual matter, accepted as true, to ‘state a claim for relief 16
that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 17
662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 18
544, 570 (2007)). “A claim has facial plausibility when the 19
plaintiff pleads factual content that allows the court to draw 20
the reasonable inference that the defendant is liable for the 21
misconduct alleged.” Id. We hold that Simon’s complaint fails 22
to state a plausible antitrust claim both because he lacks 23

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6 We need not determine whether Simon qualified for antitrust
standing under New York law, see generally Ho v. Visa U.S.A.
Inc., 787 N.Y.S.2d 677 (Table) (N.Y. Sup. Ct. 2004), because we
conclude that his state claims are barred by the filed rate
doctrine.
11
federal antitrust standing and because all of his claims are 1
barred by the filed rate doctrine. 2
3
I. Antitrust Standing 4
Simon’s federal claims are barred because he was an indirect 5
purchaser and therefore lacks standing to sue under section 4 of 6
the Clayton Act, 15 U.S.C. §§ 12, et seq. 6 Generally, only 7
direct purchasers have standing to bring civil antitrust claims. 8
See Ill. Brick Co. v. Illinois, 431 U.S. 720 (1977); Hanover 9
Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481 (1968). This 10
rule has two rationales. First, defendants may otherwise face 11
multiple liability. Ill. Brick, 431 U.S. at 730. Second, there 12
are too many “uncertainties and difficulties in analyzing price 13
and out-put decisions in the real economic world rather than an 14
economist’s hypothetical model.” Id. at 731-32 (internal 15
quotation marks omitted); see also id. at 741-44. In other 16
words, it is nearly impossible for a court to determine which 17
portion of an overcharge is actually borne by the direct 18
purchaser and which portion is borne by a subsequent indirect 19
purchaser. The Supreme Court has therefore established a general 20

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12
rule that the direct purchaser is the only appropriate antitrust 1
plaintiff. 2
An indirect purchaser may have standing, however, if it had 3
a pre-existing cost-plus contract with the direct purchaser, 4
meaning that the indirect purchaser has agreed in advance to 5
purchase a fixed quantity, paying the direct purchaser’s costs 6
plus a predetermined additional fee. Id. at 736. 7
In such a situation, the purchaser is insulated from 8
any decrease in its sales as a result of attempting to 9
pass on the overcharge, because its customer is 10
committed to buying a fixed quantity regardless of 11
price. The effect of the overcharge is essentially 12
determined in advance, without reference to the 13
interaction of supply and demand that complicates the 14
determination in the general case. 15
16
Id. In this type of situation, there is no difficulty 17
apportioning the overcharge because the indirect purchaser paid 18
the direct purchaser’s entire cost. There is no chance that the 19
indirect purchaser decreased its demand because it had previously 20
agreed to purchase a fixed quantity. Finally, there is no risk 21
of duplicative liability; the defendant would have a valid pass- 22
on defense against the direct purchaser because the latter 23
suffered no injury. See id. at 735-36. 24
The cost-plus contract exception to the indirect purchaser 25
bar is a narrow one that is only appropriate when the contract 26
has removed all doubts about who bore the antitrust injury. For 27
the exception to apply, the contract quantity must be determined 28

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13
prior to the overcharge to avoid uncertainty about “what effect a 1
change in a company’s price will have on its total sales.” 2
Hanover Shoe, 392 U.S. at 493. A direct purchaser that passes on 3
all of its costs may still suffer an antitrust injury if passing 4
on increased costs decreased its sales and therefore its profits. 5
Additionally, there must be no possibility that the direct 6
purchaser would have “raised his prices absent the overcharge.” 7
Id. 8
Simon contends that he qualifies for the cost-plus contract 9
exception because Con Ed passed on 100% of its installed capacity 10
costs to its consumers. The complaint alleges: 11
Each month from at least May 2006 through February 12
2008, Con Ed passed through 100% of Con Ed’s costs for 13
the purchase of installed capacity in the NYC Capacity 14
Market to its customers. Its customers, including 15
Plaintiff, were contractually required to pay and did 16
pay 100% of such costs as “supply charges” on their 17
monthly billing statements. The quantity of installed 18
capacity for which Plaintiff was required to pay Con Ed 19
was contractually fixed prior to the time the price for 20
such capacity was known and charged to Plaintiff. 21
22
J.A. 10. Further, he argues that “[r]etail distribution 23
utilities like Con Ed typically are not permitted to make a 24
profit on the sale of electricity or capacity.” Appellant’s Br. 25
33-34. 26
The Supreme Court has previously addressed the applicability 27
of the cost-plus contract exception to regulated utilities and 28
their retail customers. In Kansas v. UtiliCorp United, Inc., 497 29

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14
U.S. 199 (1990), natural gas wholesalers were sued by several 1
public utilities as well as Kansas and Missouri, acting as parens 2
patriae for their citizens. The Court held that only the 3
utilities, as direct purchasers, were proper plaintiffs. It 4
declined to create an exception to the indirect purchaser rule 5
for situations where regulated public utilities pass on 100% of 6
their costs to consumers. Id. at 208-17. The Court noted that a 7
utility might still suffer an antitrust injury because it might 8
be unable to effect a rate increase that would have otherwise 9
been possible. Id. at 209. Moreover, the Court viewed the 10
presence of government regulation as a complicating, rather than 11
simplifying, factor. This was so because a reviewing court would 12
have to examine whether the regulator would have allowed a rate 13
increase in the absence of the overcharge in addition to 14
determining whether the utility would have sought an increase. 15
Id. at 209-10. 16
The Kansas Court also rejected the states’ argument, even 17
without a general exception, they qualified for the cost-plus 18
exception because the utilities had passed on 100% of their costs 19
to their retail customers. The Court noted that 20
[t]he utility customers made no commitment to purchase 21
any particular quantity of gas, and the utility itself 22
had no guarantee of any particular profit. Even though 23
the respondent raised its prices to cover its costs, we 24
cannot ascertain its precise injury because . . . we do 25
not know what might have happened in the absence of an 26
overcharge. 27
28
Id. at 218. 29

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7 We share the district court’s skepticism that the markets for
installed capacity and retail electricity are similar enough to
allow a seamless pass-through in this way, but we nevertheless
assume for the present that Simon could prove this to be the case
at trial. See Simon, 785 F. Supp. 2d at 137 (“[T]he proposition
that Con Ed is able to pass through one hundred percent of any
overcharge to its consumers in the form of retail price increases
is suspect given the differing nature of the two markets.”).
15
Simon’s attempts to differentiate this case from Kansas are 1
unavailing. We credit the complaint’s claim that Con Ed passed 2
on 100% of its installed capacity costs to consumers each month 3
as “supply charges,” a portion of the overall bill. 7 The Kansas 4
Court’s central concern, however, remains applicable: We cannot 5
say with any certainty what would have occurred in the absence of 6
an overcharge. If the price for capacity had been lower, Con Ed 7
might have requested and received permission to increase its 8
rates. Additionally, increased supply charges might have driven 9
down Con Ed’s customers’ electricity usage, diminishing its 10
profits. Even though Con Ed does not make a profit on its retail 11
sale of electrical capacity, it does make a profit on its 12
distribution of electricity. Like any business, Con Ed has 13
overhead costs, and the rates it charges reflect a variety of 14
factors in addition to its supply costs. Even if Con Ed 15
increased its rates by exactly the amount it was overcharged for 16
installed capacity, it does not follow that Con Ed’s sales and 17
profits were unaffected. In short, Con Ed may have suffered an 18

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16
antitrust injury as a result of the agreement, and therefore 1
under Hanover Shoe and Illinois Brick, it is the only proper 2
plaintiff. 3
Simon points to the allegation in his complaint that “[t]he 4
quantity of installed capacity for which Plaintiff was required 5
to pay Con Ed was contractually fixed prior to the time the price 6
for such capacity was known and charged to Plaintiff.” J.A. 10. 7
Although Simon is further attempting to analogize his situation 8
to that of a cost-plus contract, this argument fails. Simon 9
neglects to account for the fact that he was not contractually 10
obligated in advance to purchase a fixed quantity of electricity 11
each month, we reject this contention as implausible. Con Ed, 12
like all electrical utilities of which we are aware, charges its 13
customers a metered fee based on their actual electricity usage. 14
See Simon, 785 F. Supp. 2d at 137 n.123 (taking judicial notice 15
of Judge Scheindlin’s Con Ed bill, which bases the monthly charge 16
on electricity used). Therefore, Simon was free to decrease his 17
electricity usage, and thereby his payments, if supply costs 18
became too high. Further, even if Simon had contracted to buy a 19
fixed quantity of electricity in advance, a contention that is 20
implausible, see Iqbal, 556 U.S. at 678, it would not alter our 21
conclusion because we would still be unable to determine whether 22

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17
Con Ed could have sought and received a rate increase in the 1
absence of the overcharge. 2
Simon’s other attempts to distinguish this case from Kansas 3
are similarly unavailing. He notes that, in Kansas, the 4
utilities were actually present in the lawsuit, making allocation 5
issues unavoidable. This may be true, but the Supreme Court 6
rested its holding on the possibility of allocation difficulties, 7
not their imminence or likelihood. The fact that Con Ed would be 8
a proper plaintiff to sue KeySpan for the same conduct implicates 9
Illinois Brick’s concerns about duplicative recovery and 10
apportionment. Simon also points to the fact that the certified 11
question in Kansas stated that the utility “passed on most or all 12
of the price increase” to its customers. 497 U.S. at 205-06 13
(internal quotation marks omitted). His complaint, in contrast, 14
expressly alleges that all of the cost was passed on. However, 15
the Kansas Court did not leave open the possibility that the 16
plaintiffs could maintain a suit by proving as a matter of fact 17
that the utilities passed on 100% of the overcharge. 18
Additionally, for the reasons discussed earlier, the allegation 19
here that 100% of the costs were passed on is not sufficient to 20
establish standing because it does not negate the possibility 21
that Con Ed might have sought and received a rate increase in the 22
absence of the overcharge. 23

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18
For all of these reasons, we hold that Simon cannot qualify 1
for federal antitrust standing as an indirect purchaser. He did 2
not contract to buy a fixed monthly quantity of electricity from 3
Con Ed in advance, and we cannot determine whether Con Ed would 4
have been able to seek and obtain a rate increase in the absence 5
of the overcharge. The cost-plus contract exception to the bar 6
on indirect purchaser standing is therefore not applicable in 7
this case. 8
9
II. Filed Rate Doctrine 10
Simon’s state and federal claims are also foreclosed by the 11
filed rate doctrine. “Simply stated, the doctrine holds that any 12
‘filed rate’ – that is, one approved by the governing regulatory 13
agency – is per se reasonable and unassailable in judicial 14
proceedings brought by ratepayers.” Wegoland Ltd. v. NYNEX 15
Corp., 27 F.3d 17, 18 (2d Cir. 1994). This Circuit has not 16
previously addressed whether the filed rate doctrine applies to 17
rates set at market-based auctions as opposed to those set or 18
approved directly by the regulatory agency. There is no need for 19
us to decide whether the filed rate doctrine always applies to 20
market-based auction rates. But we do hold that it applies in 21
the circumstances of this case, where the auction process was 22
circumscribed, and the MBR process was reviewed by the regulatory 23

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19
body which determined the resulting rate to be reasonable. In 1
these circumstances, the filed rate doctrine forecloses Simon’s 2
claims. 3
The filed rate doctrine originated in the context of the 4
Interstate Commerce Act (“ICA”), 49 U.S.C. §§ 1, et seq. In 5
Keogh v. Chicago & N.W. Ry. Co., 260 U.S. 156, 160-65 (1922), the 6
Supreme Court addressed an antitrust claim against an association 7
of railroad companies that had colluded to set rates rather than 8
competing with one another. These rates, although the product of 9
collusion, were filed with and approved by the Interstate 10
Commerce Commission (“ICC”). In an opinion by Justice Brandeis, 11
the Court held that because the ICC had determined the rates to 12
be lawful, they could not be challenged in court. The Court 13
posited three rationales for the filed rate doctrine: the lack of 14
need for antitrust remedies in regulated industries (that 15
inherently involve some level of government oversight); the per 16
se legality of rates approved by a regulator; and the difficulty 17
of proving that an alternative lower rate would have been 18
approved by the regulator. Central to the Court’s reasoning was 19
the ICA’s requirement that rates be nondiscriminatory; if 20
customers were allowed to challenge the rate in court, varying 21
litigation outcomes might result in non-uniform rates. 22

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20
Since Keogh, the filed rate doctrine has “been extended 1
across the spectrum of regulated utilities.” Ark. La. Gas Co. v. 2
Hall, 453 U.S. 571, 577 (1981) (“Arkla”). It applies even when a 3
claim is based on fraud or impropriety in the method by which the 4
rate is determined. See Square D Co. v. Niagara Frontier Tariff 5
Bureau, Inc., 476 U.S. 409, 415 (1986) (filed rate doctrine bars 6
claim that shippers colluded to fix rate subsequently approved by 7
ICC). The Supreme Court discussed the filed rate doctrine in the 8
context of wholesale electricity rates when it held that rates 9
filed with FERC are binding on state utilities. Entergy La., 10
Inc. v. La. Pub. Serv. Comm’n, 539 U.S. 39, 47-51 (2003). 11
When the filed rate doctrine applies, it is rigid and 12
unforgiving. Indeed, some have argued that it is unjust. See, 13
e.g., Fax Telecommunicaciones Inc. v. AT&T, 138 F.3d 479, 491 (2d 14
Cir. 1998); Ting v. AT&T, 319 F.3d 1126, 1131 (9th Cir. 2003). 15
It does not depend on “the culpability of the defendant’s conduct 16
or the possibility of inequitable results,” nor is it affected by 17
“the nature of the cause of action the plaintiff seeks to bring.” 18
Marcus v. AT&T Corp., 138 F.3d 46, 58 (2d Cir. 1998). It applies 19
whenever a claim would implicate its underlying twin principles 20
of “preventing carriers from engaging in price discrimination as 21
between ratepayers” and “preserving the exclusive role of federal 22
agencies in approving rates.” Id. And when the doctrine 23

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8 Simon also argues in his brief that the filed rate doctrine is
limited to certain statutes and does not apply to rates set under
the Federal Power Act, 16 U.S.C. §§ 796, et seq. This argument
is unavailing, as Supreme Court precedent makes clear that the
doctrine applies in all instances where rates are set by federal
agencies. See Arkla, 453 U.S. at 577-78.
21
applies, it bars both state and federal claims. Arkla, 453 U.S. 1
at 584-85 (1981). 2
FERC has exclusive authority over wholesale electricity 3
rates. See 16 U.S.C. § 824e (establishing FERC’s power to fix 4
rates); Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, 5
966 (1986) (“FERC clearly has exclusive jurisdiction over the 6
rates to be charged . . . [to] wholesale customers.”). The 7
parties do not dispute that Simon’s claims are based on the 8
premise that he paid a supracompetitive price for electricity. 9
The only issue we must decide is whether the filed rate doctrine 10
can apply beyond rates set directly by an agency to MBRs set by a 11
regulatory auction scheme.8
12
Although we have not previously addressed whether the filed 13
rate doctrine applies to MBRs, other circuits that have addressed 14
the issue have concluded that the doctrine applies with equal 15
force to MBRs. See Town of Norwood, Mass. v. New Eng. Power Co., 16
202 F.3d 408, 419 (1st Cir. 2000) (applying filed rate doctrine 17
to prices that FERC “left to the free market” because FERC is 18
“still responsible for ensuring ‘just and reasonable’ rates”); 19
Utilimax.com, Inc. v. PPL Energy Plus, LLC, 378 F.3d 303 (3d Cir. 20

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9 Simon’s reliance on Morgan Stanley Capital Grp. Inc. v. Pub.
Util. Dist. No. 1 of Snohomish Cnty., 554 U.S. 527, 546 (2008),
is misplaced. Morgan Stanley dealt with the Mobile-Sierra
doctrine, which applies to “market based tariffs,” i.e.,
bilateral contracts between wholesalers and purchasers that are
not directly submitted for rate approval. Id. at 537-38. It
does not implicate the filed rate doctrine. See Simon, 2011 WL
2135075, at *2-3 (describing and distinguishing Morgan Stanley
opinion).
22
2004) (applying filed rate doctrine when market based rates were 1
“in conformity with the requirements of the FERC and [local 2
authority]-approved market model”); Tex. Commercial Energy v. TXU 3
Energy, Inc. 413 F.3d 503, 509-10 (5th Cir. 2005) (applying filed 4
rate doctrine to MBR tariff in context of state agency that 5
regulated electric utilities); Pub. Util. Dist. No. 1 of Grays 6
Harbor Cnty. Wash. v. IDACORP Inc., 379 F.3d 641, 650-52 (9th 7
Cir. 2004) (rejecting argument that filed rate doctrine does not 8
apply to FERC MBR tariff on the basis that FERC takes steps to 9
ensure that the MBR complies with the statutory mandate that 10
rates be just and reasonable); see also Simon, 2011 WL 2135075, 11
at *2 n.21 (collecting other similar cases from these circuits as 12
well as district courts). We are not aware of any court holding 13
that the doctrine does not apply to MBRs.9
14
In affirming the application of the filed rate doctrine in 15
this case, we need not announce a per se rule and, in a case that 16
does not require it, are reluctant to do so. It is not clear to 17
us that the filed rate doctrine, and the rationales underlying 18

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23
it, should preclude all court scrutiny of alleged anti- 1
competitive behavior affecting the setting of MBRs. The Supreme 2
Court’s three rationales from Keogh do not apply with equal force 3
to rates set by MBRs when the only involvement by a regulator is 4
creating the process ultimately corrupted by parties in the 5
market. This is so because antitrust remedies become more 6
necessary as markets become increasingly deregulated by the MBR 7
system. Indeed, some of our sister circuits who have held that 8
the filed rate doctrine applies have taken into account factors 9
such as the level of FERC review. See, e.g., Town of Norwood, 10
202 F.3d at 418 (noting that the tariffs at issue were “actively 11
at issue in the FERC proceedings”); Pub. Util. Dist. No. 1 of 12
Snohomish Cnty. v. Dynegy Power Mktg., Inc., 384 F.3d 756, 760-61 13
(9th Cir. 2004) (discussing three specific steps taken by the 14
FERC to exercise oversight over the MBR process). 15
Simon urges us to limit the filed rate doctrine to cases 16
where the regulatory agency itself chose or approved the rate. 17
We acknowledge that Simon’s approach has some appeal. Because 18
FERC did not directly set the rate at issue here, it did not 19
specifically determine that the rate was reasonable. Moreover, 20
KeySpan’s alleged conduct undermined the competitive market 21
scheme FERC and NYISO had created. One could therefore conclude 22
that the rate arrived at was not the one envisioned by FERC. 23

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24
However, we find that the MBR process established by the 1
FERC in this case was sufficiently safeguarded such that the 2
filed rate doctrine should apply. A central underpinning of the 3
filed rate doctrine is the desire to “preserv[e] the exclusive 4
role of federal agencies in approving rates . . . by keeping 5
courts out of the rate-making process.” Marcus, 138 F.3d at 58. 6
FERC has chosen to exercise its rate-setting authority in this 7
market by establishing an MBR auction process. Despite leaving 8
the final price to auction, FERC exercised tight control over the 9
rate by imposing price caps on the major producers. Tellingly, 10
when FERC capped these producers’ bids, it was aware that the 11
producers were “pivotal” (i.e., at least some of their capacity 12
would be required to meet demand), and therefore the market would 13
clear at their cap. 2008 Market Modification Order at ¶ 4. 14
KeySpan’s bid cap, specifically approved by FERC, in fact set the 15
market price from 1998 until 2006. See id. As the Ninth Circuit 16
has observed, 17
the market-based rate regime established by FERC 18
continues FERC’s oversight of the rates charged. FERC 19
only permits power sales at market-based rates after 20
scrutinizing whether the seller and its affiliates do 21
not have, or have adequately mitigated, market power in 22
generation and transmission and cannot erect other 23
barriers to entry. 24
25
Grays Harbor, 379 F.3d at 651 (internal quotation marks omitted). 26

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25
Importantly, FERC tightly controls the auction process and 1
has mechanisms in place to remedy the kind of misconduct that 2
allegedly occurred here. FERC has promulgated a rule barring 3
fraud or deceit in connection with the sale of energy. 18 C.F.R. 4
§ 1c.2(a). It has the authority to investigate market 5
manipulation in the energy market, and exercised that authority 6
in this case when it investigated the KeySpan agreement for 7
unlawful manipulation. FERC’s enforcement division’s 8
investigation determined that KeySpan’s conduct did not 9
constitute fraudulent market manipulation. FERC Enforcement 10
Staff Report, Docket Nos. IN08-2-000 & EL07-39-000, at 24 (Feb. 11
28, 2008). FERC adopted this report and concluded that KeySpan’s 12
continued bids at its cap were “not only permissible under the 13
NYISO’s [tariff] but consistent with the Commission’s 14
expectations when the Commission approved [the 1998 divestiture 15
plan].” 2008 Market Power Modification Order at ¶ 145; see Order 16
Establishing Paper Hearing and Referring Certain Matters for 17
Investigation, 120 FERC ¶ 61,024, at ¶ 17 (July 6, 2007). 18
The rationale behind the filed rate doctrine applies with 19
equal force to an MBR auction system such as NYISO’s in which the 20
regulating agency tightly controls the auction process and has 21
exercised its ability to undertake individual review of the MBR 22
to ensure that anti-competitive practices did not undermine the 23

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26
process it created. FERC employed a bid cap to curb the market 1
power of large firms and created a mechanism to investigate and 2
rectify fraudulent market manipulation. For a federal court to 3
intrude into FERC’s carefully constructed system would directly 4
undermine the rationale of the filed rate doctrine. It would 5
permit courts “to grant . . . greater relief than [plaintiffs] 6
could obtain from the Commission itself.” Arkla, 453 U.S. at 7
579. FERC’s auction process was plainly designed to result in a 8
reasonable rate, and we are not willing to say that KeySpan’s bid 9
cap, specifically approved by FERC, was not reasonable. We 10
conclude that the filed rate doctrine applies on these facts – 11
where the regulator created a process for setting rates, reviewed 12
the resulting rates, and, after investigation, determined that 13
the anti-competitive behavior did not undermine its process and 14
that the resulting rates were reasonable. There is no need for 15
us to reach the question of whether the filed rate doctrine would 16
apply to all MBRs irrespective of the oversight of the regulator, 17
and we leave that question for another day. 18
CONCLUSION 19
Because we conclude that Simon lacks standing to bring his 20
federal antitrust claims and his state and federal claims are 21
barred by the filed rate doctrine, we need not consider his 22
challenges to the district court’s other holdings. Accordingly, 23

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27
for the reasons described above, the judgment of the district 1
court is AFFIRMED. 2
3
4

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