Appendix — American Electric Power Co. v. City of Mishawaka

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eS 2? oe

IN THE JUK 27 1980

Suprene Court of the WUnitfP States

October Term, 1979 MICHAEL RODAK, JR, CLERM |

No '%9-2059

AMERICAN ELECTRIC POWER COMPANY, INC.,

AMERICAN ELECTRIC POWER SERVICE CORPORATION, and

INDIANA & MICHIGAN ELECTRIC COMPANY,

Corporations,

Petitioners,

» -

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.

= — -—

————

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APPENDIX TO PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

J

WuitNney NortH SEYMOUR

Witu1aM J. MANNING

Counsel for Petitioners

One Battery Park Plaza

New York, New York 10004

(212) 483-9000

Of Counsel:

Simpson THACHER & BARTLETT

One Battery Park Plaza

New York, New York 10004

(212) 483-9000

Livincston, Dicpine, Haynie & YODER

425 Lincoln Bank Tower

Fort Wayne, Indiana 46802

(219) 423-9411

June 27, 1980

INDEX TO APPENDIX

PAGE

Text of Constitutional Provision Relied On ............ ee

Text of Statutes Relied On ......... folic seat Same la

Order and Judgment of the Court of Appeals eee

gg ___RRRRIRSTRR AEs ecenere teres nD «1 cel enn Tan eee oa

Opinion of the Court of Appeals (February 21, 1980) 6a

Order on Petition for Rehearing 0.0.0... 38a

(BNE AA. Se SER nea BE aS Rr OO ne a ISON RRS ea 40a

Judgment Order of District Court 0000000000... )=—42a

Memorandum Opinion of the District Court, January

alae pa mle Sep Oe ee RO DE ee

Finding of Facts and Conclusions of Law ...... - 105a

Order and J “aaiicn of the Court of semaine (August

ICTS oe ance ce a Nolan Ten maaect ee

Opinion of the Court of Appeals (August 17, 1977) 157a

Order and Memorandum of the District Court (May 1,

31976) ..... eae Se ieee reat ene wath vatehs tein Sees a

Order of the District Court, October 22, 1976 200a

8! | ee ee ee

Text of Constitutional Provision Relied On

Amendment I

Freedom of religion, speech and press; peaceful assemblage;

petition of grievances

Congress shall make no law respecting an establishment

of religion, or prohibiting the free exercise thereof; or

abridging the freedom of speech, or of the press; or the

right of the people peaceably to assemble, and to petition

the Government for a redress of grievances.

Text of Statutes Relied On

Federal Power Act §205, 16 U.S.C. §824d:

‘*§824d. Rates and charges; schedules; suspension of

new rates; automatic adjustment clauses

(a) Just and reasonable rates

‘*All rates and charges made, demanded, or received

by any public utility for or in connection with the transmis-

sion 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 rea-

sonable, and any such rate or charge that is not just and

reasonable is hereby declared to be unlawful.

(b) Preference or advantage unlawful

‘‘No public utility shall, with respect to any ltrans-

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.

(c) Schedules

‘‘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,

2a

Text of Statutes Relied On

together with all contracts which in any manner affect or

relate to such rates, charges, classifications, and services.

(d) Notice required for rate changes

‘*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 con-

tract relating thereto, except after sixty 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 sixty 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) Suspension of new rates; hearings; five month period

‘‘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-

tion, or service goes into effect, the Commission may make

such orders with reference thereto as would be proper ina

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

3a

Text of Statutes Reed On

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

increase, 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 utilities 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) :

‘¢4894e, 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,

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 affected 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 foree, and shall fix the same by order.’’

Sherman Act §2, 15 U.S.C. §2:

§2. Monopolizing trade a felony 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 felony, and, on conviction thereof, shall

be punished by fine not exceeding one million dollars if a

4a

Text of Statutes Relied On

corporation, or if'any other person, one hundred thousand

dollars, or by imprisonment not exceeding three years, or

by both said punishments, in the discretion of the court.’

Clayton Act §4, 15 U.S.C. §15:

‘*§15. Suits by persons injured; amount of recovery

‘‘Any person whe 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.”’

Jayton Act §15, 16 U.S.C. §26:

‘*§26, Injunctive relief for private parties; exception;

costs

‘‘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. In any action under this section in which the plaintiff

substantially prevails, the court shall award the cost of suit,

including a reasonable attorney’s fee, to such plaintiff.’’

5a

Order and Judgment of the Court of Appeals

(February 21, 1980)

Opinion by Judge Wood

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

February 21, 1980

Before

Hon. Rosert A. Sprecuer, Circuit Judge

Hon. Haruincton Woop, Jr., Circuit Judge

Hon. Husert L. Witt, Senior District Judge”

Nos. 79-1190, 79-1237, and 79-1354

See

City oF MISHAWAKA, INDIANA, City oF NILES, MICHIGAN, CITY OF

CotumBIA City, INDIANA, City oF BLUFFTON, INDIANA, CITY OF

GARRETT, INDIANA, City oF Gas City, INDIANA, TOWN OF FRANK-

TON, INDIANA, TOWN OF WARREN, INDIANA, TOWN OF NEw CAr-

LISLE, INDIANA, and Town oF AviLLA, INDIANA, Municipal Corpo-

rations,

Plaintiffs-A ppellees, Cross-A ppellants,

US.

AMERICAN ELEctRIC Power CoMPANY, INc., AMERICAN ELECTRIC

PoweER SERVICE CORPORATION, and INDIANA & MICHIGAN ELECTRIC

Company, Corporations,

Defendants-A ppellants, Cross-Appellees.

Appeals from the United States District Court for the

Northern District of Indiana, South Bend Division

Nos. S-74-22, S-75-210, S-77-2U9

Allen Sharp, JUDGE

re

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 ar-

gued by counsel.

On consideration whereof, it is ordered and adjudged by

this court that the judgment of the said District Court in

this cause appealed from be, and the same is hereby, Ar-

FIRMED IN Part. The damage and injunctive provisions are

Vacatep and Remanvep for additional proceedings in ac-

cordance with the opinion of this court filed this date. Each

party to bear its own costs.

*The Honorable Hubert L. Will, Senior District Judge of the

United States District Court for the Northern District of illinois, is

sitting by designation.

6a

Opinion of the Court of Appeals (February 21, 1980)

i

Crry or MisHawaka, Iyprana, Crry or Nites, Micuican, Oury

or Cotumsia City, Inprana, Crry or Buiurrron, [nprana,

City or Garrett, [nprana, Crry or Gas Crry, Inprana, Town

or Frankton, Inprana, Town or Warren, Inpiana, Town

or New Caruisuz, Inpiana, and Town or Avuta, Inprana,

Municipal Corporations,

Plaintiff s-Appellees and Cross-Appellants,

v.

AMERICAN Execrric Power Company, Inc., AMERICAN ELLEc-

TRIC Power Service Corporation, and Rens & MICHIGAN

ELEctric Company, Corporations, .

Defendants-Appellants and rr ea:

Nos. 79-1190, 79-1237 and 79-1354.

rr A iin

United States Court of Appeals,

Seventh Circuit.

Argued June 6, 1979,

Decided Feb. 21, 1980.

Rehearing and Rehearing En Bane

Denied March 31, 1980.

Before Sprecuer and Woop, Circuit Judges, and Wiu,

Senior District Judge.*

* The Honorable Hubert L. Will, Senior District Judge of the

United States District Court for the Northern District of Illinois, is

sitting by designation.

é

7a ‘>

Opinion of the Court of Appeals (February 21, 1980)

Haruincton Woop, Jr., Circuit Judge.!

Involved is the application of the Sherman Act* to a

vertically integrated investor-owned electric utility, found

by the trial court to be a monopoly. The utility’s wholesale

rates are subject to regulation by the federal Energy Reg-

ulatory Commission® and its retail rates are subject to

regulation either by the State Public Service Commission

of Indiana in the instance of nine municipal plaintiffs or

Michigan in the instance of one municipal plaintiff. The

municipalities which own and operate local transmission

systems for retail sale of electricity depend on defendants

for their wholesale supply. Because the utility’s wholesale

rates charged the municipalities during the period 1976-

1978 exceeded the retail rates charged to its own retail cus-

tomers, the utility was found by the trial court to be guilty

of a ‘‘price squeeze’”* and of related exclusionary acts cal-

culated to force the municipalities out of the retail electric

business resulting in the conversion of municipal retail cus-

tomers into retail customers of the utility. Triple damages

were awarded based on rate overcharges and an injunction

issued.® A cross appeal by the municipalities is also before

us questioning the failure of the district court to award the

municipalities their litigation expenses before the federal

1. Judge Will made substantial contributions to this opinion and

in particular to the section on damages.

2. 15 U.S.C. §2.

3. The Federal Energy Regulatory Commission was formerly

known as the Federal Power Commission.

4. The term “price squeeze” as used in this context refers to a

situation where the monopolist charges its wholesale customer a

wholesale rate high enough to impede that customer’s competition with

the monopolist in the retail market.

5. The opinion of Judge Sharp is reported in City of Mishawaka,

Indiana v. American Electric Power Co., 405 F.Supp. 1320 (N.D.Ind.

1979), and is the subject of a recent Note, Antitrust Price Squeeze,

12 Ind.L.Rev. 637 (1979).

8a

Opinion of the Court of Appeals (February 21, 1980)

commission as an element of antitrust damages. Those

commission proceedings involving these same parties con-

sidered related issues. This case in its preliminary stages

was before us on interlocutory appeal.’ In Mishawaka I,

several issues were resolved. This court held that the util-

ity was not immunized from Sherman Act attack and that

the federal commission had neither exclusive nor primary

jurisdiction over the utility faced with these antitrust

charges. For the purposes of this case those issues are

settled.

Although this case was well briefed and argued, it re-

mains complex factually and legally.” Dual regulation, fed-

eral and state, of this electric utility, which is also subject

to the Sherman Act, generates legal and practical problems

in addition to electricity.’ The necessary resolution by the

courts of the involved complexities does not render a totally

satisfying result. We shall first consider a capsule of the

facts found by the district court, and then the various issues

which arise.

6. City of Mishawaka, Indiana v. Indiana & Michigan Electric

Co., 560 F.2d 1314 (7th Cir. 1977), cert. denied, 436 U.S. 922, 98

S.Ct. 2274, 56 L.Ed.2d 765 (1978).

7. We have had the assistance of separate briefs filed by amici

curiae Edison Electric Institute, Commonwealth Edison Company,

and jointly by the cities of Anderson and Auburn, Indiana.

8. On the general subject of the application of antitrust laws to

regulated industries the following articles may be of interest: Hale &

Hale, The Otter Tail Power Case: Regulation by Commission or

Antitrust Laws, 1973 Sup.Ct.Rev. 99; Hale & Hale, Competition or

Control Vi: Application of Antitrust Laws to Regulated Industries,

111 U.Pa.L.Rev. 46 (1962) ; Jones, Marketing Strategy and Govern-

ment Regulation in Dual Distribution Practices, 34 Geo.Wash.L.Rev.

456 (1966) ; Meeks, Concentration in the Electric Power Industry:

The Impact of Antitrust Policy, 72 Colum.L.Rev. 64 (1972) ; Note,

Regulated Industries and the Antitrust Laws: Substantive and Proce-

dural Coordination, 58 Colum.L.Rev. 673 (1958) ; Note, Refusals to

Deal by Vertically Integrated Monopolists, 87 Harv.L.Rev. 1720

(1974) ; Comment, Otter Tail and Its Import for Regulated Utilities,

9 Wake Forest L.Rev. 407 (1973).

9a

Opinion of the Court of Appeals (February 21, 1980)

THE FINDINGS OF THE TRIAL JUDGE

The bench trial lasted three and one-half days sup-

plemented by a lengthy stipulation of facts, numerous dep-

ositions and over a thousand exhibits. Following trial the

judge filed a Memorandum Opinion, Judgment Order, and

Findings of Facts and Conclusions of Law. Those docu-

ments, and the Findings of Facts in particular, are attacked

by the utility as the work product of the municipal attorneys

and not the trial judge. It is therefore argued that a broad-

er scope of review is justified than the clearly erroneous

standard ordinarily applied pursuant to Rule 52, Federal

Rules of Civil Procedure. We bear that legitimate concern

in mind as we consider this case, but after a review of the

whole record including pretrial and post trial matters, we

see no necessity in the circumstances of this case to aban-

don our usual standard of review. United States v. El Paso

Natural Gas Co., 376 U.S. 651, 84 S.Ct. 1044, 12 L.id.2d 12

(1964).

Further, the utility argues that this is a ‘‘paper

case’’ largely founded on the stipulation and other docu-

ments in evidence. A broader review standard is therefore

urged upon us. Yorke v. Thomas Iseri Produce Co., 418

F.2d 811, 814 (7th Cir. 1969). We more recently considered

the prevailing rule in Flowers v. Crouch-Walker Corp., 552

F.2d 1277, 1284 (7th Cir. 1977). In applying a broader rule

in that case we noted that the trial evidence consisted al-

most entirely of the testimony of a single witness whose

credibility was not challenged. In the present case nine

witnesses were heard including the managing officials of the

utility during the times in question. The trial judge in his

findings expressed ‘‘serious reservations’’ about the cred-

ibility of the utility officials. We cannot better judge the

credibility of those witnesses unseen by us than the trial

judge. Though the evidentiary documentation is volumi-

10a

Opinion of the Court of Appeals (February 21, 1980)

nous, we see no need in these circumstances to use that as

an excuse to go behind the findings of the trial judge. The

testimony of the witnesses and the inferences to be drawn

had an obvious impact on the judge’s decision. After re-

view of the case we do not have a ‘‘definite and firm con-

viction’’ that the trial judge made erroneous findings.

However, in reaching the conclusion we do about this

case, we do not mean to imply that it results only from a

strict application of the ‘‘clearly erroneous’’ standard. We

would much prefer to be assured that what we review is the

work product resulting from the judge’s personal consid-

eration and resolution of the evidence in the case and that

it is not merely the disguised product of the successful ad-

vocate. We also realize, however, that asa practical matter

in these times a busy trial judge may in some circumstances

be properly assisted with some of the paper work resulting

from his own determination of the issues. This appears to

be such a case.

FACTUAL BACKGROUND

The three related defendant companies will be consid-

ered as one for our purposes and referred to as the utility.®

The utility generates, transmits and sells electricity at

wholesale to the ten municipal plaintiffs, and also at retail

to its own industrial, commercial and residential] customers.

The plaintiff municipalities may be considered for practical

purposes as purchasing all of their wholesale electricity

from the utility which in turn they individually distribute

at retail to their own local customers through their electric

9. Indiana & Michigan Electric Company generates, transmits

and sells electricity. American Electric Power Company, Inc., is an

investor-owned public holding company under the Public Utility

Holding Company Act of 1935, 15 U.S.C. § 79 et seq. American

Electric Power Service Corporation, also a subsidiary of American

Electric Power, provides management, professional and_ technical

services to Indiana & Michigan Electric.

lia

Opinion of the Court of Appeals (February 21, 1980)

distribution systems. The wholesale rates charged by the

utility are subject to federal regulation." The wholesale

rates filed by the utility become effective, subject to refund,

thirty days after filing or after a maximum five-month sus-

pension ordered by the federal commission. However, the

retail rates sought by the utility in both Indiana and Mich-

igan under the respective statutes of those states do not go

into effect automatically prior to approval, but must await

an order of the particular state commission fixing the rates.

In 1968, the municipalities individually entered into new

full-requirements contracts with the utility for wholesale

electricity. The utility during the period 1968-1978 filed

for seven retail rate increases in Indiana, four in Michigan,

and three federal requests for wholesale increases. The

first of the three federal requests resulted in a refund to the

municipalities settled by the utility for $1,678,511 plus

about $300,000 interest. The latter two requests remain

unresolved. Some of the state retail filings resulted in a

degree of increase in retail rates. At least one state filing

is undetermined.

As explained by the utility, it anticipated a future ener-

gy shortage, and therefore advised the municipalities that

full-municipal requirements contracts would not be renewed.

The municipalities were further advised to seek alternative

sources of wholesale electricity which the utility offered to

‘‘wheel.’’! The utility has under development several nu-

clear generators. No municipality has yet been terminated

by the utility.

The trial court found that the utility in its service area

has a monopoly of retail sales of electricity as well as a

monopoly of the supply of wholesale electric power upon

10. Federal Power Act, 16 U.S.C. § 824.

11. “Wheeling” is a convenient industry term for transmitting

electricity from source to customer over the line facilities of a third

party.

12a

Opinion of the Court of Appeals (February 21, 1980)

which the municipalities depend. Supported by the trial

court’s findings, the municipalities further point out that

the utility and the municipalities are in competition for the

right to serve all the customers in a municipality, referred

to as ‘‘franchise competition.’? The municipalities claim

that the utility has misused its monopoly power and the

system of dual regulation. The trial court found that by

seeking and permitting the wholesale rates to be higher and

out of balance with lower retail rates, the utility was ‘‘ price

squeezing’’ the municipal systems into financial extinction

and thereby was setting the stage for acquisition of munici-

ipal retail customers as its own. The trial court further

found that the utility’s rate program had been supple-

mented by threats to the continuation of wholesale power

to the municipalities. Further the trial court found that

competition had in the past been crippled and some munic-

ipal systems had been acquired by the utility.

The municipalities contend therefore that the utility has

monopolized and attempted to monopolize the distribution

and sale of electric power at retail in violation of Section 2

of the Sherman Act. The trial court found that to be the

case and assessed treble damages in the amount of $12,148,-

175.11 computed by using as a basis the excess of wholesale

rates over retail rates. In addition to the money judgment,

the utility was enjoined ‘‘from monopolizing or attempting

to monopolize the distribution and sale of electric power,”’

from applying any different standard of energy curtailment

on the municipalities than it apples to its own retail eus-

tomers, and from charging a wholesale rate in excess of its

retail rates unless any disparity is first approved by the

federal commission. Some of those background facts will

be considered in more detail as the legal issues are individ-

ually examined.

13a

Opinion of the Court of Appeals (February 21, 1980)

APPLICABILITY OF

NOERR-PENNiINGTON DOCTRINE

The Noerr-Pennington doctrine is an outgrowth of

Eastern Railroad Presidents Conference v. Noerr Motor

Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464

(1961), and United Mine Workers v. Pennington, 381 U.S.

657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965). It shields from

the Sherman Act as a constitutionally protected right of

petition a concerted effort to influence public officials, re-

gardless of intent or purpose. Thus the utility argues that

its wholesale rate filings with the federal commission are

within its constitutional right of petition and therefore

immune from the Sherman Act. It was said in Noerr, how-

ever, that there may be instances of ‘‘mere sham to cover

what is actually nothing more than an attempt to interfere

directly with the business relationships of a competitor and

the application of the Sherman Act would be justified.’’ 365

U.S. at 144, 81 S.Ct. at 533. The ‘‘mere sham’’ exception

standing alone does not apply to this case. The trial court

did not find that the federal tariff filings were ‘‘mere sham,’’

but found instead that the utility filed for the highest rate it

thought it could justify without any regard for the adverse

competitive impact the new wholesale rate would have on

the utility’s wholesale municipal customers in competition

with the utility at retail. The trial court found that to be

a violation of Section 205 of the Federal Power Act,’* as

interpreted in Federal Power Commission v. Conway Corp.,

426 U.S. 271, 96 S.Ct. 1999, 48 L.Ed.2d 626 (1976). Conway

notes that Section 205(b) forbids a utility from granting

any undue preference, subjecting anyone to any undue

prejudice or disadvantage or maintaining any unreasonable

differences in rates or service between classes of services.

The federal commission was found to have jurisdiction to

12. 16 U.S.C. § 824d.

l4a

Opinion of the Court of Appeals (February 21, 1980)

weigh and correct discriminatory effects in rate proceed-

ings. There isa utility responsibility to avoid unreasonable

differences in rates between classes of service.

In some contrast to that limited Conway finding is the

trial court’s broader view that all of the utility’s acts and

practices as a whole, its wholesale rate structure together

with its statements threatening the power supply of the

municipalities, its expressed preference in favor of its own

retail customers and its policy of acquiring municipal dis-

tribution systems in distress, evidenced a specific intent to

capitalize on and increase its monopoly power at the ex-

pense of the municipalities.

The Noerr-Pennington doctrine underwent some modifi-

cation in California Motor Transport Co. v. Trucking Un-

lamited, 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972).

In that litigation between groups of competing highway car-

riers, it was charged that one group conspired to monopolize

the transportation of goods by instituting various state and

federal proceedings in agencies and courts to resist and

defeat applications by the other group to acquire or trans-

fer operating rights. The Court discusses the ‘‘sham’’ ex-

ception and its possible variations. The Court held that the

conspirators sought not ‘‘to influence public officials,’’ but

to bar their competitors from meaningful participation in

the decision-making process. Jd. at 512, 92 S.Ct. at 612.

The Court recognized that the allegedly conspiring group

had a first amendment right of petition to be heard in agen-

cies and courts in opposition to their competitors’ applica-

tions, but that that right did not necessarily give the con-

spirators immunity from antitrust laws. The Court further

noted that first amendment rights are not immunized from

regulation when used to violate a valid statute. Jd. at 514,

92 S.Ct. at 613. First amendment rights, the Court further

explained, are not to be used as a means or pretext for

achieving ‘‘substantive evils,’’ and ‘‘[i]f the end result is

15a

Opinion of the Court of Appeals (February 21, 1980)

unlawful, it matters not that the means used in violation

may be lawful.’’ Jd. at 515, 92 S.Ct. at 614.

One claim ... may go unnoticed; but a pattern of base-

less, repetitive claims may emerge which leads the fact-

finder to conclude that the administrative and judicial

processes have been abused. That may be a difficult

line to discern and draw. But once it is drawn, the

case is established that abuse of those processes pro-

duced an illegal result, viz., effectively barring respond-

ents from access to the agencies and courts. Insofar

as the administrative or judicial processes are in-

volved, actions of that kind cannot acquire immunity

by seeking refuge under the umbrella of ‘political ex-

pression.’

Petitioners, of course, have the right of access to

the agencies and courts to be heard on application

sought by competitive highway carriers. That right, as

indicated, is part of the right of petition protected by

the First Amendment. Yet that does not necessarily

give them immunity from the antitrust laws.

Id. at 513, 92 S.Ct. at 613.

In an opinion in which he concurred on other grounds,

Justice Stewart, joined by Justice Brennan, declared the

majority opinion in California Motor Transport to be a

retreat from Noerr. Id. at 516, 92 S.Ct. at 614.

It appears to us that the municipalities are not

barred by Noerr-Pennington in the particular circum-

stances. Were we to view it otherwise, the federal and

state regulatory processes would provide the utility with a

method of effectively advancing its illegal monopolistic pur-

poses while maintaining an outward appearance of total

innocence and shielded from the Sherman Act. The utility

violated the Federal Power Act, at least by its own admis-

sion in failing to weigh in advance the discriminatory ef-

l6a

Opinion of the Court of Appeals (February 21, 1980)

fects of its differences in wholesale and retail rates. The

utility was able to set its own wholesale rates for lengthy

periods of time without regulatory interference. Before a

prior wholesale rate had been adjudicated, the utility would,

during the intervening period, file a new and higher super-

seding wholesale tariff which likewise automatically went

into effect before adjudication. Later, whenever the fed-

eral commission managed to review a prior outdated tariff,

it was found to be excessive and was reduced. No utility

wholesale tariff yet filed by the utility has avoided reduc-

tion by the federal commission. When federal regulation

actually occurs, the abuse is mildly remedied by refunds.

Meanwhile, the victim municipalities have been continually

living with unregulated wholesale rates.

That continuing situation appears to us to be an abuse

of the administrative process tending to produce, with the

other conduct of the utility, an illegal result. As in Cali-

fornia Transyort, the municipalities as utility competitors

are being denied effective access to timely consideration by

the federal commission by the maneuverings of the utility.

Fair and effective access to the regulatory process is vital

to the existence of the municipal systems. The utility’s ac-

tions, akin to those in California Transport, should not be

permitted to ‘‘acquire immunity by seeking refuge under

the umbrella of ‘political expression.’ ’’ Jd. at 513, 92 S.Ct.

at 613. The utility cannot be heard to say that it does not

know its wholesale rates will have an impact on the munic-

ipalities in their retail competition. The dual regulatory

process is being taken undue advantage of by the utility,

thwarting the intended balance of federal and state regula-

tion.

The additional actions of the utility in threatening the

continued future wholesale supply of the municipalities and

expressing an intention to prefer its own retail customers

over its wholesale municipal customers adds to the uncer-

l7a

Opinion of the Court of Appeals (February 21, 1980)

tain plight of the municipal systems. That the utility

threats were politely interlaced with unrealistic alterna-

tives for sources of power suggested by the utility does not

change their import. The evidence explored the possibili-

ties of the municipalities avoiding the monopoly impact by

constructing their own generating systems. It was found

not to be economically feasible for the municipalities singly,

nor even jointly to generate their own power in less than

five years. Interconnecting and wheeling from other sources

were considered, but no feasible municipal solution could

be found. Utility monopoly power over the municipalities

appears to be effective and complete. It is difficult to un-

derstand how the utility argument, which it advances in

justification, that it would conserve its possibly scarce pow-

er by converting municipal retail customers into its own

retail customers would remedy any power shortage.

The utility deserves no credit for originality in these

maneuvers. One commentator notes that it is not an un-

common practice for a private electric company to refuse

to sell bulk power to a municipally owned system because

of competition from local distributing companies.’® An-

other notes that a monopolist can evade regulation with

ease by use of a ‘‘price squeeze.’’™

The utility in the past has shown some appetite for ae-

quiring faltering municipal systems. The trial court in its

opinion took note that the utility has had a policy of taking

over municipal electric utilities and since 1957 had pur-

chased or leased five in the area thereby converting munic-

ipal retail customers into its own.

Considering the combination of those utility activities

this case is not precluded by Noerr-Pennington.

13. Comment, supra note 8, at 410.

14. Note, Refusals to Deal by Vertically Integrated Monopolists,

supra note 8, at 1758.

18a

Opinion of the Court of Appeals (February 21, 1980)

THE ‘‘PRICE SQUEEZE”? CHARGE

One of the principal issues of this case is the finding

that the utility violated Section 2 of the Sherman Act by

creating and maintaining a ‘‘price squeeze.’’ The utility

disputes the legal and factual basis for that determination.

First, the utility charges the trial court left ‘* price squeeze”’

undefined, but that even so there was no showing of a price

squeeze or of an intent to create one. That the trial court

did not specifically define ‘‘price squeeze”’ is not surprising

as the parties used the term with familiarity throughout the

proceedings, although they now differ about its application.

The fault lies, if there is any, the utility argues, with the

diverse regulatory procedures which preclude parity be-

tween wholesale and retail rates.

There is some substance to the utility regulatory argu-

ment. As we have already noted, the wholesale rates under

federal control go into effect automatically without agency

approval, but the state retail rates must await state ap-

proval. Behind the rate applications there are differing

regulatory procedures, differing tests and standards to be

applied, and differing accounting principles to be used in

the computations. At best, a utility may find itself in a

legal and practical maze, but for price squeezing the dual

system also offers an obvious, ready made illegal opportu-

nity with a legitimate gloss.

The utility strongly argues that no ‘price squeeze’’ in-

tent was shown as the court relied on the wrong retail rates

for comparison with wholesale rates to find a disparity.

The trial court compared the rates, wholesale and retail,

actually in effect under dual regulation at a particular time.

The utility urges that the retail rates which should have

been used for the analysis were the proposed retail rates

which the utility was seeking from time to time pending

state approval. If proposed retail rates had been used, the

utility argues, the retail rates would have been in excess of

19a

Opinion of the Court of Appeals (February 21, 1980)

wholesale rates and the municipalities would have shown a

net benefit. The proposed retail rates not in effect reflect

its intent, the utility claims, not the actual rates subsequent-

ly fixed by the state. The trial judge looked at the approved

retail rates actually in effect, not at what the utility claimed

the rate should be in the future.

It is apparent from this case that a higher rate is often-

times sought which cannot be justified. To ask for more

than one actually expecis to receive is not an uncommon

technique, usually with the hope that, even when discounted,

the final amount will be greater than what would have re-

sulted from a more realistic initial request. We see no

need to make possibly unrealistic rate requests even more

useful to a utility by converting those requests into self-

serving measurements of intent for price squeeze purposes.

The federal commission for its purposes, which to some

extent are different than ours, has recently changed its

view. In Missouri Power Company, FERC Opinion No. 31,

16 F.P.S. 5 265 (1978), the federal commission abandoned

its prior holding in Boston Edison Co., FPC Opinion No.

809 (1977), to the effect that the retail rate as filed could be

used for comparison with the wholesale rate. Missouri

Power holds that intent is irrelevant and that the retail

rates actually in effect will be used for comparisons. The

utility argues that the trial judge has done the same thing

for antitrust purposes and in effect has held that intent is

not a price squeeze necessity. We do not see the trial

judge’s decision that way. We are considering a ‘‘price

squeeze’’ allegation, but that is not all we are considering.

The ‘‘price squeeze’’ is only a part of the utility’s conduct

which as a whole was found to violate the Sherman Act.

In his findings, the trial judge found that the utility had

never adopted a policy that its wholesale rate filings should

be tailored to prevent its wholesale rates from being higher

than its actual retail rates in effect. Further, the court

20a

Opinion of the Court of Appeals (February 21, 1980)

found that the utility offered no evidence to justify the dis-

parity in wholesale and retail rates nor did the utility ever

seek to lower wholesale rates to parity with retail rates.

Moreover, the court found that the utility monitored the

operations of its wholesale municipal customers and ag-

gressively pursued acquisition of faltering municipal util-

ities. The utility recognized, the court found, that profit-

able and efficient municipal utilities did not represent likely

prospects for purchase. The utility remains interested in

acquisitions the court found. It also found that the utility

was aware of the importance of rate comparisons by munic-

ipal voters considering the possible sale of their municipal

utility. And, as might be expected, the court also found

that the utility realized that its wholesale rates would in-

evitably affect the municipal retail rates.

The trial court determined that a Section 2 Sherman

Act violation had been established when monopoly power

was shown, even though lawfully acquired, along with only

a general intent to abuse that power resulting in injury to

the municipalities. Sargent-Welch Scientific Co. v. Ventron

Corp., 567 F.2d 701 (7th Cir. 1977), cert. denied, 439 U.S.

822, 99 S.Ct. 87, 58 L.Ed.2d 113 (1978). The utility argues,

however, that to prevail the municipalities must establish

‘‘predatory’’ practices. The trial court went further, how-

ever, holding that even if specific intent were required, the

evidence met that standard. The trial court inferred util-

ity intent to impair plaintiffs’ competitive ability and the

desire to preserve and expand its own existing monopoly

from a corisideration of the evidence in its entirety, includ-

ing in general the continuing wholesale and retail rate dis-

parity, threats to the municipal wholesale power supplies,

and the utility policy of acquisition of municipal systems.

In Sargent-Welch, we relied on United States v.

Griffith, 334 U.S. 100, 68 S.Ct. 941, 92 L.Ed. 1236 (1948).

In Griffith, it was held that it is not always necessary to

21a

Opinion of the Court of Appeals (February 21, 1980)

find specific intent lest it crippled the Sherman Act. Id. at

105, 68 S.Ct. at 944. In the particular circumstances, how-

ever, of a regulated utility struggling with dual regulation,

bearing in mind that the utility is entitled to recover its

cost of service and to provide its investors with a reason-

able rate of return, we believe that something more than

general intent should be required to establish a Sherman

Act violation. The utility charges that the trial court in

fact read the requirement of any intent out of the Sherman

Act. We disagree. The trial court discerned from a con-

sideration of all the evidence of the utility’s activities, not

only a general intent which it considered to be adequate, but

also a specific utility intent to serve its monopolistic pur-

poses at municipal expense. We concur in that assessment

of the evidence as a whole.

In this case, we are considering an industry subject to

both federal and state regulation. However, we do not be-

lieve that that circumstance justifies an antitrust exemption

on the basis that the utility is acting pursuant to mandates

by a federal or state controlling body as urged by the util-

ity in reliance on Parker v. Brown, 317 U.S. 341, 63 S.Ct.

307, 87 L.Ed. 315 (1943). The evidence shows, the utility

argues, that but for the state action in reducing the pro-

posed retail rates there would have been no price squeeze.

Parker v. Brown is inapposite. In that case a California

producer of raisins brought suit in federal court to enjoin

enforcement of a state agricultural proration program be-

cause it allegedly violated the federal antitrust laws. The

Court assumed that the program would violate the Sherman

Act if it were organized and operated by private persons,

but held that the Sherman Act’s purpose was not to restrain

a state or its agents from activities directed by its own

legislature. In contrast, it was pointed out, however, that

a state cannot grant Sherman Act immunity by authorizing

someone else to violate the Act, or by declaring other pre-

22a

Opinion of the Court of Appeals (February 21, 1980)

vious actions to be lawful. Id. at 351, 63 S.Ct. at 313. In

the present case, Indiana and Michigan have not in any way

attempted to create, approve or mandate a Sherman Act

violation, nor has the federal agency. The utility has no

basis to immunize its own activities with any Parker v.

Brown type of exemption.

Among other things the court found that the utility

unlawfully jeopardized the supply of municipal wholesale

power. The utility attacks that finding on several grounds.

The utility argues that it could not terminate wholesale

service without the approval of the commissior and it had

never sought that approval. Nor did it have any obligation,

it argues, to contract to supply municipalities with unlim-

ited power in perpetuity. That those arguments may be

factually correct does not change the impact of those utility

warnings on the municipalities when considered in the con-

text of all the evidence. There was no realistie substitute

source of wholesale power for the municipalities to turn to.

The utility warnings alone would not constitute an illegal

act, but in the context of the whole case the utility threats

may be seen in a different light. They appear to be another

element of the utility’s monopoly enhancement program.

Similar warnings of power curtailment were not given by

the utility to its own retail customers nor to municipalities

which were not the utility’s wholesale customers and in

which the utility had retail customers. It was not shown

how conversion of municipal retail customers to utility re-

tail customers would conserve power. We see no need to

set forth here in detail the evidentiary basis of the trial

court’s findings with which we are in accord.

23a

Opinion of the Court of Appeals (February 21, 1980)

OTHER LEGAL ISSUES

The municipalities had the burden of showing inju-

rious anticompetitive conduct by the utility in violation of

the Sherman Act in order to be entitled to treble damages

under Section 4 of the Clayton Act, 15 U.S.C. § 15; Peller

v. International Boxing Club, 227 F.2d 593 (7th Cir. 1955).

The district court found that the utility and the municipal

utilities competed for individual customers some of whom

had the option of locating in the municipal area, or relocat-

ing outside the area, or expanding. The court likewise

found some competition in adjacent areas where the cus-

tomer might have a choice, and also in areas into which the

municipal utility might expand. There was also evidence

of competition for established customers of the utility with-

in the municipal area. The competition which the court

found most significant, however, was franchise competition,

that is, that the utility competed to acquire or replace the

municipal distribution systems so as to become the retail

supplier of their customers. The evidence shows in vary-

ing degrees what the competition was for the various eat-

egories. The finding of franchise competition is based on

a history of acquisitions and leases of municipal systems

by the utility beginning in 1957. There were also utility

attempts to acquire certain municipal systems and also in-

terest expressed by the utility in acquiring others in the

relevant service area extending into 1977. Those findings

are disputed.

The utility argues that the takeovers were all ap-

proved and in the public interest. It was the trial court’s

view that the utility’s use of the diverse rate regulation

structure and its other acts contributed to a municipal sys-

tem’s vulnerability to utility takeover. Mere acquisition

would not necessarily constituie a violation, but the viola-

tion was found to come from the anticompetitive practices

of the utility as a whole which helped produce the acquisi-

| * |

24a

Opinion of the Court of Appeals (February 21, 1980)

tion opportunities. We believe the trial court was justified

in coming to those conclusions based on the evidence and

the reasonable inferences to be drawn therefrom.

The trial court found that competition had suffered anti-

trust injury in various ways. The municipalities had to

increase their retail rates in some eases absorb portions of

the increases without passing them on. Overall, the munic-

ipalities were impaired in their ability to offer competitive

rates and service to present and potential customers, and,

in addition, municipal citizens were deprived of the full

benefits normally expected to be derived from the opera-

tion of their own facilities. The threats to power supply,

it was found, inhibited growth and the attraction of new

business ventures into their areas. We are not prepared to

set those findings aside as clearly erroneous.

The utility would have us consider each separate aspect

of its conduct separately and in a vacuum. If we did, we

might agree with the utility that no one aspect standing

alone is illegal. It is the mix of the various ingredients of

utility behavior in a monopoly broth that produces the un-

savory flavor. We have recognized previously that

‘[t]here are kinds of acts which would be lawful in the

absence of monopoly but, because of their tendency to fore-

close competitors from access to markets or customers or

some other inherently anticompetitive tendency, are unlaw-

ful under § 2 if done by a monopolist ....? Sargent-Welch,

567 F.2d at 711-12. Injury need not be conclusively shown,

but the evidence must be sufficient to sustain the inference

of injury to some extent. Zenith Radio Corp v. Hazeltine

Research, Inc., 395 U.S. 100, 114, 89 S.Ct. 1562, 1571, 23 L.

Kd.2d 129 (1969). We believe that standard has been satis-

fied here. The possibility of refunds if the wholesale rate

is determined to be too high is not a complete cure for the

illegal activities of the utility.

25a

Opinion of the Court of Appeals (February 21, 1980)

DAMAGES

In awarding damages to the municipalities the trial

court relied upon the analysis of monopolistic overcharges

set forth in Hanover Shoe, Inc. v. United Shoe Machinery

Corp., 392 U.S. 481, 489, 88 S.Ct. 2224, 2229, 20 L.Ed.2d 1231

(1968), and found that the evidence established ‘‘two kinds’’

of monopolistic overcharges. First, the court found that

the utility had charged the municipalities wholesale rates

from 1972 to 1976 which were subsequently held to be unjust

and unreasonable by the Federal Energy Regulatory Com-

mission. Second, the court found that the municipalities

had been overcharged by the amount the wholesale rates

charged them exceeded the amounts which they would have

been charged under the utility’s retail rates actually in ef-

fect. The court proceeded to award damages based solely on

a tripling of the difference between the higher wholesale

rates paid by the municipalities and the lower retail rates

which the ui lity actually charged its retail customers for

the period from August 1976 through August 1978. Treble

damages were found to exceed twelve million dollars. No

other factor entered into the computation.

The formula used by the trial court is recommended by

its simplicity, but the computation of damages should not be

expected to be quite that much easier than the rest of this

case. While the municipalities argue that there is no other

way to determine their damages, we are not satisfied that

this is true.

We recognize that the burden of proof of the munici-

palities as to the amount of damages is less than that re-

quired for proof of antitrust injury. It need not be precise.

A just and reasonable estimate of damage based on relevant

data may suffice even if also based upon probable or in-

ferential proof. This standard does not, however, permit

speculation or guesswork even though the defendant by its

26a

Opinion of the Court of Appeals (February 21, 1980)

own wrongdoing has made precision impossible. Zenith

Radio Corp. v. Hazeltine Research, Inc., 395 U.S. at 123-24,

89 S.Ct. at 1576-77 ; Bigelow v. RKO Pictures, Inc., 327 US.

291, 264, 66 S.Ct. 574, 579, 90 L.Ed. 652 (1946).

The municipalities rely on Hanover Shoe, supra, both to

support the trial court’s findings of injury and also to estab-

lish a formula for determining the amount of the damages.

Particularly, they rely, as did the trial court, on the follow-

ing quotation from Hanover Shoe:

|W ]hen a buyer shows that the price paid by him for

materials purchased for use in his business is illegally

high and also shows the amount of the overcharge, he

has made out a prima facie case of injury and damage

within the meaning of § 4.

392 U.S. at 489, 88 S.Ct. at 2229. In our view, Hanover Shoe

is not fully applicable in either regard in the circumstances

of this case, where the defendant is subject to dual regula-

tion and any overcharge in wholesale rates later found to

exist by the federal commission is to be refunded with 9%

interest.

As an initial matter, assuming arguendo that the Han-

over Shoe monopolistic overcharge analysis is fully ap-

plicable to the facts of this case, we find no justification for

the trial court’s determination that the difference between

the wholesale rates in effect prior to commission review

and the retail rates actually charged is an accurate measure

of the overcharge. As we have already observed, the state

and federal regulatory schemes to which the utility is sub-

ject utilize different accounting practices, as well as differ-

ent formulae and criteria for determining what are fair and

reasonable rates. Moreover, in all likelihood, the utility has

dissimilar fixed and variable cost requirements which it

must seek to cover in its respective wholesale and retail

rates. Under these circumstances, we find the trial court’s

27a

Opinion of the Court of Appeals (February 21, 1980)

apparent assumption that, absent the monopolistic over-

charge, there would be equivalent wholesale and retail rates

actually in effect and that the monopolistic overcharge was

therefore the difference between the unreviewed higher

wholesale rates and the approved retail rates to be totally

without foundation.”

Assuming that an overcharge analysis is determinative

of the measure of damages in this case, we conclude that the

overcharge which the utility has received by its unilateral

imposition of excessive wholesale rates prior to federal reg-

ulatory review is, more accurately, the amount which the

federal commission ultimately orders refunded based on

its determination that the wholesale rate charged was un-

reasonable and excessive. In recommending this method

for calculating the overcharge, we recognize that the com-

putation of antitrust damages is uniquely within the prov-

ince of the federal courts.

Conceivably, we could remand this case to the district

court for a determination of that portion of the utility’s

wholesale rate filings which is unreasonable and excessive.

However, such a procedure might entail needless duplica-

tion of effort by the district court where the federal com-

mission is both already in the process of making the iden-

tical determination and has substantially greater expertise

in the area.

It is clear after Conway, moreover, that the federal com-

mission is required to consider any anticompetitive price

squeeze resulting from jurisdictional whujesale rates and

non-jurisdictional retail rates in fixing rates for interstate

15. The apparent lack of foundation for this assumption is con-

firmed by the fact that for the period 1972-1976, after the utility’s

wholesale rates were reviewed by an ALJ for the federal commission

and found to be excessive, the ultimate adjustment reached by the

utility and the municipalities was such that the aggregate amount paid

by the municipalities under the wholesale rates was substantially less

than the amounts they would have paid under the utility’s retail rates.

28a

Opinion of the Court of Appeals (February 21, 1980)

wholesale sales, Given these considerations, we would con-

clude that the commission’s ultimate refund is the most ac-

curate measure of the overcharge which the utility has been

able to gather as a result of its unlawful activities.’° On

the other hand, if it does not desire to await a determination

by the federal commission, the court might properly con-

sider the overcharge which the commission found for the

period 1972-1976 and endeavor to estimate the probable

overcharge for the later period.

More fundamentally, however, we find the trial court’s

and the municipalities’ reliance upon the Hanover Shoe

overcharge analysis to be unsupportable in the instant case.

In Hanover Shoe, a shoe manufacturer prevailed on its

claim that its supplier, a manufacturer of shoe-making

machinery, had monopolized the shoe machinery industry

and that the policy of exclusively leasing, rather than sell-

ing, the machinery was an instrument of the monopoliza-

tion. Damages were awarded on a tripling of the difference

16. In this court’s earlier decision, we noted the possibility that

a utility’s retail rates might be set so low that the commission would

be without authority to correspondingly set the jurisdictional whole-

sale rate sufficiently low to eliminate the price squeeze. 560 F.2d at

1323. This problem arises because the commission is without power

to set wholesale rates below the lower boundary of the zone of reason-

ableness and has no authority over the retail rates. Jd. at 1319. As-

suming such possibility were present in this case, the ultimate refund

awarded by the commission might not be equivalent to the utility’s

monopolistic overcharge.

There is no indication, however, that this is such a case. There is

no suggestion that the utility deliberately depressed its retail rates to

create a price squeeze; in fact, a substantial portion of the disparity

between the utility’s retail and wholesale rates apparently arises from

the fact that the utility did not receive favorable consideration by the

state commissions on several of its retail rate filings. Under such

circumstances, we would have great difficulty concluding that the

utility is to be held accountable for any “overcharge” in its wholesale

rates beyond the refund awarded by the commission. Anticompetitive

effects from this portion of the price squeeze, absent evidence that the

utility deliberately depressed its retail rates, must be attributed to the

state regulatory commissions and not to the utility.

29a

Opinion of the Court of Appeals (February 21, 1980)

between what the manufacturer had to pay in rentals and

what it would have paid had its supplier been willing to sell

the machines. The monopolistic ‘‘overcharge’’ in I1anover

Shoe was recoverable solely because the plaintiff had suc-

cessfully proven its antitrust charges: absent the antitrust

action, the plaintiff would have ’ontinuously suffered the

overcharge arising from the defendant’s abuse of its mo-

nopolistic position.

Unlike Hanover Shoe, the utility here is not in a position

to indefinitely retain the proceeds of any excessive whole-

sale charges. The commission is required by statute to de-

termine whether the utility’s filed wholesale rates are fair,

just and reasonable. 16 U.S.C. § 824d(a). If it finds the

filed wholesale rates to be excessive or unreasonable, the

commission requires the utility to refund to its wholesale

customers the exact amount which it has charged and col-

lected in excess of that determined to be just and reasonable.

These refunds include interest on the excess at the rate of

9%. Thus, the federal regulatory statute provides the mu-

nicipalities with a system by which the utility’s overcharges

are automatically and necessarily restored to them with

interest.

Given this federal regulatory system which is designed

to curb the utility’s abuse of its monopoly power and which

guarantees ultimate restoration to the wholesale customers

of the ‘‘overcharge’’ unlawfully extracted from them, we

are not convinced that the utility’s temporary monopolistic

overcharge is an accurate measure of the antitrust damages

which the municipalities have endured. Rather, under the

sui generis circumstances of this case,'’ we believe that the

17. Amici Commonwealth Edison Co. and the Edison Electric In-

stitute, relying primarily upon JCC v. United States ex rel. Campbell,

289 U.S. 385, 53 S.Ct. 607, 77 L.Ed. 1273 (1933), argued that this

case should be analogized to a “price discrimination” rather than an

“overcharge,” and that antitrust damages should consequently be

(footnote continued on next page)

30a

Opinion of the Court of Appeals (February 21, 1980)

municipalities must establish their antitrust damages by

proof of specific injuries they have suffered as a result of

the utility’s overcharges and other monopolistic practices.

This conclusion by no means narrowly limits the munici-

palities’ ability to establish damages. Insofar as they have

suffered injury in their ‘‘franchise competition’’ with the

utility, the municipalities may be able to demonstrate, for

example, that the 9% rate of interest fails to make them

whole for the loss of the use of the monies which they were

overcharged, or that the excessively high wholesale rates

forced them to forego altogether or to secure less favorable

terms for capital improvements to expand their municipal

distribution facilities or to replace obsolete equipment, ete.

Insofar as the municipalities have been injured in their

ability to compete directly with the utility for the provision

of service to retail customers in areas of overlapping ser-

vice, the municipalities may be able to show a loss of cus-

tomers, revenue and profits. Our discussion here is not

meant to be exhaustive, but merely to illustrate that the

measured by the municipalities’ business loss rather than by the dif-

ference between retail and wholesale prices. Review of the cases cited

by Amici, however, provides scant guidance in the instant situation.

Campbell involved a shipper's effort to mandamus the Interstate

Commerce Commission, where the Commission had refused to award

the shipper damages in a situation where the shipper had paid rates

determined by the Commission to be reasonable in amount but which,

at the same time, were discriminatory. Under these circumstances,

the Supreme Court distinguished between the damages arising from

an overcharge and a discrimination: “When discrimination and that

alone is the gist of the offense, the difference between one rate and

another is not the measure of damages suffered by the shipper.” 289

U.S. 389, 53 S.Ct. 609. Apart from the fact that Campbell did not

arise under the antitrust laws, we do not find its analysis helpful here

where the utility can (and did) unilaterally impose excessive whole-

sale rates, subject to future commission review and future refunds, in

an effort to monopolize the distribution of power in its service area.

No case cited by either party or any amicus provides substantial

insight into how antitrust damages should be measured in this context

of dual regulation of the utility’s wholesale and retail rates.

dla

Opinion of the Court of Appeals (February 21, 1980)

municipalities on remand must introduce proof of damages

which were caused by the utility’s monopolistic conduct.

We also find that the municipalities are entitled to re-

cover, as part of their antitrust damages, the expenses they

incurred in litigating before the commission in their attempt

to prevent the utility’s withdrawal of their wholesale supply

as had been threatened. The litigation expenses sought are

not for opposing utility rate applications. In the context

of this antitrust violation, we do not believe that to allow

litigation expenses to the municipalities for efforts to

counteract the threats and to protect their municipal sys-

tems runs afoul of Noerr-Pennington as claimed by the

utility. It was not the utility petitioning for its own lawful

purposes. It was the municipalities petitioning to prevent

the utility’s allegedly unlawful conduct.

Support for our award of these litigation expenses as a

portion of antitrust damages may be found in this court’s

earlier decisions awarding litigation expenses undertaken in

defense of patent infringement litigation as an element of

antitrust damages. In Dairy Foods, Inc. v. Dairy Maid

Products Cooperative, 297 F.2d 805, 808-09 (7th Cir. 1961),

we held that, where a patent ‘‘infringement suit was

brought as part of and in furtherance of a combination and

conspiracy which violates the antitrust laws and results in

injury’’ such that the defendant was put to the choice of

(1) foregoing use of the patented device, (2) accepting a

discriminatory and restrictive license which increased the

cost of production, or (3) defending expensive patent litiga-

tion, the cost and expense of defending the suit was a com-

ponent of antitrust damages which could be trebled. See

also Locklin v. Day-Glo Color Corp., 429 F.2d 873, 878 &

n. 13 (7th Cir. 1970), cert. denied, 400 U.S. 1020, 91 S.Ct.

082, 27 L.Ed.2d 632 (1971); Hazeltine Research, Inc. v.

Zenith Radio Corp., Inc., 388 F.2d 25, 35 (7th Cir. 1967),

aff’d m part and rev’d in part, 395 U.S. 100, 89 S.Ct. 1562,

23 L.Ed.2d 129 (1969).

32a

Opinion of the Court of Appeals (February 21, 1980)

Similarly, in this case, the trial court found that the

municipalities had no choice but to file an administrative

action before the commission to prevent the loss of their

wholesale power source and to establish their right to equal

treatment with the utility’s retail customers whom the

utility had indicated would receive preferences. Under

these circumstances, we find no merit in the utility’s con-

tention that the cases discussed above should be narrowly

limited to situations where the prevailing antitrust plaintiff

had been forced to defend patent infringement litigation.

Accordingly, we vacate the award of damages and re-

mand to the district court for such further proceedings as

may be necessary to determine the municipalities’ damages.

Whereas the trial court earlier found damages with refer-

ence only to the period from August 1976 through August

1978, on remand the court may conside: damages suffered

during the period covered by the complaint in which the

utility’s unlawful activities occurred. On remand, the court

shall also consider whether any portion of the municipal-

ities’ damages is barred as a result of the negotiated settle-

ment reached by the municipalities and the utility with re-

spect to the utility’s wholesale rate schedule for the period

from January 13, 1973 to July 27, 1976.

INJUNCTIVE RELIEF

In Mishawaka I, we anticipated the injunctive relief per-

mitted under Section 16 of the Clayton Act, 15 U.S.C. § 26,

provided it would not interfere with rates approved by the

commission, cause conflict or preempt commission jurisdic-

tion. That is not an easy task. The courts should not be in

the rate fixing business. The court, however, is faced with

indefinitely permitting a price squeeze or trying to cause

some adjustment of the rates. As was argued in Mishawaka

I, delay to determine what rates may be finally approved

33a

Opinion of the Court of Appeals (February 21, 1980)

by the commission may only result in authorizing ‘‘refunds

to a corpse.’’ Even though the commission cannot afford

complete antitrust relief, we repeat our expressed thoughts

in Mishawaka I that though a stay of further proceedings

need not be granted, the district court remains free to de-

termine anew, in view of the substantial amount of time

which has now passed in this litigation, whether or not in

the immediate circumstances it may be beneficial to await

and ascertain particular commission action in order to de-

cide the exact scope of antitrust damages, or for other

purposes.

The trial court in its Judgment Order enjoined the utility

in various respects to which the utility objects.’* The in-

18. The Judgment Order in pertinent part provides:

2. Defendants American Electric Power Company, Inc.,

American Electric Power Service Corporation, and Indiana &

Michigan Electric Company, their officers, agents, successors and

all persons acting in concert with them are hereby enjoined from

monopolizing or attempting to monopolize the distribution and

sale of electric power at retail within defendant I&M’s service

area or within any of the plaintiff municipalities, in violation of

15 U.S.C. §2.

3. Defendant Indiana & Michigan Electric Company, its offi-

cers, agents, successors and all persons acting in concert with it,

are hereby enjoined from discriminating against 1&M’s wholesale

municipal customers in rates, terms, or conditions of service ; from

taking any action that will have the effect of singling out [&M’s

wholesale municipal customers for the purpose of indicating di-

rectly or indirectly that the continuity of service for only that class

of customers may be in jeopardy or that the supply of electric

power and energy to those municipal utilities and their customers

may be curtailed on different terms from those applied to [&M’s

retail customers; and from failing to perform I&M’s obligation

to serve each of the plaintiffs, as well as its other customers,

fairly, equitably and on a nondiscriminatory basis as long as I&M

conducts a public utility business in their area.

4. Defendants American Electric Power Company, Inc., and

American Electric Power Service Corporation, their officers,

agents, successors and all persons acting in concert with them,

(footnote continued on next page)

34a

Opinion of the Court of Appeals (February 21, 1980)

junction was drafted by municipal counsel and issued by the

trial court without the benefit of a hearing as to its nature

and scope. Particularly in the circumstances of this case

we believe a hearing would have been beneficial.

We agree with the utility that paragraph 2 of the

injunction is too vague to identify any specific activity

which may be subject to the contempt power. Paragraph 2

merely incorporates the broad language of Section 2 of the

Sherman Act. Rule 65(d), Fed.R.Civ.P., provides that

every injunction shall be specific in its terms and shall de-

scribe in reasonable detail the acts sought to be restrained.

The standard established by Rule 65(d) ‘‘is that an ordi-

nary person reading the court’s order should be able to as-

certain from the document itself exactly what conduct is

are hereby enjoined from discriminating or causing I&M to dis-

criminate against 1&M’s wholesale municipal customers in rates,

terms, or conditions of service; from taking any action that will

have the effect of singling out I&M’s wholesale municipal cus-

tomers for the purpose of indicating directly or indirectly that

the continuity of service for only that class of customers may be

in jeopardy or that the supply of electric power and energy to

those municipal utilities and their customers may be curtailed on

different terms from those applied to I&M’s performance of its

obligation to serve each of the plaintiffs, as well as I&M’s other

customers, fairly, equitably and on a nondiscriminatory basis as

long as I&M conducts a public utility business in their area.

5. In preparing and filing new wholesale rates for electric

service to any of the plaintiff municipalities, the defendants (1)

shail project the billing determinants for each plaintiff for the first

year the new wholesale rate will be in effect, as requested by

1&M's wholesale rate filing, and (2) shall compare the projected

billings to each plaintiff under the proposed wholesale rate against

the amount that plaintiff would pay under I&M’s retail rates in

effect at the time the wholesale rate is filed. The defendant

I&M is enjoined from putting into effect or charging any of the

plaintiffs a wholesale rate under which the projected billings

to any plaintiff exceed the amount that plaintiff would pay under

I&M’s retail rates in effect at the time the wholesale rate is filed,

unless and until the Federal Energy Regulatory Commission de-

termines that that wholesale rate is just and reasonable.

35a

Opinion of the Court of Appeals (February 21, 1980)

proscribed.’’ 11 C. Wright & A. Miller, /ederal Practice and

Procedure § 2955 at 536-37 (1973). To enjoin in the lan-

guage of the Sherman Act obviously fails to meet that test.

This litigation demonstrates the difficulties of simply

applying Sherman Act language to particular cireum-

stances. We also agree that portions of paragraphs 3 and

4 of the injunction are properly subject to similar objec-

tions. It would be difficult to ascertain in advance, for

example, what conduct is proscribed in paragraphs 3 and 4

by the requirement that the utility treat all its customers

fairly, equitably and on a nondiscriminatory basis.

Paragraph 5 is attacked as being in conflict with See-

tion 205 of the Federal Power Act governing rates and

charges, as an intrusion by the court into the rate making

process and also as being vague in some of its requirements.

The thrust of paragraph 5 seems to be to impose certain

requirements for new filings and in the meantime to roll

back wholesale rates to the same level as the retail rates in

effect. Rolling back the present wholesale rate may be

seen as some temporary improvement in the rate structure,

but unfortunately it is not the result of a knowledgeable

effort to tailor the rates to bring them within some zone of

reasonableness to achieve fair wholesale and retail competi-

tion. See Federal Power Commission v. Conway Corp.,

426 U.S. at 278, 96 S.Ct. at 2004. To set wholesale rates

and retail rates at the same level for an extended length

of time ignores the economic justification for the recog-

nized distinction between wholesale and retail. On a short

term interim basis to do so may alleviate, but will not solve

the problem. Also, it may be, given the differing character-

istics of the various regulating bodies, that for some rea-

sonable time some excess of wholesale rates over retail

rates may be justified in order for the utility to be able

to achieve a proper rate balance through the normal func-

tioning of the regulating bodies. We believe more flexibil-

ity is required in the order so as to permit the utility an

36a

Opinion of the Court of Appeals (February 21, 1980)

opportunity to justify some short term variations. To

require the utility to comply indefinitely with paragraph 5

of the injunction prohibiting it from charging a wholesale

rate not actually approved by the federal commission

amends the Federal Power Act. It is only the antitrust vio-

lation found to exist in this case from a combination of

circumstances which justifies temporary control of the

wholesale rates by the court. When, however, assuming

the absence of other anticompetitive activities, the utility

demonstrates a good faith effort to comply with its Conway

obligations so as to avoid anticompetitive effects, the court

should return rate control to the regulating commissions

established respectively by Congress and the state legis-

latures for that purpose.

It may also be feasible to require the parties to seek ex-

pedited consideration of the rate filings from the federal

commission and state agencies in view of the existing seri-

ous antitrust complications found to exist in the combina-

tion of circumstances in this case. Even though Sherman

Act jurisdiction lies with the court, there is no prohibition

against a common expedited effort by the parties and the

other governmental agencies to cooperate and assist each

other in an expeditious resolution of these mutual problems.

Although the federal and state commissions are not parties

to this litigation the court may require those who are

parties to seek to bring together cooperative federal and

state consideration and solution of these rate problems.

The Federal Power Act makes it clear that the federal

commission is not expected to function in isolation. Section

209(b), 16 U.S.C. § 824h(b), allows federal and state com-

mission cooperation with regard to rate structures and

other matters. Other sections of the Act also anticipate a

working federal-state relationship." Conway Corp. v. Fed-

i9. For example, section 311, 16 U.S.C. § 825j, pertains to inves-

tigations of matters, in this case retail rates, not subject to federal

jurisdiction, and section 202(a), 16 U.S.C. § 824a(a), provides for

notice to state commissioners.

37a

Opinion of the Court of Appeals (February 21, 1980)

eral Power Commission, 167 U.S.App.D.C. 43, 51, 510 F.2d

1264, 1272 (D.C.Cir. 1975), aff'd, 426 U.S. 271, 96 S.Ct. 1999,

48 L.Ed.2d 626 (1976). It may be, pending some congres-

sional or legislative adjustment in procedures, that only

through an expeditious and cooperative effort by the fed-

eral and state agencies to apply their expertise to this

type of problem will the present regulatory systems have

any reasonable chance of success.

The injunction is vacated and upon remand the trial

court may, after hearing, devise a more specific injunction

being careful not to encroach any further on the rate mak-

ing process than may be temporarily required by antitrust

considerations. As we have already noted, the injunction

was issued by the trial court without the benefit of a hear-

ing. Therefore the ramifications and complications of the

injunction are not explored in the record. We believe a

hearing on the injunction will be most helpful to the trial

court. We do not intend to inhibit or confine the trial court

merely to some modification of the present injunction. It

is expected that a new effort be made to fashion a suitable

injunction in keeping with the general principles expressed

in Mishawaka I and in this opinion.

The trial court is affirmed in part. The damage and

injunctive provisions are vacated and remanded for addi-

tional proceedings in conformity with this opinion. The

parties shall bear their own costs of this appeal.

38a

Order on Petition for Rehearing

UNITED STATES COURT OF APPEALS

For tHE Seventu Circuit

Chicago, Illinois 60604

March 31, 1980

Before:

Hon. Roserr A. Sprecuer, Circuit Judge

Hon. Harutneron Woop, Jr., Circuit Judge .

Hon. Huserr L. Wii1, Senior District Judge*

Nos. 79-1190, 79-1237 and 79-1354

oe

City or Misnawaka, Inprana, ef al.,

Plaintiffs-Appellees and Cross-Appellants,

vs.

American Evecrric Power Company, Inc., et al.,

Defendants-A ppellants and Cross-Appellees.

TT

Appeals from the United States District Court

for the Northern District of Indiana,

South Bend Division.

Nos. 8-74-22, S-75-210, S-77-209

ALLEN Suarp, Judge.

* The Honorable Hubert L. Will, Senior District Judge of the

United States District Court for the Northern District of Illinois,

is sitting by designation.

39a

Order on Petition for Rehearing

On consideration of the petition for rehearing and sug-

gestion for rehearing, in banc filed in the above-entitled

cause by counsel for the defendants-appellants, no judge in

active service has requested a vote thereon,* and all of the

judges on the original panel have voted to deny a rehear-

ing. Accordingly,

Ir Is Orverep that the aforesaid petition for rehearing

be, and the same is hereby, Dentep.

sage Richard D. Cudahy disqualified himself from any consid-

eration of the petition for rehearing in banc filed in the above case.

_ —

40a

Judgment

UNITED STATES DISTRICT COURT

For tHe Norruern District or INDIANA

Soutu Benp Drvision

Consolidated Civil Action Numbers 874-72, 875-210, 877-209

—_——

City or Misnawaka, Inp., Crry or Nigs, Micn., Crry or

Cotumsia Crry, Inp., Crry or Biurrton, Inp., Crry or Gar-

RETT, Inp., Crry or Gas Crry, Inp., Town or FranxtTon, Inp.,

Town or Warren, Inpv., Town or New CaRLIsLe, Isp., and

Town or Aviuia, Inp.

v.

AMERICAN ELectric Power Company, Inc.,

American Execrric Power Service Corporation, and

Inpiana & Micuican EL ecrric ComMPAny,

eon

This action came on for trial before the Court, Honor-

able Allen Sharp, United States District Judge, presiding,

and the issues having been duly tried and a decision having

been duly rendered,

It is Ordered and Adjudged the Plaintiffs, Cities of

Mishawaka, Ind., Niles, Mich., Columbia City, Ind., Bluff-

ton, Ind., Garrett, Ind., Gas City, Ind., and Towns of Frank-

ton, Ind., Warren, Ind., New Carlisle, Ind., and Avilla, Ind.,

recover of the Defendants American Electric Power Com-

pany, Inc., American Electric Power Service Corporation,

and Indiana & Michigan Electric Company, the sum of

4la

Judgment

$12,148,175.91, with each of the named municipalities re-

ceiving the specific amount set forth in the Judgment Order,

in addition to the Injunctive Relief Granren, and the recov-

ery of costs by each of the Plaintiffs, including reasonable

attorney fees in this case, all in accordance with and as

more specifically set forth in the Judgment Order of this

Court Enrerep this date, and

It Is Further Ordered and Adjudged that the defendant

Indiana & Michigan Electric Company take nothing by its

First, Second, Third, Fourth or Fifth Counterclaims, and

that its Counterclaims be Dismissep on the merits.

Dated at South Bend, Indiana, this 30th day of January,

1979.

Ricuarp EK. Timmons

Clerk of Court

by Evcene J. Szynsx1

Kugene J. Szynski

Deputy

42a

Judgment Order of District Court

UNITED STATES DISTRICT COURT

NortHerRN Disrricr or INDIANA

Soutu Benp Drvision

Consolidated Civil Action Numbers 874-72, 875-210, S77-209

_—_—_——— a

Crry or MisHawaka, INDIANA

Crry or Nites, Micwican

Ciry or Cotumsia Crry, Inprana

Ciry or Buurrron, Inprana

City or Garrett, Inpiana

Ciry or Gas Crry, Inpiana

Town or Frankton, INDIANA

Town or Warren, INDIANA

Town or New Caruisiz, INDIANA

and Town or Avinua, InpraNna,

Municipal corporations,

Le]

Plaintiff's,

v,

American Evecrric Power Company, Inc.,

American Evecrric Power Servicer CorPoRATION, and

Iyptana & Micuican Execrric Company,

Corporations,

Defendants.

Pursuant to the Findings of Fact and Conclusions of

Law entered this date,

43a

Judgment Order of District Court

iy Is Heresy Decuarep, Orperep, ApsupGED AND

DEoREED :

1, That defendants American Electric Power Company,

Inc., American Electric Power Service Corporation, and

Indiana & Michigan Electric Company, and each of them,

have violated 15 U.S.C. Section 2 by monopolizing and at-

tempting to monopolize the distribution and sale of electric

power at retail within defendant I&M’s service area and in

the plaintiff municipalities.

2. Defendants American Electric Power Company, Inc.,

American Electric Power Service Corporation, and Indiana

& Michigan Electric Company, their officers, agents, suc-

cessors and all persons acting in concert with them are

hereby enjoined from monopolizing or attempting to monop-

olize the distribution and sale of electric power at retail

within defendant I&M’s service area or within any of the

plaintiff municipalities, in violation of 15 U.S.C. Section 2.

3. Defendant Indiana & Michigan Electric Company, its

officers, agents, successors and all persons acting in concert

with it, are hereby enjoined from discriminating against

I&M’s wholesale municipal customers in rates, terms, or

conditions of service; from taking any action that will have

the effect of singling out I&M’s wholesale municipal cus-

tomers for the purpose of indicating directly or indirectly

that the continuity of service for only that class of cus-

tomers may be in jeopardy or that the supply of electric

power and energy to those municipal utilities and their ecus-

tomers may be curtailed on different terms from those ap-

plied to I&M’s retail customers; and from failing to perform

I&M’s obligation to serve each of the plaintiffs, as well as

its other customers, fairly, equitably and on a nondiscrim-

inatory basis as long as I&M conducts a public utility busi-

ness in their area.

44a

Judgment Order of District Court

4. Defendants American Electric Power Company, Inc.,

and American Electric Power Service Corporation, their

officers, agents, successors and all persons acting in concert

with them, are hereby enjoined from discriminating or caus-

ing I&M to discriminate against I&M’s wholesale municipal

customers in rates, terms, or conditions of service; from

taking any action that will have the effect of singling out

I&M’s wholesale municipal customers for the purpose of

indicating directly or indirectly that the continuity of serv-

ice for only that class of customers may be in jeopardy or

that the supply of electric power and energy to those mu-

nicipal utilities and their customers may be curtailed on

different terms from those applied to I&M’s direct retail

customers; and from interfering with or preventing I&M’s

performance of its obligation to serve each of the plaintiffs,

as well as I&M’s other customers, fairly, equitably and on

a nondiscriminatory basis as long as I&M conducts a public

utility business in their area.

5. In preparing and filing new wholesale rates for elec-

trie service to any of the plaintiff municipalities, the de-

fendants (1) shall project the billing determinants for

each plaintiff for the first year the new wholesale rate

will be in effect, as requested by I&M’s wholesale rate filing,

and (2) shall compare the projected billings to each plaintiff

under the proposed wholesale rate against the amount that

plaintiff would pay under I&M’s retail rates in effect at the

time the wholesale rate is filed. The defendant I&M is en-

joined from putting into effect or charging any of the plain-

tiffs a wholesale rate under which the projected billings to

any plaintiff exceed the amount that plaintiff would pay

under I&M’s retail rates in effect at the time the wholesale

rate is filed, unless and until the Federal Energy Regulatory

Commission determines that that wholesale rate is just and

reasonable,

45a

Judgment Order of District Court

6. Each of the plaintiffs, City of Mishawaka, City of

Niles, City of Columbia City, City of Bluffton, City of Gar-

rett, City of Gas City, Town of Frankton, Town of Warren,

Town of New Carlisle, and Town of Avilla recover of the

defendants American Electric Power Company, Inc., Ameri-

can Electric Power Service Corporation, Indiana & Michi-

gan Electric Company, and each of them, the following

amount, being treble the amount by which I&M’s wholesale

charges to that plaintiff during the period August 1, 1976,

through August 31, 1978 exceeded the amount the plaintiff

would have paid under I&M’s retail rates then in effect:

Avilla $ 50,416.50

Bluffton $ 1,937,155.95

Columbia City $ 1,934,730.93

Frankton $ 243,826.14

Garrett $ 635,690.46

Gas City $ 611,686.26

Mishawaka $ 4,027,529.67

New Carlisle $ 103,807.47

Niles $ 2,432,480.31

Warren $ 170,852.22

Tora. $12,148,175.91

7. The plaintiffs have sustained their burden of proof

with those elements of a claim under Section 2 of the Sher-

man Act as defined by the Court of Appeals im this case, in

City of Mishawaka, Indiana et al v. Indiana & Michigan

Electric Company et al, 560 F. 2d 1314 (7th Cir. 1977), cert.

den. 98 S. Ct. 2274 (1978).

8. Ir Is FurtHer Orperep anp Apgupcep that the de-

fendant Indiana & Michigan Electric Company take nothing

by its First, Second, Third, Fourth or Fifth Counterclaims,

and that its Counterclaims be dismissed on the merits.

46a

Judgment Order of District Court

9. Each of the plaintiffs is entitled to recover of the de-

fendants its costs of suit, including reasonable attorney fees

in this case. In regard to costs and attorney fees, the plain-

tiffs shall file full and complete affidavits in regard to the

same no later than March 5, 1979, to which the defendants

shall respond no later than April 15, 1979.

Enter January 30, 1979.

/3/ ALLEN SHarp

Juper, Unitep Srares Disrricr Courr

47a

Memorandum Opinion of the District Court,

January 30, 1979

or > ee ——sit—t—t

Crry or Misnawaka, Inpiana, Crry or Nixes, Micutaan, Crry

or Cotumsia Crry, Inpiana, Crty or Buurrron, InpIana,

Crry or Garrett, Inpiana, Crry or Gas Crry, Inprana, Town

or Frankton, Inpiana, Town or Warren, Inpiana, Town

or New Cak.isie, Inpiana, and Town or Avitia, INDIANA,

Municipal Corporations,

Plaintiffs,

v.

American Eectric Power Company, Inc., AMERICAN ELEC-

TRIC Power Service Corporation, and Inprana & MICHIGAN

Execrric Company, Corporations,

Defendants.

Nos. S 74-72, S 75-210 and S 77-209.

EO

United States District Court,

N. D. Indiana,

South Bend Division.

Jan. 30, 1979.

Thomas Ewald, Washington, D. C., James J. Olson,

Mishawaka, Ind., Theodore L. Bendall, Huntington, Ind.,

Edward A. Chaphen South Bend, Ind., Gerald M. Stern

and David R. Boyd, Washington, D. C., James R. Fleck,

48a

Memorandum Opinion of the District Court,

January 30, 1979

Columbia City, Ind., John M. Rigby, Niles, Mich., for

plaintiffs.

Thomas W. Yoder, Fort Wayne, Ind., Peter J. Schle-

singer, Dennis G. Jacobs, Lawrence A. Levy, Kenneth R.

Logan, Blair C. Fensterstock, and Kathleen Schaaf, New

York City, for defendants.

MEMORANDUM OPINION

ALLEN Suarp, District Judge.

This will state the legal basis for the separately entered

findings of fact and conclusions of law.

Plaintiffs are ten municipalities that operate their own

electric utilities pursuant to State statutory authority.

Each is located within the service area of defendant Indiana

& Michigan Electric Company and each purchases its bulk

electric power requirements from I & M. The evidence

shows that I & M has a monopoly of retail sales of electric

power within its service area, and that the company also

controls the supply of electric power to all of the plaintiff

municipalities while competing against their municipal elec-

trical utilities for the right to serve all consumers within

their corporate limits. I & M and the plaintiffs also com-

pete for the right to serve individual customers located in

or near each town or who might choose to locate either in

the town or elsewhere in I & M’s area.

The rates the plaintiffs pay I & M for electric service

are the wholesale rates unilaterally set by the defendants in

I & M’s filings before the Federal Energy Regulatory Com-

mission. Under the Federal Power Act, as interpreted by

the Supreme Court and the Federal Energy Regulatory

Commission, in filing new wholesale rates, I & M must

compare those rates against its retail rates, consider their

possible anticompetitive impact, and not require any of

49a

Memorandum Opinion of the District Court,

January 30, 1979

the plaintiffs to pay more at wholesale than it would pay

under I & M’s retail rates then in effect without justifying

the higher wholesale rates. Defendants have ignored this

obligation. Since July 1976, defendants I & M and Amer-

ican Electric Power Service Corporation have unilaterally

and without justification filed new wholesale rates that

have required the plaintiff municipalities to pay over $4

million more than they would have paid under I & M’s retail

rates then in effect. The evidence shows that the defend-

ants made no attempt to compare their wholesale and retail

rates, much less to consider the possible anticompetitive

impact of that relationship and try to avoid or at least jus-

tify these anticompetitive consequences. All three defend-

ants—I & M, the Service Corporation, and their parent,

American Electric Power Company, Inc.—have east doubt

on the continuity of plaintiffs’ future supply of electric

power by attempting to withdraw from the wholesale mar-

ket and by seeking to impose time limits on I & M’s obliga-

tion to serve plaintiffs and restrictions on the quantity of

power they may purchase at current rates. Defendants

I & M and Service Corporation also have filed and I & M

has charged unjust and unreasonable rates which required

the plaintiffs to pay over $1,600,000 in excess of reasonable

rates for the period 1973-1976 and required the Cities of

Niles and Columbia City to pay a total of over $285,000

more than they would have paid under I & M’s retail rates

in effect during that same period. These practices are

designed to promote defendants’ policy of taking over util-

ities operated by municipalities.

Plaintiffs’ consolidated complaint seeks relief from de-

fendants’ monopolization of the sale of retail electric power

within I & M’s service area and in each of the plaintiff

municipalities, in violation of Section 2 of the Sherman

Act. The evidence clearly shows that I & M has monopoly

power, and that the defendants’ anticompetitive acts tend to

50a

Memorandum Opinion of the District Court,

January 30, 1979

exclude the plaintiff municipalities from the electric utility

business. Damages and injunctive relief are necessary and

appropriate.

In order to establish a violation of the monopolization

provision of Section 2, plaintiffs must demonstrate ‘*the

existence of monopoly power, whether lawfully or unlaw-

fully acquired, and the general intent to abuse that power.”’

Sargent-Welch Scientific Co.v. Ventron Corp., 567 F.2d 701,

709 (7th Cir. 1977), cert. den. —— U.S. , 99 S.Ct. 87,

98 L.Ed.2d 113 (1978) (Citations omitted). ‘‘A specific

intent to monopolize need not be shown to establish the of-

fense of monopolization when the monopolist undertakes

anticompetitive actions.’? Jd. at 711 (Citations omitted).

Nor is it necessary to establish that these anticompetitive

actions are ‘‘predatory”’ in nature.

In order to recover damages under Section 4 of the

Clayton Act, the antitrust plaintiff must demonstrate that

he has been injured in his business or property. Id. at 709;

see 15 U.S.C. § 15. To obtain an injunction under Section 16

of the Clayton Act, however, the plaintiff need only demon-

strate ‘‘threatened loss or damage by a violation of the

antitrust laws . .. when and under the same conditions

and principles as injunctive relief against threatened con-

duet that will cause loss or damage is granted by courts

of equity....’? 15 U.S.C. § 26.

I.

The Court’s initial determination of the issue of mono-

poly power controls the standards to be applied thereafter.

Where monopoly power is found to exist, a defendant’s

conduct is assessed in accordance with the monopolization

provision of Section 2. If monopoly power is not proved,

a plaintiff must satisfy the more rigorous proof require-

ments of the attempt to monopolize provision of Section 2.

5la

Memorandum Opinion of the District Court,

January 30, 1979

The record demonstrates that defendants possess mo-

nopoly power in two respects. First, through defendant

I & M, they presently have a monopoly of the retail sales of

electricity in the geographic market occupied by I & M.

I & M’s only competition in that market comes from the

plaintiffs and I & M’s other wholesale customers. Second,

defendants also have a monopoly of the supply of electric

power and energy on which the plaintiffs depend to serve

their customers and to compete with I & M for retail sales.

Kstablishment of either monopoly brings the monopoliza-

tion provision of Section 2 into operation.

It is clear that the relevant product market is electric

power and energy. There is no substitute for electric power

which might be acceptable to industrial, commercial, and

residential consumers in Northern Indiana and Southwest-

ern Michigan. Defendants have offered no evidence sug-

gesting that sufficient interchangeability exists between

electricity and other forms of power and energy even to

give rise to an issue on this point.

Assessment of defendants’ monopoly in retail sale of

electric power and energy involves definition of the geo-

graphic market. In determining the relevant market, the

Court must ‘‘delineate markets which conform to areas of

effective competition and to the realities of competitive

practice.’’ Sargent-Welch, supra, 567 F.2d at 710, quoting

L. G. Balfour Co. v. F. T. C., 442 F.2d 1, 11 (7th Cir. 1971).

Applying this practical approach to the geographic market

in this case is relatively simple. As one very distinguished

commentator has observed:

‘*The geographic location of the market is usually de-

termined by an examination of the areas in which the

particular firm actually competes or operates. If it

concentrates its sales and service in one area, this area

will normally be the relevant market.’’ E. Kintner An

52a

Memorandum Opinion of the District Court,

January 30, 1979

Antitrust Primer, A Guide to Antitrust And Trade

Regulation Laws For Businessmen, pp. 102-103 (2d Ed.

1973).

Here, defendant I & M has a clearly defined service area

in Indiana and Michigan within which it sells electric power

and energy at retail pursuant to franchises granted by the

municipalities and townships. I & M has tariffs on file for

those areas in the Public Service Commissions of Indiana

and Michigan, pursuant to which it offers to sell electricity

at retail to all interested buyers. Moreover, as the defend-

ants have stated, no other public utility is allowed to sell

electric energy at retail within this area.

Using the method for identifying the nature and control

of the relevant market approved and relied on by the Su-

preme Court of the United States in Otter Tail Power Co.

v. United States, 410 U.S. 366, 370, 93 S.Ct. 1022, 1026, 35

L.Ed.2d 359 (1973), the evidence indiesied that I & M serves

89% of the municipalities and townships located within its

service area directly at retail. 'The remaining 11% are

served at retail by the plainti‘fs and by other municipal

wholesale customers of I & M. Defendants’ share of the

relevant market in this case is comparable to the 91 % share

found to constitute a monopoly by the Supreme Court of

the United States in Otter Tail, id., and is substantially

greater than the 75.6% that the District Court in Otter Tail

deemed sufficient to support a conclusion of monopoly

power. Umted States v. Otter Tail Power Co., 331 F.Supp.

04, 09 (D.Minn. 1971), aff’d 410 U.S. 366, 93 S.Ct. 1022, 35

L.Ed.2d 359 (1973).

Defendants’ monopoly of retail sales within the geo-

graphic market is equally clear when measured in terms of

the amount of electric power and energy sold there. The

evidence shows that I & M made 85% of all the retail sales

made by public utilities and municipalities in the relevant

53a

Memorandum Opinion of the District Court,

January 30, 1979

geographic market in the year 1977, and 80% of all retail

sales if the retail sales of the seven rural electric coopera-

tives that purchase all of their power at wholesale are

included.

By either standard, I & M possesses a monopoly in the

retail sales of electric power within the geographic market

in which it operates. These percentages are comparable

to the 90% figure found to constitute a monopoly in Sar-

gent-Welch, supra, 567 F.2d at 709, in addition to being far

in excess of that found sufficient to give rise to a finding of

monopoly power by the Otter Tai District Court. Other

courts likewise have found monopoly power based on mark-

er concentrations of a comparable or smaller nature. See,

e.g., United States v. Grinnell Corp., 384 U.S. 570, 571, 86

S.Ct. 1698, 1704, 16 L.Ed.2d 778 (1966) (Defendant’s con-

trol of 87% of the accredited central station service busi-

ness ‘‘leaves no donht that the congeries of these defend-

ants have monopoly power’’).

The evidence shows that each of the plaintiffs depends

on I & M for between 95% to 100% of its bulk power supply

of electric power and energy for its own use and for resale

to its customers. Though the law imposes no obligation on

the plaintiffs to build new generation facilities, to go into

the business of generating electric power, or to build new

transmission lines to other utility companies in an effort

to resist defendants’ monopolization, the evidence shows

that plaintiffs cannot become independent of I & M within

any reasonable time by any of those methods. Demonstra-

tion of the defendants’ complete monopoly of plaintiffs’

source of supply is—standing alone—sufficient to require

the invocation of the monopolization standards of Section

2.

The fact that the electric utility industry is a ‘‘highly

regulated industry critical to the Nation’s welfare makes

the play of competition not less important but more so.’’

54a

Memorandum Opinion of the District Court,

January 30, 1979

Umted States v. Philadelphia Nat’l Bank, 374 U.S. 321,

372, 83 S.Ct. 1715, 1746, 10 L.Ed.2d 915 (1963). The plain-

tiffs compete with I & M in a number of ways.

Plaintiffs and I & M compete for retail sales in the rele-

vant geographic market. Because no other public utility

can engage in retail sales of electricity within I & M’s fran-

chised service area, the plaintiffs and I & M’s other whole-

sale customers offer the only source of effective competition

for retail sales within this market.

I & M also is in competition with each of the plaintiffs

for all the customers presently served by the plaintiffs’

municipal utilities. The decision by the voters of any of

the plaintiffs to discontinue operating their municipal util-

ity inevitably will result in I & M’s serving all those cus-

tomers directly at retail. That has been the experience of

the municipalities that have sold their utilities to I & M

since 1957. And, as Theodore Stichler testified, the uniform

pattern in Indiana indicates that the public utility serving

the community at wholesale expands into the retail market

when the municipality decides to discontinue its electric

utility. I & M, the only source of power to the plaintiff

municipalities, has retail tariffs on file that encompass the

plaintiffs’ territories.

Since 1957, I & M has purchased or leased the facilities

of five municipalities it formerly served at wholesale. As

a result, the customers previously served by those munic-

ipal utilities became direct retail customers of I & M im-

mediately thereafter, and they remain I & M’s eustomers

today. Defendants have had, and currently have, a policy

of acquiring municipal utilities where possible and they

presently are considering the purchase of the municipal

utility of the Town of Avilla, a plaintiff in this case.

The evidence shows that plaintiffs and I & M compete

for customers of the municipal utilities in the same manner

as that found by the Supreme Court of the United States

in Otter Tail, supra.

5Dda

Memorandum Opinion of the District Court,

January 380, 1979

As the court there found:

‘*In towns where Otter Tail distributes at retail, it

operates under municipally granted franchises which

are limited from 10 to 20 years. Each town in Otter

Tail’s service area generally can accommodate only one

distribution system, making each town a natural mo-

nopoly market for the distribution and sale of electric

power at retail. The aggregate of ‘owns in Otter Tail’s

service area is the geographic market in which Otter

Tail competes for the right to serve the towns at retail.

That competition is generally for the right to serve the

entire retail market within the composite limits of a

town, and that competition is generally between Otter

Tail and a prospective or existing municipal system.

These towns number 510 and of those Otter Tail serves

91%, or 465.’’ 410 U.S. at 369-370, 93 S.Ct. at 1025-

1026.

This same kind of competition also was recognized and

protected by the United States Court of Appeals for the

District of Columbia in Conway Corporation v. Federal

Power Commission, 167 U.S.App.D.C. 43, 510 F.2d 1264,

1268-1268 (1975), aff’d, 426 U.S. 271, 96 S.Ct. 1999, 48 L.Ed.

2d 626 (1976). See also Meeks, Concentration in the Elec-

tric Power Industry: The Impact of Antitrust Policy, 72

Colum.L.Rec. 64 (1972) and Hearings on S. 218 Before the

Senate Comm. on Commerce, 89th Cong., Ist Sess., ser. 89-

38, at 68 (1965), both of which are quoted in Conway, supra,

510 F.2d at 1268, and at 1268, n. 11.

Actual and potential competition also exists between

plaintiffs and I & M for certain customers presently located

in some of the plaintiff municipalities. As the evidence

shows, I & M serves nine large industrial customers at re-

tail in the Cities of Mishawaka, Gas City and Niles, selling

retail electric power to those customers at rates lower than

its wholesale rates to the plaintiffs. Potential competition

56a

Memorandum Opinion of the District Court,

January 30, 1979

for those customers exists, and the relationship between

I & M’s wholesale and retail rates is the major factor gov-

erning that competition. The evidence also indicates that

I & M has competed for other industrial and residential

customers presently served at retail by plaintiff Niles,

Michigan.

Each of the plaintiffs is also in competition with I & M

for customers in areas adjacent to their municipal bound-

aries. In some cases, both I & M and the municipalities

offer electric services to those customers. Each of the In-

diana plaintiffs also is in competition for those customers

in that each is authorized to annex: those areas, and thus

to displace I & M as the electric utility that serves their

customers at retail. The evidence shows that the Indiana

plaintiffs have used their power of annexation to expand

their boundaries, and consequently to expand their own

retail market. These annexations by the plaintiffs result

in their purchase of I & M’s distribution lines and facilities

in that area and their takeover of I & M’s retail customers.’

1. At the time of oral argument the defendants cited and provided

to this Court a full copy of the unpublished opinion in SCM Corpora-

tion v. Xerox Corporation, 463 F.Supp. 983 (D.Conn., No. 15,807,

December 29, 1978, Newman, J.), a massive opinion in a massive case.

Judge Newman has literally written a treatise in a wide ranging area

of antitrust and patent law and the interrelationship between the two.

The defendants appear to cite this case to demonstrate an analogy be-

tween the public grant of patent rights there and the public authoriza-

tion of utility rates here. It is also cited for its relevant market dis-

cussion. The discussicn of Section 2 of the Sherman Act commences

at page 1006 of the opinion in unpublished form and concludes on page

1015. At page 1011 Judge Newman states:

“With respect to assets other than patents, there is authority that

a monopolist’s unilateral refusal to deal violates the antitrust

laws where the refusal is a part of an attempt to further monopoly

power. E. g., Lorain Journal Co. v. United States [342 U.S.

143, 72 S.Ct. 181, 96 L.Ed. 162], supra; Otter Tail Power Co. v.

United States [410 U.S. 336, 93 S.Ct. 1022, 35 L.Ed.2d 359],

supra.”

The reasoning in SCM considered in its own factual setting, does

not compel a result contrary to the one here announced.

57a

Memorandum Opinion of the District Court,

January 30, 1979

Il.

The evidence in this case shows that, through I & M, the

defendants have a monopoly of the retail sales of electric

power within I & M’s service area, and that they have a

complete monopoly of plaintiffs’ power supply. At issue

in this case is the manner in which defendants have used the

leverage afforded by this total monopoly over plaintiffs’

power supply to preserve and expand their monopoly of

retail sales in I & M’s service area. The evidence shows

that defendants have engaged in anticompetitive and exclu-

sionary acts and practices having the purpose and effect of

preserving and expanding I & M’s existing monopoly in re-

tail sales of electric power.

Beginning in 1972, defendants have forced the plaintiffs

to purchase wholesale electric power pursuant to unregu-

lated rates that are unjust and unreasonable and that, for

substantial periods of time, have required the plaintiffs to

pay more for their wholesale electric power than they would

have paid if they had purchased the same electric power at

retail. Under the Federal Power Act, defendants can put

I & M’s wholesale rates into effect simply by filing a tariff.

Thereafter, those rates remain in effect at the level set by

defendants until the Federal Commission has adjudicated

their justness and reasonableness or until they are super-

seded by new rates. By filing higher superseding wholesale

rates before the Commission has adjudicated I & M’s form-

er tariffs, defendants have, since 1972, served plaintiffs

pursuant to unregulated rates that have never been ap-

proved at the levels filed and charged by I & M.

Not only have defendants patterned I & M’s rate filings

in a manner that effectively abrogates the protections that

plaintiffs might expect from the Federal Commission, they

themselves have ignored their own obligations under the

Federal Power Act. The Act requires that public utilities

charge only rates that are ‘‘just and reasonable’’ and

5Sa

Memorandum Opinion of the District Court,

January 30, 1979

specifically declares that any nonconforming rates are un-

lawful. 16 U.S.C. § 824d(a). Not once during the entire

period at issue have defendants charged a wholesale rate

that the Commission has determined to be just and reason-

able; on each occasion when a Commission Administrative

Law Judge has examined I & M’s wholesale rates, he has

concluded that they were excessive, unjust and unreason-

able, and has ordered them lowered.

The Federal Power Act also requires defendants to com-

pare I & M’s wholesale rates against its retail rates, con-

sider their possible anticompetitive impact, and not require

any of the plaintiffs to pay more at wholesale than it would

under I & M’s retail rates in effect without justifying the

higher wholesale rates. Defendants have ignored this obli-

gation as well. As the evidence clearly indicates, the de-

fendants made no attempt to compare their wholesale and

retail rates, much less to consider the possible anticompeti-

tive impact of that relationship and try to avoid the anti-

competitive consequences or, at a minimum, justify any

anticompetitive consequences that the defendants claim can-

not be avoided.

I & M’s anticompetitive wholesale rates have been im-

posed on the plaintiffs in disregard of these statutory obli-

gations. Irom July 27, 1976 to August 31, 1978, defendants

required the plaintiff municipalities to pay over $4 million

more at wholesale than they would have paid under I & M’s

retail rates then in effect. Defendants filed these excessive

and discriminatory wholesale rates without giving proper

consideration to their relationship to I & M’s retail rates or

to the anticompetitive impact of that rate relationship. At

no time while these rates were in effect did the defendants

make a proper effort to justify the substantial disparity

between I & M’s wholesale and retail rates, either to the

Federal Energy Regulatory Commission or to this court.

59a

Memorandum Opinion of the District Court,

January 30, 1979

Defendants’ anticompetitive rate practices have been

compounded by a number of other exclusionary acts. All

three of the defendants made serious and repeated state-

ments that they desire to withdraw from the wholesale mar-

ket and that, in the event of power shortages, the plaintiffs’

power supply will be curtailed first while I & M continues

to serve its retail customers. Similarly, defendants sought

to impose a ‘‘day-to-day service limitation in its contract

with the City of Mishawaka, to limit its contract to three

years, and to impose discriminatory restrictions on the

quantity of power that Mishawaka could purchase at cur-

rent rates. Even after that contract was held to be unjust,

unreasonable and discriminatory by an FERC Administra-

tive Law Judge, I & M offered similar contracts to the other

plaintiffs.

Kach of the defendants’ anticompetitive acts is exclu-

sionary and impairs the plaintiffs’ ability to continue to

operate their municipal utilities and to continue to compete

with I & M. I & M’s unjust and unreasonable wholesale

rates, and in particular I & M’s imposition of wholesale

rates that are in excess of its comparable retail rates, im-

pair each plaintiff’s ability to offer competitive rates and

service to present and potential customers and to offer its

citizens the full range of benefits they otherwise would

obtain from the ownership and operation of their municipal

utility. Defendants’ deliberate statements threatening

plaintiffs’ power supply cast doubt on the plaintiffs’ ability

to offer adequate service to existing and potential custom-

ers. All of defendants’ repeated anticompetitive practices

together have left plaintiffs with no choice but to engage

in constant time-consuming and costly litigation, thus di-

verting the resources that should be committed to the opera-

tion of their municipal utilities and to the provision of the

benefits to those operations to attempting to secure just

and equitable treatment in accordance with the antitrust

laws and the Federal Power Act.

60a

Memorandum Opinion of the District Court,

January 30, 1979

The history of plaintiffs’ experience before the Federal

Commission demonstrates that the relief it can offer in-

variably comes too little and too late. Commission-ordered

refunds take years to obtain, and even then are only ob-

tained as the result of expensive and unreimbursed ad-

ministrative litigation. As the Court of Appeals recog-

nized, these refunds do not provide an antitrust damage

remedy, City of Mishawaka, Indiana v. Indiana & Michi-

gam Electric Co., 560 F.2d 1314, 1325 (7th Cir. 1977),

cert. denied, 436 U.S. 922, 98 S.Ct. 2274, 56 L.Ed.2d 765

(1978), and the belated refunds do nothing to remedy or

mitigate the anticompetitive impact of I & M’s excessive

and discriminatory rates that plaintiffs suffer during the

considerable periods of time that they are in effect. Finally,

although the Power Act places the primary obligation on

the defendants to charge only just and reasonable rates

and, to consider and avoid anticompetitive discriminations

between I & M’s wholesale and retail rates, the Power Act

does not authorize the FERC to issue an injunction man-

dating future compliance. Each successive violation of the

Act must be considered by the Commission individually in

lengthy and costly administrative adjudication. Each Com-

mission remedy comes long after the fact, and always after

the defendants have superseded one illegal wholesale rate

with another, higher illegal rate.

In August of 1977, the Court of Appeals for the Seventh

Circuit made the following observation:

‘‘Thus far, the Commission has never rejected rate

filing 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 and wait-

ing for time to pass, a public utility like defendant can

place a price squeeze on wholesale customers.’’ 560

F.2d 1325,

6la

Memorandum Opinion of the District Court,

January 30, 1979

The comprehensive opinion of Judge Cummings, joined by

Judges Tone and Bauer is not only persuasive authority

but it represents a significant part of the law of this case.

Defendants’ anticompetitive practices continue to im-

pair plaintiffs’ ability to serve their citizens and customers

and to weaken their ability and resolve to continue operat-

ing their municipal utilities and compete with I & M.

As the Seventh Cireuit recognized in Sargent-Welch,

supra, 567 F.2d at 710-711, the monopolization provision of

Section 2 does not require that the defendant have acted

with specific intent to monopolize; general intent is suffi-

cient. General intent is simply ‘‘an intent to bring about

the forbidden act,’’ United States v. Aluminum Co. of

America, 148 F.2d 416, 432 (2d Cir. 1945) ; 7. e., the act that

has the forbidden consequence. The specific intention to

achieve that forbidden consequence need not be proved.

‘‘Tt is sufficient that a restraint of trade or monopoly results

as the consequence of a defendant’s conduct or business

arrangements.’’ United States v. Griffith, 334 U.S. 100,

105, 68 S.Ct. 941, 944, 92 L.Ed. 1236 (1948). ‘‘A business

organization which has acquired monopoly power is guilty

of monopolization if it undertakes a course of action the

consequence of which would be to exclude competitors or

prevent competition.’’ American Football League v. Na-

tional Football League, 205 F.Supp. 60, 64 (D.Md.1962),

aff’d, 323 F.2d 124 (4th Cir. 1963).

The Supreme Court recognized in Griffith, supra, that

‘‘[t]he anti-trust laws are as much violated by the preven-

tion of competition as by its destruction,’’ 334 U.S. 107, 68

S.Ct. at 945, citing United States v. Aluminum Co. of Amer-

ica, supra. Accordingly, ‘‘the use of monopoly power,

however lawfully acquired, to foreclose competition, to gain

a competitive advantage, or to destroy a competitor, is un-

lawful.’’ Jd. See also Otter Tail Power Co. v. United

States, 410 U.S. 366, 377, 93 S.Ct. 1022, 1029 (1973). Sub-

62a

Memorandum Opinion of the District Court,

January 30, 1979

sequently, in United States v. Grinnell Corp., 384 U.S. 563,

970-571, 86 S.Ct. 1698, 1704 (1966), the Court explained,

‘“The offense of monopoly ... has two elements: (1)

the possession of monopoly power in the relevant mar-

ket and (2) the willful acquisition or maintenance of

that power as distinguished from growth or develop-

ment as a consequence of a superior product, business

acumen, or historie accident.’’

As Griffith indicates, a monopolist’s original acquisition

of monopoly power by legitimate means is no defense to a

charge that he has sought to maintain or extend that posi-

tion by prohibited means. This is illustrated by Otter Tail,

where the District Court noted that the plaintiff raised no

challenge to the manner in which the defendant had ob-

tained its monopoly. United States v. Otter Tail Co., supra,

331 F.Supp. at 58. Concluding that defendant possessed

monopoly power, however, the District Court regarded the

question then to be ‘‘whether Otter Tail has sought to

maintain that power.’’ Id. at 59. (Emphasis in original.)

One possessing monopoly power need not be found to

have engaged in predatory conduct in order to have engaged

in prohibited monopolivation. Frequently the offense of

monopolization is based on the conclusion that the defend-

ant has engaged in ‘‘exclusionary conduct’’—conduct that

does not further competition on the merits or that tends to

impair the opportunities on the merits or that tends to im-

pair the opportunities of his rivals to compete. Thus, as

the Seventh Circuit stated in Sargent-Welch, supra, 567 F.

2d at 711-712:

‘‘There are kinds of acts which would be lawful in the

absence of monopoly but, because of their tendency to

foreclose competitors from access to markets or cus-

tomers or some other inherently anticompetitive tend-

63a

Memorandum Opinion of the District Court,

January 30, 1979

ency, are unlawful under § 2 if done by a monopolist,

e. g., the leasing practices United States v. United

States Machinery Corp., 110 F.Supp. 295, 343 (D.Mass.

1953), aff’d per curiam, 347 U.S. 521, 74 S.Ct. 699, 98

L.Ed. 910 (1954); see also 1 von Kalinowski § 8.02[4]

[b], p. 8-55.”’

See also EK. Kintner, An Antitrust Primer, A Guide To

Antitrust Law And Trade Regulation Laws For Business-

men, p. 106 (2d Ed. 1973). Defendants have repeatedly

contended that plaintiffs cannot prevail unless they estab-

lish that the challenged acts and practices are ‘*predatory’’

in nature. Indeed, they even have suggested that the Sev-

enth Circuit’s opinion in Sargent-Welch supports that prop-

osition. Although Sargent-Welch nowhere mentions

‘predatory acts,’’ the defendants’ ‘‘edited’’ quotation from

that opinion is advanced in a manner that seems to suggest

that such a finding is essential to recovery. The authorities

discussed above demonstrate the error of defendants’ posi-

tion. Moreover, it is significant to note that the Seventh

Circuit supported its conclusion that a monopolist cannot

engage in conduct that might be permissible for a non-

monopolist by citing the United Shoe opinion—a case that

found a violation of Section 2 on the basis of conduct that

it specifically found was not predatory. Certainly the Sev-

enth Circuit’s explicit reliance on United Shoe belies de-

fendants’ attempt to advance Sargent-Welch in support of

their argument that predatory acts are an essential pre-

requisite to a finding of liability under Section 2 of the

Sherman Act. A monopolist’s exclusion of its competitors

from a source resource or facility is particularly condemned

by the antitrust laws. United States v. Otter Tail, supra,

331 F.Supp. at 61.

Perhaps the best-known judicial finding of illegal mo-

nopolization in the absence of evidence of predatory acts is

the Alcoa case. United States v. Aluminum Company of

64a

Memorandum Opinion of the District Court,

January 30, 1979

America, supra. There the defendant had not engaged in

predatory, unfair or forbidden practices. Its monopoly

position instead resulted from the practice of entering each

new field as the opportunity presented itself, and thus ex-

panding to meet and satisfy the market demand for alumi-

num. Judge Learned Hand found that this conscious ex-

pansion constituted monopolization:

‘‘It was not inevitable that [Alcoa] should always an-

ticipate increases in the demand for ingot and be pre-

pared to supply them. Nothing compelled it to keep

doubling and redoubling its capacity before others en-

tered the field. It insists that it never excluded com-

petitors ; but we can think of no more effective exclusion

than progressively to embrace each new opportunity

as it opened, and to face every newcomer with new

capacity already geared into a great organization, hav-

ing the advantage of experience, trade connections and

the elite of personnel.’’ Jd. 148 F.2d 431.

The classic opinion in United States v. United Shoe

Machinery Corp., 110 F.Supp. 295 (D.Mass.1953), aff’d

per curiam 347 U.S. 521, 74 S.Ct. 699, 98 L.Ed. 910

(1954), likewise found a violation of Section 2 on the basis

of practices that the court specifically acknowledged were

not ‘‘predatory, immoral, nor, on their fact, discriminatory

as between different customers.’’ Jd. at 297. There the

primary evil was the defendant’s practice of leasing shoe

manufacturing machinery rather than offering it for sale.

This and other practices were acknowledged to be natural

and normal practices that were, to quote Judge Learned

Hand, ‘‘honestly industrial.’’ Jd., at 344, quoting Alcoa,

supra, 148 F.2d at 431. And although the non-monopolist

could freely engage in those same practices, the monopolist

could not. See also, Greyhound Computer Corp. v. IBM,

65a

Memorandum Opinion of the District Court,

January 30, 1979

599 F.2d 488 (9th Cir. 1977), cert. den. 434 U.S. 1040, 98

S.Ct. 782, 54 L.Ed.2d 790 (1978). For a current and eare-

ful analysis of this area see U. S. v. CBS, Inc., 459 F.Supp.

832 (C.D.Cal.1978).

The antitrust laws are particularly hostile to the use of

monopoly power in one market to restrict competition in

another. For example, in United States v. Griffith, supra,

the Supreme Court of the United States concluded that the

defendant’s use of the leverage it possessed from its mo-

nopoly of movie theatres in some towns to enhance its bid-

ding position in non-monopoly towns constituted a violation

of Section 2. Similarly, in the recent opinion of Berkey

Photo, Inc. v. Eastman Kodak Co., 74 F.R.D. 613 (S.D.N.Y.

1977), Judge Frankel regarded the judicial decisions pro-

scribing tie-ins as per se violations of the antitrust laws

to be ‘‘cognate authority’’ for the resolution of charges that

defendant Kodak had used the leverage it enjoyed from its

monopoly position in one market to gain competitive ad-

vantage in another. Jd., 457 F.Supp. at 413. Concluding

that Kodak’s use of its market position in the second mar-

ket was not ‘‘economically inevitable,’’ id. at 414, citing

United States v. United Shoe Machinery Corp., 110 F.

Supp. at 345, and was ‘‘plainly avoidable,’’ id., the court

in Berkey found these practices to be in violation of Section

2.

Relying on Sargent-Welch Scientific Co., supra, the

Berkey court rejected defendants’ protest that it was being

punished for conduct that other firms, lacking monopoly

power, regularly engaged in with impunity. As Judge

Frankel observed, ‘‘[T]he short answer is that the anti-

trust laws do not permit the willful maintenance of monop-

oly power by conduct that might for a company without

such power be deemed ‘honestly industrial.’*’ Berkey

Photo, Inc., supra, 457 F.Supp. at 414, quoting United

States v. Aluminum Co. of America, supra, 148 F.2d at 431.

66a

Memorandum Opinion of the District Court,

January 30, 1979

A monopolist’s practices are subjected to much more rigor-

ous scrutiny.

Obviously, one possessing monopoly power must take

care to avoid abuse of that power by refraining from en-

gaging in activities having a ‘‘tendency to foreclose com-

petitors from access to markets or customers or some other

inherently anticompetitive tendency.”? Sargent-Welch, su-

pra, 967 F.2d at 711-712. Under the applicable antitrust

standards, this court must determine whether defendants’

behavior represents simply the employment of processes

and techniques ‘‘which a competitive society must foster,’’

United Shoe, supra, 110 F.Supp. at 344, or whether a pre-

ponderance of the evidence indicates that defendants have

proceeded by ‘‘arrangements, and policies which, instead of

encouraging competition based on pure merit, further[ed]

the dominance of a particular firm.’’ Jd., at 344-345; see

also Berkey, supra, 457 F.Supp. at 412.

The evidence in this case shows that defendants have

used their control over plaintiffs’ power supply to protect

and further I & M’s dominance of the electric power busi-

ness in its area. The defendants’ practices of requiring

plaintiffs to pay unjust, unreasonable and discriminatory

rates for electric power, attempting to withdraw from the

wholesale market, attempting discriminatorily to limit I &

M’s obligation to serve its municipal customers to short

terms and restricted quantities, all have impaired the plain-

tiffs’ ability to compete. This is the same kind of use of

monopoly power in one market to stifle competition in an-

other that was condemned by the Supreme Court of the

United States in Griffith and more recently by the District

Court in Berkey. Defendants’ conduct is in violation of

Section 2 of the Sherman Act.

One central issue in judicial decisions frequently has

been whether the challenged exclusionary conduct was ‘‘in-

evitable,’’ or whether it might have been avoided had the

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Memorandum Opinion of the District Court,

January 30, 1979

monopolist chosen to do so. United States v. Aluminum

Co. of America, supra, 148 F.2d at 431; Berkey, supra, 457

F.Supp. at 414; United Shoe, supra, 110 F.Supp. at 345.

This consideration also was emphasized by the Seventh

Circuit in this very case, City of Mishawaka v. Indiana &

Michigan Electric Co., supra, 560 F.2d at 1320, and in the

opinion of City of Shakopee v. Northern States Power Co.,

Civ.No.4-75-591 (D.Minn.1976) on which the Seventh Cir-

cuit relied. (although unpublished, this court has carefully

examined the full order in Shakopee.)?

The antitrust laws require that a monopolist avoid ex-

clusionary conduct that is not inevitable. In this case, that

general antitrust obligation is complemented by a similar

duty arising from Section 205(b) of the Federal Power Act,

which prohibits undue discrimination between wholesale

rates and state-regulated retail rates.

Section 205(b) of the Federal Power Act specifically

prohibits public utilities from ‘‘subject[ing] any person to

any undue prejudice or disadvantage’’ or ‘*maintain[ing ]

any unreasonable difference in rates’’, 16 U.S.C. § 824d(b).

In Conway Corporation v. Federal Power Commission, 167

U.S.App.D.C. 43, 510 F.2d 1264 (1975), aff’d, 426 U.S. 271,

96 S.Ct. 1999, 48 L.Ed.2d 626 (1976), the Court of Appeals

for the District of Columbia Circuit held that the Federal

Power Commission had jurisdiction to consider the possible

anticompetitive effects of the relationship between whole-

sale and retail rates, and that the Commission must con-

sider such allegations that are presented to it. The Court’s

ruling was based on its determination that the prohibition

2. In the recent case of City of Newark et al. v. Delmarva Power

& Light Co, —— F.Supp. —— (No. 77254, D.Del. Jan. 8, 1979,

Stapleton, J.), there appears to be nothing in it that compels a result

different than that announced here. The posture of the record here is

in a much later procedural stage. To the extent that Judge Stapleton

puts a slightly different shade on City of Mishawaka et al. v. Indiana

& Michigan Electric Company, 560 F.2d 1314 (7th Cir. 1977), this

Court is bound by its holding as a part of the law in this case.

6Sa

Memorandum Opinion of the District Court,

January 30, 1979

against discrimination in Section 205 of the Federal Power

Act prohibits discrimination between wholesale and retail

rates, Jd. at 1270-1272. The Supreme Court’s affirmance

of that decision, Federal Power Commission v. Conway

Corp., 426 U.S. 271, 96 S.Ct. 1999, 48 L.Ed.2d 626 (1976),

likewise was based on its determination that a public util-

ity’s obligation to avoid any ‘‘unreasonable difference in

rates’’ encompassed a duty to avoid such discrimination

between wholesale and retail rates. Id. at 277-279, 96 S.Ct.

at 2004. The Supreme Court concluded that a public utility

does not automatically satisfy this duty simply by charging

rates that are ‘‘just and reasonable”’ under Section 205 (a)

of the Power Act, 16 U.S.C. ¢ 824d( a), and that the Com-

mission can alleviate the anticompetitive effects of the rela-

tionship between retail rates and a “ just and reasonable’’

wholesale rate by ordering the utility to charge a lower

wholesale rate that falls within the ‘‘zone of reasonable-

ness’’ contemplated by the Act.

Section 205 of the Federal Power Act, as interpreted by

the Supreme Court in Conway, clearly requires I & M to

avoid unreasonable and anticompetitive disparities between

its wholesale and retail rates. More recently, in Missouri

Power & Light Company, FERC Docket No. ER 76-539

(October 27, 1978) [Ex. P-191], the Federal Knergy Regu-

latory Commission held that the absence of ‘*relative par-

ity’? between wholesale rates and the actual retail rates in

effect and being charged, id. at 7, establishes a ‘‘price

Squeeze’’ under the Federal Power Act, irrespective of the

‘*intent’’ of the public utility. Id. at 9. This, in turn, cre-

ates a ‘‘presumption that the rates are unduly diserimina-

tory.’’ Jd. at 10, n.18. As the Commission noted, the in-

crease in the company’s retail rates appeared to eliminate

the ‘‘price squeeze’’ in that case prior to the time Missouri

Power & Light’s prospective rate became effective. Mis-

sourt Power & Light Co., FERC Docket No. ER 76-539

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Memorandum Opinion of the District Court,

January 30, 1979

(October 27, 1978), at 7. In order to be satisfied of that

fact, however, the Commission required the company to

file its current industrial rate schedule. Jd. Thus, clearly

the Commission’s focus is on actual rates, not some illusory

proposed retail rate that may never be charged. Together,

Conway and the Commission’s decision in Missouri Power

establish that defendants must consider and avoid anticom-

petitive effects caused by the relationship between I & M’s

wholesale rates and its actual retail rates, then in effect.

The evidence reveals that defendants have not here at-

tempted to honor this ebligation.

In deposition testimony introduced in evidence in this

case, John Howard, Senior Vice President for Rates of the

American Electric Power Service Corporation, testified

that I & M seeks the highest rates it believes it can justify

under the applicable standards, giving no consideration to

the competitive impact of I & M’s rates on its municipal

wholesale customers. [Howard deposition 1/27/78 at 57]

Other depositions of the present and former I & M officials

having responsibility for the company’s wholesale rate

filings in the Federal Commission since the Conway deci-

sions confirm that defendants, although aware of Conway,

have not and do not compare the rate levels between I &

M’s wholesale and retail customers, and that I & M has

made no changes whatsoever in its procedures following

Conway for the purpose of complying with its obligations

under the Federal Power Act. [Kopper deposition 10/3/78

at 54; Stark deposition 10/2/78 at 29-34; Tupper deposition

at 53]

Defendants’ disregard of their statutory obligation to

avoid undue discrimination between wholesale and retail

rates was further confirmed at trial. Robert M. Kopper,

Executive Vice President and chief operating officer of I &

M from 1968 to 1976 [Tr. 333], testified that no changes

were made in I & M’s standards and procedures for the

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Memorandum Opinion of the District Court,

January 30, 1979

purpose of complying with the requirements of the Federal

Power Act, as interpreted in Conway. [Tr. 359] Similar-

ly, Jack F. Stark, Mr. Kopper’s successor as Executive

Vice President of I & M from 1976 to 1978 [Tr. 759], testi-

fied at trial that I & M has never had a policy of tailoring

wholesale rates to prevent them from being higher than its

retail rates, then in effect [Tr. 765] and that this has not

even been a subject of discussion. [Tr. 766] Mr. William

A. Black, who became Executive Vice President of I & M

in July of 1978 [Black deposition, at 4] and currently serves

in that position [Tr. 580], testified that he has not reviewed

I & M’s present or proposed rates, and that he has taken

no action to assure that the rates I & M charges its whole-

sale customers are not higher than the rates those custom-

ers would pay if they were being served at retail. [Tr.

593-594] Nor has Mr. Black had any discussions about the

possibility of tailoring I & M’s rate applications to provide

for competitive wholesale and retail power rates. [Tr. 596]

Thus, defendants continue to prepare and file their

wholesale rate applications in disregard of their obligation

under Section 205 of the Power Act to refrain from undue

discrimination between wholesale and retail rates. This

violation of their Power Act obligation constitutes a willful

disregard of their legal obligations. Defendants’ willful

refusal to apply the regulatory criteria established by the

Federal Power Act is a clear violation of the defendants’

duties under that Act and under the antitrust laws as well.

In view of defendants’ monopoly power, only a general

intent to monopolize must be shown. Even if a ‘‘specific

intent’? were required, however, the evidence is adequate

to meet that standard. ?

In virtually all cases requiring a finding of intent, that

intent is inferred from the nature of the acts at issue. More

direct proof of intent is the exception rather than the rule.

a

Tla

Memorandum Opinion of the District Court,

January 30, 1979

The Supreme Court of the United States recently recog-

nized this principle in United States v. United States Gyp-

sum Co., 438 U.S. 422, 98 S.Ct. 2864, 57 L.Ed.2d 854 (1978),

a criminal case brought under Section 1 of the Sherman

Act. After carefully reviewing the law of criminal intent,

the court stated, 438 U.S. at 444, 98 S.Ct. at 2877:

‘‘Our question ... is whether a criminal violation of

the antitrust laws requires, in addition to proof of anti-

competitive effects, a demonstration that the disputed

conduct was undertaken with the ‘conscious object’ of

producing such effects or whether it is sufficient that

the conduct is shown to have been undertaken with

knowledge that the proscribed effects would most likely

follow. While the difference between these formula-

tions is a narrow one, see ALI Model Penal Code § 2.02,

comment, at 125 (Tent. Draft 4 1955), we conclude that

action undertaken with knowledge of its probable con-

sequences and having the requisite anticompetitive ef-

fects can be a sufficient predicate for a finding of crim-

inal liability under the antitrust laws.’’

See also zd.; n. 21.

If intent can be inferred from conduct in criminal anti-

trust cases, it obviously can be inferred in civil actions,

where the constitutional concerns are of a substantially

diminished magnitude. Moreover, in reaching its deter-

mination, this court must assess the evidence in its entirety.

Continental Ore Co. v. Union Carbide & Carbon Corp.,

370 U.S. 690, 699, 82 S.Ct. 1404, 1410, 8 L.Ed.2d 777 (1962) ;

United States v. Empire Gas Corp., 537 F.2d 296 (8th

Cir. 1976), cert. den. 429 U.S. 1122, 97 S.Ct. 1158, 51 L.Ed.2d

572 (1977).

All of defendants acts and practices, taken together,

show that they have acted with ‘‘specifie intent’? to im-

pair plaintiffs’ competitive ability, and thus to preserve and

72a

Memorandum Opinion of the District Court,

January 30, 1979

expand their existing monopoly. The ‘probable conse-

quence’’, [United States v. Gypsum, supra, 438 U.S. at

444, 98 S.Ct. at 2877] of I & M’s dual rate structure is

that the imposition of wholesale rates in excess of I & M’s

comparable retail rates will impair plaintiffs’ ability to

offer rates and services competitive with I & M’s, and

thus diminish their ability and resolve to remain in the

electric power business in competition with I & M. As

Gypsum indicates, the evidence need not specifically show

that this was defendants’ ‘‘conscious object’’ in order to

establish that they specifically intended that result.

The specific intent in defendants’ statements threaten-

ing plaintiffs’ power supply is clearer. As Administrative

Law Judge Samuel Kanell found, defendants’ conduct

‘‘inhibits growth within the service area of these wholesale

customers and frustrates any effort to encourage new in-

dustry or commercial activity to locate within the service

area of the complainants.’’ [Ex. p-6, and D-106, Initial

Decision, at 14] Judge Kanell concluded that the defend-

ants had not shown that the needs of the electric users

served by I & M’s wholesale customers were substantially

different from I & M’s retail customers, id. at 15-16, and

that defendants actions ‘‘created apprehension, uncertainty

and potential prejudice with respect to future continuity of

service.’ Jd, at 16. Finally, as Judge Kanell found:

‘*The service areas of the municipal utilities are located

generally within the area served by AEP and

it may he reasonable to conclude that if electric

service by AEP to any of these municipal distribution

systems were disrupted, AEP would develop arrange-

ments to directly serve the patrons of these local sys-

tems in the same manner that AEP has been serving

several large industrial firms located within the service

areas of some of these municipal systems. If this were

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Memorandum Opinion of the District Court,

January 380, 1979

to occur, there would be no change in the total power

demands on the AEP system.’’ Jd. at 17.

The Administrative Law Judge concluded that these activ-

ities were in violation of defendants’ traditional utility ob-

ligation to serve all customers on a nondiscriminatory basis,

id, at 16, and ordered AEP to treat all classes of customers

fairly and equitably, and to cease and desist from any ac-

tions that single out any class of customers for the purpose

of indicating that its continuity of service may be in jeop-

ardy. Id. at 20.

The Supreme Court has recognized that the doctrine

of res judicata applies to factual findings made by adminis-

trative agencies acting in their judicial capacity in cases

in which the agency resolved disputed factual issues that

the parties had an adequate opportunity to litigate. United

States v. Utah Construction d: Mining Co., 384 U.S. 394,

422, 86 S.Ct. 1545, 1560, 16 L.Ed.2d 642 (1966). Res judi-

cata is particularly appropriate where, as here, the agen-

cy’s findings reflect its particular expertise in an area com-

mitted to it by Congress. Judge Kanell’s decision and all of

the Initial Decisions in which plaintiffs have successfully

challenged defendants’ practices have been appealed, how-

ever, they are not final. 18 C.F.R. §§ 1.30-1.21.. This may

deprive Judge Kanell’s decision of the formal res judicata

effect to which it should be entitled. Nevertheless, the con-

sidered opinion of an Administrative Law Judge, acting

within his area of particular expertise and on the basis of a

fully litigated record, is entitled to considerable deference.

At a minimum, the facts found by Judge Kanell are prima

facie evidence of the truth of those matters. These facts

are likewise established by independent evidence introduced

in this case, and have not been rebutted by evidence offered

by defendants.

Judge Kanell’s legal conclusion that defendants have

violated their traditional public utility obligation to serve

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Memorandum Opinion of the District Court,

January 380, 1979

all customers within I & M’s service area on a fair and

equitable basis is clearly supported by the evidence in this

case. This court should also conclude that defendants’ at-

tempt to withdraw from the wholesale market and their

other discriminatory attempts to restrict I & M’s duty to

serve the plaintiffs violated I & M’s common law public

utility obligation to offer service to all customers within

the service area on an equitable and nondiscriminatory

basis.

In United Gas Co. v. Railroad Comm’n of Ky., 278 U.S.

300, 309, 49 S.Ct. 150, 152, 73 L.Ed. 390 (1929), the Supreme

Court of the United States stated:

‘The primary duty of a public utility is to serve on

reasonable terms all those who desire the service it

renders. This duty does not permit it to pick and

choose and to serve only those portions of the territory

which it finds most profitable, leaving the remainder

to get along without the service which it alone is in a

position to give.’’

Cf. Pennsylvania Water & Power Co. v. Consolidated Gas,

Electric Light & Power Co., 184 F.2d 552, 567 (4th Cir.),

cert. denied, 340 U.S. 906, 71 S.Ct. 282, 95 L.Ed. 655 (1950).

This same public utility obligation is recognized in the

laws of Indiana and Michigan, which require public utilities

to provide reasonably adequate service to all at reasonable

rates and without undue discrimination. For example, the

Indiana statutes define ‘‘utilities’’ to include all plants

furnishing ‘‘heat, light, water or power, either directly or

indirectly to the public,” Ind.Code Ann, § 8-1-2-1 (emphasis

added), and specifically require that each such public utility

‘furnish reasonably adequate service and facilities,’’ id.,

§ 8-1-2-4. As the Indiana courts have recognized, that

State’s law imposes a duty to serve the public without dis-

crimination, Indiana Natural Gas & Oil Co. v. State ex rel.

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Memorandum Opinion of the District Court,

January 30, 1979

Armstrong, 162 Ind. 690, 71 N.E. 133 (1904); Richmond

Natural Gas Co. v. Clawson, 155 Ind. 659, 58 N.E. 1049,

(1900), and the Indiana statutes make undue discrimination

by a public utility a misdemeanor. Ind.Code Ann. § 8-1-2-

105. Michigan statutes also codify the common law obliga-

tions of public utilities, requiring that they offer utility

services ‘‘to the public generally’’ on reasonable terms,

rates and conditions as determined by the Michigan Public

Service Commission. Mich.Stat.Ann. § 22.13(6) [M.C.L.A.

460.6]. The courts of Michigan have likewise held that

public utilities operating in Michigan have a duty to serve

all patrons without discrimination, Michigan Public Serv-

ice Co. v. Maddy, 284 Mich. 392, 279 N.W. 874 (1938); T'en

Broek v. Miller, 240 Mich. 667, 216 N.Y. 385 (1927).

The Federal Power Act, enacted to fill a constitutional

gap in state regulation of electric utilities, /ederal Power

Commission v. Southern California Edison Co., 376 U.S.

205, 213, 84 S.Ct. 644, 650, 11 L.Ed.2d 638 (1964), placed

federal regulation on the same basis as regulation under

the previous common law and state statutes. The Act in-

corporated the common law and state statutory prohibition

against discrimination between consumers in Section 205,

16 U.S.C. § 824d(b), which was interpreted by the Supreme

Court in Federal Power Commission v. Conway Corp., su-

pra, to proscribe discrimination between wholesale and

retail rates. Defendants cannot argue that the imposition

of federal jurisdiction over I & M’s wholesale sales relieved

I & M of its common law and statutory obligations to avoid

discrimination among I & M’s customers. Moreover, fed-

eral antitrust law recognizes complementary obligations on

persons possessing scarce resources or facilities that are

essential to effective competition. As the District Court

observed in United States v. Otter Tail Power Co., 331

F.Supp. 54, 61 (D.Minn.1972), aff’d 410 U.S. 366, 93 S.Ct.

1022, 35 L.Ed.2d 359 (1973) :

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Memorandum Opinion of the District Court,

January 30, 1979

‘*Pertinent to an examination of the law is a reference

to cases expressive of the ‘bottleneck theory’ of anti-

trust law. This theory reflects in essence that it is an

illegal restraint of trade for a party to foreclose others

from the use of a scarce facility. Here the theory finds

application in Otter Tail’s use of its subtransmission

lines. One authority believes:

‘The Sherman Act requires that where facilities

cannot practically be duplicated by would-be com-

petitors, those in possession of them must allow them

to be shared on fair terms.”

‘This statement epitomizes the holdings in federal

cases which have established the principle: United

States v. Terminal Railroad Assoc., 224 U.S. 383, 32

S.Ct. 507, 56 L.Ed. 810 (1912); Gamco, Inc. v. Provi-

dence Fruit € Produce Building, Inc., 194 F.2d 484 (1st

Cir. 1952) ; Packaged Programs, Inc. v. Westmghouse

Broadcasting Co., 255 F.2d 708 (3rd Cir. 1958); Sia

Twenty-Nine Productions, Inc. v. Rollins Telecasting,

Inc., 365 F.2d 478 (5th Cir. 1966).’’ United States v.

Otter Tail Power Co., 331 F.Supp. 54, 61 (D.Minn.1972)

aff’d, 410 U.S. 366, 93 S.Ct. 1022, 35 L.Eid.2d 359 (1973).

Taken together, defendants’ actions show that they were

undertaken with the specific intent of impairing the plain-

tiffs’ competitive position and preserving and expanding

I & M’s monopoly in retail sales of electric power in its

service area,

The defendants’ practices of requiring the plaintiffs to

pay unjust, unreasonable, and discriminatory rates for elec-

tric power, their attempt to withdraw from the wholesale

market and discriminatorily to limit I & M’s obligation to

3. A. D. Neale, The Antitrust Laws of the U.S. A., Cambridge

University Press at 67 (1960).

77a

Memorandum Opinion of the District Court,

January 30, 1979

serve its municipal customers to short terms and restricted

quantities, which Administrative Law Judges in the Federal

Commission repeatedly have found in violation of the Fed-

eral Power Act and defendants’ public utility obligations,

were not ‘‘honest industrial’’ practices or ‘‘economically

inevitable’’ events. All were deliberate acts aimed at the

plaintiffs, unprovoked, unjustified, and clearly avoidable.

Specific intent is present in this case.

ITI.

Defendants contend that because I & M’s wholesale and

retail rates result from filings before the state and federal

commissions the First Amendment immunizes their rate

practices from antitrust scrutiny. For support, they rely

on Eastern Railroad Presidents Conf. v. Noerr Motor

Freight, Inc., 365 U.S. 127, 81 §.Ct. 523, 5 L.Ed. 464 (1961)

and United Mine Workers of America v. Pennington, 381

U.S. 657, 85 S.Ct. 1585, 14 L.Ed. 626 (1965).

The same argument was considered and rejected by the

Supreme Court of the United States in Cantor v. Detroit

Edison Co., 428 U.S. 579, 96 S.Ct. 3110, 49 L.Ed.2d 1141

(1976). Cantor involved an antitrust challenge to an elec-

tric utility’s practice of providing light bulbs to its ecus-

tomers without separate charge pursuant to a ‘‘lamp ex-

change program”’ that was incorporated in its rates on file

with the Michigan Public Service Commission. The utility’s

rates, including its omission of any separate charge for the

bulbs, had been approved by the Commission. Thus, as the

court recognized, the defendant utility was required to con-

tinue the program until it filed and obtained Commission

approval for a new tariff that did not contain that program.

Id. at 582-583 and at 585, 96 S.Ct. at 3114 and 3115.

Not only did the court reject the contention that the

Commission’s approval gave rise to a Parker v. Brown de-

78a

Memorandum Opinion of the District Court,

January 30, 1979

fense, it also specifically held that the Noerr-Pennmgton

was inapplicable. As the court stated, 428 U.S. at 601-602,

96 S.Ct. at 3123:

‘¢[N Jothing in the Noerr opinion implies that the mere

fact that a state regulatory agency may approve a pro-

posal included in a tariff, and thereby require that the

proposal be implemented until a revised tariff is filed

and approved, is a sufficient reason for conferring anti-

trust immunity on the proposed conduct.’’

The Cantor decision is precisely on point. Defendants’

purported Noerr-Pennington defense is not well taken.

A comparison of I & M’s wholesale rates with its actual

retail rates in effect during the period July 1976 to August

1978 shows that defendants required plaintiffs to pay over

$4 million more pursuant to their wholesale rates than plain-

tiffs would have paid under I & M’s actual retail rates, then

in effect and charged by I & M to its non-competing retail

customers.

None of I & M’s proposals during the period for in-

creased retail revenues was approved by the Public Service

Commissions of Indiana or Michigan at the levels sought

by the defendants. Defendants are aware that their filings

for increased retail rates rest on questionable assumptions

and judgments, the rejection of which will reduce I & M’s

retail rates. Though defendants here assert that their pro-

posed retail rates are the only appropriate measure of their

intent, the evidence shows that they do not regard these

proposed retail rates to be sufficiently reliable to warrant

their inclusion in their own operating forecasts. Instead,

they regard their own proposed retail rates as ‘‘intangible”’

and ‘‘uncertain.’’ I & M’s wholesale rates are included in

the company’s financial projections; its proposed retail

rates are not. [Disbrow deposition at 154-156]

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Memorandum Opinion of the District Court,

January 30, 1979

In addition, I & M had no proposed retail rates on file

with the Public Service Commissions of Indiana and Mich-

igan during long periods of the time at issue in this case.

Defendants argue that their intent is to be assessed by

reference to proposed rates for these periods as well, con-

veniently adopting proposed retail rates that had by then

been rejected as excessive by the State Public Service Com-

missions or rates that had not been proposed for some of

the months for which they are advanced.

Measuring the disparities of defendants’ dual rate

structure by reference to I & M’s proposed retail rates

establishes a misleading standard that bears no resemblance

to the real world in which plaintiffs and I & M compete.

Defendants’ attempt to avoid liability for their anticom-

petitive practices by resort to this fiction should be rejected.

Defendants offered no evidence in support of their as-

serted cost justification for I & M’s discriminatory dual

rate structure other than I & M’s initial rate filings sub-

mitted to the various commissions. Because the defendants

in preparing and filing new rates have refused to consider

the relationship between I & M’s wholesale and retail rates,

I & M’s initial filings before the commissions do not even

attempt to establish a cost justification for the disparity

between those rates.

Further, the evidence shows that none of I & M’s whole-

sale rate filings to date have persuaded the Federal Com-

mission that I & M’s wholesale rates are just and reason-

able as filed, and the Federal Commission has never ap-

proved as just and reasonable a wholesale rate under which

I & M has charged any of the plaintiffs more than that

municipality would pay under I & M’s retail rates then in

effect.

Defendants’ contention that I & M’s ‘‘bad faith”’ is not

proved by an administrative finding that the company has

filed and collected excessive, unjust, and unreasonable rate

80a

Memorandum Opinion of the District Court,

January 30, 1979

is irrelevant. ‘‘Bad faith’’ is not required to be proved to

establish a violation of the Sherman Act.

Defendant I & M’s retail sales to consumers are regu-

lated by the Public Service Commissions of Indiana and

Michigan. In each state the company maintains three sep-

arate tariffs for large customers, corresponding to three

levels of demand, or six retail tariffs in all. (In Indiana

the tariffs are designated ‘‘IP,’”’ “‘QP”’ and “‘CP.’’ In

Michigan the tariffs are ‘‘LP,’’ ‘*QP”’ and ‘‘CP.’’ In con-

trast, the company files before the Federal Commission one

single wholesale tariff for service to all its wholesale munic-

ipal customers, including the plaintiffs. Wholesale Tariff

‘“WS”’ consists of a single rate curve extending to all levels

of demand and covering the range of all six of I & M’s retail

tariffs.

Defendants contend that the Seventh Cireuit’s decision

in Public Service Company of Indiana v. Federal Power

Commission, 575 F.2d 1204 (1978), prohibits the company

from comparing its wholesale charges to the plaintiffs

against the amounts they would have paid under I & M’s

retail rates, if that analysis requires it to compare different

retail rates for different municipalities and results in its

charging them different rates.

The evidence shows that since 1972 I & M has charged

municipalities having different demands different rates,

depending on their location on the rate curve under whole-

sale Tariff WS. [Tr. 162-165] Further the Public Service

decision does not prohibit disparities between the rates

I & M charges different municipalities in the class of whole-

sale customers. Rather, that case holds that any substan-

tial disparities must be justified. Jd., 1212, see also id., at

1212 n. 12. The promotion of competition, which is a com-

mon concern of both the federal antitrust laws and the

‘‘broadly procompetitive purposes’’ of Section 2 of the

Federal Power Act, Conway Corporation v. Federal Power

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Memorandum Opinion of the District Court,

January 30, 1979

Commission, supra, 167 U.S.App.D.C. at 50, 510 F.2d at

1271, is more than adequate justification for comparing

defendants’ wholesale charges to each plaintiff against

the amount that plaintiff would have paid on I & M’s retail

tariff for customers having the same demand, in order to

remove disparities between I & M’s wholesale and retail

rates.

IV.

All three defendants have participated in the violations

shown by the evidence in this case. Relief against all three

defendants is necessary to remedy their monopolization to

date and to protect the plaintiffs against future violations.

Through defendant I & M the defendants control the

electric power supply to all the plaintiff municipalities. De-

fendants have misused the leverage afforded by this mo-

nopoly to engage in a number of anticompetitive acts and

practices.

I & M filed and collected unjust and unreasonable whole-

sale rates that, for considerable periods of time, required

each plaintiff to pay more than it would have paid under

I & M’s retail rates then in effect. Service Corporation

participated in setting and filing those wholesale rates, and

has appeared before the Commission in support of them.

Defendant AEP, which owns all the voting stock of both I &

M and the Service Corporation and controls these corpora-

tions through interlocking offices and directorships as part

of the integrated AEP System, benefited by the overcharges

through its annual receipt of dividends from I & M.

All three defendants should be liable to each plaintiff

for damages based on the amount of their overcharges to

date. Injunctive relief against all of them to protect the

plaintiffs against avoidable and unjustified overcharges

in the future is necessary and appropriate in view of their

integrated operations and control.

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Memorandum Opinion of the District Court,

January 30, 1979

Kach of these defendants participated directly in the

AEP System’s attempt to withdraw from the wholesale

market. Each defendant issued statements to wholesale

customers of the AEP System, including the plaintiffs, ex-

pressing their desire to withdraw from the wholesale mar-

ket and urging their municipal customers to seek other

sources of supply. Officials of the Service Corporation an-

nounced the System companies’ intent to withdraw in a

letter to wholesale customers, forwarded to each of the

plaintiffs by I & M. Service Corporation officials also tes-

tified before the FPC in support of that policy. Defendant

AEP issued a formal statement of its intent to withdraw

from the wholesale market in its 1975 Annual Report.

I & M attempted, and continues to attempt, to restrict

its obligation to its wholesale municipal customers to dis-

criminatorily short time periods and limited quantities of

power. Employees of both defendants I & M and Service

Corporation testified before the FERC in defense of those

practices. Finally, the evidence shows that all three de-

fendants participated in the AEP System’s policy of taking

over municipal utilities whenever it ean, and in implement-

ing that policy in Indiana and Michigan.

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