‘Yes, Wall Street Rigged Energy Prices. Yes, You Were Ripped-Off … But No Case Here.’
By David Cay Johnston, DCReport Editor-in-Chief
New England electricity prices were inflated by up to $2.4 billion last year, a July 25 ruling by a federal appeals court confirms, but the court did not order refunds.
The U.S. Court of Appeals for the D.C. Circuit* also held that it cannot correct two additional years of manipulations, which cost electricity customers about $1.4 billion more, because of a legal technicality. That technicality? Judith W. Rogers, the presiding judge, created it, as we will explain. She could easily correct it—if she cared.
Consistent with actions by the Trump administration, the federal appeals court in Washington sent a clear signal to those who manipulate the so-called electricity markets that they are pretty much free to gouge customers without worrying that they will be forced to disgorge their ill-gotten gains, much less pay penalties.
When the federal judiciary turns its backs on substantial complaints of government-approved price gouging – a fancy word for theft – what hope do ordinary Americans have that our government will protect them from any bandits armed with ink pens, spreadsheets and complex financial contracts?
At issue is the purchase of 17 electricity generating plants in 2014 by five former Wall Street energy traders. The buyers abruptly withdrew the largest power plant from the market, causing a spike in electricity prices by significantly reducing generating capacity.
Last year, this year and next year, customers will pay up to $3.8 billion extra because that power plant, known as Brayton Point, shut down. That’s roughly $1,000 taken from each American family of four through market manipulation.
The court ruling matters far beyond New England.
By our reading, the court is, yet again, not applying settled law but instead looking for ways to escape the admittedly tedious complexities of energy regulatory law. That certainly makes life more convenient for jurists, but it damages Americans and our economy.
The court decision comes after Trump, on his first working day in the White House, signaled to Wall Streeters who manipulate the price of electricity that he has their backs. As we reported at the time, Trump appointed a sightless sheriff to chair the Federal Energy Regulatory Commission (FERC).
We reported in February 2017 that “the Trump administration has made its first move to raise electricity and other utility prices, actions that will cost families while pleasing the Wall Street traders whose manipulations of those markets will now be much easier.”
It was the first of what are now many official acts that directly contradict Trump’s campaign promise to drain the swamp in Washington and his inaugural address pledge to stand up for the Forgotten Man. Trump later appointed two more FERC commissioners known for siding with industry against consumers, one of whom said Americans who challenge utility regulators are waging “jihad.”
This is an ongoing story that we have reported on since, unlike most of the mainstream news media.
The appeals court ruled July 25 that an organization questioning the electricity market had no legal right, known as standing, to challenge the New England electricity auctions for 2018 and 2019. The aggrieved party is the Utility Workers Union of America Local 464, whose members operate electric power plants and who are also electricity customers whose pockets were picked through the auction process.
The court held that there is no proven link between spikes in electricity prices and the manipulation of the 2014 auction. Without that link the court said it cannot act, which means the owners get to keep the billions in extra profit. Moreover, by finding the utility workers lacked standing, the court was saying they had no right even to have their complaint heard.
Why no link? Because there was no affidavit from the utility workers’ expert witness calculating the excess costs. The cost, calculated as a range between high and low, is not in dispute – the math of how electricity price auctions work is well known.
What makes the detailed opinion by Judge Cornelia Pillard astonishing is that during oral argument the lawyer for the utility workers, Daniel Sponseller, asked if the court wanted an affidavit specifying the expert’s calculations of price gouging. Indeed, the transcript shows that Sponseller, who is handling the case for free, offered a second time to provide an affidavit, only to be told if one was needed he’d be told.
Sponseller declined to comment on this, which is understandable because he risks their wrath if he does.
As someone who has been exposing regulatory issues, including abuses, for a half century, I believe the actions of these three judges go beyond the pale. This is atrocious misconduct by the court, though it could easily correct it by withdrawing its opinion and issuing a new one.
So presiding judge Rogers created the technicality and her fellow judges cited that technicality to justify not addressing the very real issues of price gouging. This is not just judicial chutzpah. This is contemptible and should prompt the three judges to revise their unanimous decision.
The ruling is the latest in a long line of examples where citizens show how legal monopolies that are supposed to be regulated in the public interest inflate prices, but the court then finds creative ways to say it cannot act on behalf of citizens who are victims of such orchestrated thievery. I’ve written about this in the context of pipelines that include a 54% to 75% markup of their net profits to cover the corporate income tax, even though they are exempt from that tax. After I detailed the inconsistent positions taken by Judge David B. Sentelle, the next time the issue came up the judge returned to the principled basis for his first ruling, in which he held that a tax that never gets to the government is not properly forced on customers.
Laws regulating electricity, natural gas, water and other legal monopolies are based on the principle of “just and reasonable.” That means owners are entitled to just and reasonable profits so they will invest and customers are entitled to just and reasonable prices that provide normal, not artificially inflated, profits.
The standard set in an important utility court case is that even one dollar of excess profit violates this standard, as Gordon Gooch, former general counsel for what is now the Federal Regulatory Commission, has repeatedly reminded the commission and the courts, but they then routinely dismiss his point even when billions of dollars of excess profit are generated through manipulating the regulatory system to create unjust and unreasonable excess profits.
The federal appeals court acknowledged that to artificially jack up New England electricity prices, the new owners of one of the biggest electric power plants in Massachusetts announced plans to close it just before the 8th annual auction in 2014. Judge Pillard did not, as judges usually do, couch the decision in terms of what the plaintiffs allege, but wrote of it as established fact, going on for several long paragraphs.
Here are the opening words of her opinion:
Petitioners challenge the failure of the Federal Energy Regulatory Commission to account for the effect on electricity prices of the permanent retirement of the Brayton Point Power Station, a coal-fired electric plant in Somerset, Massachusetts. Brayton Point’s owners announced the closure just before the New England regional independent system operator ran its eighth annual forward capacity auction—too late for other wholesale electricity suppliers to participate in the auction and pick up the slack. The resulting constricted supply contributed to a spike in the auction clearing price, to the benefit of the owner’s other plants and to the detriment of retail electricity customers.
The judges sent this issue back to FERC, also on technical grounds.
So there is at least a sliver of justice here: the biggest year of price gouging must be looked at again by FERC. My reading of the opinion is that Pillard holds no brief for FERC, which makes the phony excuse for not dealing with the other two years even more disturbing.
All three judges in this case were appointed by Democratic presidents, Pillard and the third judge by former President Barack Obama, Rogers by former President Bill Clinton.
Imagine what will happen to consumers in the future as more judges are appointed by Trump, who makes clear his own disdain for the rule of law and who has gone out of his way to nominate judges whose past decisions demonstrate even less respect for what Trump calls the Forgotten Man than these three judges have by ginning up a technicality to get out of doing the work we pay them to do.
*Correction: An earlier version of this story misidentified the court as the U.S. Court of Appeals for the Federal Circuit.