Petition — Indiana & Michigan Electric Co. v. City of Mishawaka
Supreme Court brief1978
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Supreme Court, U. S.
a
NOV 14 1977
IN THE
Supreme Court of the United Beaty ve. cccen
October Term, 1977
Nog 7-689
INDIANA & MICHIGAN ELECTRIC COMPANY,
Petitioner,
CITY OF MISHAWAKA, INDIANA,
CITY OF NILES, MICHIGAN,
CITY OF COLUMBIA CITY, INDIANA,
CITY OF BLUFFTON, INDIANA,
CITY OF GARRETT, INDIANA,
CITY OF GAS CITY, INDIANA,
TOWN OF FRANKTON, INDIANA,
TOWN OF WARREN, INDIANA,
TOWN OF NEW CARLISLE, INDIANA, and
TOWN OF AVILLA, INDIANA,
municipal corporations,
Respondents.
—— — = ——————_
————-- ~~ —_— — -—— =
PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
—-—
——
WauitNey NortH SEYMOUR
Counsel for Petitioner
One Battery Park Plaza
New York, New York 10004
(212) 483-9000
Of Counsel:
RicHarD M. DIcKE
PETER J. SCHLESINGER
Dennis G. JACOBS
Simpson THACHER & BARTLETT
Tuomas W. YODER
LAWRENCE A. LEvy
LIVINGSTON, DiILpDINE, HAYNIE & YODER
November 14, 1977
TABLE OF CONTENTS
PAGE
Opinions and Orders Below ................ siiadliuadthapsindscaonenactaiion 2
I i ll eee | 2
FEET et ENE LE I ON 2
ESI. SUCP o0eAs Eee REA TORS OR 3
I oo disteaabcaaseauiklie 3
ek Te I prehiiscittietiisdctcinnnsibidndabtirnains, 4
B. I&M’s Motion to Dismiss ..............0.00...0000000..... 5
©. FPPC ¥. Comamaay COOP. .......r.cceccccsvscscescscscscsessssccees. 6
D. Court of Appeals Decision ..........0.00.0.0..00000.... 8
Reasons for Granting the Writ .........0.00....00.000.0000000. 10
Point I—The decision below disregards the natural
implications of Conway and will encourage the
growing practice of filing dual claims of price
squeeze with both FPC and the district court...... 10
Point II—The decision below conflicts with the prin-
ciples of implied repeal of the antitrust laws set
forth in Silver v. New York Stock Exchange, 373
U.S. 341 (1963); Gordon v. New York Stock Ex-
change, 422 U.S. 659 (1975) ; and United States v.
National Association of Securities Dealers, Inc.,
a chemi 16
Point I1I—The decision below relies on an over-ex-
pansive reading of Cantor v. Detroit Edison Co.,
428 U.S. 579 (1976), as this Court’s opinion in
Bates v. State Bar of Arizona, —— U.S. »
97 S.Ct. 2691 (1977) demonstrates .......00000.............. 20
II
PAGE
Point IV—Judicial economy requires that FPC exer-
cise primary jurisdiction over price squeeze alle-
(FRIESE 9 elie ri ore costes ev OSes 24
APR IN SE ae 28
ERENCE SSK A EO re la
Text of Statutes Relied On 0... la
Federal Power Act §205, 16 U.S.C. §824d a
Federal Power Act §206(a), 16 U.S.C. (824e(a)... 3a
Sherman Act §2, 15 U.S.C. §2 0 oo0oooocooocococococeeococeccscees 4a
Clayton Act §4, 15 U.S.C. §15 ooo. 4a
Clayton Act §16, 15 U.S.C. §26 ooo. 5a
Order and Judgment of the Court of Appeals __... 6a
Opinion of the Court of Appeals 0.0... 7a
Order and Memorandum of the District Court,
race EIR vase 3la
Order of the District Court, October 22,1976... d4a
I a 55a
Amendment to the Complaint 63a
Iil
TABLE OF AUTHORITIES
PAGE
Cases:
Bates v. State Bar of Arizona, —— U.S. ——, 97 S.Ct.
2691 (1977) .........0..... "REA CRERE Weert? A oA L OER SDT eT OOTT 21
Bluefield Water Works & Improvement Co. v. Public
Service Commission, 262 U.S. 679 (1923) ............., 13, 23
Borough of Elwood v. Pennsylvania Power & Light
Co., Civil No. 77-1145 (W.D. Pa.) ................::::ccs00e 11-12
Boston Edison Co., FPC Op. No. 809, Docket Nos. E-
7738 and E-7784, 12 F.P.S. 5-577 (July 6,1977) ... 10
Cantor v. Detroit Edison Co., 428 U.S. 579 (1976) ....8, 9, 10,
20, 22
Carolina Power & Light Co., FPC Docket No. ER76-
495 (Phase II), Initial Decision of the Adminis-
trative Law Judge (Sept. 7, 1977) 0... 13, 27
Central Power & Light Co., FPC Order, Docket No.
ER77-514 (October 14, 1977) .................:.:ccscssssoees 11
Cities of Batavia v. FPC, 548 F.2d 1056 (D.C. Cir.
ads 0 acc sa eaasincee lot iaaceesiaopiansodiienininnie 24
Cities of Batavia v. Commonwealth Edison Co., Civil
I a cess veliepeteenoiiloe 11
Cities and Villages of Plymouth v. Wisconsin Power
& Light Co., Civil No. 770223 (W.D. Wis.) .......... 11
City of Groton v. Connecticut Light & Power Co., Civil
a ee ceinseansioniaiaes 11
City of Kirkwood v. Union Electric Co., Civil No. 77-
ID I FN ooo scnssccsccccoresisernnsenines ie itis 11
City of Newark v. DelMarVa Power & Light Co., Civil
Nee aaedaliaebildas 11
City of Shakopee v. Northern States Power Co., Civil
a acesaniles 11
Columbus & Southern Ohio Electric Co., FPC Order,
Aug. 26, 1977, Docket No. ER77-529, 42 Fed. Reg.
I CS hy BUD iccteiceiniesecsncechicededinssnitinetinin 11
IV
PAGE
Commonwealth of Pennsylvania v. State of West Vir-
ginia, 263 U.S. S68 (19Z3) ...................ccessesseresereeee. 14
Conneeticut Power & Light Co., FPC Op. No. 761-A,
Docket No. E-7743, 12 F.P. Ss. 5-746 (July 20,1977) 11
Dayton Power & Light Co., FPC Order, Docket No.
EXB76-887 (October 13, 1977) ...............cccccceseeseeeees 11
Federal Power Commission v. Conway Corp., 510 F.2d
1264 (D.C. Cir. 1975), aff’d 426 U.S. 271 (1976) .... 7
Federal Power Commission v. Conway Corp., 426 U.S.
tee all 2, 6, 8, 10, 12, passim
Federal Power Commission v. Natural Gas Pipeline
Co., 315 U.S. 575 (1942) oon ccceccecceeee cere 13
Federal Power Commission v. United Gas Pipe Line
Co., 393 U.S. 71 (1968) o.oo eeeeeeeees 29
Gordon v. New York Stock Exchange, 422 U.S. 659
EEE ECC Cae ee 12, 17, 28
Gulf Power Co., FPC Docket No. ER77- +: ye 11
Louisiana Power & Light Co., FPC Order, Aug. 26,
1977, Docket No. ER77-533, 42 Fed. Reg. 44583-
585 (Sept. 6, 1977) 0 eecccccccceceeeeees 11
Minnesota Power & Light Co., FPC | nn Docket
No. ER77-427 (Sept. 26, 1977) veorseovesesceseesse
Parker v. Brown, 317 U.S. 341 (1943) 0... 9, 20, 21
Pennsylvania Power & Light Co., FPC Docket No. E-
8927, Order Affirming Initial Decision (March 24,
SI dilintiivisissuiinonsivsgsiieseimssvessnasvnpencvepeumnemaiandhmibszsasmmen 27
Philadelphia Electric Co., FPC Order No. 791, Docket
Nos. E-7795 and E-7989, 11 F.P.S. 5-906 (April 6,
BID scssecscccsesorncssrssossoncsusescsersesserenvesncsesvecsonersevsessavenareede 11
Public Service Commission v. F.P.C., 487 F.2d 1043
(D.C. Cir. 1973)... | Coe 18
Vv
PAGE
Richmond Power & Light v. Indiana & Michigan Elec-
tric Co., Civil No. 8 77-173 (N.D. Ind.) .................. 11
Silver v. New York Stock Exchange, 373 U.S. 341
I even sccisinicsuoesersesenscdammaameaaieaaae 16, 17, 28
Town of Norwood v. Boston Edison Co., Civil No. 74-
GEG CO TID ceceivccsscstincievscvtttsasntenmnananainns 11
Towns of Concord v. Boston Edison Co., Civil No. 76-
GED CRA TRIS « necsveisssessssissetsrcesvninscainiicaiaaennan 11
Union Electric Co., FPC Order, October 25, 1977,
Docket No. ER77-614, 42 Fed. Reg. 57515-516
Cae, BBG De . snsesvtsssscscrisercsnisittiensesenmencsiadahatmaan 11
United States v. National Association of Securities
Dealers, Inc., 422 U.S. 694 (1975) oo... 18, 28
United States v. Philadelphia National Bank, 374 U.S.
SE. GE schescaccvnitsictimnsiccseieecsmseiaiiaeeaan 18
Statutes and Regulations:
Sherman Act §2, 15 U.S.C. §2 0000... cceeteeeteeeeteees 3, 4
Clayton Act §4, 15 U.S.C. §15 oo... cccecceeeeseeeeteeeee 3
Clayton Act §16, 15 U.S.C. §26 20000. 3
Federal Power Act §205, 16 U.S.C. §824d - OER 25. 3, 23
Federal Power Act §206, 16 U.S.C. §824e ...................... 3, 23
Federal Power Act §313, 16 U.S.C. §825/ 2.0000... 6, 15
OD WB, GD vccscccctncirecccncininescictntescteanniadataiaens 2
St 1. C= EERE Eeee Remsen nin ne > 6
18 O.F.B. $35.13(b) (1) (1977) ...........ccccccsecsessscsssesseesees 26
Burns Ind. Stat. Ann., Title 8, §8-1-1-5 oo. 22
Mich. Stat. Ann., Title 22, §22.13(6) .................. headiamee 22
Miscellaneous Material:
FPC Order No. 563, issued March 21, 1977, 42 Fed.
Reg. 16131 (March 25, 1977), rehearing denied,
May 20, 1977, 42 Fed. Reg. 27574 (May 31,1977) 27
\
IN THE
Supreme Court of the United States
October Term, 1977
No.
rr
INDIANA & MICHIGAN ELECTRIC COMPANY,
Petitioner,
v.
CITY OF MISHAWAKA, INDIANA,
CITY OF NILES, MICHIGAN,
CITY OF COLUMBIA CITY, INDIANA,
CITY OF BLUFFTON, INDIANA,
CITY OF GARRETT, INDIANA,
CITY OF GAS CITY, INDIANA,
TOWN OF FRANKTON, INDIANA,
TOWN OF WARREN, INDIANA,
TOWN OF NEW CARLISLE, INDIANA, and
TOWN OF AVILLA, INDIANA,
municipal corporations,
Respondents.
PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Petitioner, Indiana & Michigan Electric Company, re-
spectfully prays that a writ of certiorari issue to review
the order and judgment and the opinion of the United
States Court of Appeals for the Seventh Circuit, entered
in this preceeding on August 16, 1977.
bo
Opinions and Orders Below
The order and judgment and the opinion of the Court
of Appeals, not yet officially reported, are reproduced in the
Appendix’ at 6a and 7a, respectively ; its opinion appears at
1977-2 CCH Trade Cas. §61,587. The May 1, 1975 order
and opinion of the district court, not officially reported, are
reproduced at 3le; its opinion appears at 1975-1 CCH
Trade Cas. {60,318 and at 18 P.U.R. 4th 175. The Octo-
ber 22, 1976 order of the district court, not otherwise re-
ported, is reproduced at 54a.
Jurisdiction
The order and judgment and the opinion (6a and 7a,
respectively) of the Court of Appeals were entered on
August 16, 1977. This petition for a writ of certiorari is
filed within 90 days of that date. This Court’s jurisdiction
is invoked pursuant to 28 U.S.C. §1254(1).
Questions Presented
Whether the United States Court of Appeals for the
Seventh Circuit erred in deciding that this Court’s de-
cision in Federal Power Commission v. Conway Corp., 426
U.S. 271 (1976), holding as it does:
1. that the Federal Power Commission has juris-
diction to consider allegations of an anticompetitive
‘price squeeze’’; and
2. that the Federal Power Commission must con-
sider allegations of an anticompetitive ‘price squeeze’’
in setting wholesale electric rates;
1. Citations with the suffix “a” are to the Appendix hereto.
3
does not vest in the Federal Power Commission? exclusive
or, alternatively, primary jurisdiction to hear and rule
upon plaintiffs’ ‘‘price squeeze’’ allegations.
Statutes Involved
This petition involves issues which require an accom-
modation between Sections 205 and 206(a) of the Federal
Power Act, on the one hand, and Section 2 of the Sherman
Act and Sections 4 and 16 of the Clayton Act, on the other
hand. These statutes are set out in the Appendix hereto
at la through 5a.
Statement of the Case
The jurisdiction of the district court was invoked by a
Complaint which purports to raise alleged violations of
the Sherman Act, §2, 15 U.S.C. §2, and of the Clayton Act,
§§4 and 16, 15 U.S.C., §§15 and 26 (1970). At issue on
this petition is whether or not there is an implied repeal
of antitrust jurisdiction in a district court, such repeal
being predicated upon the determination by this Court that
a regulatory agency must accept and exercise jurisdiction
over the identical allegations of specific antitrust violations
_ On October 1, 1977, pursuant to the provisions of the Depart-
wil of Energy Deseiadion Act, Public Law 95-91, 91 Stat. 565
(August 4, 1977) and Executive Order No. 12009, 42 Fed. Reg.
46267 (September 13, 1977), the Federal Power Commission ceased
to exist and its functions and regulatory responsibilities were trans-
ferred to the Secretary of Energy and the Federal Energy Regulatory
Commission which, as an independent commission within the Depart-
ment of Energy, was activated on October 1, 1977. We have, for
purposes of convenience, used the designation FPC” herein wherever
it is intended to re‘ cr to either the Federal Power Commission or the
Federal Energy Regulatory Commission.
4
in a regulated industry which are presented for determina-
tion by the Complaint filed in a district court.
Indiana & Michigan Electric Company (‘‘I&M’’) is an
electric utility engaged in the generation, transmission and
distribution of electric energy for sale both at retail and
at wholesale for resale. This antitrust action was com-
menced on March 25, 1974 in the United States District
Court for the Northern District of Indiana, South Bend
Division, against 1&M by ten of its municipal wholesale-
for-resale customers, which are located in the States of
Indiana and Michigan (‘‘ Municipalities’’).®
Municipalities instituted this action during the pendency
of lengthy proceedings before FPC, and the Complaint and
the Amendment to the Complaint allege matters which were
and which, in part, are still the subject of proceedings be-
fore FPC. In addition, the Complaint alleges matters which
were, and are, subject to the }urisdiction of the Public Serv-
ice Commissions ef Indiana and Michigan (‘‘Indiana Com-
mission’’ and ‘‘ Michigan Commission,’’ respectively).
A. The Complaint
The Complaint seeks declaratory and injunctive relief
and treble damages for alleged violations of Section 2 of the
Sherman Act. 61a. The Complaint alleges that I&M mo-
nopolized and attempted to monopolize interstate trade and
commerce in the retail distribution and sale of clectric
power. Specifically, it is charged that I&M sought to elim-
inate Municipalities as competitors in the sale of electric
3. I&M has other wholesale-for-resale customers—municipalities,
rural electric cooperatives and investor-owned utilities—which are not
plaintiffs here.
5
power at retail by creating a difference, i.e., a ‘‘price
squeeze,’’ between (a) the wholesale price I&M charges
Municipalities for the sale of electric power and (b) the
retail price I&M charges its direct industrial customers for
electric power.* 58a-60a.
Municipalities allege that the price squeeze prevents
them from competing effectively with I&M for industrial
customers. The Complaint charges that the price squeeze
is reflected in a rate increase made effective by FPC, sub-
ject to refund, on January 13, 1973, which affected the rates
charged Municipalities by I&M. 58a-59a. On May 28, 1976,
I&M made a further filing with FPC for an increase in its
wholesale rates to Municipalities, and an Amendment to the
Complaint alleges that a further price squeeze was created
when that increase became effective, subject to refund, on
July 27, 1976. 63a-64a.°
B. I1&M’s Motion to Dismiss
On May 1, 1974, I&M moved the district court to dismiss
or, in the alternative, to stay the instant proceedings. On
May 1, 1975, the district court, per District Judge Grant,
issued an Order and Memorandum denying I&M’s motion.
dla.
4. I&M has approximately 31 retail Tariffs on file with the Indi-
ana Commission, five of which I&M would concede are industrial
Tariffs ; I&M likewise has approximately 14 retail Tariffs on file with
the Michigan Commission, two of which I&M would concede are
industrial Tariffs. The complaint does not specify which of I&M’s
retail Tariffs create the alleged price squeeze.
5. I&M’s answer to the Complaint was served on June 27, 1975
and I&M’s answer to the amendment of the Complaint was served on
November 5, 1976.
6
On May 12, 1975, I&M filed a motion to reconsider,
vacate, set aside and amend the district court’s May 1, 1975
Order, and to certify for appellate review, pursuant to 28
U.S.C. §1292(b), the questions of law which are raised in
this Petition. On October 22, 1976, District Judge Sharp
adhered to District Judge Grant’s May 1, 1975 Order and
Memorandum, but certified the issue to the United States
Court of Appeals of the Seventh Circuit. 54a. The Court
of Appeals thereafter accepted the certification.
C. FPC v. Conway Corp.
In the early stages of the proceedings before FPC in-
volving I&M’s June 13, 1972 filing for upward revisions in
its wholesale rates (FPC Docket No. E-7740), FPC ruled,
in an Order issued November 27, 1973 and affirmed on
rehearing on January 17, 1974, that the claim of Municipal-
ities, among others, of a wholesale-retail price squeeze
would not be considered in the pending proceeding.® On
March 7, 1974, Municipalities, among others, filed a Petition
for Review, pursuant to Section 313 of the Federal Power
Act with the United States Court of Appeals for the Dis-
trict of Columbia Circuit to review FPC’s Orders of No-
vember 27, 1973 and January 17, 1974 and three weeks
later, on March 28, 1974 the Complaint herein was filed with
the district court.
On June 7, 1976, this Court issued its decision in Fed-
eral Power Commission v. Conway Corp., 426 U.S. 271
6. On January 31, 1974, the Presiding Administrative Law Judge
assigned to FPC Docket No. E-7740 granted an FPC Staff Counsel’s
motion to eliminate all price squeeze testimony and exhibits from FPC
Docket No. E-7740.
7
(1976), holding that FPC has jurisdiction, which it must
exercise, to consider allegations of an anticompetitive price
squeeze in setting wholesale electric rates. All parties
recognize the impact of Conway on the issues in this action.”
Following this Court’s decision in Conway, Municipalities
and the other members of the Indiana and Michigan
Municipal Distributors Association (‘‘IMMDA’’)® re-
quested FPC to ‘‘confess error’’ before the District of
Columbia Court of Appeals for FPC’s prior refusal to con-
sider IMMDA’s price squeeze allegations in connection
with IMMDA’s challenge to I&M’s 1972 rate increase filing.
In August, 1976, a suecessor FPC Presiding Administra-
tive Law Judge ruled on the issues involving I&M’s 1972
rate increase filing, and, among other things, he recom-
mended that the price squeeze issues raised by Municipal-
ities through IMMDA be resolved by FPC in further pro-
ceedings.°
7. 1&M’s motion for reconsideration of District Judge Grant's
Order and Memorandum of May 1, 1975 was predicated upon the
Court of Appeals decision in Conway, 510 F.2d 1264 (D.C. Cir. 1975),
subsequently affirmed by this Court.
8. IMMDA is an ad hoc association of twelve of I&M’s municipal
wholesale-for-resale customers, ten of which are the plaintiffs here.
9. Initial Decision, issued August 19, 1976 in FPC Docket No.
E-7740. Issues raised in Docket No. E-7740 were the subject of an
Agreement of Settlement and Compromise entered inio between
IMMDA and I&M, and that Agreement was approved by FPC in its
Order issued June 1, 1977. Municipalities contended before the
Court of Appeals that that Agreement did not bear upon their ability
to prosecute antitrust claims arising out of I&M’s 1972 rate filing,
and the Court of Appeals has directed the district court to determine
whether that Agreement has mooted any of the antitrust claims in
this case. As the Court of Appeals has noted, however, the claims
premised upon 1&M’s Juiy 27, 1976 wholesale rate filing with the FPC
are still “active.” 30a.
8
D. Court of Appeals Decision
In its opinion dated August 16, 1977, the Court of Ap-
peals affirmed both the May 1, 1975 and October 22, 1976
orders of the district court and held that FPC’s jurisdic-
tion, under Conway, to hear and determine price squeeze
allegations is neither exclusive nor primary, and that the
district court may proceed to determine the antitrust al-
legations raised in this action.
The Court of Appeals ruled that FPC’s price squeeze
jurisdiction is not exclusive because its remedial powers
are not coextensive with those of the district court. Rely-
ing upon this Court’s observation in Conway, that FPC’s
power to remedy an anticompetitive price squeeze is limited
to a wholesale rate adjustment ‘‘at the very least’’ to the
lower range of the zone of reasonableness for the recovery
of fully allocated costs (426 U.S. at 279), the Court of
Appeals found that the powers of the district court, includ-
ing the power to grant treble damages and injunctive relief,
are required to supplement those of FPC. 14a-16a, 20a,
26a. Thus, the decision below turned on an erroneous as-
sumption that exclusive jurisdiction in a regulatory agency
can only be found when it has remedial powers that are co-
extensive with the remedial powers of a district court.
Moreover, the Court of Appeals erroneously analyzed
this Court’s decision in Cantor v. Detroit Edison Co., 428
U.S. 579 (1976), which held that that utility’s light bulb ex-
change program was not exempted from the federal anti-
trust laws by virtue of that program’s inclusion in a rate
tariff filed with, and approved by, a State public service
9
commission. Applying the language of Cantor to the in-
stant case, the Court of Appeals ruled that ‘‘[t]he state
utility commissions have only put the imprimatur of their
sanction on the retail rates charged by the defendant’’
(17a), and that the state action’® exception to the federal
antitrust laws was therefore inapplicable.
The decision below declared that FPC’s regulatory
process would not be disturbed by an award of damages for
past anticompetitive conduct or by a district court injuns-
tion regulating I&M’s conduct ‘‘in making and promoting
its rate applications’’ prior to their submission to varie’
regulatory agencies. Any conflict between deterininat*«
in the district court and FPC would be avoided, the Couir
of Appeals held, because ‘‘the district court would presum-
ably order [I&M] to file a new wholesale rate application
that would remove the disparity between the rates charged
plaintiffs and defendant’s industrial customers.’’ 26a.
The Court below therefore held that FPC’s jurisdiction to
hear and determine price squeeze claims is not exclusive
and, therefore does not oust the district court of its juris-
diction, under the federal antitrust laws, to determine the
same claims.
Further, the Court of Appeals rejected I&M’s argu-
ments that FPC’s jurisdiction to hear and determine price
squeeze claims is at least primary and that the district
court proceedings should be stayed pending a determina-
tion by FPC.
10. Parker v. Brown, 317 U.S. 341 (1943)
10
Reasons for Granting the Writ
The argument that follows demonstrates that the Court
of Appeals decision has so far departed from the accepted
and usual course of judicial proceedings and has so far
sanctioned such a departure by the district courts, as to
call for an exercise of this Court’s power of supervision.
The decision of the Court of Appeals will disrupt the or-
derly regulatory process because (1) the decision below
will encourage the growing practice of filing dual price
squeeze claims with FPC and with the district courts; (2)
the ruling of the court below directly conflicts with the
principles of antitrust repealer set forth in decisions of
this Court; (3) the decision below relies upon an over-
expansive reading of this Court’s ruling in Cantor; and
(4) judicial economy requires that FPC exercise primary
jurisdiction, at least, over price squeeze claims.
POINT I
The decision below disregards the natural implica-
tions of Conway and will encourage the growing prac-
tice of filing dual claims of price squeeze with both
FPC and the district court.
This Court’s decision in Conway directs FPC to resolve
claims of an anticompetitive price squeeze arising from
differing wholesale and retail rates, and to alleviate any
anticompetitive price squeeze found to exist to the extent
of its jurisdiction. Numerous price squeeze claims of the
kind at issue herein have been filed with FPC. E.g., Bos-
ton Edison Co., FPC Op. No. 809, Docket Nos. E-7738 and
11
E-7784, 12 F.P.S. 5-577 (July 6, 1977) ; Connecticut Power
dé Light Co., FPC Op. No. 761-A, Docket No. E-7743, 12
F.P.S. 5-746 (July 20, 1977); Dayton Power & Light Co.,
FPC Order, Docket No. ER76-887 (October 13, 1977);
Minnesota Power & Light Co., FPC Ruling, Docket No.
ER77-427 (Sept. 26, 1977); Central Power & Light Co.,
FPC Order, Docket No. ER77-514 (October 14, 1977) ; Gulf
Power Co., FPC Docket No. ER77-532; Lowisiana Power
& Light Co., FPC Order, Aug. 26, 1977, Docket No. ER77-
533, 42 Fed. Reg. 44583-585 (Sept. 6, 1977) ; Columbus &
Southern Ohio Electric Co., FPC Order, Aug. 26, 1977,
Docket No. ER77-529, 42 Fed. Reg. 44026-027 (Sept. 1,
1977); Union Electric Co., FPC Order, October 25, 1977,
Docket No. ER77-614, 42 Fed. Reg. 57515-516 (Nov. 3,
1977). See also Philadelphia Electric Co., FPC Order No.
791, Docket Nos. E-7795 and E-7989, 11 F.P.S. 5-906 (April
6, 1977) (reverse price squeeze asserted by utility). Simi-
larly, numerous price squeeze claims of the kind at issue
herein have been filed in the district courts across the coun-
try. E.g., Cities of Batavia v. Commonwealth Edison Co.,
Civil No. 76 C 4388 (N.D. Ill.) ; City of Newark v. DelMar-
Va Power & Light Co., Civil No. 77-234 (D. Del.) ; City of
Shakopee v. Northern States Power Co., Civil No. atin
(D. Minn.) ; City of Kirkwood v. Umon Electric Co., Civil
No. 77-0947-C(2) (E.D. Mo.) ; Town of Norwood v. Boston
Edison Co., Civil No. 74-4104T (D. Mass.) ; City of Groton
v. Connecticut Light & Power Co., Civil No. 15609 (D.
Conn.) ; Towns of Concord v. Boston Edison Co., Civil No.
76-4556 (D. Mass.) ; Richmond Power & Light vy. Indiana &
Michigan Electric Co., Civil No. S 77-173 (N.D. Ind.) ;
Cities and Villages of Plymouth v. Wisconsin Power &
Light Co., Civil No. 770223 (W.D. Wis.) ; Borough of El-
12
wood v. Pennsylvania Power & Light Co., Civil No. 77-1145
(W.D. Pa.).™
The Court of Appeals’ decision encourages the practice
of dual proceedings, administrative and judicial, and re-
quires the federal courts to hear and determine the same
issues that are being heard and determined by FPC. While
a district court’s determination in a price squeeze case
might appear to have the virtue of operating upon whole-
sale and retail rates, it has the concomitant and fatal dis-
advantage of interfering with all levels of the rate-making
process previously entrusted to FPC and to the State com-
missions. A second regulatory system for wholesale and
retail rate-making is thus being created in the federal
courts, whose background in the field does not commend
them to be preferred over the natural and specially chosen
regulatory agencies, federal and State.
I&M does not believe that this Court entertained and
decided the Conway case, mandating FPC to exercise its
jurisdiction to resolve antitrust price squeeze allegations
in the electric utility industry, in the expectation that the
district courts would coxduct parallel proceedings on pre-
cisely the same issue. The orderly distribution of juris-
diction, related both to convenience and natural compe-
tency, contemplated by Conway, is disrupted by the invi-
tation to multiple proceedings which is inherent in the
decision below. The logical corollary to this Court’s hold-
ing in Conway is that the district court is not expected to
exercise jurisdiction over the identical subject matter, since
existence of district court jurisdiction over these issues
would have obviated any necessity for this Court to re-
11. Clearly, the liminal jurisdiction issues raised by this petition,
and directly involved in each of the cited cases, can and should be
resolved at the outset of the litigation. Gordon v. New York Stock
Exchange, 422 U.S. 659, 686 (1975).
13
quire FPC, with its jurisdictionally limited ability to pro-
vide a remedy, to hear them as well.
The Court of Appeals indicates that the district court
is a necessary forum for allegations of anticompetitive
price squeezes because, under Conway, FPC’s ability to
remedy the squeeze is limited, ‘‘at the very least,’’ to the
setting of the wholesale rate in the lower range of the zone
of reasonableness. 14a-16a. That power may indeed be
quite sufficient. See Carolina Power & Light Co., FPC
Docket No. ER76-495 (Phase II), Initial Decision of the
Administrative Law Judge at 82 (Sept. 7, 1977). The
right course would seem to be to allow FPC to exercise
its jurisdiction as this Court has required, without pro-
ceeding on the assumption that it will administer relief
improperly and require a district court to be constantly
looking over its shoulder. Should FPC fail in its duty,
there is an obvious remedy without need for a perennial
monitor, for a rate set below the zone of reasonableness
would be confiscatory and therefore unconstitutional.
Federal Power Commission v. Natural Gas Pipeline Co., 315
U.S. 575, 585 (1942); Bluefield Water Works & Improve-
ment Co. v. Public Service Commission, 262 U.S. 679
(1923) ; Public Service Commission v. F'.P.C., 487 F.2d 1043,
1092 (D.C. Cir. 1973).
The Court of Appeals’ rationale for rejecting the prin-
ciple of exclusive jurisdiction in FPC is that its remedial
power is limited by Conway to its jurisdictional power to
set rates within the zone of reasonableness. However, a
wholesale rate level set below the zone of reasonableness
would be confiscatory and therefore unconstitutional
14
whether imposed by FPC or by the district court. Thus
any district court injunction affecting I&M’s rate submis-
sions to FPC and to the State Commissions would have to
consider the justness and reasonableness of the rate, in-
cluding the rate of return, a concept reflecting the public
interest in the financial soundness of essential private util-
ities, as well as all of the other public interest considera-
tions that animate the administration of the Federal Power
Act and the several State public utility regulatory stat-
utes. Under the procedure envisioned by the Court of
Appeals below, the district courts would be conducting
parallel and duplicative reviews of I&M’s submissions to
FPC and to the Indiana and Michigan Commissions, and
the district courts would have the power and obligation to
make parallel determinations in matters of regulatory
mechanics that have been delegated to administrative
agencies.
In Commonwealth of Pennsylvania v. State of West
Virginia, 262 U.S. 553 (1923), Justice Brandeis, in dissent,
viewed as unacceptable the assumption by this Court, and
impliedly by the federal court system, of suits requiring
the exercise of regulatory judgments in an area of com-
merce over which the Commission would later exercise
jurisdiction:
**Clearly, this Court could not undertake such de-
terminations. To make equitable distribution [of gas]
would be a task of such complexity and difficulty that
even an interstate public service commission with broad
powers, perfected administrative machinery, ample re-
sources, practical experience and no other duties, might
fail to perform it satisfactorily. As this Court would
be powerless to frame a deeree and provide machinery
15
by means of which such equitable distribution of the
available supply could be effected, it should, according
to settled practice, refuse to entertain the suits. Com-
pare Marble Co. v. Ripley, 10 Wall. 339, 358; Texas &
Pacific Ry. Co. v. Marshall, 136 U.S. 393, 406; Giles v.
Harris, 189 U.S. 475, 487, 488.’’ 262 U.S. at 623.
The duplication of judicial administrative effort would,
of course, have its counterpart in parallel and duplicative
review mechanisms. If FPC concludes that I&M’s whole-
sale rate is ‘‘just and reasonable’’ and that it does not
create an anticompetitive price squeeze, the appropriate
judicial forum for reconsideration of FPC’s determination,
as provided by statute, would be the court of appeals em-
powered to review FPC’s decisions under Section 313 of
the Federal Power Act, 16 U.S.C. §825/ (1971). If the dis-
trict court is not required to dismiss this action, as IGM
contends it is, or does not choose to stay this action for any
reason, the appellate procedure available in antitrust cases
would result in the delivery of a second complete record,
incorporating perhaps inconsistent findings of fact, to a
second court of appeals. One court of appeals might sit
in review of the district court’s action while another sits in
review of FPC proceedings; alternatively, a single court of
appeals might sit in review of two determinations on the
same issue, based upon two separate records, and would be
governed by disparate standards of review. In neither
event would judicial economy be served; inevitably there
would be duplication of effort on the part of courts, liti-
gants and witnesses. The danger of conflicting results is
patent.
16
POINT II
The decision below conflicts with the principles of
implied repeal of the antitrust laws set forth in Silver
v. New York Stock Exchange, 373 U.S. 341 (1963);
Gordon v. New_York Stock Exchange, 422 U.S. 659
(1975), and United States v. National Association of
Securities Dealers, Inc., 422 U.S. 694 (1975).
The Court of Appeals’ decision virtually assures that
complex issues of ratemaking will be made su}ject to con-
flicting and duplicative fact-finding and review and creates
a grave potential for irreconcilable collision between regu-
latory and judicial resolutions of price squeeze allegations
involving the electric utility industry. <A line of decisions
issued by this Court, and not followed by the Court of Ap-
peals, avoids just such conflict and duplication. This Court
should grant review to consider that, if as we believe, this
line of decisions is clearly applicable, the Court of Appeals
erred in not applying it.
In Silver v. New York Stock Exchange, 373 U.S. 341
(1963), this Court upheld application of the antitrust laws
to the Exchange’s act of severing plaintiff’s private tele-
phone wire connections with the Exchange’s member firms,
on the ground that the Exchange’s rule authorizing such an
act, while sanctioned by the Securities and Exchange Coni-
mission (‘‘SEC’’), was nevertheless not subject to SEC
jurisdiction with respect to the particular applications of
the Exchange’s rule. 373 U.S. at 357. The Court found no
implied repeal of the federal antitrust laws in Silver be-
cause the facts presented and the claims asserted did not
12. A Petition for a Writ of Certiorari was filed on September 8,
1977, in American Telephone & Telegraph Co. vy. United States,
Docket No. 77-372, which raises similar issues arising under different
procedural circumstances.
17
involve ‘‘any problem of conflict or coextensiveness of cov-
erage with the agency’s regulatory power.’’ 373 U.S. at
358. The Court noted, however, that a ‘‘different case’’
would have arisen if there had been SEC ‘‘jurisdiction and
ensuing judicial review for scrutiny of a particular ex-
change ruling.’’ 373 U.S. at 358 n.12.
The instant action presents such a ‘‘different case’’ be-
cause I&M’s rates are subject to searching review before
FPC and the State regulatory agencies. In that sense, it
presents the identical legal issue decided by this Court in
Gordon v. New York Stock Exchange, 422 U.S. 659 (1975).
There, the very conflict held absent in Silver was found to
exist, beceuse of the SEC’s power over fixed rates on bro-
kerage commissions and the district court’s jurisdiction
over the antitrust implications of those rates. In Gordon,
this Court found it critical that the SEC’s power was not
limited to approval or disapproval of the Exchange’s com-
mission rates and that the SEC ‘‘was permitted to require
alteration or supplementation of the rules and practices’’
where necessary. 422 U.S. at 685. Distinguishing Silver,
this Court noted that ‘‘there was no governmental oversight
of the exchange’s self-regulatory action’’ in that case, ‘‘and
no method of insuring that some attention at least was
given to the public interest in competition.’’ 422 U.S. at
684. The principles enunciated in Gordon, where the anti-
trust laws were held inapplicable to the rate because it was
subject to change by the regulatory authority (that is, be-
cause the SEC had a species of rate-making authority), are
applicable to the instant case. Here, pervasive rate-mak-
ing authority is vested in FPC and in the State regulatory
agencies, and F'PC is mandated, under Conway, to consider
the public interest in competition in setting the wholesale
rates paid by the Municipalities.
18
On the same day this Court decided Gordon, it also
ruled, in United States v. National Association of Securities
Dealers, Inc., 422 U.S. 694 (1975), that the SEC’s regula-
tory authority ‘‘displaces’’ the federal antitrust laws with
respect to fixed resale prices of mutual fund shares in see-
ondary market transactions. Even though the SEC had
never formulated any rule or regulation governing such
transactions, an implied repeal of the antitrust laws was
nevertheless held to exist by reason of the statutory au-
thority for mutual funds to impose the challenged restriec-
tions, provided, inter alia, that they did not conflict with
any SEC rule or regulation. This Court deduced the in-
tention of Congress to effect an implied repeal of the anti-
trust laws from the ‘‘substantial danger that appellees
would [otherwise] be subjected to duplicative and incon-
sistent standards.’’ 426 U.S. at 735. Thus the power of
the regulatory body to make rules and regulations, even
where that power had not been exercised, was sufficient to
create that ‘‘plain repugnancy’’ between the regulatory
scheme and the application of the antitrust laws required
to cifect an implied antitrust immunity, as earlier held in
United States v. Philadelphia National Bank, 374 U.S. 321,
351 (1963).
The Court of Appeals decision herein purports to avoid
the problem of conflict between regulatory and judicial
powers by noting that the district court could remedy an
alleged price squeeze by an injunction bearing upon the
formulation by I&M of its rate filings prior to their sub-
mission to FPC and to the State commissions. The district
court thus is encouraged to influence the outcome of the
various rate-making procedures by bringing its power to
19
bear upon the filings themselves prior to any regulatory
consideration of them. This formulation effectively stands
orderly administrative procedure for rate-making on its
head.
This Court stated in Conway that FPC has remedial
power ‘‘at the very least’’ to reduce 1&M’s wholesale rates
to the lower reaches of the ‘‘zone of reasonableness.’’ 426
U.S. at 279. The Court of Appeals decision below rests
heavily upon FPC’s inability fully to alleviate a price
squeeze between the wholesale and retail price structures,
irrespective of the zone of reasonableness for wholesale
rates. I&M submits that the limitation on FPC’s remedial
power embodied in Conway springs from the lively aware-
ness that an anticompetitive price squeeze is only one of
the myriad considerations to be taken into account by FPC
in a wholesale rate case and that its determination must
serve a complex set of competing public interests. These
competing interests cannot be sidestepped’or ignored by the
Court of Appeals’ expedient of endowing the district court
with its own supervisory powers over rate-making.
In Conway, this Court refrained from directing FPC to
sacrifice any and all other considerations to the alleviation
of an anticompetitive price squeeze. However, if electric
utilities are to be made subject to district court mandates
with respect to the formulation of their rate filings, the
federal courts will have rendered antitrust considerations
paramount to all other public interests served by rate-mak-
ing procedures. The Court of Appeals’ decision below ef-
fectively restricts FPC’s necessary flexibility in rate-mak-
ing by asserting district court jurisdiction over rate filings
prior to their submission to the appropriate regulatory
agency.
20
The Court of Appeals recognized that any clear repug-
nancy between the regulatory and judicial powers would
effect a repealer of the antitrust laws. Its decision there-
fore emphasized its view that there would be no conflict
between a district court injunction affecting the formula-
tion of I&M’s submissions, prior to filing, and whatever
rate order ultimately issued from FPC. The danger in-
herent in and created by that analysis, however, is that the
district court would render FPC helpless to set a higher
rate than the rate required to be submitted to FPC under
the district court mandate, even where a higher rate would
be necessary not only to provide a rate of return sufficient
to ensure the financial soundness and integrity of the public
utility, but also to assure that the rates themselves are not
confiscatory. Thus, although conflict in terms between the
regulatory and judicial determinations might appear to be
avoided, a clear repugnancy remains. This certainly exalts
furm over substance.
POINT III
The decision below relies on an over-expansive
reading of Cantor v. Detroit Edison Co., 428 U.S. 579
(1976), as this Court’s opinion in Bates v. State Bar of
Arizona, U.S. , 97 S.Ct. 2691 (1977) dem-
onstrates.
Orderly rate making procedures for the electric utility
industry have been imperiled by the Court of Appeals’ over-
expansive reading of Cantor v. Detroit Edison Co., 428 U.S.
079 (1976). In Cantor, this Court declined to apply the
Parker v. Brown exception to the antitrust laws with re-
spect to Detroit Edison’s policy of distributing free light
13. 317 U.S. 341 (1943).
21
bulbs. Despite the approval by the State utility commis-
sion of a tariff including-such a program, this Court noted
that the ‘‘option to have .. . such a program’”’ belonged
primarily to the utility. 428 U.S. at 594. The Court of
Appeals in its decision below has imperiled the rate-mak-
ing machinery by applying that rationale to I&M’s rate
applications in their totality; i.c., the Court of Appeals
ruled that a utility has the ‘‘option’’ of creating or not
creating a price squeeze at the time it formulates its rate
filings, and that no State has an ‘‘interest’’ in maintaining
a price squeeze.
Cantor held, as this Court has said in Bates v. State
Bar of Arizona, U.S. ——, 97 S.Ct. 2691 (1977), that
the Parker v. Brown exception is inapplicable to particular
programs or activities in which the ‘‘market’’ affected is
one in which the state has no ‘‘independent regulatory in-
terest.’’? The Parker v. Brown exception was thus unavail-
able in Cantor because the ‘‘State had no independent reg-
ulatory interest in the market for light bulbs.’’ Bates at
2697. However, the market affected by the type of order
envisioned by the Court of Appeals here is no less than the
retail market for the generation and distribution of electric
power, in which the states have a powerful regulatory in-
terest and over which they exercise and have legislated per-
vasive regulation.
The Court of Appeals has misconstrued the Cantor test
by looking to the ‘‘challenged activity’? rather than to the
market in which that activity takes place. The opinion
below suggests that the States have no interest in perpe-
tuating the challenged activity, ie., the alleged price
squeeze (17a), and has thus opened the entire field of rate-
22
making to district court supervision. The Court of Ap-
peals’ analysis improperly sidesteps any evaluation of the
States’ interests in the market affected, i.e., the sale of
electric power, even though that inquiry is critical to any
application of the Cantor principle.
The indiscriminate breadth of the Court of Appeals’
reading of Cantor is demonstrated by a comparison of the
relative impact of the rulings in Cantor and in the instant
case upon rate-making regulatory procedure. Under Can-
tor, the district court may direct the utility to remove from
its retail electric rate tariff a single discrete item whose
market is not subject to any pervasive regulatory scheme
and in the market for which the state has no ‘‘independent
regulatory interest’’; in the instant case, the district court
is given supervision over wholesale and retail tariffs for
electric power, a supervision which embraces the mechanics
of formulating the tariffs, the appropriateness of their in-
dividual elements, the fairness of the individual tariffs and
the interrelationship of different rates set by different reg-
ulatory jurisdictions.
The States of Indiana and Michigan have manifested
their interest in electric utility rate-making by implement-
ing pervasive administrative procedures for its regulation.
The Court of Appeals declared below that the Indiana and
Michigan Commissions ‘‘have only put the imprimatur of
their sanction on the retail rates charged by the defendant’”’
(17a); however, the Indiana and Michigan Commissions
function under broad grants of statutory authority: Burns
Ind. Stat. Ann., Title 8, §8-1-1-5 (1973); Mich. Stat. Ann.,
Title 22, §22.13(6) (1970). Although I&M’s retail electric
rates originated in the form of requests by I&M for rate
23
charges, they have emerged from the respective State com-
missions, after notice and adversary proceedings, as prod-
ucts of those commissions.'"* The Complaint herein does
not and could scarcely allege otherwise. It has been settled
for over half a century that
‘‘[t]he prescribing of rates is a legislative act. The
[Public Service Commission of West Virginia] isan
instrumentality of the State, exercising delegated pow-
ers. Its order is of the same force as would be a like
enactment by the legislature.’’ Bluefield Water Works
& Improvement Co. v. Public Service Commission, 262
U.S. 679, 683 (1923).
Similarly, FPC, as an instrumentality of Congress, pos-
sesses and exercises vast discretionary power over whole-
sale tariffs. Federal Power Act, §§205 and 206.
The grant of parallel regulatory power in the district
court to govern the relationship between the several retail
and wholesale rate structures, to issue findings of fact with
respect to each and to regulate by injunction the initial
submissions in their totality, raises a likelihood of conflict
between regulatory and judicial functions. The unseem-
liness of a struggle for priority and public acceptance con-
ducted by separate regulatory bodies over the same battle-
ground is evident and could be avoided by a proper reading
and appreciation of this Court’s decisions. The economic
and judicial waste inherent in such duplicative procedures
is no less disturbing.
14. As a matter of public record, I&M’s 1976 filing for a retail
rate increase of approximately $75 million from the Indiana Commis-
sion resulted in an order from that Commission granting an increase
of only about $41 million. While the factual allegations contained in
the Complaint are deemed to be true in the motion which is the sub-
ject of this petition, the Complaint nowhere indicates whether the
charge of a predatory retail rate is based upon I&M’s submissions to
the State commissions, or upon the orders of the State commissions.
POINT IV
Judicial economy requires that FPC exercise pri-
mary jurisdiction over price squeeze allegations.
The Court of Appeals also declined to rule that FPC
has primary jurisdiction over anticompetitive price squeeze
allegations, adding that this antitrust action could be held
in abeyance at some later time if deference to FPC would
avoid a ‘‘significant inconsistency’’ that would be ‘‘certain
to arise’’ between the judicial and regulatory proceedings.
23a. I&M submits that the Court of Appeals’ denial to
FPC of at least primary jurisdiction was error, particu-
larly since the chief justification offered by the Court of
Appeals for the conduct of parallel judicial and regulatory
proceedings was the superior remedial power of the district
court.
FPC is uniquely qualified by its expertise to render
determinations with respect to the threshold question of
whether or not an anticompetitive price squeeze exists. As
previously noted, that issue raises singularly complex ques-
tions involving numerous technical variables. In Cities of
Batavia v. FPC, 548 F.2d 1056 (D.C. Cir. 1977), decided
after Conway, the court vacated a pre-Conway FPC order™
declining to exercise jurisdiction over a price squeeze claim
virtually identical to that raised in this action. On review,
FPC argued that there was a justified differential between
the wholesale rate paid by plaintiff municipalities, whose
energy demands coincided with the peak load of the system,
and the retail rate paid by industrial customers, whose
15. Petitioners in that case appeared before the Seventh Circuit
as Amicus Curiae.
25
energy demands generally did not coincide with the peak
load of the system. In the exercise of its review powers
over FPC orders, the District of Columbia Circuit re-
manded, enumerating some of the complex issues to be
resolved by FPC::
‘‘Under the Conway doctrine the Commission func-
tion extends not only to consideration of the existence
of a difference between jurisdictional and non-juris-
dictional rates, but also to the anticompetitive impact
of the particular magnitude of rate differential. The
Commission’s counsel indicates that the amount of
the differential set by the Commission is more than
justified by the cost differences of the two services.
This contention, however, requires a knowledge of the
nature of the system’s costs, both fixed and variable,
as well as the basis for cost calculations. While it may
be that an engineer could make the calculation on the
basis of the data in the record, we cannot in a case
like this proceed on the basis of calculations by coun-
sel any more than we can accept a rationale by counsel
that is not in the Commission’s findings. Hence the
case must be remanded for consideration in the light
of Conway.
‘A commission engaged in consideration of rate
profiles in the light of Conway at the outset may also
discern a question as to the reasonableness of a classi-
fication that treats all industrials as a single class,
distinct from municipals, on the basis of underlying
timing of peak load, when the utility’s rate structure
does not set the demand and energy charges in terms
of the time of peak load of the customer. If a sub-
stantial number of industrial consumers have their
peak load at a time roughly the same as those of the
cities, there is a substantial ousting from the market
with no difference in conditions of service. And when
26
there is a competitive advantage to the utility in blan-
keting such industrials along with other industrials
(whose peak characteristics may produce cost savings),
there is room for concern on the part of the regulating
commission.’’ 584 F.2d at 1057-58.
There is, in short, no way to determine whether the electric
utility rate structures are discriminatory without a de-
tailed technical investigation and analysis of the rates and
of their components.
The existence of a price squeeze is a question further
complicated by the fact that differing ratemaking proce-
dures employed by different regulatory commissions vir-
tually mandate a differential of some magnitude between
and among the resulting rates. For example, the Indiana
Commission, upon receipt of a petition from I&M that an
adjustment in its retail tariffs is required, establishes the
test year to be employed; I&M thereupon prepares a cost
of service study for the test year so designated, together
with its claim of a fair and reasonable return on a fair
value rate base. Only then are revenue deficiencies deter-
mined and a request for specified rate relief made. To
date, the Indiana Commission has required the use of an
historic test year. By contrast, FPC regulations now re-
quire, for all rate increases in excess of $1 million, the use
of a prospective test year. 18 C.F.R. §35.13(b)(1) (1977).
Unless all costs remain static between the historic test year
designated by the Indiana Commission and the prospective
test year utilized by FPC, some differential between the
retail and wholesale rates is virtually inevitable.
FPC’s expertise is thus required to determine the ex-
istence of an anticompetitive price squeeze prior to the
27
consideration of appropriate remedies by any forum.
Thus, in Pennsylvania Power & Light Co., FPC Docket
No. E-8927, Order Affirming Initial Decision at 5 (March
24, 1977), FPC ruled that
‘‘ft}here is no evidence of any anticompetitive pur-
pose, the [wholesale] rates are at the bottom of the
zou.e of reasonableness and it appears that there still
is and can be competition for industrial loads.’’
Manifestly, if there is no anticompetitive price squeeze, an
issue that FPC is required to resolve under Conway, there
is no need for consideration by the district court of any
of Municipalities’ price squeeze allegations.”*
If FPC should find, in accord with the detailed proce-
dures for rendering Conway determinations set forth in
its Order No. 563, issued on March 21, 1977," that an anti-
competitive price squeeze does exist, FPC has the power
under Conway to provide a remedy by adjusting the whole-
sale rates at least to the lower range of the zone of reason-
ableness. In Carolina Power & Light Co., FPC Docket No.
ER 76-495 (Phase II), Initial Decision of the Administra-
tive Law Judge at 82 (Sept. 7, 1977), certain municipalities
which there intervened conceded that their proposed cost
of service adjustments, if adopted, would eliminate the
price squeeze of which they complained. Thus, given the
remedial powers of FPC as provided in Conway, there is
» ; , —_ —-
order to prevail in this action, plaintiffs would
cctablich that I&M has reached a decision artificially “to depress cer-
tain retail revenues” (426 U.S. at 279), or that I&M artificially raised
its wholesale rate, a rate that FPC has full power to adjust within the
zone of reasonableness.
ing denied, May
7. 42 Fed. Reg. 16131 (March 25, 1977), rehearing j
20, 1977, 42 Fed. 4 27574 (May 31, 1977).
28
no way to know whether a price squeeze exists, or whether
F’PC’s power to remedy such a price squeeze is adequate,
until FPC has fixed the wholesale rate. While we believe
that it would disregard the proper allocation of functions
between FPC and the district court to have FPC forced to
operate under the threat of a stay which would be naturally
disruptive of orderly administrative procedure, I&M sub-
mits that, at the very least, the district court should stay
its hand pending FPC determination of the threshold ques-
tions that FPC is mandated to resolve under Conway.
Conclusion
The decision of the Court below ignores what I&M
submits to be the manifest, although unstated import of
Conway, that the Federal Power Commission (now the
Federal Energy Regulatory Commission) has exclusive or
at least primary jurisdiction over anticompetitive price
squeeze allegations. The Court below also failed to give
proper weight to the rulings of this Court in Silver, Gordon
and NASD from which emerge the principle that the ex-
istence of pervasive regulatory controls, whether exer-
cised or not, ousts the district court of its antitrust juris-
diction. The decision of the court below will lead to a
massive duplication of effort between federal courts and
agencies equipped to deal with public utility rates. The
decisions of this Court clearly provide the self-protective
guides for avoiding so harmful and egregious a result,
and the court below erred in failing to invoke and apply
them. The Court should review this result and reverse.
29
We take the liberty of suggesting that if this Court
should consider the errors below so clear as not to require
the Court to put this case on its calendar for oral argument,
this matter can be effectively handled by summary reversal,
as was done in Federal Power Commission v. United Gas
Pipe Line Co., 393 U.S. 71 (1968), with appropriate direc-
tions to the Court below.
Respectfully submitted,
Wuitney NortH SEYMOUR
Counsel for Petitioner
One Battery Park Plaza
New York, New York 10004
(212) 483-9000
Of Counsel:
Ricwarp M. DICKE
PETER J. SCHLESINGER
DENNIS G, JACOBS
SimpsoN THACHER & BARTLETT
Tuomas W. YODER
LAWRENCE A. LEvy
Livincston, Ditpine, Haynie & YODER
November 14, 1977
Ne eee, Doe : . os ae i Lm ee Ce eo
APPENDIX
Text of Statutes Relied On
Federal Power Act §205, 16 U.S.C. §824d:
**§824d. Rates and charges; schedules; suspension of
new rates.
‘*(a) Allrates and charges made, demanded, or received
by any public utility for or in connection with the trans-
mission or sale of electric energy subject to the jurisdiction
of the Commission, and all rules and regulations affecting
or pertaining to such rates or charges shall be just and
reasonable, and any such rate or charge that is not just and
reasonable is hereby declared to be unlawful.
‘‘(b) No public utility shall, with respect to any trans-
mission or sale subject to the jurisdiction of the Commis-
sion, (1) make or grant any undue preference or advantage
to any person or subject any person to any undue prejudice
or disadvantage, or (2) maintain any unreasonable differ-
ence in rates, charges, service, facilities, or in any other
respect, either as between localities or as between classes
of service,
‘*(¢) Under such rules and regulations as the Commis-
sion may prescribe, every public utility shall file with the
Commission, within such time and in such form as the Com-
mission may designate, and shall keep open in convenient
form and place for public inspection schedules showing all
rates and charges for any transmission or sale subject to
the jurisdiction of the Commission, and the classifications,
practices, and regulations affecting such rates and charges,
together with all contracts which in any manner affect or
relate to such rates, charges, classifications, and services.
2a
Test of Statutes Relied On
‘*(d) Unless the Commission otherwise orders, no
change shall be made by any public utility in any such rate,
charge, classification, or service, or in any rule, regulation,
or contract relating thereto, except after thirty days’ notice
to the Commission and to the public. Such notice shall be
given by filing with the Commission and keeping open for
public inspection new schedules stating plainly the change
or changes to be made in the schedule or schedules then in
force and the time when the change or changes will go into
effect. The Commission, for good cause shown, may allow
changes to take effect without requiring the thirty days’
notice herein provided for by an order specifying the
changes so to be made and the time when they shall take
effect and the manner in which they shall be filed and pub-
lished.
**(e) Whenever any such new schedule is filed the Com-
mission shall have authority, either upon complaint or upon
its own initiative without complaint, at once, and, if it so
orders, without answer or formal pleading by the public
utility, but upon reasonable notice, to enter upon a hearing
concerning the lawfulness of such rate, charge, classifica-
tion, or service ; and, pending such hearing and the decision
thereon, the Commission, upon filing with such schedules
and delivering to the public utility affected thereby a state-
ment in writing of its reasons for such suspension, may
suspend the operation of such schedule and defer the use
of such rate, charge, classification, or service, but not for a
longer period than five months beyond the time when it
would otherwise go into effect; and after full hearings,
either completed before or after the rate, charge, classifica-
3a
Test of Statutes Relied On
tion, or service goes into effect, the Commission may make
such orders with reference thereto as would be proper in a
proceeding initiated after it had become effective. If the
proceeding has not been concluded and an order made at the
expiration of such five months, the proposed change of rate,
charge, classification, or service shall go into effect at the
end of such period, but in case of a proposed increased rate
or charge, the Commission may by order require the inter-
ested public utility or public utilities to keep accurate ac-
count in detail of all amounts received by reason of such
‘ inerease, specifying by whom and in whose behalf such
amounts are paid, and upon completion of the hearing and
decision may by further order require such public utility
or public utilitities to refund, with interest, to the persons in
whose behalf such amounts were paid, such portion of such
increased rates or charges as by its decision shall be found
not justified. At any hearing involving a rate or charge
sought to be increased, the burden of proof to show that the
increased rate or charge is just and reasonable shall be
upon the public utility, and the Commission shall give to
the hearing and decision of such questions preference over
other questions pending before it and decide the same as
speedily as possible.’’
Federal Power Act §206(a); 16 U.S.C. 824e(a):
‘*§824e. Power of Commission to fix rates and charges ;
determination of cost of production or transmission.
‘‘(a) Whenever the Commission, after a hearing had
upon its own motion or upon complaint, shall find that any
rate, charge, or classification, demanded, observed, charged,
4a
Test of Statutes Relied On
or collected by any public utility for any transmission or
sale subject to the jurisdiction of the Commission, or that
any rule, regulation, practice, or contract affecting such
rate, charge, or classification is unjust, unreasonable, un-
duly discriminatory or preferential, the Commission shall
determine the just and reasonable rate, charge, classifica-
tion, rule, regulation, practice, or contract to be thereafter
observed and in force, and shall fix the same by order.’’
Sherman Act §2, 15 U.S.C. §2:
**§2. Monopolizing trade a misdemeanor; penalty.
‘*Every person who shall monopolize, or attempt to
monopolize, or combine or conspire with any other person
or persons, to monopolize any part of the trade or commerce
among the several States, or with foreign nations, shall be
deemed guilty of a misdemeanor, and, on conviction thereof,
shall be punished by fine not exceeding fifty thousand dol-
lars, or by imprisonment not exceeding one year, or by both
said punishments, in the discretion of the court.’’
Clayton Act 44, 15 U.S.C. §15:
‘*§15. Suits by persons injured; amount of recovery.
‘*Any person who shall be injured in his business or
property by reason of anything forbidden in the antitrust
laws may sue therefor in any district court of the United
States in the district in which the defendant resides or is
found or has an agent, without respect to the amount in
controversy, and shall recover threefold the damages by
him sustained, and the cost of suit, including a reasonable
attorney’s fee.’’
da
Test of Statutes Relied On
Clayton Act §15, 16 U.S.C. §26:
‘‘§96. Injunc.ive relief for private parties; exception.
‘¢ Any person, firm, corporation, or association shall be
entitled to sue for and have injunctive relief, in any court of
the United States having jurisdiction over the parties,
against threatened loss or damage by a violation of the
antitrust laws, including sections 13, 14, 18, and 19 of this
title, when and under the same conditions and principles as
injunctive relief against threatened conduct that will cause
' loss or damage is granted by courts of equity, under the
rules governing such proceedings, and upon the execution of
proper bond against damages for an injunction improvi-
dently granted and a showing that the danger of irreparable
loss or damage is immediate, a preliminary injunction may
issue: Provided, That nothing herein contained shall be
construed to entitle any person, firm, corporation, or asso-
ciation, except the United States, to bring suit in equity for
injunctive relief against any common carrier subject to the
provisions of the Act to regulate commerce, approved Feb-
ruary fourth, eighteen hundred and eighty-seven, in respect
of any matter subject to the regulation, supervision, or
other jurisdiction of the Interstate Commerce Commis-
sion.’’
6a
Order and Judgment of the Court of Appeals
OPINION BY JUDGE CUMMINGS
UNITED STATES COURT OF APPEALS
For tue Seventu Circuit
Chicago, Illinois 60604
August 16, 1977
Before:
Hon. Wauter J. Cummrnas, Circuit Judge
Hon. Pumie W. Tone, Circuit Judge
Hon. Wiiu1am J. Baver, Cireuit Judge
No. 76-2226
$$
Crry or Misnawaka, Inp1ana, et al.,
Plaintiff s-Appellees,
vs.
Inpiana & Micuican Exectric Company,
Defendant-A ppellant.
$$$
Appeal from the United States District Court
for the Northern District of Indiana
South Bend Division
No. 8-74-72-Civil
Judge Grant and Judge Sharp
This cause came on to be heard on the transcript of the
record from the United States District Court for the North-
ern District of Indiana, South Bend Division, and was
argued by counsel.
On consideration whereof, it is ordered and adjudged
by this court that the orders of the said District Court in
this cause appealed from on May 1, 1975, and October 22,
1976, are affirmed, with costs, in accordance with the opinion
of this court filed this date.
7a
Opinion of the Court of Appeals
IN THE
UNITED STATES COURT OF APPEALS
For THE Seventy Circuit
No. 76-2226
aaa
Ciry or Misnawaka, Inp1ana, et al.,
: Plaintiff s-A ppellees,
Inprana & Micuican Evectric Company,
Defendant-Appellant.
Appeal from the United States District Court for the
Northern District of Indiana, South Bend Division.
No. S-74-72-Civ.—Rosert A. Grant and
ALLEN Suarp, Judges.
—_—_—eel ee"
Arcuep Aprit 28, 1977—Decwwep Aveust 16, 1977
Before Cummrines, Tone and Baver, Circuit Judges.
Cummines, Circuit Judge. One Michigan and nine Indi-
ana municipalities, members of the Indiana & Michigan
Municipal Distributors’ Association, filed this antitrust
action against defendant, a vertically integrated electric
power company which generates, transmits and delivers
electric power both to its wholesale customers, including
EEE
A, a Sa aw
8a
Opinion of the Court of Appeals
plaintiffs, as well as directly to its own retail customers.
Each plaintiff operates its own electric utility through
which it purchases wholesale electric power from defendant,
then selling and distributing it at retail to industrial, com-
mercial, and residential customers within its corporate lim-
its and in nearby areas.
According to the complaint, defendant is the only firm
within its service area that transmits and wholesales elec-
tric power and is the plaintiffs’ only outside source of
supply for wholesale electric power. Eight of the plaintiffs
depend on defendant for all the electric power they distrib-
ute and sell to their retail customers. The other two plain-
tiffs, which operate generating facilities, depend on defend-
ant for more than 90% of their requirements for electric
power distribution and sale to their retail customers.
Plaintiffs alleged that defendant dominates and controls
the distribution and sale of retail electric power within its
service area and has acquired four of the twenty municipal
electric utilities there since 1957 and unsuccessfully at-
tempted to acquire a fifth. According to plaintiffs,
‘‘The defendant company now controls the distribution
and sale of retail electric power in more than 90% of
the communities within its service area, while munic-
ipally owned and operated electric systems serve retail
customers in fewer than 10%.’’ (Complaint {6.)
Plaintiffs have charged defendant with intentionally monop-
olizing and attempting to monopolize interstate trade and
commerce in the distribution and sale of retail electric
power, in violation of Section 2 of the Sherman Act (15
U.S.C. §2), by requiring them end other municipalities to
9a
Opinion of the Court of Appeals
pay since January 13, 1973, a new wholesale price which is
substantially higher than the retail price it charges its own
industrial customers. Because of this ‘‘ price squeeze,’’ the
municipalities cannot sell electric power to their own in-
dustrial customers at prices that compete with defendant’s
retail prices. One consequence is that defendant may be
able to lease Fort Wayne, Indiana’s electric utility system
for 35 years. Fort Wayne is the largest city within the
defendant’s service area which still operates its own electric
_ utility. Other alleged consequences of the new wholesale
price are:
1. Plaintiffs’ ability to compete with defcidant for
retail and industrial exstomers has been impaired.
2. In those municipalities that have absorbed the
difference between defendant’s higher wholesale price
and its lower retail industrial prices, pressure has been
put on the municipalities to sell or lease their electric
utilities to defendant rather than to continue generat-
ing operating losses.
3. In those municipalities that increase their in-
dustrial retail prices to the level of the defendant’s
higher wholesale price to them, the disparity between
the municipalities’ higher retai! industrial prices and
defendant’s lower retail industrial prices threatens to
cause the municipalities’ industrial customers to exert
pressure on the municipalities to sell or lease their elec-
tric utilities to defendant so that those customers can
purehase electric power at defendant’s lower prices.
By a September 30, 1976, amendment to the complaint,
plaintiffs alleged that since July 27, 1976, defendant
required them and other municipalities to pay a new higher
10a
Opinion of the Court of Appeals
wholesale price for electric power, resulting in their finan-
cial inability to buy power at the defendant’s new wholesale
price and sell it to industrial customers at prices competi-
tive with defendant’s retail prices. In its answer to this
amendment, defendant admitted that the Federal Power
Commission permitted its higher wholesale rates to become
effective on July 27, 1976, subject to refund.’
Plaintiffs requested a declaratory judgment that defend-
ant had violated Section 2 of the Sherman Act and an in-
junction under Section 16 of the Clayton Act (15 U.S.C.
§26) against violating it in the future. They also sought
an order ending defendant’s present rate structure which
requires plaintiffs to pay a higher wholesale price to de-
fendant for electric power than the retail prices at which it
sells to its own industrial customers. Under Section 4 of
the Clayton Act (15 U.S.C. §15), plaintiffs claimed damages
in excess of $1 million before trebling. The municipalities
also sought attorneys’ fees.
Subsequently, on May 1, 1974, defendant filed a motion
to dismiss the complaint for lack of subject matter jurisdic-
tion or for failure to state a claim or, in the alternative, to
stay the court proceedings until the Federal Power Com-
mission should conclude its regulatory proceedings involv-
ing defendant’s post-January 13, 1973, rates to wholesale
customers. Defendant and the Indiana & Michigan Munic-
ipal Distributors’ Association (of which plaintiffs are mem-
bers) were parties to these proceedings before the Commis-
1. In June 1975, defendant filed an answer containing three
counterclaims against plaintiffs. That pleading need not be sum-
marized herein because it is irrelevant to the issues involved on the
interlocutory appeal.
lla
Opinion of the Court of Appeals
sion. On May 1, 1975, Judge Grant denied that motion and
at the same time filed an extensive opinion disposing of
defendant’s arguments (App. 11-29). In the opinion, Judge
Grant noted that in March 1972, the Indiana Public Service
Commission set defendant’s new higher retail rates and
that in March 1973, the Michigan Public Service Commis-
sion approved an increase in defendant’s retail rates. Both
of these actions were instituted by defendant’s July 30,
1971, petitions for new rates filed with each of the state
Commissions. In June ]972, defendant submitted proposed
increases in the rates charged to its wholesale customers to
the Federal Power Commission. The new rates were later
made effective on August 13, 1972,? but the Commission
provided that if it determined that said rates were unjust
or unreasonable, it might order defendant to refund the
excess to its customers. The Commission began its hearings
on the lawfulness of these new wholesale rates on January
31, 1974.
Defendant contended that its retail rates, set by the state
utility commissions, were immune from attack under the
Sherman Act. The court held that under Parker v. Brown,
317 U.S. 341, it did not have authority to intrude upon the
Indiana and Michigan Public Service Commissions’ ap-
proval of defendant’s retail rates. However, after distin-
2. On August 13, 1972, the Commission suspended the use of
these rates until January 13, 1973, the date involved in the original
complaint herein. After an appeal to the District of Columbia Cir-
cuit by defendant on the grounds that the effective date should be
July 14, 1972, the Court proclaimed July 14, 1972, to be the effective
date but only allowed defendant to collect the difference between its
old and new rates from December 14, 1972, onward. J/ndiana &
Michigan Electric Co. v. Federal Power Commission, 502 F.2d 336
(D.C. Cir. 1974), certiorari denied, 420 U.S. 946.
12a
Opinion of the Court of Appeals
guishing Ricci v. Chicago Mercantile Exchange, 409 U.S.
289, and Pennsylvania Power Company v. Federal Power
Commission, 193 F.2d 230 (D.C. Cir. 1951), affirmed, 343
U.S. 414, the Court found that it had jurisdiction over the
subject matter of the action, citing Georgia v. Pennsylvania
R. Co., 324 U.S. 439; Keogh v. Chicago & N.W. Ry., 260
U.S. 156; and Otter Tail Power Co. v. United States, 410
U.S. 366. In particular, Judge Grant held that
‘‘Just as the Court in Otter Tail was hesitant to
conclude that the authority of the Federal Power Com-
mission to order interconnections was intended to ‘be
a substitute for, or to immunize Otter Tail from, anti-
trust regulation for refusing to deal with municipal
corporations,’ this Court cannot conclude that the Fed-
eral Power Commission’s authority to review rates
was an intended substitute for the anti-trust laws in
a situation involving the alleged monopolizing effect of
a dual price structure.’’ (mem. op. at 16).
Judge Grant stated that if the Federal Power Commis-
sion finally found the defendant’s new wholesale rates to
be just, the court might be forced to order defendant to
initiate a new rate structure, eliminating the dual price
system of higher wholesale prices relative to retail prices.
On the other hand, if the Commission should find the new
wholesale rate to be unjust, he might only enjoin defendant
from any future dual system. Consequently the court held
that plaintiff had not failed to state a claim upon which
relief could be granted.
In conclusion, Judge Grant refused to stay the action
until the Federal Power Commission should hand down
13a
Opinion of the Court of Appeals
a final decision because ‘‘the lawfulness of the defendant’s
wholesale rate is not determinative of the issue before’’
the court (mem. op. 19). The district court ended its opin-
ion as follows:
‘Since it is the initiation of a monopolistic structure
that the Court is asked to prohibit and not the rate
itself, final action by the agency will not by itself pro-
hibit the problem although it may alleviate it for a time.
Furthermore, if the Court found that damages were
recoverable in this case and that in determining the
damages the final decision of the Commission was nec-
essary and the Commission has not yet ruled on the
lawfulness of the wholesale rate the present action
could at that time be stayed by the Court for the
purpose of awaiting the Commission result.’’ (Jd.)
Thereafter the case was reassigned to Judge Sharp.
On October 22, 1976, he denied defendant’s motion to recon-
sider Judge Grant’s order of May 1, 1975. Thereupon, an
interlocutory appeal was taken to this Court and allowed
pursuant to 28 U.S.C. §1292(b). We affirm.
I. Exclusive Jurisdiction
When the district court handed down its opinion refus-
ing to dismiss the complaint and to grant a stay, the Federal
Power Commission had ruled that this alleged dual price
system and its anti-competitive effects were beyond its
jurisdiction (mem. op. 14). However, in Federal Power
3. The Indiana & Michigan Municipal Distributors’ Association
sought review of the FPC decision to eliminate from the case all
testimony, exhibits and consideration of the price squeeze issue.
(footnote continued on next page)
l4a
Opinion of the Court of Appeals
Commission v. Conway Corp., 426 U.S. 271, the Supreme
Court subsequently held that such an anti-competitive price
squeeze between jurisdictional wholesale rates and non-
jurisdictional retail rates should be considered by the Com-
mission in fixing rates for interstate wholesale sales.
Speaking for a unanimous Court, Mr. Justice White said
the Commission can take retail rates into consideration in
setting the wholesale rate even though they are outside its
jurisdiction. 426 U.S. at 279-282. The Court explicitly ap-
proved the District of Columbia Circuit’s conclusion that
‘When costs are fully allocated, both the retail rate
and the proposed wholesale rate may fall within a
zone of reasonableness, yet create a price squeeze
between themselves. There would, at the very least,
be latitude in the FPC to put wholesale rates in the
lower range of the zone of reasonableness, without
concern that overall results would be impaired, in view
of the utility’s own decision to depress certain retail
revenues in order to curb the retail competition of its
wholesale customers. 167 U.S. App. D.C. at 53, 510
F.2d at 1274. (Footnote omitted.)’’ 426 U.S. at 279.
Appealing to the District of Columbia Circuit, IMMDA requested
the FPC to confess error in light of Federal Power Commission v.
Conway Corp., 426 U.S. 271, and obtain a remand to consider the
price squeeze issue. On August 13, 1976, the FPC filed such a
request. In an initial decision of August 19, 1976, in the wholesale
rate case commenced in June 1972, the administrative law judge
recommended that the price squeeze issue be resolved in further pro-
ceedings. This was in line with the parties’ agreement to dispose of
the 1972 wholesale rate case by a financial settlement based on the
initial decision without resolving the anti-competitive allegations (PI.
Br. 9-10). These facts were brought to the district court’s attention
before its October 22, 1976, denial of defendant’s Motion to Recon-
sider, Vacate, Set Aside and Amend [the] Court’s Order of May 1,
1975 (D. Br. 5-6). The settlement was approved by the FPC in an
order of June 1, 1977.
15a
Opinion of the Court of Appeals
Such a remedy would only operate against the jurisdictional
rate.*
Nothing in the Supreme Court’s opinion in Conway
suggests exclusive jurisdiction, as defendant concedes
(D. Br. 32).5 Indeed, Conway suggests that the FPC rem-
4. A new regulation, 18 C.F.R. §2.17, entitled “Price discrimi-
nation and anti-competitive effect (price squeeze issue),”” was issued
on March 21, 1977, to implement the Commission’s mandate under
Conway. In the order issuing the regulation, provision was made
for the state commissions to be kept informed but, of course, no sug-
gestion was made to force them to change the non-jurisdictional
retail rates:
“Both the Federal Power Commission and the NARUC
mow Association of Regulatory Utility Commissioners]
oard [of Consultants] recognize that state commission partici-
pation in rate proceedings before the Commission, particularly
in cases involving retail and wholesale rate comparisons, would
be desirable, and awareness of the state commission’s views on
ore squeeze issues would be valuable. We, therefore, adopt the
ARUC Board’s recommendation that in all cases where price
squeeze is at issue, the state commission, agency or body which
is responsible for regulation of retail rates in the state affected
shall be included in the service list maintained by the Secretary
under 18 CFR 1.17(c) as if that state commission, agency or
body had intervened in the proceeding. In proceedings where
the state commission does not take an active part, the NARUC
Board recommends that the Commission encourage FPC staff to
confer with state commission staff for the purpose of acquiring
information particularly within the knowledge of the state com-
missions in order to gain a more complete picture of the com-
petitive relationship of respective wholesale to retail rates.” (D.
Rep. Br. App. A8-A9.)
5. Defendant points to one sentence of dicta in Judge Leventhal’s
opinion for the D.C. Circuit in Conway arguably to the contrary:
“The FPC’s position would leave a regulatory gap—no institu-
tion would have authority to consider an undue preference be-
tween wholesale and retail rates, even where that preference was
deliberately instituted for the purpose of clogging competition,
and tu reduce interstate wholesale rates.” 510 F.2d at 1272:
Judge Leventhal’s opinion does not consider antitrust aspects at all.
When read in the context of the opinion as a whole, it is clear that the
“institution” meant a regulatory administrative body.
l6a
Opinion of the Court of Appeals
edy is limited to setting the jurisdictional rate somewhere
above the lower boundary of the zone of reasonableness.
A rate set so low that it would fail to recoup fully allocated
wholesale costs seems to be beyond the Corhmission’s
power. 426 U.S. at 278. If the retail rates have been set so
low by the state utility commissions that a price squeeze
could only be fully remedied by setting the wholesale rates
below the lower boundary of the zone of reasonable recovery
for fully allocated costs, the squeeze would go unremedied
to the extent a wholesale rate set at the lower boundary. of
the zone of reasonableness did not cure the problem. AlI-
though Conway was brought to the district court’s atten-
tion, it refused to vacate its order declining to dismiss the
complaint and to stay the action.
Subsequent to Conway, the Supreme Court decided
Cantor v. Detroit Edison Co., 428 U.S. 579, refusing to
exempt Detroit Edison’s light bulb exchange program from
the federal antitrust laws even though it was an approved
element of the state rate tariff filed with the Michigan
Public Service Commission. Given a complaint that details
conduct which, if true, would constitute a substantive anti-
trust violation, Justice Stevens described two classes of
situations involving the interaction of state and federal law
where Sherman Act jurisdiction would, nevertheless, be
defeated. First, Congress in passing the Sherman Act may
not have intended for the Act to apply, in the first instance,
to state action. Parker v. Brown, 317 US. 341. Secondly,
although originally intended to be covered by the Sherman
Act, certain conduct may have become exempted from the
Act.
17a
Opinion of the Court of Appeals
In a section of his opinion commanding orly a four-judge
plurality, Justice Stevens concluded that in Parker the
‘‘only Sherman Act issue decided was whether the
sovereign State itself, which had been held to be a per-
son within the meaning of §7 of the statute, was also
subject to its prohibitions.’’ 428 U.S. at 591.
As in Cantor, the plaintiff municipalities have named no
state officials or state agencies in the complaint, and there
is no claim that any state action violated the antitrust laws.
See 428 U.S. at 591-592. Thus under the plurality opinion,
Parker v. Brown does not even arguably apply to the facts
of our case. Nor do Chief Justice Burger or Justice Black-
mun’s concurrences in Cantor give defendant solace. The
challenged activity here is a dual rate structure. The state
utility commissions have only put the imprimatur of their
sanction on the retail rates charged by the defendant. The
price squeeze has not been blessed by Indiana or Michigan.
The fact that the district court has no authority to maintain
a direct attack on the defendant’s retail rates does not alter
the reality that the state commissions have in no way placed
a badge of approval on the defendant’s dual rate structure.
Consequently, defendant’s conduct is not immunized under
Parker v. Brown.
Having decided that the Sherman Act applies in the
first instance to the conduct at issue here, we must decide
whether an exemption nonetheless has been worked. Jus-
tice Stevens, in a portion of Cantor subscribed to by a
majority of the Court, suggested two geneses for such an
exemption. First, it might be unjust to hold a private citi-
zen liable for conduct imposed by the direct command of the
18a
Opinion of the Court of Appeals
sovereign.® Secondly, if the sovereign is already regulating
an area, Congress may not have intended to superimpose
the antitrust laws as an additional and perhaps conflicting
regulatory scheme.’
In City of Shakopee v. Northern States Power Co., Civ.
No. 4-75-591 (D. Minn. 1976), a post-Cantor case involving
a virtually identical dual rate structure creating a price
squeeze between the wholesale and retail sale of electric
power, Judge Lord concluded that no exclusive jurisdiction
existed in the Federal Power Commission because an. ex-
emption from the antitrust laws could not be implied.
Judge Lord interpreted the first genesis for exemption
under Cantor to be based on the reasoning that
6. Although the facts of Cantor limited Justice Stevens’ con-
sideration to the state sovereign, a finding that conduct arising from
the command of the federal sovereign is subject to antitrust liability
may be assumed to be similarly unjust.
7. If the sovereign is the federal government, the question re-
duces to the traditional problem of exclusive jurisdiction. Here the
conceptual framework is a federal statute post-dating the Sherman
Act lodging the responsibility for regulating the conduct in issue in
some federal agency and impliedly repealing the application of the
Sherman Act as to this specie of conduct.
If the sovereign is the state government, an implied repealer of
a federal law such as the Sherman Act is of course foreclosed by the
Supremacy Clause. Presumably, the exemption is created here on
the conceptual framework that Congress did not intend the Sherman
Act to apply to areas of the economy pervasively regulated by the
states. Unlike the Parker exclusion, this exemption would not derive
from the character of a state’s involvement with certain conduct but
rather with the quality and scope of the regulatory mechanism im-
by the state over such conduct. The state commissions of
ndiana and Michigan are not alleged to have any power to regulate
the price squeeze in any sense. Since this conduct is not being regu-
lated by the state commissions, Sherman Act jurisdiction of course
is not ousted in favor of state regulation. The defendant does not
contend otherwise.
19a
Opinion of the Court of Appeals
‘*if an anticompetitive practice is the product, at least
in part, of the company being regulated and could be
avoided if the company chose to do so, then the anti-
competitive condition is in reality the work of that
company and is not ‘necessary’ to the functioning of
the regulatory scheme and will not be immunized from
antitrust liability.’’ (mem. op. 6.)
Accordingly, the court noted that, as here, defendant North-
ern States Power Co. could have avoided the alleged mo-
nopolistic position by ‘‘tailoring its applications to allow
for competitive ‘wholesale’ and ‘retail’ power rates”’
(mem. op. 7) and that, given such company autonomy, this
position was not ‘‘necessary’’ to the functioning of the
regulatory scheme.
With respect to implying a repealer of the antitrust acts,
Judge Lord began with the now settled axiom that after
Otter Tail Power Co. v. United States, 410 U.S. 366, ‘‘there
can be no doubt about the proposition that the federal anti-
trust laws are applicable to electric utilities.’’ Cantor, su-
pra, at 596 n. 35. Since the antitrust laws are not generically
superseded by the regulation of electric utilities,* the only
' question open to debate is whether ‘‘the particular applica-
tion of the [antitrust laws] is irreconcilably repugnant to
the operation of the regulatory scheme.’’ Id. Judge Lord
decided that there was ‘‘little or no apparent conflict be-
8. In order to imply a general exemption for an economic sector
of an industry, mere conflicting standards are not enough. This
of a regulatory agency’s jurisdiction must be “imperative in
the continued effective functioning” of the r tory scheme over
the industry as a whole. Cantor, supra, at 596-597 n. 36 and n. 37.
Since Cantor distinguished and refused to apply Gordon v. New
York Stock Exchange, 422 U.S. 659, perhaps defendant’s principal
case on this ground, no purpose would be served in discussing it
further here. See 428 U.S. at 596-597 n. 36.
20a
Opinion of the Court of Appeals
tween applying the antitrust laws to the type of conduct
complained of here and the smooth and efficient functioning
of the FPC’s regulatory system’’ (mem. op. 5). As in
Shakopee, the price squeeze alleged in our case
‘‘is not between rates set by one regulatory agency, as
was the case in Georgia [v. Pennsylvania R. Co., 324
U.S. 439], but rather is between the ‘wholesale’ rate
set by the FPC and the ‘retail’ rate over which the
FPC has no jurisdiction. Put simply, under these
circumstances, antitrust immunity is not ‘necessary’
to the functioning of the regulatory process because
the discrimination is ‘external’ to that process. The
FPC does not control both ends of the discriminatory
conduct.’’ (mem. op. 7 n. 6.)
If plaintiff proves it is entitled to relief on the Sherman
Act claim asserted in its complaint, the Federal Power
Commission’s regulatory process would not be disturbed
by the court’s awarding damages for past anti-competitive
conduct or by enjoining future anti-competitive conduct by
defendant in making and promoting its rate applications.
Thus relief could be granted without the district court’s
actually becoming involved in the process of setting rates.
Indeed the Federal Power Commission has conceded
that it does not have exclusive jurisdiction over conduct
such as that alleged here. Following Judge Lord’s denial of
Northern States Power’s motion to dismiss, Shakopee is
proceeding, we are advised, before the district court and
the Federal Power Commission in tandem. On May 23,
1977, the Federal Power Commission released an order in
Northern States Power Company, FPC Docket No. ER
76-818, stating that the Commission’s examination of the
21a
Opinion of the Court of Appeals
alleged price squeeze would not affect the district court
action in Shakopee because
‘*That action seeks damages for allegedly anticompeti-
tive activity that occurred in the past. As the District
Court noted in its October 18, 1976, order denying
Northern States’ motion to dismiss, should Shakopee
prove itself entitled to relief the regulatory process
would not be disrupted by an award of damages for
past conduct nor by an enjoining of certain future con-
duct. These remedies are beyond our jurisdiction as we
cannot look to past rate schedules and, if a price
squeeze were found, we could not take any remedial
action. Accordingly there is no alternative to this issue
being litigated in both forums, one concerning itself
with present rates and the other with past rates and
possible future conduct.’’
This ruling equally applies here. Therefore, it is clear that
defendant is wrong in asserting that the Federal Power
Commission has exclusive jurisdiction over this matter.
II. Primary Jurisdiction
The more difficult question is whether the Federal Power
Commission has primary jurisdiction over the price
squeeze. Primary jurisdiction is concerned with the proper
allocation of responsibilities between the administrative
agencies and the courts. ‘‘Even when [antitrust actions]
and remedies survive and the agency in question lacks the
power to confer immunity from [antitrust] liability, it may
be appropriate to refer specific issues to an agency for
initial determination where that procedure would secure
22a
Opinion of the Court of Appeals
‘{u]niformity and consistency in the regulation of business
entrusted to a partieular agency’ or where
‘‘ ‘the limited functions of review by the judiciary
[would be] more rationally exercised, by preliminary
resort for ascertaining and interpreting the cireum-
stances underlying legal issues to agencies that are
better equipped than courts by specialization, by in-
sight gained through experience, and by more flexible
procedure.’ Far East Conference v. United States, 342
U.S. at 574-575.”’ (Nader v. Allegheny Airlines, 426
U.S. 290, 303-304).
The defendant argues that since ‘‘some facets of the
dispute * * * are within the statutory jurisdiction of the
[Federal Power] Commission,’’ Ricci v. Chicago Mercan-
tile Exchange, 409 U.S. 289, 302—here the Conway-dictated
duty to set the jurisdictional rate with an eye to any price
squeeze between it and the non-jurisdictional rate—the Fed-
eral Power Commission must he deemed to preempt anti-
trust jurisdiction. However, that position was also fore-
closed by Otter Tail Power Co., supra. There only the
dissenting Justices would have required the antitrust court
to defer to the Commission proceeding. 410 U.S. at 392-
395. The other Justices affirmed a decree under Section 2
of the Sherman Act (except in one respect immaterial here)
without requiring a stay where there was only a potential
conflict between the federal judicial decree and a future
order of the Federal Power Commission. 410 U.S. at 376-
377. Any suspicions that the 4-3 vote in Otter Tail impairs
its authority seem wholly unwarrar.ted in light of the Can-
tor majority’s repeated citations of it with approval. See
23a
Opinion of the Court of Appeals
also Gulf States Utilities Co. v. Federal Power Commis-
sion, 411 U.S. 747, 758.
Even if it cannot be maintained as a matter of course
that as between the dual jurisdiction in the district court
and in the Federal Power Commission the jurisdiction in
the Commission is primary, it may be that deferral to the
Commission makes sense as a matter of judicial administra-
tion. If a significant inconsistency between the antitrust
action and the regulatory scheme which was certain to arise
could be specifically shown to be avoidable by letting the
Commission proceed first, deferring to the Commission
would be advisable. In addition, if the ‘‘adjudication of
th[e] dispute by the Commission promises to be of material
aid in resolving the [antitrust] immunity question,’’ Ricci,
supra, at 302, or will advance the Court’s fact-finding cap-
acity, it may be desirable to hold the antitrust action in
abeyance pending the resolution of the proceeding before
the Commission. Nevertheless, we hold that the Federal
Power Commission does not have primary jurisdiction over
the price squeeze.
A. Uniformity
Where uniformity and consistency of the regulatory
scheme are at stake, primary antitrust coverage does not
necessarily follow even when there is a statutory grant
of express immunity as to certain other conduct approved
by a federal agency. Mt. Hood Stages, Inc. ». Greyhound
Corp., —— F.2d . (9th Cir. 1977) (slip op. at
1200). Where there is no statutory grant of antitrust im-
24a
Opinion of the Court of Appeals
munity, so that the argument that Congress intended ‘‘con-
duct not within the exemption [to remain] subject to the
antitrust laws’’ is foreclosed (id.), the uniformity interests
in primary administrative jurisdiction are correspondingly
strengthened. But as Chief Judge Browning added:
‘‘Conduct is not immunized merely because it falls
within the jurisdiction of the regulatory agency, as it
did in this case. Immunity is not implied merely be-
cause the applicable regulatory standard requires the
agency to give weight to antitrust policy, as it did in
this instance.’’ (/d.)
Indeed, as noted in Gulf States Utilities Co. v. Federal
Power Commission, 411 U.S. 747, 758-759, the Federal
Power Act does not preclude the operation of the antitrust
laws even though the Federal Power Commission is re-
quired to give weight to antitrust policy. There Justice
Blackmun, speaking for six members of the Court, declared
that the Federal Power Commission should consider anti-
trust and anti-competitive issues before authorizing the
issuance of securities under Section 204 of the Act (16
U.S.C. §824e) in order to establish ‘‘a first line of defense
against those competitive practices that might later be the
subject of antitrust proceedings’’ (411 U.S. at 760). This
of course does not mean, as defendant urges (Reply Br. 5-
6n. *), that a district court which, as here, has assumed
jurisdiction over a price squeeze two years before the Com-
mission agreed to consider it must withhold relief that (as
the district court has already indicated) will not interfere
with the Commission’s rate-making function. In fact,
primary administrative jurisdiction based on uniformity
grounds is not even an issue in such a factual setting.
25a
Opinion of the Court of Appeals
As in Georgia v. Pennsylvania R. Co., 324 U.S. 439, 455,
457, plaintiffs are seeking to enjoin conduct violative of the
Sherman Act and to recover damages therefor. That relief,
if appropriate to remedy a proven violation of the antitrust
laws, would cause defendant to end its purported current
price squeeze practice but need not interfere with rates
already approved by the state and federal commissions.
The antitrust and regulatory régimes accotumodate and
supplement each other in order to prove full protection from
anti-competitive practices. Here too the remedies afforded
under the two statutes can be meshed. As in Mt. Hood
Stages, supra, —— F.2d at —— (slip op. 1201), no plain
repugnancy exists between this federal regulatory statute
and the Sherman Act as applied to defendant’s conduct, nor
is it necessary to exempt that conduct from antitrust re-
straints to make the regulatory statute work. In truth, as
recognized as long ago as Consolidated Gas, Electric Light
& Power Co. v. Pennsylvania Water & Power Co., 194 F.2d
89, 97-99 (4th Cir. 1952), certiorari denied, 343 U.S. 963,
Part II of the Federal Power Act, which contains Section
205 involved in this case, is not repugnant to the antitrust
laws and therefore does not supersede them.
In the court below, defendant in effect recognized that
the Commission cannot afford the requested relief to plain-
tiffs because defendant stated it was
‘‘aware of the Commission’s inability to remedy a
claim of anti-competitive behavior, premised on the
differences in rates charged by [defendant] I & M to
its wholesale and retail customers, by raising the retail
rates to the level of the wholesale rates’’ (mem. op. 9).
Nor does Conway guarantee that the price squeeze may be
fully remedied by severely depressing wholesale rates to
26a
Opinion of the Court of Appeals
eliminate the price squeeze. This is because, as we have
demonstrated above, the Federal Power Commission cannot
set wholesale rates below the lower boundary of the zone
of reasonableness even if the price squeeze could not be
eliminated without setting the wholesale price below the
zone of reasonableness limit. Primary jurisdiction is not
a doctrine that requires an exercise in futility. See Local
189, Amalgamated Meat Cutters v. Jewel Tea Co., 381 U.S.
676, 686. Thus antitrust relief is needed for full protection
from the anti-competitive conduct alleged in the complaint.
If plaintiffs prove their case, instead of interfering with
any rates approved by the Federal Power Commission, in
addition to possible damages, the district court would pre-
sumably order defendant to file a new wholesale rate appli-
cation that would remove the disparity between the rates
charged plaintiffs and defendant’s industrial customers.
The court would thus not be affording a remedy that would
‘‘starkly conflict with the explicit statutory mandate of the
Federal Power Commission * * * [or] improperly pre-
emp([t] the jurisdiction of the Federal Power Commission
***."” Otter Tail Power Co., supra, 410 U.S. at 395 (con-
curring and dissenting opinion of Justice Stewart). As
shown from the opinion below and from the opinion Shako-
pee, supra, the district court intends to apply the antitrust
laws ‘‘to the public utility industry only to the extent that
the antitrust claims asserted are not within the reach of the
regulatory agency’s supervision,’’ the very standard rec-
ommended by defendant (Br. 21). Under Otter Tail Power
Co., supra, and Gulf States Utilities Co., swpra, in fashion-
ing any relief that may be warranted under the Sherman
Me
27a
Opinion of the Court of Appeals
Act, the judiciary must be careful to avoid or resolve any
inconsistency with Section 205 of the Federal Power Act.
We are confident that the district court will observe this
stricture.
Indeed the opinions of the district courts in this case
and in Shakopee show that they do not intend to interfere
with the Federal Power Commission’s jurisdiction, because
if the Commission should find the respective defendant’s
higher wholesale rates to be just, the courts would, on proof
of violations of Section 2 of the Sherman Act, order the
defendants to initiate new rate structures eliminating the
dual price system of higher wholesale prices. If the Com-
mission should find the present wholesale rates to be unjust,
then the courts would only enjoin the defendants from
future dual systems violative of the Sherman Act. Both
district courts noted too that it would not disrupt the regu-
latory process to award damages for any past anti-competi-
tive conduct proved at trial. Therefore, a stay is unneces-
sary to avoid a clash between the antitrust laws and the
Federal Power Act.
B. Agency Expertise.
Nor is a stay warranted on the grounds that the Federal
Power Commission’s expertise will materially advance the
district court’s fact-finding capacity or aid the district
court’s determination of the extent of any possible antitrust
immunity.
As amici curiae ‘Illinois Municipals.’” have stated,
Ricci v. Chicago Mercantile Exchange, 409 U.S. 289, has
9. Cities of Batavia, Geneva, Naperville, Rock Falls and St.
Charles, Illinois.
28a
Opinion of the Court of Appeals
no bearing here because the district court does not need
to know the Commission’s expert views on what constitutes
a just and reasonable rate ‘‘as a prerequisite to a deter-
mination of whether defendants’ activities violate the anti-
trust laws’’ (Br. 24). Also, the Ricci Court thought the
Commodity Exchange Act probably limited the applicability
of the antitrust laws there (409 U.S. at 302-304) whereas
no such limitation exists here. Cantor, supra; Otter Tail
Power Co., swpra. Under the facts of the instant case,
where the district court has first asserted jurisdiction
over the antitrust proceedings, it may continue its probe.
Calforma v. Federal Power Commission, 369 U.S. 482;
Pennsylvania Water & Power Co. v. Consolidated Gas,
Electric Light € Power Co., 184 F.2d 552, 562-566 (4th Cir.
1950), certiorari denied, 340 U.S. 906.
III. Discretionary Stay
Assuming that a discretionary stay could be appropriate
even when primary jurisdiction is not in the Federal Power
Commission, the district court certainly did not abuse its
discretion here. Indeed, the equities weigh heavily in favor
of the plaintiff municipalities. The Ilinois Municipals point
out that the district court should be permitted to proceed in
order to avoid the typical lengthy delays that occur in
processing wholesale rate increases under Section 205 of the
Federal Power Act (16 U.S.C. §824d). Under that provi-
sion, a public utility files its rate increase application no less
than 30 days before the effective date thereof, and the Com-
mission typically suspends the proposed rate from one day
29a
Opinion of the Court of Appeals
to five months, with refunds required if the rate is found
to be above the statutory ‘‘just and reasonable’’ standard.
The wholesale rate increase in the present case stems from
a June 13, 1972, application by defendant, and the case
was not terminated in the Commission until it approved a
settlement on June 1, 1977, a span of five years. Except
for the settlement, the case would still pend before the Com-
mission.
Thus far, the Commission has never rejected a rate fil-
ing on price squeeze or other antitrust grounds, and there
is no limit on the number of filed increases that may be
in effect at the same time under Section 205. Simply by
filing an anti-competitive increase anc waiting for time to
pass, a public utility like defendant can place a price
squeeze on wholesale customers. As the Commission has
stated, ‘‘electric utilities are permitted to file virtually any
level of costs and rates and after a period of suspension
charge those rates subject to refund, pending Commission
decision.’’ FPC Order No. 487, 50 FPC at 127 (1973).
Under this procedure, the price squeeze can continue
between the time the Commission allows the rates to go
into effect and its final order, for the new Conway remedy
as to price squeezes does not become effective until then.
Thus if a stay were granted to defendant, plaintiffs and
customers -in- similar positions would be unabie to secure
any relief from price squeezes like this until the Commission
finally approved the filed rates. As the Illinois Municipals
have picturesquely put it:
‘‘Delay, combined with the multiple rate increases,
could mean that the customer has been put out of
30a
Opinion of the Court of Appeals
business by his supplier-competitor. You cannot give
refunds to a corpse.’’ (Br. 27-28.)
Furthermore, the Commission would be unable to afford
complete relief because the Federal Power Act does not
provide for damages or for an injunction against a utility
violating the antitrust laws. Thus a stay in this case
would excuse defendant’s alleged non-compliance with
the antitrust laws for a completely unnecessary length of
time.
IV. Disposition
At oral argument, we were advised that on January
14, 1977, defendant requested the Federal Power Commis-
sion to approve a negotiated settlement between it, these
plaintiffs and others for the period from January 13, 1973,
to July 27, 1976, when defendant’s new wholesale rate
schedule became effective. This settlement was approved
on June 1, 1977. See note 3 supra. Upon remand, the dis-
trict court will have to determine whether this settlement
agreement has mooted any of the antitrust claims in this
ease. Of course, the claims stemming from the July 27,
1976, higher wholesale prices are still active.
While we are holding that the district court need not
stay further proceedings herein, we agree with Judge
Grant that if the district court should ever find it necessary
to ascertain particular Commission action in order to
decide the exact scope of antitrust damages, or for other
purposes, the court may then stay its hand for the purpose
of awaiting the Commission result (mem. op. 19).
The orders of May 1, 1975, and October 22, 1976, are
affirmed.
a
3la
Order and Memorandum of the District Court,
May 1, 1975
| IN THE
UNITED STATES DISTRICT COURT
NortHERN District or INDIANA
Soutn Benp Drvision
Civil Action No. S 74-72
Ciry or MisHawaka, INDIANA,
Crry or Nixes, Micuican,
Crry or Cotumsia City, Iyprana,
Crry or Buurrton, Inp1ana,
Crry or Garrett, InpIANa,
Crry or Gas Crry, Inp1ana,
Town or Frankton, Inpiana,
Town or WakkeEN, INDIANA,
Town or New Car.uisiz, Inpiana, and
Town or Avia, Inprana,
— > Oe
Municipal Corporations,
Plaintiffs,
Vv.
Inpiana & Micuican Exectric Company,
a Corporation,
Defendant.
rl > ee
ORDER
The defendant, Indiana & Michigan Electric Company,
filed a motion to dismiss the above entitled action pursuant
32a
Order and Memorandum of the District Court
to Rule 12, F.R.C.P., or, in the alternative, that the pro-
ceeding be stayed in the event that defendant’s motion to
dismiss be denied.
The defendant seeks to dismiss on the grounds that this
Court lacks jurisdiction over the subject matter of this
action and that the complaint fails to state a claim upon
which relief may be granted.
The defendant has also filed a motion for leave to file
a supplementary affidavit in support of its motion to dis-
miss or in the alternative to stay, which motion is DENIED
for the reasons slated in the toilowing Memorandum.
After reviewing defendant’s motion, the parties’ briefs,
and oral argument having been held,
Ir Is THe Orper or THE Court that defendant’s motion
to dismiss or in the alternative to stay be, and the same is,
hereby DENIED.
Rosert A. Grant
District Judge
Enter: May 1, 1975
MEMORANDUM
The plantiffs, City of Mishawaka, Indiana; City of Niles,
Michigan; Cities of Columbia City, Bluffton, Garrett, and
Gas City, Indiana; and the Towns of Frankton, Warren,
New Carlisle, and Avilla, Indiana, filed the present action
on March 25, 1975, against Indiana & Michigan Electric
Company (hereinafter I & M). Plaintiffs have based juris-
diction of this action on Sections 4 and 16 of the Clayton
Act, 15 U.S.C. §§15 and 26, and allege that the defendant,
I & M, has monopolized and attempted to monopolize inter-
33a
Order and Memorandum of the District Court
state trade and commerce in the distribution and sale of
electric power at retail, in violation of Section 2 of the
Sherman Act, 15 U.S.C. §2.
Plaintiffs in their complaint state that they are munic-
ipalities which operate their own electric distribution sys-
tems; that they are within the service area of the defendant,
I & M; and that they sell and distribute the electric power
at retail to industrial, commercial, and residential cus-
tomers within their corporate limits and in nearby areas.
Plaintiffs describe I & M as a vertically integrated
electric power company which generates electric power,
transmits the power throughout its service area, and deliv-
ers the power to its wholesale customers, including the
plaintiffs, and also directly to its retail customers.
Plaintiffs allege that the defendant company is the only
firm within their service area engaged in the business of
transmitting and selling electric power at wholesale and,
thus, the only outside source of supply for wholesale electric
power available to them. The complaint states that plain-
tiffs, Mishawaka, Indiana; Columbia City, Indiana; Gar-
rett, Indiana; Gas City, Indiana; Frankton, Indiana; War-
ren, Indiana; New Carlisle, Indiana; and Avilla, Indiana,
depend on the defendant for all of their requirements of
wholesale electric power. Plaintiffs Niles, Michigan, and
Bluffton, Indiana, which operate generating facilities, al-
lege that they depend on the defendant for more than 90%
of their requirements of electric power.
The plaintiffs further contend that the defendant domi-
nates and controls the distribution and sale of retail electric
power within its service area. They contend that the de-
|
34a
Order and Memorandum of the District Court
fendant has increased its control of the retail market by
acquiring municipal electric utilities. It is stated in their
complaint that since 1957 the defendant has purchased the
assets of four of the twenty (20) municipal utilities within
its service area, has absorbed their retail distribution into
the I & M system, and has taken over their retail industrial,
commercial and residential customers, as follows: Kendall-
ville, Indiana (1957), Decatur, Indiana (1959), Portland,
Indiana (1963), and Albion, Indiana (1966). Because of
this, the plaintiffs contend that the defendant company now
controls the distribution and sale of retail electric power in
more than 90% of the communities within its service area,
while municipally owned and operated systems serve retail
customers in fewer than 10%.
Plaintiffs allege that the defendant, I & M has monopol-
ized and attempted to monopolize interstate trade and com-
merce in the distribution and sale of electric power at retail,
in violation of Section 2 of the Sherman Act, 15 U.S.C. §2,
in the following ways:
(1) Since January 13, 1973, the defendant has required
municipalities to pay a new wholesale price for electric
power. The new wholesale price is substantially higher
than the retail price the defendant company charges its own
industrial customers. This causes the municipalities to be
unable to buy power at the defendant’s wholesale price and
sell it at competitive prices.
(2) On March 8, 1974, after fourteen months of requir-
ing the city of Fort Wayne to pay more for wholesale elec-
tric power than the defendant’s own retail industrial cus-
Pq eens os owe
35a
Order and Memorandum of the District Court
tomers pay, and after more than twenty (20) years of sell-
ing retail electric power to its own customers in the Fort
Wayne area for less than it sells retail power elsewhere,
the defendant obtained the agreement of the city officials
that the city of Fort Wayne will lease its entire electric
utility system to the defendant for thirty-five (35) years.
Under the lease agrement to be submitted to the voters,
I & M will take possession of all the property and facilities
of the city’s electric utility and will operate the electric
distribution system. The defendant will take over the city’s
retail customers and will sell electric power directly to
them.
The plaintiffs further contend that the adoption of a
wholesale price to municipalities in excess of the retail
prices at which it sells electric power has caused and threat-
ens to cause, the following consequences :
(1) It impairs the plaintiffs’ ability to compete against
the defendant.
(2) In municipalities that have absorbed the difference
between the defendant’s higher wholesale price and lower
retail price, the electric utility’s loss of earning exerts pres-
sure on the citizens and officials of the municipality to dis-
continue operating the utility and to offer to sell or lease
it to the defendant.
(3) In the municipalities that increase their own in-
dustrial retail prices to the level of the defendant’s higher
wholesale price, and above the level of the defendant’s
lower retail industrial prices, this situation threatens to
cause the municipalities’ industrial customers to exert pres-
36a
Order and Memorandum of the District Court
sure on the municipalities to sell or lease its utility to the
defendant so they can purchase electric power at the de-
fendant’s lower price.
It is the plaintiffs’ contention that these alleged prac-
tices have been done with the intent, and have the effect, of
monopolizing part of the trade and commerce among the
several states in the distribution and sale of electric power
at retail in violation of Section 2 of the Sherman Act and
have injured the municipalities in their business and prop-
erty. Plaintiffs thus seek declaratory and injunctive relief
and treble damages.
The defendant, I & M, has responded to plaintiffs’ com-
plaint by filing a motion to dismiss or in the alternative to
stay, pursuant to Rule 12 of the F.R.C.P. The defendant’s
motion to dismiss is based upon the following grounds:
The Court lacks jurisdiction over the subject matter of the
action and the plaintiffs’ complaint fails to state a claim
upon which relief may be granted.
In the motion to stay, defendant contends that in the
event the Court does not dismiss this action, the Court
should order this proceeding stayed until the conclusion of
the regulatory proceedings before the Federal Power Com-
mission involving defendant’s rates charges to wholesale
customers, including plaintiffs, to which proceedings de-
fendant and the Indiana & Michigan Distributors Associa-
tion (of which plaintiffs are members) are parties.
Subsequent to a hearing on defendant’s motion to dis-
miss, or in the alternative to stay, and while defendant’s
motion was under advisement by the Court, the defendant
filed a motion for leave to file supplementary affidavit and -~~
37a
Order and Memorandum of the District Court
exhibits in support of its motion to dismiss or in the alterna-
tive to stay. The Court finds from reviewing defendant’s
supplementary aftidavit and exhibits that they are sub-
mitted in support of the proposition that the dual pricing
structure of which plaintiffs complain does not exist and
that plaintiffs are in fact paying less under the present
wholesale rates than they would pay under the applicable
retail tariff and, therefore, there is no basis upon which the
plaintiffs can claim injury. The Court finds that the mate-
rial which defendant seeks to file, by way of supplementary
affidavit and exhibits, is not material in support of its mo-
tion to dismiss or in the al. _rnative to stay but, in fact, is
material in opposition to the substantive issue of plaintiffs
complaint, which issue is presently not before this Court.
The present motion before the Court and the motion de-
fendant seeks to supplement, involves the jurisdiction of
this Court and not the merits of plaintiffs’ complaint. If
and when the merits of plaintiffs’ complaint are at issue, the
defendant will be allowed to present its opposition to plain-
tiffs’ claim and the Court will then consider such material.
The Court finding defendant’s supplementary material to
be irrelevant to the present motion, it is the Order of the
Court that defendant’s motion for leave to file supplemen-
tary affidavit and exhibits be denied.
In considering defendant’s motion to dismiss or in the
alternative to stay, the Court has had to become familiar
with some of the proceedings that have gone on and are
going on in the Public Service Commissions of Indiana and
Michigan (‘‘Indiana Commission’’ and ‘‘Michigan Com-
38a
Order and Memorandum of the District Court
mission’’, respectively), and the Federal Power Commis-
sion (‘‘Commission’’) with respect to the approval of retail
and wholesale rates submitted by I & M since 1971. The
following is a summary of what has occurred in the respec-
tive Commissions :
Reta Rates
Dates Action Taken
July 30, 1971 I & M filed petition requesting the.
Indiana Commission to make an in-
vestigation and hold public hear-
ings in regard to I & M’s proposed
new rates.
March 24, 1972 Indiana Commission issued an or-
der setting I & M’s retail rates for
the State of Indiana. The rates
were effective March 29, 1972.
July 30, 1971 I & M filed a petition with the Mich-
igan Commission asking them to in-
vestigate and hold hearings on the
proposed rate increase for Michi-
gan.
March 20, 1973 The Michigan Commission granted
an increase in the rates. The rates
were effective March, 1973.
WHo.esaLeE Rates
June 13, 1972 Pursuant to 16 U.S.C. §824(d), I
& M submitted proposed rate in-
creases in the rates charged to
wholesale customers to the Federal
Power Commission.
39a
Order and Memorandum of the District Court
Dates
_ August 11, 1972
August 13, 1972
December 5, 1972
February 14, 1973
Action Taken
Public hearings were ordered and
the Indiana and Michigan Municipal
Distributors Association (IMMDA)
request to intervene in the proceed-
ing was granted.
The Commission designated this
date as the effective date for I &
M’s new rates and suspended the
effective date of the new rates for
five months thereafter, until Janu-
ary 13, 1973.
I & M appealed to the United States
Court of Appeals in the District of
Columbia Circuit, on the grounds
that the effective rate date should
be July 14, 1972. While it was sub
judice, the Commission on January
31, 1974, commenced its hearings
on the lawfulness of the proposed
rates.
The Court of Appeals ruled favor-
ably on I & M’s petition, vacated
the Commission’s suspension order
and remanded the proceeding to the
Commission, with instructions that
I & M’s rates be made effective ret-
roactive to July 14, 1972. A peti-
tion for rehearing was filed.
40a
Order and Memorandum of the District Court
Dates Action Taken
August 14, 1974 The rehearing was granted and the
Court modified its order as follows:
I & M may not collect retroactive
rate increases for the five-month
period from the effective date of its
rate filing, July 14, 1972, through
December 13, 1972; I & M may col-
lect the difference between its old
and new rates for the period from
December 14, 1972, through Janu-
ary 13, 1973. If the Commission
determines that I & M’s filed rates
are unjust or unreasonable, it may
order I & M to refund the amounts
collected after December 13, 1972,
in excess of the just and reasonable
rates. Indiana & Michigan Electric
Company v. Federal Power Com-
mission, No. 72-2168 (D.C.Cir.
1974).
April 16, 1974 The hearings on the lawfulness of
I & M’s rates were concluded and
a briefing schedule established, final
briefs being due on September 3,
1974. It is expected that the final
decision of the Administrative Law
Judge will be appealed.
I—Subject Matter Jurisdiction
Defendant I & M contends that its retail rates which
have been set by the Indiana Commission and the Michigan
Commission are immune from attack under the Sherman
4la
Order and Memorandum of the District Court
Act. It argues that it is a well settled principle of antitrust
law that conduct which violates the Sherman Act, if under-
taken by a private.individual, is immune from attack under
the Sherman Act if undertaken by the state or its agents
acting in the scope of their authority, Parker v. Brown, 317
U.S. 341 (1943). I & M alleges that nothing in the Sherman
Act is intended to restrain a state or its officers or agents
from activities directed by its legislature. It is defendant’s
position that congress has pre-empted the authority over
wholesale rates of electric utilities but has left the states
sovereign with respect to the rates and regulations concern-
ing retail sales within the states’ borders. Therefore, the
retail rates in Indiana and Michigan are subject exclusively
to regulation by the Indiana and Michigan Commissions.
Defendant states that because I & M’s retail rates derive
their authority and efficacy from the legislative commands
of Indiana and Michigan and cannot operate or be effective
without that command, they are immune from attack under
the Sherman Act.
It is also the defendant’s position that the Court cannot
issue an order affecting the wholesale rates since they are
within the exclusive or, alternatively, the primary jurisdic-
tion of the Commission. Defendant contends that should
the present proceedings not be terminated, they will result
in an order determining the just and reasonable rates for
I & M’s wholesale customers, inciuding the plaintiffs herein,
and these wholesale rates will be subject to the Commis-
sion’s approval as just and reasonable. I & M assert that
the rates which plaintiffs attack are clearly within the Com-
mission’s regulatory domain. The defendant also acknowl-
edges that anti-competitive conduct may be raised and con-
42a
Order and Memorandum of the District Court
sidered by the Commission in its rate determination, but it
may only deal with allegations of anti-competitive conduct
that are specifically articulated and that are within its
jurisdiction to remedy. I & M further agrees that the
Commission has no power over the retail rates which are
left to the regulatory power of the State Commissions.
Because the Commission has no power over the retail rates,
I & M is aware of the Commission’s inability to remedy a
claim of anti-competitive behavior, premised on the differ-
ence in rates charged by I & M to its wholesale and retail
customers, by raising the retail rates to the level of the
wholesale rates. The Commission also finds that its juris-
diction over wholesale rates is clear and that it cannot be
limited by the state’s action with respect to retail rates.
It is the defendant’s contention that the Commission cannot
set wholesale rates at a level equal to or lower than the
retail rates if the lower rate would not be adequate to cover
the utilities’ allocated cost-of-service or would result in an
inadequate rate of return. To do so would result in an ab-
dication of the Commission’s statutory responsibility to set
only just and reasonable rates.
The defendant sees the problem as one of inter-relation-
ship of two separate statutory schemes. The Sherman Act
has as its goal the determination of prices and services by
the working of a free market. The Federal Power Act
substitutes for competition the authority of a regulatory
agency to supervise the rates and prices charged by electric
companies on the grounds that the concept of prices set by
free market competition has no place in industries which are
monopolies because of public grant, the exigencies of na-
ture, or legislative preference for a particular way of doing
eT .
SS SS RR ET PE PE TT FT Et YET
43a
Order and Memorandum of the District Court
business. Thus the defendant contends that the antitrust
laws may only be applied to the extent that the matter in
question is not within the reach of tne regulatory agency’s
supervision.
The plaintiffs in response to defendant’s argument con- .
tend that the Court does have jurisdiction of the subject
matter of this case. If is plantiffs’ position that the use of
monopoly power to prevent competition is a violation of
the anti-trust laws over which this Court has jurisdiction.
They rely on Section 2 of the Sherman Act, 15 U.S.C. §2.
They further assert that Sections 4 and 16 of the Clayton
Act, 15 U.S.C. §§15 and 26, provide a right of action and
remedies to private parties who are injured by violation
of the Sherman Act.
The plaintiffs contend that the defendant’s motion
ignores the fact that this anti-trust action does not challenge
the defendant’s wholesale or retail prices, but challenges
the defendant’s act of allegedly monopolizing and attempt-
irig to monopolize the business of selling electric power at
retail. Plaintiffs contend it does so by abusing its dis-
cretion to file wholesale and retail prices and by instituting
a dual price structure that prevents competition and ex-
tends the monopoly control.
It is the plaintiffs’ position that this Court will not be
required either to issue an order raising the retail rates, or
issue an order lowering the wholesale rates. Plaintiffs as-
sert that the power to establish prices rests with the defend-
ant utility, subject only to the requirement that it be within
a zone of reasonableness and that they undergo agency
review. It is the plaintiffs’ position that the defendant it-
|
44a
Order and Memorandum of the District Court
self has the power to eliminate the dual price system by
changing its own price-setting practices and by making
such new filings before one or more of the state or federal
regulatory agencies as the defendant sees fit which will
remove the allegedly unlawful disparity between the price
at which the defendant sells electric power to its customers
and the price the defendant requires its competitors to pay.
Plaintiffs claim that the Federal Power Act does not
immunize the defendant’s alleged monoply from coverage
of the anti-trust laws, and that the defendant itself concedes
in its brief on Page 25 that the anti-trust laws may be ap-
plied ‘‘to the extent that the matter in question is not within
the reach of the regulatory agency’s supervision.’’ It is
argued by the plaintiffs that the Federal Power Act, as
interpreted by the Commission, does not itself provide a
pervasive regulatory scheme to control the defendant’s
practice of instituting a dual price system and requiring
its competitors to pay more for electric power than its
retail customers. Plaintiffs state that the Commission has
held that dual price systems and their anti-competitive
effects are beyond the Commission’s jurisdiction. Thus,
the Federal Power Act fails to replace tke anti-trust laws
with provisions that would regulate the defendant’s monop-
olization or immunize the defendant from the coverage of
the anti-trust laws.
After reviewing both parties’ arguments as to whether
the Court lacks jurisdiction over the subject matter of this
action, the Court finds that it does have jurisdiction over the
ease before it. The defendant has attempted to send the
Court down two paths of exclusive jurisdiction and then
inform it that because the Court has no control over the
7" —— _
45a
Order and Memorandum of the District Court
exclusive areas, it has no jurisdiction over the present ac-
tion. I & M first argues that the retail rates in dispute
are the products of approval by the Indiana and Michigan
Public Service Commissions and, as such, are protected
from the Sherman Act under the reasoning set out in
Parker v. Brown, supra. Next, I & M points out how the
Federal Power Act, 16 U.S.C. §824(d)(a) 1970 has granted
the Commission the power to decide if the rates and charges
made, demanded, or received by a public utility for or in
connection with the sale at wholesale of electric energy are
just and reasonable and therefore lawful. The Court agrees
with the defendant and the principles set forth in Parker v.
Brown. The Court in this case does not have any authority
under the Sherman Act to attack the Indiana and Michigan
Public Service Commissions’ findings that the retail rates
implemented by I & M were lawful. The respective state
commissions are empowered to determine whether the elec-
trie retailers’ rates are just and reasonable in relation to
cost and rate of return, and the Court in no way intends
to intrude upon that particular decision. Further, the Court
reeognizes that Congress has pre-empted the authority over
wholesale rates. There is no dispute but that the Federal
Power Commission has been given the task of reviewing
the lawfulness of the wholesale rates charged by the de-
fendant company. However, the plaintiffs themselves are
not attacking the action of the state commissions, nor the
role of the Federal Power Commission. What is really at
issue in this case is the action of the defendant, I & M.
I & M deals in both wholesale and retail electric power
and, therefore, has to init'ate vates which are subject to
the scrutiny of the state commissions on one level and the
Federal Commission when wholesale rates are put into
effect. The Commissions operate independently of one
ee
are cers
46a
Order and Memorandum of the District Court
another and in no way rely on the other’s actions when
deciding upon the lawfulness of the respective rates. The
defendant in this case is also the plaintiffs’ only outside
source of wholesale electric power, which position makes
the Federal Power Commission the only control over the
defendant’s price for wholesale power since competition
with other wholesalers does not exist in the area.
A great portion of the defendant’s argument focused on
a regulatory agency’s exclusive or primary jurisdiction
over the rates charged by the defendant. I & M cites the
eases of Ricci v. Chicago Mercantile Exchange, 409 U.S. 289
(1973), and Pennsylvania Power Company v. F.P.C., 193
F.2d 230 (D.C.Cir. 1951), aff’d., 343 U.S. 414 (1952), to
support the position that anti-trust laws have no applica-
tion upon an issue which has been placed under the control
of a regulatory agency. Here the defendant contends that
Congress has given the power over wholesale rates to the
Commission and that anti-trust criteria are not to be the
governing factor. In both Ricci and Pennsylvania Power
Company the Court was concerned with conduct covered by
the respective regulatory statutes. In Ricci the issue be-
fore the Court involved whether the defendant had violated
the rules of the Chicago Mercantile Exchange, an issue the
Supreme Court decided was with:n the jurisdiction of the
Commodities Exchange Commission. In Pennsylvania Pow-
er Company the Court would not allow anti-trust criteria
to be forced upon the Commission in its decision of what
rate was just and reasonable.
The case before us is distinct from both Ricci and Penn-
sylvania Power Company. Here, the alleged monopolistic
practice not only involves ra‘es which are subject to review
by the Federal Power Commission but also separate rates
47a
Order and Memorandum of the District Court
reviewed by state commissions. Further, it is not the deci-
sion by the commission, nor the criteria used in the com-
mission’s decision, that is under attack by the plaintiffs.
Instead, what is sought to be enjoined is beyond the reach
of both state and federal commissions and within the power
of the defendant; that is, the initiation of a dual rate struc-
ture whereby plaintiffs are allegedly being forced out of
the retail electric business by the defendant.
The Federal Power Commission itself has indicated that
the alleged dual price system and its anti-competitive effects
are beyond the Commission’s jurisdiction (Order Denying
Motion to Reject, Granting Petition to Intervene in Part
and Amending Prior Order, Indiana and Michigan Electric
Co., FPC Docket No. 7740, November 27, 1973 [Appendix
4] Plaintiff’s Brief in Opposition to Defendant’s Motion
to Dismiss or Stay).
The dilemma caused by the seemingly contrary purposes
of the regulatory agencies and the anti-trust laws is not a
new issue in anti-trust litigation. Although they are dif-
ferent forms of control, they have the same goal and that
goal is to serve the public interest. In the Supreme Court
case of Georgia v. Pennsylvania R.R., 324 U.S. 439 (1944),
the State of Georgia, as plaintiff, filed suit against twenty
railroad companies alleging that the companies conspired
to fix their rates in such a manner as to prefer the ports of
other states over the ports of Georgia in violation of the
anti-trust laws. The Court in Georgia stated that ‘‘[r]Jegu-
lated industries are not per se exempt from the Sherman
Act.’’
The Court in the Georgia case also cited Justice Bran-
deis’ words in Keogh v. Chicago & N.W. Ry., 260 U.S. 156
(1922) wherein he stated as fellows:
48a
Order and Memorandum of the District Court
All the rates fixed were reasonable and nondiscrim-
inatory. That was settled by the proceeding before the
Commission .... But under the Antitrust Act, a
combination of carriers to fix reasonable and nondis-
criminatory rates may be illegal; and if so, the Govern-
ment may have redress.
The Court further stated:
The fact that these rates had been approved by the
Commission would not, it seems, bar proceedings by
the Government... The type of regulation which Con-
gress chose did not eliminate the emphasis on com-
petition and individual freedom of action in rate mak-
ing.... The Act was designed to preserve private
initiative in rate-making as indicated by the duty of
each common carrier to initiate its own rates.
Although the Georgia case involved the Interstate Com-
merece Commission and not the Federal Power Commission,
it has many similarities with the present case. Here, as in
Georgia, the rates are not within the discretion of the Court.
It is also a fact that in the present case, the Federal Power
Commission has no power over the alleged anti-trust viola-
tion that is asserted here because it involves retail rates
over which it has no control. 16 U.S.C. §824.
Because the alleged dual structure is outside the juris-
diction of both the federal and state commissions, there is
actually no conflict between the anti-trust laws and the
regulatory agency. Georgia, supra. The defendant has at-
tempted to present the plaintiffs’ claim as one attacking the
rates themselves and not one attacking their effect.
The Court in Otter Tail Power Co. v. United States, 410
U.S. 366 (1972), faced a similar defense and stated as
follows :
49a
Order and Memorandum of the District Court
The anti-trust charge against Otter Tail does not in-
volve the lawfulness of its retail outlets, but only its
methods of preventing the towns served from establish-
ing their own municipal systems when Otter Tail’s
francise expired.
The Supreme Court in Ottter Tail further stated the
following with respect to the Federal Power Act, 16 U.S.C.
§824:
There is nothing in the legislative history which reveals
a purpose to insulate electric power companies from
the operation of the antitrust laws. To the contrary,
the history of Part IT of the Federal Power Act indi-
eates an overriding policy of maintaining competition
to the maximum extent possible consistent with the
public interest.
Just as the Court in Otter Tail was hesitant to conclude
that the authority of the Federal Power Commission to
order inter-connections was intended to ‘‘be a substitute
for, or to immunize Otter Tail from, anti-trust regulation
for refusing to deal with municipal cerporations’’, this
Court cannot conclude tiat the Federal Power Commis-
sion’s authority to review rates was an intended substitute
for the anti-trust laws in a situation involving the alleged
monopolizing effect of a dual price structure.
Because regulated industries are not immune from anti-
trust laws and because the present case concerns an issue
over which the regulatory agency uas no jurisdiction, the
Court finds that it has jurisdiction over the subject matter
of this action, and the defendant’s motion to dismiss for
lack of jurisdiction is denied.
50a
Order and Memorandum of the District Court
Il—Failure to State a Claim
The defendant also argues that the plaintiffs’ complaint
should be dismissed for failure to state a claim upon which
relief may be granted because their claim is premature and
because if defendant’s wholesale rates have been too high,
plaintiffs will not be injured because of a possible refund.
I & M contends that plaintiffs’ claim assumes the existence
of two established rates, one for I & M’s retail industrial
customers and one for the plaintiff municipalities, and that,
in fact, there is only one established rate, that being the
retail rate. It cites the United States Court of Appeals
for the District of Columbia Circuit on rehearing in India
& Michigan Electric Co. v. FPC, Docket No. 72-2168 (D.C.
Cir. Aug. 14, 1972), in which the Court altered the effective
date of I & M’s proposed wholesale rates for electric power
and permiited the rates to become effective subject to
refund based upon the Commission’s decision. It is the de-
fendant’s position that although I & M may collect the dif-
ference between its old and new rates from December 14,
1972, the rate has not yet been approved by the Commission
and thus is subject to being reduced by the Commission.
The facts of this case show that the state commissions
have established retail rates and that there is presently
pending before the Federal Power Commission the issue
of the lawfulness of I & M’s wholesale rates. The Court
notes that although the question of the rates’ lawfulness
has not been rescived by the Commission, the rates them-
selves are in effect and have been for collection purposes
since December 14, 1972. It is true that if the Commission
finds the rates to be unlawful, the defendant will have to
-— +e
a ee en —
5la
Order and Memorandum of the District Court
refund that portion of the rate found to be excessive. On
the other hand, if the rates are just in relation to cost and
fair rate of r turn, they will no doubt be upheld by the
Commission. In either situation, we are discussing a future
result which is in no way based on any of the anti-trust
considerations set forth in plaintiffs’ complaint.
The Court finds that there are presently in effect two
rates: one an established rate for retail electric power, and
one a rate for wholesale power, the latter being subject to
change by the Commission although it is presently being
collected. It would be notably different in this case if the
practice of the Commission was to not allow a rate increase
to go into effect until after approval by the Commission.
For if that were the situation, the plaintiffs would be com-
plaining about a future harm that might never come to pass.
Whether the rate presently being charged by the defendant
as wholesaler will be upheld by the Commission is not the
ultimate concern of the plaintiffs in this case. The real
concern here is the defendant’s present and future ability
to set up a dual price structure by going through two
reviewing commissions which have no control over the dual
structure.
The fact that the defendant has legally set both its
wholesale and retail prices is no ground to immunize it
from the anti-trust laws. Georgia, supra. The Court finds
that although the present wholesale rate is subject to
change by the Commission, the Commission has no power
over the alleged dual rate structure which is allegedly in
effect at this time. Thus, it has no jurisdiction over the
issue in this suit. The plaintiffs are not attacking the actual
rates charged by the defendant and, therefore, whether the
eerbheews pe oo
o2a
Order and Memorandum of the District Court
Commission finds the rate fair is irrelevant to the substan-
tive issue before the Court. The defendant has the right
to initiate a given rate, and the Commission has the author-
ity to make sure the rate is fair in relation to cost and rate
of return. The initiation of new rate schedules is a con-
tinuing process carried on by the defendant. It is also the
point over which this Court has the power to provide relief
if the plaintiffs can prove their allegation. Because the
Court is in reality focusing on the dual price structure and
not the actual prices charged for either retail or wholesale,
the results of the Commission’s decision would only affect
whether defendant would have to initiate new rates if the
plaintiffs can prove that defendant is violating the Sherman
Act, §2. That is, if the Commission finds the defendant’s
rates to be just, the Court would be forced to order defend-
ant to initiate a new rate structure which eliminated the
dual price system of higher wholesale prices. However,
if the Commission finds the present rate to be unjust, then
the Court would only enjoin the defendant from any future
dual system.
The defendant also contends that if the Commission
declares the present wholesale rates to be unlawful, the
defendant will have to refund the excessive amount and,
therefore, there will have been no damage. Whether the
plaintiffs are entitled to damages, although not clear at this
point, is no reason to deny the Court jurisdiction over this
action which seeks injunctive, declaratory and damage
relief. If, in fact, the plaintiffs can recover damages in this
action, the amount of those damages will have to be proved
by the plaintiffs at trial. It is, therefore, the Order of the
Court that defendant’s motion to dismiss for failure to state
a claim be denied.
53a
Order and Memorandum of the District Court
IlI—Stay the Proceeding
The defendant also asks that if the Court does find that
it has jurisdiction over the present action, the action be
stayed until a final decision is handed down by the Commis-
sion. As stated above, the Commission’s decision on the
lawfulness of the defendant’s wholesale rate is not deter-
minative of the issue before this Court. The issue of the
lawfulness of the defendant’s rate is in the exclusive juris-
diction of the Commission and is not for this Court to
decide. If that were the issue before the Court, the case
would have to be dismissed.
Staying the present action will not aid this Court in
deciding the matter before it as it did the Court in Ricci.
In this action the alleged wrong is occurring at this time,
and although there is a possibility that agency action may
change the situation, the same possibility exists that no
change will take place. The agency acts as a review agency
after the rate is initiated by the utility company. Since it
is the initiation of a monopciistic structure that the Court
is asked to prohibit and not the rate itself, final action by the
agency will not by itself prohibit the problem although it
may alleviate it for a time. Furthermore, if the Court found
that damages were recoverable in this case and that in
determining the damages the final decision of the Commis-
sion was necessary and the Commission has not yet ruleu
on the lawfulness of the wholesale rate the present action
could at that time be stayed by the Court for the purpose of
awaiting the Commission result.
It is, therefore, the Order of the Court that defendant’s
motion to stay be 4 nied.
o4a
Order of the District Court, October 22, 1976
UNITED STATES DISTRICT COURT
NortTHERN District or INDIANA
Sout Benp Drvision
Case No. 874-72
Date 10/22/76
Time—From: 1:30
To: 2:30
Deputy R. Timmons
Reporter—Gail
Judge—Allen Sharp
Crry or Misuawaka, Inp1ana et al.
vs.
Inprana & Micuican ELEctric ComMPANY
a x
Plaintiff(s) Represented By Thomas R. Ewald and
R. Wyatt Mick Jr.
Defendant(s) Represented By Peter J. Schlesinger and
Lawrence Levy
Proceedings :
Hearing had on pending motions. Court hears argument of
counsel. Defendant, Indiana & Michigan Electric Com-
pany’s motion to recosider, vacate, set aside and amend this
Court’s Order of May 1, 1975, is overruled. On verbal mo-
tion of counsel, Defendant is granted leave to file an appeal
from this Order, pursuant to Title 28 USC, Section 1292(b).
Court reserves its ruling on Pitfs.’ motions to dismiss
Deft’s. counterclaims and to strike parts of Deft’s. answer.
Deft. is given to November 8, 1976, within which to answer
the amendment to the Complaint. Srarp, J.
/
55a
Complaint
IN THE
UNITED STATES DISTRICT COURT
For tHe NortHern District or INDIANA
Soutu Benp Drvision
Civil Action No. S 74-72
Ee
Crry or Mishawaka, InpIANA,
Ciry or Nims, Micuican,
City or Cotumsia City, Inpiana,
City or Buurrton, Inprana,
Crry or Garrett, Inprana,
Crry or Gas Crry, Inpiana,
Town or Frankton, Inprana,
Town or Warren, Inpiana,
Town or New Caruiste, Inprana, and
Town or Aviiua, Inprana,
municipal corporations,
Plaintiffs,
v.
Ivpiana & Micuican Exectric Company,
a corporation,
Defendant.
56a
COMPLAINT
Plaintiffs allege as follows:
L.
Jurisdiction and Venue
1. This is an action by ten municipalities that operate
their own electric distribution systems against the electric
power company that controls their supply of wholesale
electric power and also competes against them for retail
sales. The plaintiffs request relief against the defendant’s
monopolization of and attempt to monopolize the distribu-
tion and sale of electric power at retail within the area in
which it does business, in violation of Section 2 of the Sher-
man Act, 15 U.S.C. §2. The plaintiffs seek declaratory and
injunctive relief and treble damages.
2. This Court has jurisdiction of this case by virtue of
Sections 4 and 16 of the Clayton Act, 5 U.S.C. §4 15, 26.
The defendant company transacts business within the South
Bend Division of the Northern District of Indiana.
II.
Parties
3. Plaintiffs, City of Mishawaka, Indiana; City of Niles,
Michigan; City of Columbia City, Indiana; City of Bluffton,
Indiana; City of Garrett, Indiana; City of Gas City, Indi-
ana; Town of Frankton, Indiana; Town of Warren, Indi-
ana; Town of New Carlisle, Indiana; aud Town of Avilla,
Indiana, are municipal corporations located within the serv-
ice area of the defendant Indiana & Michigan Electric
/-rowe es er
d7a
Complaint
Company. Each of the plaintiffs operates its own electric
utility, through which it purchases wholesale electric power
from the defendant Indiana & Michigan Electric Company
and sells and distributes the electric power at retail to
industrial, commercial, and residential customers within its
corporate limits and in nearby areas.
4. Defendant Indiana & Michigan Electric Company
(sometimes referred to herein as ‘‘I&M’’ or ‘‘the com-
pany’’) is incorporated under the laws of the State of
Indiana and is doing business in the plaintiff municipalities
and elsewhere in the States of Indiana and Michigan. The
defendant I&M is a vertically integrated electric power com-
pany, which generates electric power, transmits the power
throughout its service area, and delivers the power both to
its wholesale customers, including the plaintiffs, and di-
rectly to its own retail customers.
Ii,
Nature of Trade and Commerce
5. The defendant company is the only firm within its
service area engaged in the business of transmitting and
selling electric power at wholesale. The defendant com-
pany is the plaintiffs’ only outside source of supply for
wholesale electric power. Plaintiffs Mishawaka, Indiana;
Columbia City, Indiana; Garrett, Indiana; Gas City, Indi-
ana; Frankton, Indiana; Warren, Indiana; New Carlisle,
Indiana; and Avilla, Indiana, depend on the defendant for
all of their requirements of wholesale electric power for
distribution and sale to their retail customers. Plaintiffs
Niles, Michigan, and Bluffton, 'ndiana, which operate gen-
erating facilities, nevertheless depend on the defendant for
Ska
Complaint
more than 90% of their requirements of electric power for
distribution and sale to their retail customers,
6. The defendant I&M also dominates and controls
the distribution and sale of retail electric power within its
service area, The defendant company has increased its
control of the retail market by acquiring municipal electric
utilities, Since 1957, the defendant has purchased the assets
of four of the 20 municipal utilities within its service area,
has absorbed their retail distribution facilities into the
I&M system, and has taken over their retail industrial,
commercial, and residential customers, as follows; Kendall-
ville, Indiana (1957), Decatur, Indiana (1959), Portland,
Indiana (1963), and Albion, Indiana (1966), In 1964, the
defendant attempted to acquire the municipal electric utility
of the City of South Haven, Michigan, but the sale was re-
jected by the voters of the City in three successive elections,
The defendant company now controls the distribution and
sale of retail electric power in more than 90% of the com-
munities within its service area, while municipally owned
and operated electric systems serve retail customers in
fewer than 10%.
IV,
Violations of Law
7. The defendant I8M has monopolized and has at-
tempted to monopolize interstate trade and commerce in the
distribution and sale of electric power at retail, in violation
of Section 2 of the Sherman Act, as follows:
(a) Since January 13, 1973, the defendant IGM has
required municipalities, including the plaintiffs, to pay a
59a
Complaint
new wholesale price for electric power, In contrast to its
previous practice, the defendant company’s new wholesale
price to municipalities is substantially higher than the retail
price the defendant company charges its own industrial
customers. As a result, the municipalities have become
financially unable to buy power at the defendant's new
wholesale price and sell it to their own industrial customers
at prices that are competitive with the defendant's present
retail prices ;
(b) On March 8, 1974, after fourteen months of requiring
the City of Fort Wayne, Indiana, to pay more for wholesale
electric power than the defendant I&M’s own retail in-
dustrial customers pay and after more than twenty years
of selling retail electric power to its own customers in the
Fort Wayne area for less than it sells retail power else-
where, the defendant I8M obtained the agreement of City
officials that the City of Fort Wayne will lease its entire
electric utility system to the defendant I&M for thirty-five
years. Under the lease agreement to be submitted to the
voters the defendant I&M will take possession of all of
the property and facilities of the City's electric utility and
will operate the electric distribution system, The defend-
ant company will take over the City’s retail customers and
will sell electric power to them directly, Fort Wayne is
the largest City within the defendant company's service
area which still operates its own electric utility.
& The defendant company's adoption of a wholesale
price to municipalities in excess of the retail prices at which
it sells electric power to its own industrial customers has
caused and threatens to cause the following consequences :
ee a ee
60a
Complaint
(a) The defendant company has impaired the plaintiffs’
ability to compete against the defendant for retail indus-
trial customers ;
(b) In those municipalities that have absorbed the differ-
ence between the defendant's higher wholesale price and
the defendant's lower retail industrial prices, the electric
utility’s loss of earnings exerts pressure on the citizens and
officials of the municipality to discontinue operating the
utility and to offer to sell or lease it to the defendant;
(c) In those municipalities that increase their own in-
dustrial retail prices to the level of the defendant’s higher
wholesale price, which they must pay for electric power, and
above the level of the defendant's lower retail industrial
prices, the disparity between the municipalities’ higher
retail industrial prices and the defendant [&M's lower
retail industrial prices threatens to cause the municipal-
ities’ industrial customers to exert pressure on the munic-
ipality to sell or lease its utility to the defendant I8M
so they can purchase electric power at the defendant's
lower prices.
9. The acts and practices of the defendant I&M alleged
herein have been done with the intent, and have had the
effect, of monopolizing part of the trade and commerce
among the several states in the distribution and sale of
electric power at retail and have injured the plaintiff munic-
ipalities in their business and property in an amount ex-
ceeding $1,000,000 before trebling. The plaintiffs’ losses
are continuing.
- Ea
6la
Complaint
10, Unless the relief requested by this Complaint is
granted, the defendant company will continue to violate 15
U.S.C, §2,
V.
Relief
Wuenerons, plaintiffs pray as follows:
1, For a declaratory judgment that the defendant com-
pany has violated 15 U.S.C. §2 by monopolizing and at-
tempting to monopolize the distribution and sale of electric
power at retail within its service area,
2. For an order enjoining the defendant company, its
officers, agents, employees, successors, and all persons in
active concert or participation with them, from violating
15 U.S.C, §2.
3. For an order enjoining the defendant I&M from
maintaining a disparity between the prices at which it
sells electric power and under which it requires the plaintiff
municipalities to pay a higher wholesale price than the
retail prices at which it sells and distributes power to its
own industrial customers.
4. For an order awarding the plaintiffs treble the
amount of damages they have sustained as a result of the
defendant's violations of 15 U.S.C, §2.
5. For an order awarding the plaintiffs reasonable at-
torney's fees, together with the costs and disbursements of
this action.
Complaint
6. For such other and additional relief as the interests Amendment to the Complaint
of justice may require.
| IN THE
s/ Tromas R, Ewan
Michacl Nussbaum = ana = UNITED STATES DISTRICT COURT
Ronald G. Preeup omas 5. HW For rue Nontuean Disraicr or Iwona
Karasik & M 1156 15th Street, N.W.
Burrey, Kar a Washington, D, C, 20005 Sovurn Benv Division
1156 15th Street, N.W. (202) 872-8686
Washington, D, C, 20005
(202) 331-4000 s/ BR. Wvarr Mick, Ja. Civil Action No, 8 74-72
Of Counsel R. Wyatt Mick, Jr.
Bingham, Loughlin, Means, a
Mick & M
400 Lincoln Way West Crry or Misnawaka, Lypiana, et al,
Mishawaka, Indiana 46544 Plaintiffs,
(219) 255-9616 v.
s/ James J. Ovson
James J, Olson
122 South Mill Street Defendant.
Mishawaka, Indiana 46544
(219) 259-5461
Attorneys for Plaintiffs
Inpiawa & Micnios» Exeornic Company,
AMENDMENT TO THE COMPLAINT
The plantiffs allege as follows :
7. (c) Sinee July 27, 1976, the defendant I & M has re-
quired municipalities, including the plaintiffs, to pay a new,
higher wholesale price for electric power. As a result, the
municipalities have become financially unable to buy power
at the defendant's new wholesale price and sell it to indus-
ee,
64a
Amendment to the Complaint
trial customers at prices competitive with the defendant's
present retail prices.
8/
Thomas R, Ewald
1156—15th Street, N. W.
Washington, D, C, 20005
* (212) 331-4053
R. Wyatt Mick, Jr.
Bingham, Loughlin, Means,
Mick & Myers
400 Lincoln Way East
Mishawaka, Indiana 46544
(219) 259-9616
James J, Olson
122 South Mill Streei
Mishawaka, Indiana 46544
(219) 259-5461
Attorneys for Plaintiffs
307 BAR PRESS, Inc., 132 Lafayette St., New York 10013 — 966-3906
(6517)
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