News & Thought Leadership from Sulloway & Hollis

April 23, 2019

What can a Utility’s Tariff do?

Utility tariffs are an essential component of their business and operations. As a result, it makes sense that they play a role in lawsuits for personal injuries, property damage, and business losses, to name a few.

Generally speaking, regulated utilities operate under the terms and conditions of tariffs that are filed with and approved by the regulatory authority in the jurisdiction in which they operate. This is true of all types of regulated utilities. At the State level, this includes natural gas and electric distribution companies, as well as telecommunications providers, like telephone and cable service providers. For example, for intrastate operations in Massachusetts, natural gas and electric distribution companies file approved tariffs with the Department of Public Utilities, while telephone and cable service providers do the same with the Department of Telecommunications and Cable. A similar structure exists at the Federal level for utility operations; however, those tariffs are focused on interstate activities. For example, interstate natural gas transmission and wholesale electric markets operate in accordance with tariffs that are filed and approved by the Federal Energy Regulatory Commission.

When a regulated utility becomes embroiled in litigation, the existence and terms of a tariff can alter the framework of the case. Why is that? Generally, tariff provisions have the force and effect of law, are presumed reasonable, and govern the utility’s relationship with its customers. This is because courts tariffs treat as legislative enactments or contracts (note that each approach entails different types of analysis, which can result in different outcomes even where facts are relatively similar). In short, a regulated utility that is sued for practices that are governed by a tariff has more tools to employ in its defense than one that does not.

Two cases from the United States District Courts in Massachusetts and the Northern District of New York demonstrate the significance of a tariff. Both cases involved a putative class action regarding unfair or deceptive trade practices related to the retail sale of electricity. One case, Breidling v. Eversource Energy, — F.Supp.3d — (September 11, 2018), was dismissed, whereas the other, Gonzales v. Agway Energy Services, LLC, (October 22, 2018), was not.

In Breidling, the plaintiffs claimed that the defendants engaged in anti-competitive conduct in the upstream natural gas transmission market, which they alleged impacted downstream electricity prices. Essentially, the plaintiffs asserted that the defendants limited the natural gas supply to New England, causing an increase in wholesale and retail electricity prices. The plaintiffs asserted violations of the Sherman Act and various state consumer protection and antitrust laws. The Court dismissed all of these claims because they were foreclosed by the “filed rate doctrine.”

In contrast, Gonzales was one of 9 similar lawsuits filed in various federal courts, which alleged that the defendant “bait[ed] consumers into utility service contracts by offering low introductory rates and then dramatically increasing rates to levels that do not reflect market-related factors” and instead, defendant “allegedly raise[s] [its] rates as high as possible without triggering an unprofitable attrition of customers.” For purposes of this case, the defendant (Agway) was not a regulated utility; it was an energy service company that sells electricity to residential customers. Its services are delivered to its residential customers through the local utility company’s infrastructure. The Court denied the defendant’s motion to dismiss state law claims for deceptive acts and practices (§ 349 of the General Business Law) and breach of contract.

The basic lesson of comparing these two cases is that tariffs matter and should be considered carefully in every case. Two cases that sound similar can revolve differently upon tariff provisions and the jurisdiction’s law regarding the application the tariff.