Petition for Writ of Certiorari — Transphase Systems, Inc. v. Southern California Edison Co.

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m~ Bupreme Court, U.S.

Zee B

94, 394 SEP -1 1994

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1994

TRANSPHASE SYSTEMS, INC.,

Petitioner,

SOUTHERN CALIFORNIA EDISON COMPANY

AND SAN DIEGO GAS AND ELECTRIC COMPANY,

Respondents.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

PETITION FOR A WRIT OF CERTIORARI

Walter D. Ames

1400 K. Street, N.W.

Suite 1000

Washington, D.C. 20005-2477

(202)628-0088

September 1, 1994 Counsel for Petitioner

I. QUESTIONS PRESENTED

1. Is the "state action" doctrine, as enunciated in

Parker v. Brown, 317 U.S. 341 (1943) and its progeny,

available to provide immunity to an electric utility or

other private corporation that monopolizes a market in

violation of Section 2 of the Sherman Act?

2. If "state action" immunity is available, then under

the first-prong of the Midcal test, does State legislative

authorization to regulate supersede recent and affirmative

legislative enactments promoting competition in the

relevant market, thereby enabling a state regulatory

agency alone to immunize a corporation from federal

antitrust law?

3. Under Midcal’s second-prong, where the issue is the

actuality of price-setting and control by the regulators,

should a district court convert defendants’ motion to

dismiss under Rule 12(b)(6), Fed.R.Civ.P., to a motion

for summary judgment as plaintiff moved to allow the

parties to establish a record on disputed issues of fact, in

accordance with Rule 12(b), Fed.R.Civ.P. and Rule

201(b), Fed.R.Evid?

(i)

TABLE OF CONTENTS

Page

I. QUESTIONS PRESENTED yarn har

Il. TABLE OF AUTHORITIES ....... iv

(Mi: + § °F), Ss |

WV. eee & Ss ae ee ee ce ee 1

V. CONSTITUTIONAL AND

STATUTORY PROVISIONS. ...... 2

A. Constitutional And Federal

Statutory Provisions (Question 1) . 2

B. California Statutory Provisions

QO ae a. a a ee ee es 3

VI. STATEMENT al haa ace a oe 5

A. Limitation Of Petition To "State

Ma Bee. ks eae ee ce 8

B. The Utilities’ Control And Destruction of

Energy Efficiency Services and Products

; (ii)

Vil. REASONS FOR GRANTING

THIS PETITION ‘ae

A. Summary of Reasons: Inter-Circuit

Conflict And The Ninth Circuit’s

Conflict With the Supreme Court . . . 10

B. Question 1: The First and Seventh

Circuits And the Supreme Court Have

Found The "State Action" Doctrine

Not Available to Immunize a Private

Corporation’s Monopolization in

Violation of Federal Law. . . . .- -; 17

C. Question 2: The Ninth Circuit’s

Reliance On Legislative

Authorization to Regulate Conflicts

With this Court’s Requirement that

the State Legislature Intend to

Suppress Competition. . . - - : 24

D. Question 3: The District Court’s

Refusal to Convert the Federal Rule

- 12(b)(6) Motion to a Motion For

Summary Judgment Conflicts With Rule

12(b), Evidence Rule 201(b) and the

Third Circuit ene ie. ee eS 28

Vil. CONCLEBIUN «© 2 te te te tw 32

(iii)

Il. TABLE OF AUTHORITIES

CASES

California Retail Liquor Dealers Ass’n v.

Midcai Aluminum, Inc.

445 U.S. 97, 100 S.Ct. 937,

63 L.Ed.2d 233 (1980) . . (i),5,14-16,20,24-26,28

Cantor v. Detroit Edison Co.,

428 U.S. 579, 96 S.Ct. 3110,

49 L.Ed.2d 1141 (1976) . . 5,8,11-14,19,21-23,26

City of Columbia v.

Omni Outdoor Advertising, Inc.,

449 U.S. 365, 111 S.Ct. 1344 (1991)... 13,17,18,25,26

City of Kirkwood v. Union Electric Co.,

671 F.2d 1173 (8th Cir. 1982),

cert. denied, 495 U.S. 1170 (1983)... 12,19,25,26

City of Mishawaka, Indiana v.

Indiana & Michigan Electric Co.,

560 F.2d 1314 (7th Cir. 1977),

cert demied, 436 U.S. 922 (1978) . . . . 12,19,25

City of Mishawaka, Indiana v.

American Electric Power Company,

616 F.2d 976 (7th Cir. 1980),

cert. denied, 449 U.S. 1096 (1981). . . 12,19,25

Conley v. Gibson,

355 U.S. 41, 76 S.Ct. 99 (1957) . .. 10,11,29

Federal Trade Commission v. Ticor Title Ins. Co.,

U.S. , MZ SAA: 2,

119 L.Ed.2d 410 (1992) ieee 14,18,20,22,24,28

(iv)

Northern Securities Co. v. United States,

193 U.S. 197, 24 S.Ct. 436,

ee ee, ke ee de 18

O’Melveny & Myers v. F.D.LC.,

pees oe ke iy 2) a 11,19

Otter Tail Power Co. v. U.S.,

410 U.S. 366, 93 S.Ct. 1022,

SL. eeewesee) lw wt “w:C. ts Cz BB

Parker v. Brown,

317 U.S. 341, 63 S.Ct. 307,

87 L.Ed. 315 (1943). . . . . (i),6,12-14,17-21,25

Patrick v. Burget,

486 U.S. 94, 108 S.Ct. 1658,

100 ieee ee ee a 28

Schwegmann Brothers v. Calvert Distillers Corp.,

341 U.S. 384, 71 S.Ct. 745,

95 L.Ed. 1035 (1951) "puntata am 18

Southern Motor Carriers Rate Conf. v. U.S.,

471 U.S. 48, 105 S.Ct. 1721,

85 L.Ed.2d 36 (1985) ASG Ceara te

Town of Concord, Mass v. Boston Electric Co.,

915 F.2d 17 (1st Cir. 1990),

cert. denied, 449 U.S. 931 (1991). . 11-13,19,22,23,25

Yeager’s Fuel, et. al. v.

Pennsylvania Power & Light,

22 F.3d 1260 (3rd Cir. 1994) . . . 12,15-17,22,26.31

(v)

CONSTITUTIONAL PROVISIONS, FEDERAL

STATUTES, AND RULES

Constitution of the United States,

fo i oh Se Rh eS

Sherman Act §1,15 U.S.C. §1. . . . 2,14,20,24

Sherman Act § 2, 15 U.S.C. §2 po eet passim

i Bee I ee a Se: oe aes Ce peas ce

Rule 12(b), Federal Rules

of Civil Procedure ....... (i),5,16,30,31

Rule 201, Federal Rules of Evidence .. (i), 16,29-31

CALIFORNIA STATUTORY PROVISIONS

Chapter 984, California Statutes of 1983. . 3,4,15,22,27

Cal. Pub. Util. Code § 744.7(e). . 4,15,26-28, App. 20a

Chapter 1369, California Statutes

of 1990 (tg ee ee Te 4,15,27, App. 21a-22a

Cal. Pub. Util. Code § 747 . . . 4,27, App. 21a-22a

Cal. Pub. Util. Code § 454(a). . 4,15,27, App. 23a

_ Cal. Pub. Util. Code § 701.1(c) . . 4,28, App. 24a-25a

OTHER AUTHORITY

Areeda and Hovenkamp, Antitrust Law,

1993 Supplement, Little, Brown

and Company plete Guess ee 20

(vi)

Transphase Systems, Inc. ("Transphase") hereby

petitions the Supreme Court of the United States for a writ

of certiorari to review the judgment in this case of the

United States Court of Appeals for the Ninth Circuit."

Ml. ORDERS BELOW

The Order of the United States Court of Appeals for the

Ninth Circuit is found in the appendix at la to 2a. The

Order of the United States District Court for the Central

District of California is included in the appendix at 3a-17a.

The Court of Appeal’s order denying petitioner’s rehearing

motion, with petitioner’s suggestion for rehearing in banc, is

included in the appendix at 18a to 19a.

IV. JURISDICTION

The Court of Appeals rendered its judgment on May 9,

1994. A petition for rehearing was denied on June 9, 1994.

This court has jurisdiction under 28 U.S.C. §1254(1).

'Transphase Systems, Inc. has no parent or subsidiary

corporations. All parties to the proceeding appear in the caption

to the case.

V. CONSTITUTIONAL AND STATUTORY

PR IONS INVOLVED

A. Constitutional and Federal Statutory

Provisions (Question 1)

Constitution of the United States, Article VI:

Clause 2. Supreme Law

This Constitution, and the Laws of the United States which

shall be made in Pursuance thereof, and all Treaties made,

or which shall be made, under the Authority of the United

States, shall be the supreme Law of the Land; and the Judges

in every State shall be bound thereby, any Thing in the

Constitution or Laws of any State to the Contrary

notwithstanding.

The Sherman Act, Title 15 United States Code §1 and 2:

Section 1. Trusts, etc., in restraint of trade illegal; penalty

Every contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or commerce

among the several States, or with foreign nations, is hereby

declared to be illegal...

Section 2._Monopolization; 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 $10,000,000 if a

corporation, or, if any other person, $350,000, or by

imprisonment not exceeding three years, or by both said

punishments, in the discretion of the court.

(July 2, 1890, ch. 647, §1, 2, 26 Stat. 209; As amended

Nov. 16, 1990, P.L. 101-588, §4(b), 104 Stat. 2880.)

Title 15 U.S.C. Section 15: Suits by persons injured.

...[A]Jny person who shall be injured in his business or

property by reason of anything forbidden in the antitrust

laws may sue therefore in any district court of the United

States in the district in which the defendant resides or if

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.

B. California Statutory Provisions

(Question 2)

Chapter 984, California Statutes of 1983:

The Legislature finds and declares it is in the best interest of

the state to ensure competition in the energy conservation

industry because of the innovation, price competition,

aggressive marketing, and freedom of entry which

characterize competitive industries, and that the energy

conservation industry, because of its decentralized nature,

has the potential to be truly competitive.

The Legislature further finds and declares that the current

uncertainty with regard to the role of electrical and gas

corporations subject to regulation as public utilities by the

Public Utilities Commission with regard to energy

conservation development hinders the full-scale development

of the energy conservation industry, and therefore requires

legislative clarification.

The Legislature further finds and declares that there may be

an inherent conflict for a public utility which furnishes gas

and electricity on the one hand and installs energy

conservation materials or devices on the other hand, and that

it would be detrimental to the energy industry and to the

state if privately-owned public utilities used their status as

monopolies to dominate the energy conservation industry or

exercise unfair market power.

The Legislature further finds and declares that the basis for

regulation of public utilities extends to their participation in

energy conservation development as well as in the production

and delivery of forms of energy derived from conventional

sources.

It is, therefore, the intent of the Legislature that the Public

Utilities Commission be given a clear and explicit mandate

to regulate the involvement of electrical and gas corporations

in energy conservation development, and to ensure that the

energy conservation industry develops in a manner which is

competitive and free from the potential dominance of

regulated electrical and gas corporations.

Other California Legislative Enactments In Appendix:

California Public Utilities Code §744.7(e) App. 20a

Chapter 1369, California Statutes of 1990 App. 21a-22a

(Incorporates California Public

Utilities Code §747) App. 21a-22a

California Public Utilities Code §454(a) App. 23a

California Public Utilities Code §701.1(c) App. 24a-25a

VI. STATEMENT

A. Limitation of Petition to "State Action" Doctrine

On May 3, 1993, Transphase filed a private antitrust

action against Southern California Edison Company ("SCE")

and San Diego Gas and Electric Company ("SDG&E") in the

United States District Court for the Central District of

California. The complaint charged the utilities with

monopolizing and attempting to monopolize the distribution

of energy efficiency services to ratepayers and thermal

energy storage ("TES") equipment installed at host customer

facilities, in violation of the Sherman Act, §2 (15 U.S.C.

§2), among other antitrust counts. As prayers for relief,

Transphase’s Complaint sought monetary damages under 15

U.S.C. §15 and injunctive relief. The district court had

jurisdiction in this action under 28 U.S.C. §1331 (federal

question jurisdiction).

On June 14, 1993, SCE and SDG&E filed motions to

dismiss the complaint under Federal Rule 12 (b)(6) for

"failure to state a claim upon which relief can be granted".

The utilities argued, inter alia, that they were immunized

from federal antitrust liability under both the "state action"

and Noerr-Pennington doctrines. Transphase opposed the

defendants’ arguments in reliance on Cantor v. Detroit

Edison Co.,428 U.S. 579, 96 S.Ct. 3110, 49 L.Ed.2d 1141

(1976) and express statutory intent promoting competition in

the relevant markets. Transphase also moved the District

Court to convert the Rule 12(b)(6) motion to a motion for

summary judgement on Midcal’s second prong and on July

9, 1993, submitted evidence to show lack of active

regulatory supervision.

On October 12, 1993, the District Court entered final

ic calli

judgment granting the defendants’ motions to dismiss with

prejudice. App. 3a to 17a. The lower court found state-

action and Noerr-Pennington immunities for all of SCE and

SDG&E’s energy efficiency activities. The District Court

also dismissed Transphase’s complaint on the basis that it did

not adequately allege to be a significant competitor of the

utilities, although indicating that it would have allowed

Transphase to re-plead if the immunity doctrines were not

available. App. 16a, n. 10.

T. asphase limited its appeal to the U.S. Ninth Circuit

Court of Appeals to its Section 2 claims of actual and

attempted monopolization as well as a pendent state claim.

In a one-sentence decision filed May 9, 1994, the Ninth

Circuit affirmed the District Court’s dismissal of the case,

but limited its basis of affirmance to the District Court’s

discussion of the "state action" doctrine enunciated in Parker

v. Brown, 317 U.S. 341 (1943) and its progeny. App. 1a-

2a. On June 9, 1994, the Ninth Circuit denied Transphase’s

petition for rehearing with a suggestion for rehearing en

banc. App. 18a-19a.

Because the Ninth Circuit expressly limited the

dismissal to the state-action doctrine, the questions presented

in this petition solely concern this doctrine’s availability and

application to defendant private corporations.

B. The Utilities’ Control ruction of Ener

Efficiency Services and Products

As competitors to Transphase in the provision of

electric capacity to the ratepayers, defendants SCE and

SDG&E - not the California Public Utilities Commission

("CPUC") - (1) control the price paid to Transphase for the

electric capacity and energy savings it provides, and (2) use

this power to destroy the energy efficiency services and

equipment markets, to the massive financial detriment of the

ratepayers.

Transphase sells electric capacity and energy savings,

also known as energy efficiency or demand-side management

("DSM") resources. Transphase provides electric capacity

and energy savings through the manufacture, installation and

operation of a patented thermal energy storage ("TES")

system. The system is typically installed as a retrofit to

existing central cooling plants which provide air conditioning

and/or process cooling in larger commercial and industrial

facilities, such as hospitals, colleges, manufacturing

facilities, and office buildings. The system stores cooling

capacity during nighttime off-peak electric hours and releases

the stored cooling capacity during daytime on-peak hours.

In this way, the cooling plant’s electricity consumption is

shifted from daytime on-peak hours to nighttime off-peak

hours. As noted in SCE’s own 1993 TES brochure to host

customers, "{iJf you shift your energy intensive cooling

operation to Edison’s off-peak period, the peak demand is

reduced, you pay a lower rate, and we can defer constructing

new power plants to meet peak demands, keeping rates lower

overall.”

Across the country, electric utilities receive over $2

billion per year from their ratepayers for the provision of

energy efficiency services, also known as load management

Or energy conservation resources. The defendants in this

case alone receive over $150 million per year for the

distribution and provision of energy efficiency resources.

They collect these funds through the electricity bills paid by

all the ratepayers in their service territories. In a manner

analogous to the light-bulb exchange program in Cantor,

supra, 428 U.S. at 582, 96 S.Ct. at 3114, the ratepayers

"are billed for the electricity they consume, but pay no

separate charge..." for the energy efficiency resources. The

utilities in turn use the $150 million per year to purchase

energy efficiency resources from either the DSM providers

such as Transphase, or the host facility owner where the

DSM measure is installed, as well as on exorbitant internal

administrative costs and paper studies.

The prices that the utilities pay for the energy efficiency

services are constituted on the basis of rebates and avoided

costs. The utilities have the full authority from state

regulators to set these prices at any level they choose within

broad limits under the CPUC’s "Total Resource Cost" test.

The rebate price (on a dollars per kilowatt basis) determines

the ratepayers’ remuneration to Transphase for the electric

Capacity it provides and the economic payback period to the

host customer considering the installation of a DSM

measure. Over the course of the last few years, SCE has

varied the price for electric capacity from TES systems from

$0 to $600 per kilowatt ("kw") (now set at $0 per kw), while

SDG&E has varied its price from $0 to $300 per kw (also

now set at $0 per kw). In comparison, SCE and SDG&E

have received up to $1500 per kw for distributing

Transphase’s DSM-based electric capacity to the ratepayers

and up to $6000 per kw for distributing electric capacity

from new power plants to the ratepayers.

As the term implies, "avoided costs" are the marginal

costs displaced by not building power plants and generating

electricity. Such avoided costs represent the total maximum

price that may be paid for energy efficiency resources under

the CPUC’s Total Resource Cost test. The utilities in fact

set DSM avoided costs at far lower rates than those set for

supply-side costs, but even if they did set DSM avoided

costs equal to supply-side costs, the utilities would still have

total power to manipulate energy efficiency rebate prices to

control the DSM market.”

?As an example, SCE lists its avoided cost or "benchmark

price" for repowering its San Bernardino power plant at $1350 per

kw. When one includes transmission and distribution costs,

assume this equivalent avoided cost for comparison with DSM

resources is $1500 per kw. Under the CPUC’s Total Resource

Cost ("TRC") cost effectiveness test, any DSM resource under

$1500 per kw is cost-effective, in that its cost is less than the cost

of the equivalent supply-side resource.

Under this example, the rebate price could be $1000 per kw

and the host contribution $0 per kw, or the rebate price could be

$200 per kw and the host contribution $800 per kw. In either

case, from the CPUC’s perspective, the total cost of the DSM

resource would be the same ($1,000 per kw) and the cost-

effectiveness of the DSM resource, under the CPUC’s TRC test,

would be exactly the same.

But obviously, the significance of these two rebate price

scenarios is that, under the first scenario ($1,000 per kw rebate

and $0 per kw host contribution), the payback period to the host

is immediate because the host has no investment and only electric

bill savings. The potential market under this scenario is

enormous, in that no cognizant host would refuse such an offer

from a legitimate seller is proven applicable technology. Under

the second scenario, ($200 per kw rebate and $800 per kw host

customer payment), the payback on the host-customer’s $800 per

kw investment might be 7 years, i.e. electric bill savings of $114

per kw per year. At this payback, the market potential might be

essentially zero - in other words, few or no hosts would purchase

the DSM system at a 7 year payback.

This example assumes only capacity impacts, with no energy

By controlling the price per kilowatt that Transphase

receives to between 0 and 20% of what the utility receives,

SCE and SDG&E have choked off the supply of energy

efficiency resources to the ratepayers. In the process, the

utilities are seriously damaging the ratepayers, as well as

putting Transphase and dozens of other companies out of

business, by distorting the marketplace to far-higher priced

new power plants and more expensive (and increasingly

unavailable) energy efficiency resources distributed directly

by themselves.

VII. REASONS FOR GRANTING THIS

PETITION

A. Summary of Reasons: Inter-Circuit Conflict

and The Ninth Circuit’s Conflict with the

Supreme Court

In affirming the dismissal of Transphase’s Original

Complaint without leave to amend under Federal Rule

12(b)(6), the Ninth Circuit held that no claim or set of facts

had been or could be pleaded that would constitute a

violation of Section 2 of the Sherman Act because

"defendants SCE and SDG&E in Transphase’s complaint are

immunized from federal antitrust liability by the ‘state

action’ doctrine."’ App. la-2a, District Court Order, App.

impacts. In reality, the Transphase System generates substantial

energy savings as well because power plants operating during

nighttime base-load conditions are far more energy efficient than

daytime "peaking" power plants.

*Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102

(1957): "[A] complaint should not be dismissed for failure to state

a claim unless it appears beyond doubt that the plaintiff can prove

11a. This conclusion - that the judiciary can grant sweeping

immunity to corporations from federal antitrust law under the

"runaway" federal common law known as the "state action"

doctrine - directly and unambiguously conflicts with

decisions of other United States Courts of Appeals and of

this Supreme Court.*

Question 1 Summary: In Town of Concord, Mass. v.

Boston Edison Co., 915 F.2d 17, 21 (1st Cir. 1990), cert.

denied, 499 U.S. 931 (1991), the First Circuit (BREYER,

J.) held, in a case involving comprehensively regulated

electric rates, that "state action" immunity was unavailable:

The basic legal principles that govern this

monopolization case are well settled. Even though

Boston Edison is a regulated firm, it has no blanket

immunity from the antitrust laws. See Otter Tail Power

Co. v. United States, 410 U.S. 366, 372-75, 93 S.Ct.

1022, 1027-28, 35 L.Ed.2d 359 (1973); see also Cantor

v. Detroit Edison, 428 U.S. 579, 596 n. 35, 96 S.Ct.

3110, 3120 n. 35, 49 L.Ed.2d 1141 (1976)...To prove

a violation of this statute (Sherman Act §2), a plaintiff

must demonstrate (1) that the defendant possesses

monopoly power in the relevant market, and (2) that the

defendant has acquired or maintained that power by

no set of facts in support of his claim which would entitle him to

relief."

‘The term "runaway" was used in O’Melveny & Myers v.

F.D.LC. _ US. _, 114 S.Ct. 2048, 2055 (1994) (SCALIA, J.)

to demonstrate "the runaway tendencies of ’federal common law’

untethered to a genuinely identifiable (as opposed to judicially

constructed) federal policy."

improper means. (internal quotation marks and

Citations omitted).

Thus, the First Circuit found no state-action or other

regulatory exemption from federal law to be available and

that the correct inquiry was whether in fact the defendant

utility corporation had violated Section 2 of the Sherman

Act.

In similarly rejecting the availability of the state-action

doctrine to a state-regulated electric utility corporation, the

Seventh and Eighth Circuits quoted from exactly the same

passage in Cantor, supra, (STEVENS, J.) that the First

Circuit had cited:

[T]here can be no doubt about the proposition that

the federal antitrust laws are applicable to electric

utilities. Cantor, supra, 428 U.S. at 596, n. 35, 96

S.Ct. at 3120.

City of Mishawaka, Indiana v. Indiana & Michigan Electric

Co., 560 F.2d 1314, 1321 (7th Cir. 1977) cert. denied, 436

U.S. 922 (1978) (Mishawaka I); City of Kirkwood v. Union

Electric Co., 671 F.2d 1173, 1177 (8th Cir. 1982), cert.

denied, 495 U.S. 1170 (1983). See also City of Mishawaka,

Indiana _v. American Electric Power Company, Inc., 616

F.2d 976, 985 (7th Cir. 1980), cert. denied, 449 U.S. 1096

(1981) (Mishawaka II): ("Parker v. Brown is inapposite" to

defendant electric utility corporation.)

In diametrical contrast, the Ninth Circuit in the case at

bar and the Third Circuit almost simultaneously in Yeager’s

Fuel, et. al. v. Pennsylvania Power & Light, 22 F.3d 1260

(3rd Cir. 1994), found that the judicially-created Parker

State-action immunity defense can and should be expansively

applied to find that the federal antitrust laws do not apply to

investor-owned electric utility corporations, discarding any

inquiry into whether the utility had actually violated Section

2 of the Sherman Act.

In so Going, both the Ninth and Third Circuits grossly

misconstrued and misapplied the Supreme Court’s decision

in City of Columbia v. Omni Outdoor Advertising, Inc. , 449

U.S. 365, 111 S.Ct. 1344 (1991) (SCALIA, J.) Both circuit

courts relied on Omni’s state-action standard applied to

municipalities to grant immunity to a private utility

corporation. App.7a. 22 F.3d at 1267, n. 8. To the exact

contrary, Omni, supra, held that Parker immunity is only

available to the subordinate state entity, and simultaneously

rejected the availability of this doctrine to regulated

corporations. Id, 449 U.S. at 379, 111 S.Ct. at 1353.

The defendant investor-owned utility corporations - not

the CPUC - monopolize the energy efficiency equipment and

services markets, a marketplace where no natural monopoly

exists (unlike perhaps the transmission and distribution of

electricity) which might thereby preclude exclusionary

conduct required to sustain a Section 2 monopolization

claim. See Cantor supra, 428 U.S. at 595, 96 S.Ct. at

3120. See Town of Concord, supra., 915 F.2d at 26.

Because Congress never intended there to be an implied

exemption or repeal for electric utilities from Section 2 of

the Sherman Act, see Otter Tail, Cantor, supra, a state or its

regulators cannot immunize these corporations from federal

law without conflict with the Supremacy Clause of the U.S.

Constitution.

As an analysis of first impression, this Court has never

clearly delineated between the impropriety of applying the

state-action doctrine to a Section 2 monopolization case

against a private corporation, wherein its application amounts

to a recision of federal law by judicial fiat, and the

appropriate availability of the state-action doctrine to Section

1 conspiracies in restraint of trade, wherein the state’s action

in setting rates might literally obviate the private price-fixing

conspiracy. The case at bar, Cantor, Otter Tail, and the

other five Circuit Court cases referenced supra, are all

Section 2 monopolization cases against investor-owned

electric utilities. Parker, California Retail Liquor Dealers

Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct.

937, 63 L.Ed. 233 (1980), Southern Motor Carriers Rate

Conf. v. U.S., 471 U.S. 98, 105 S.Ct. 1721, 85 L.Ed. 36

(1985) and F.T.C. v. Ticor Title Ins. Co., U.S. _, 112

S.Ct. 2169 (1992), relied on by the Ninth and Third Circuit

courts, were all Section 1 price-fixing cases. As a result,

the Circuit Courts have criss-crossed Supreme Court

precedent and remain in a state of conflict concerning the

availability of state-action immunity to a §2 monopolization

claim against a private corporation.

In FTC v. Ticor, 112 S.Ct. at 2181, this Court’s most

recent §1 price-fixing case that applied the doctrine but

denied the immunity, Justice Scalia went further in his

concurring opinion: "I am skeptical about the Parker v.

Brown exemption for state-programmed private collusion in

the first place.”

Question 2 Summary: In creating an exemption for

electric utilities from federal law, the Ninth and Third

Circuit courts held that a basic authorization to regulate is all

that is required from the State Legislature under the first

prong of the two-pronged test enunciated in Midcal, supra.

The courts of the Ninth and Third Circuits turned to the state

PUC to establish state policy to displace competition and

preempt federal antitrust law, again directly at odds to

Supreme Court precedent, including So. Motor Carriers,

supra, 471 U.S. at 62, 63, 105 S.Ct. at 1729, 1730.

Unlike the Pennsylvania Legislature in Yeager’s Fuel,

supra, however, in this case the California Legislature

provided a repeated and clarion call for competition - not

utility monopolization - in the relevant energy efficiency

marketplace. California commanded that "...the energy

conservation industry develops in a manner which is

competitive and free from the potential dominance of

electrical and gas corporations” (Chapter 984, 1983, supra.

at p. 3, 4); that energy efficiency resources be allowed "an

opportunity to compete on a fair and reasonable basis with

generating resources to fulfill future utility resource needs"

(Chapter 1369, §1(b), 1990, App. 21a); and, while rejecting

SCE’s lobbying for antitrust immunity, reaffirmed Chapter

984 "to promote a competitive marketplace for energy

efficiency equipment and services." (Cal. Pub. Util. Code,

§744.7(e), 1993, App. 20a).

Incredibly, the Ninth Circuit’s affirmance relied upon

Cal. Pub. Util. Code §454(a) (App. 23a), a statute dating

back to 1915 which authorizes the CPUC to regulate electric

rates, as establishing the Legislature’s clearly articulated,

affirmatively expressed intent to displace competition

required under the first-prong of the Midcal test. App. 10a.

By relying on basic authority to regulate rather than on the

Legislature’s repeated, express intent to promote competition

in energy efficiency, the Ninth Circuit effectively read

Midcal’s first-prong out of existence for any state-regulated

corporation because by definition the State will have

authorized an agency to regulate the corporation.

Question 3 Summary: Under the second prong of the

Midcal test, where the factual issue of control turns on

whether the CPUC actually established the energy efficiency

rebate prices offered by the defendants in the marketplace,

the district court took judicial notice of more than 300 pages

of CPUC documents submitted with SCE’s Motion to

Dismiss under Federal Rule 12(b)(6). In direct conflict with

the District Court in Yeager’s Fuel, however, in this case the

District Court denied Transphase’s Motion to convert the

12(b)(6) Motion to a Rule 56 Motion for Summary

Judgment, as mandated in Rule 12(b), Fed.R.Civ.Proc., so

that Transphase could have the District Court consider its

submission of publicly available documents showing lack of

supervision or control by the regulators over the utilities’

actual price-setting of energy efficiency services in the

marketplace. App. 8a-9a, n. 5. The Ninth Circuit’s

affirmance also violated Rule 201(b), Fed.R. of Evid., by

wrongfully taking judicial notice of alleged CPUC control -

defendants’ purported fact that Transphase vigorously

disputes and could prove erroneous if the Court considered

its submitted material.

The legal and economic implications of this case are

enormous. The federal judiciary cannot create an exemption

from federal law for a certain class of corporations. The

Supremacy Clause of the U.S. Constitution, Supreme Court

case law, the state statutes and factual evidence cannot be

ignored, as the Ninth Circuit did. Utility ratepayers, like

any Other consumers, should be afforded the economic

advantages of competition in markets where no natural

renin

monopoly exists. To resolve the "state action" doctrine and

bring uniformity to widely disparate Circuit Court

interpretations, the Supreme Court should grant this petition

for Certiorari.

B. Question 1: The First and Seventh Circuits And

this Court Have Found the State Action Doctrine

Not Available to Immunize A Private

Corporation’s Monopolization In Violation of

Federal Law.

The Ninth Circuit affirmed the dismissal of

Transphase’s complaint against two investor-owned

corporations based on the state-action doctrine (first

enunciated in Parker _v. Brown, supra, in the process

straying dramatically from the doctrine announced in Parker

v. Brown itself. This Court held that the Sherman Act was

not intended to "restrain a state or its officers or agents from

activities directed by its legislature." Parker, 317 U.S. at

350, 351, 63 S.Ct. at 313. Incontrast, this Court found that

based on its legislative history, "(t]he [Sherman] Act is

applicable to "persons" including corporations...That its

purpose was to suppress combinations to restrain competition

and attempts to monopolize by individuals and corporations,

abundantly appears from its tegislative history." Id.

In misapplying the state-action doctrine to private

corporations, both the Ninth Circuit in the case at bar, and

the Third-Circuit in Yeager’s Fuel, supra, relied upon

Parker’s progeny, specifically Omni Outdoor Advertising

and the principles of federalism and state sovereignty

expressed therein. App. 7a, 22 F.3d at 1267, n. 8. Inso

doing, these Courts of Appeals were blind to the sharp

distinction drawn in both Omni Outdoor Advertising, supra,

and Parker _v. Brown between the doctrine appropriately

applied to subordinate state entities (e.g. a municipality) and

its total inapplicability to a regulated corporation. In Omni,

449 U.S. at 379, 111 S.Ct. at 1353, this Court held:

This does not mean, of course, that the States may

exempt private action from the scope of the Sherman

Act; we in no way qualify the well established principle

that "a state does not give immunity to those who

violate the Sherman Act by authorizing them to violate

it, or by declaring that their action is lawful." Parker,

317 U.S., at 351, 68 S.Ct., at 314 (citing Northern

Securities Co. v. United States, 193 U.S. 197, 332,

344-347, 24 S.Ct. 436, 459-461, 48 L.Ed. 679 (1904)).

See also Schwegmann Brothers v.Calvert Distillers

Corp., 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035

(1951)

This statement was not dicta. The Supreme Court refused to

apply the state-action immunity doctrine to the defendant

regulated bill-board corporation while simultaneously finding

immunity for the co-defendant municipality.

The only way to avoid obvious conflict between the

state-action doctrine applied to private conduct and the

Supremacy Clause - in that this doctrine provides the State

‘Emphasis in original. Compare this citation, written for the

Court by Justice Scalia, to his concurring opinion in FTC v.

Ticor, "[O]Jur active supervision doctrine. ..has not been challenged

here, and...1 am skeptical about the Parker v. Brown exemption

for state-programmed private collusion in the first place." 112

S.Ct. at 2181.

esi che watt

ee ee a

Legislature and PUC with preemptive, immunizing power

over §2 of the Sherman Act - would be if Congress had

included an implied exemption to the law. However, the

Courts have forcefully answered that Congress has never

implied an exemption for regulated corporations from the

Sherman Act, even with subsequent federal regulatory

statutes. See Otter Tail and Cantor, supra as cited in Town

of Concord, City of Mishawaka I, City of Mishawaka I,

City of Kirkwood, supra.

In stark contrast, the Ninth Circuit in this case

judicially-extended a federal common law doctrine to exempt

private corporations from federal statute - an immunity so

broad that the Ninth Circuit could dispose of the case in one

sentence for an inability to state a cause of action. App. 1a-

2a. However, the federal judiciary has no authority of any

sort to exempt private corporations from federal law intended

to apply to such corporations, regardless of state intent.

"In answering the central question of displacement of

California law, we of course would not contradict an explicit

federal statutory provision." O’Melveny & Myers, supra,

114 S.Ct. at 2054. No federal policy or legislative history

exists intending to exempt corporations from the Sherman

Act, as is clear from Parker, Otter Tail and Cantor, supra.

The Ninth Circuit’s declaration of the electric utilities’

immunity from federal law is, as described in another

context by this Court, "positively probative of the dangers of

(this) facile approach to federal-common-law-making" and

"demonstrates the runaway tendencies of federal common

law’ untethered to a genuinely identifiable (as opposed to

judicially constructed) federal policy." O'Melveny &

Myers, 114 S.Ct. at 2055.

Facially, the application of Parker immunity to private

parties can be ascribed to the Supreme Court, in- particular

to its application of the Midcal test in FTC v. Ticor and So.

Motor Carriers, supra. However, the seminal state-action

Supreme Court cases of Parker, Midcal, So. Motor Carriers

and FTC v. Ticor all involved Sherman Act §1 price fixing

schemes involving raisins, liquor, trucking and title

insurance rates, respectively. The "state action" doctrine

applied to §1 price-fixing and the Sherman Act are not

inconsistent standards. If the State, through its laws and

regulations establishes rates or prices, individual private

parties are not colluding to fix prices by simply following

those state dictates. As discussed in Areeda and

Hovenkamp, Antitrust Law, 1993 Supplement, 4209.2,

"Preemption and Parker State Action Exemption: Same

Issue?" p. 107, “[iJn Midcal, for example, the California

statute requiring suppliers to state a resale price and dealers

to charge that price was preempted, but neither suppliers nor

dealers had agreed about resale prices and therefore neither

had violated the Sherman Act."

Section 2 actual or attempted monopolization is

fundamentally different from §1 price-fixing offenses.° A

private corporation cannot monopolize a market without

violating the offense specified in §2 of the Sherman Act,

regardless of whether the private party’s conduct is

sanctioned by the State or not. The application of the state-

action doctrine to a §2 monopolization claim against a

private party inherently sets the State’s action as preemptive

of federal law, which must conflict with the Supremacy

Section 2’s "conspiracy to monopolize" element is excluded

for the purposes of this analysis.

8 eR SSE nh CDS

Clause.

In applying the judicially-created state-action doctrine to

monopolization claims against corporations, the Ninth and

Third Circuits have afforded state regulators far greater

preemptive authority over the Sherman Act than the judiciary

affords federal regulatory programs. Indeed, there is no

analogous immunity doctrine to private parties’ claims that

federal regulatory programs supersede federal antitrust law.

"There is nothing in the legislative history (of the Federal

Power Act) which reveals a purpose to insulate electric

power companies from the operation of the antitrust laws...."

Otter Tail, supra, 410 U.S. at 373-374, 93 S.Ct. at 1028.

In Cantor, supra, 428 U.S. at 596, 597, 96 S.Ct. at

3120, 3121, this Court clearly recognized that state

regulators held no special preemptive power:

Congress could hardly have intended state regulatory

agencies to have broader power than federal agencies to

exempt private conduct from the antitrust laws...[T]he

standards for ascertaining the existence of and scope of

such an exemption must be at least as severe as those

applied to federal regulatory legislation.

In Cantor’s holding that the Parker immunity doctrine was

not available to a state-regulated electric utility, the Supreme

Court emphasized that since a natural monopoly did not exist

in the challenged market, the federal antitrust laws apply

with full force:

There is no logical inconsistency between requiring

such a firm to meet regulatory criteria insofar as it is

exercising its natural monopoly powers and also to

comply with antitrust standards to the extent it engages

in business activity in competitive areas of the

economy. Thus, Michigan’s regulation of respondent’s

distribution of electricity poses no necessary conflict

with a federal requirement that respondent’s activities in

competitive markets satisfy antitrust standards. Id., 428

U.S. at 596, 96 S.Ct. at 3120.

There can be no doubt that a natural monopoly does not

exist in the energy efficiency marketplace. As the California

Legislature recognized in Chapter 984, Statutes of 1983,

supra at 3, 4:

The Legislature finds and declares it is in the best

interest of the state to ensure competition in the energy

conservation industry because of the innovation, price

competition, aggressive marketing and freedom of entry

which characterize competitive industries, and that the

energy conservation industry, because of _ its

decentralized nature, has the potential to be truly

competitive." (emphasis added).

Extending this principle from Cantor, the First Circuit held

that where a natural monopoly did exist (in the distribution

of electricity) no exclusionary conduct could be found.

"Local electricity distribution, after all, is itself considered

a "natural monopoly" with service typically provided by a

single franchised company to _ relatively immobile

customers." Town of Concord, supra, 915 F.2d at 26.

While Cantor was heavily relied on by Transphase, the

Ninth Circuit and District Court Orders would not mention

it, and in the Third Circuit its viability was openly

questioned. 22 F.3d at 1260. But the Supreme Court in

FTC v. Ticor, 112 S.Ct. at 2178; reaffirmed it: "Michigan

may regulate its electric utilities without authorizing

monopolization in the market for electric light bulbs." And

the First and Seventh Circuits, supra, cited Cantor as the

reason not to consider a state-action immunity analysis.

Rather than, as here, immunize an electric utility from

a charge of monopolization, courts have typically applied the

rigorous elements of a monopolization claim to the utility

corporation’s conduct: (1) monopoly power in a relevant

market, that is, the power to control price or exclude

competition: and (2) exclusionary conduct with no legitimate

business justification, specifically whether or not the utilities’

actions benefitted or were at the expense of the consumers

(ratepayers). See, for example, Town of Concord, 915 F.2d

at 21. In that "price-squeeze"case, the defendant investor-

owned electric utility had a legitimate business justification

for not lowering the wholesale rates to the plaintiff municipal

utility monopoly - such action would increase retail electric

rates, thus damaging the ratepayers. "Indeed, the rule would

encourage Edison to seek a retail rate increase so high that

a jury could not find the wholesale/retail gap too narrow."

Id. at 27.

In the case at bar, the utilities have no legitimate

business justification for their predatory and exclusionary

conduct. It is SCE and SDG&E - not the state PUC - that

controls energy efficiency prices so that competitors such as

Transphase receive financial consideration at between 0%

and 20% of the prices paid for generation resources, and at

substantially lower prices than the utility receives from

ratepayers for its own energy efficiency programs. Allowing

energy efficiency resource prices to adjust to market prices

would increase the supply and demand for such measures in

the marketplace, which would in turn reduce the need for

new and far more expensive power plants. By choking off

the supply of energy efficiency equipment and the electric

Capacity and energy savings this equipment provides, the

utilities are distorting the marketplace to far higher priced

power plants and to their own excessively expensive (and

increasingly unavailable) energy efficiency programs, thus

damaging their ratepayers. The omnipotent utilities have

completely impaired the opportunity of Transphase to

compete on the merits, thus willfully acquiring and

maintaining their monopoly power.

Transphase can state a claim that the defendants in this

case have violated Section 2 of the Sherman Act. The

federal judiciary, the state legislature, and/or the state PUC

should not be permitted to exempt the defendants from that

federal law.

ed uestion 2: The Ninth Circuit’s Reliance on

Legislative Authorization to Regulate Conflicts

With this Court’s Requirement that the State

Legislature Intend to Suppress Competition.

Even if the judicially-created state action doctrine could

potentially exempt the defendants from federal antitrust law,

the utilities in the case at bar fail both prongs of the Midcal

test for state-action immunity. Midcal, 445 U.S. at 106, 100

S.Ct. at 943. While addressing a §1 price-fixing conspiracy

claim subject to state-action, the Supreme Court recently

held: "For States which do choose to displace the free

market with regulation, our insistence on real compliance

with both prongs of the Midcal test will serve to make clear

that the State is responsible for the price fixing it has

sanctioned and undertaken to control." FTC v. Ticor, 112

S.Ct. at 2178. On the first-prong, the Ninth Circuit and

District Courts refused to mention the repeated and recent

California legislation that strongly promotes competition in

the relevant energy efficiency services and equipment

marketplace. Instead the Ninth Circuit affirmed a dismissal

which relied on general PUC authority to regulate utilities’

rates - found in a statute dating back to 1915 - and a similar

PUC authority to regulate the utilities’ energy efficiency

programs. App. 9a-10a.

Midcal’s first prong focus is squarely on the

Legislature’s competitive intent, not simply whether there is

an authority to regulate. "Besides authority to regulate,...

the Parker defense also requires authority to suppress

competition - more specifically, clear articulation of a state

policy to authorize anticompetitive conduct..." Omni, 449

U.S. at 372, 111 S.Ct. at 1350. (internal quotation marks

and citations omitted.) Indeed, the issue cannot be whether

the regulatory agency is acting in accordance with statutory

authority, for that is a question of state law that has nothing

to do with whether private corporations are violating federal

antitrust law. Id. at 372, 111 S.Ct. at 1349, 1350. The

Ninth Circuit’s equation of authority to regulate with intent

to suppress competition would eviscerate Midcal’s first prong

because by definition the State Legislature has authorized its

agency to regulate the private parties. By nullifying

Midcai’s first prong, the Ninth Circuit effectively left it to

the state PUC to establish competitive intent and have its

regulatory decisions preempt federal law.’

7Because Town of Concord, Mishawaka I, and Mishawaka II,

supra declined to find the Parker doctrine an applicable defense to

the challenged state-regulated retail electric rates, these cases did

not comment on the respective State’s legislative intent.

Superfluously, the Eighth Circuit in City of Kirkwood, supra,

Southern Motor Carriers also addressed this principle

that the anticompetitive intent must come from the State

Legislature, not the State PUC at 471 U.S. at 62, 63, 105

S.Ct. at 1729, 1730:

The Public Service Commissions...permit collective

ratemaking. Acting alone, however, these agencies

could not immunize private anticompetitive

conduct...Parker immunity is available only when the

challenged activity is undertaken pursuant to a clearly

articulated policy of the State itself, such as a policy

approved by a state legislature...or a State Supreme

Court. (citations omitted).

Thus, the lower courts’ reliance on broad authorization from

the state legislature, and specific reliance in Yeager’s Fuel

on an unpublished report of a bureau of the PUC, 22 F.3d

at 1268, 1269, directly conflict with Omni _ Outdoor

Advertising and So. Motor Carriers. The courts below

should not allow subordinate state agencies to wield a

"FEDERAL LAW PREEMPTED" seal.

Unlike the permissive Pennsylvania statutory framework

found in Yeager’s Fuel, however, in this case the California

Legislature explicitly and repeatedly promotes competition in

this sector of the economy, including an express denial of

state-action immunity to SCE in energy efficiency equipment

and services less than one year ago. In Public Utilities Code

744.7(e), 1993, the Legislature reaffirmed its prior policies

"tO promote a competitive marketplace for energy efficiency

found that not only did Cantor preclude the availability of the

state-action doctrine, but that the electric utility satisfied neither

prong of the Midcal test. 671 F.2d at 1180, n. 15.

equipment and services." App. 20a. In this 1993 Code, the

Legislature explicitly reaffirmed Chapter 984, Statutes 1983,

supra, p. 3-4, in which the Legislature commanded that

",,.the energy conservation industry develops in a manner

which is competitive and free from the potential dominance

of regulated electrical and gas corporations." (emphasis

added) In Chapter 1369(§1b), 1990, the Legislature declared

that energy efficiency resources be allowed "an opportunity

to compete on a fair and reasonable basis with generating

resources to fulfill future resource needs" and in Section 3

thereof (PU Code 747) went on to demand that specific

bidding systems be tested quickly. App. 21a-22a. Time and

again California has demanded competition with

administrative oversight to be provided by state regulators.

Instead of discussing these enactments, the Ninth Circuit

affirmed the District Court’s Midcal first prong discussion,

which quotes PU Code §454(a), a statute dating back to 1915

that has nothing to do with energy efficiency rebate prices

but authorizes the CPUC to regulate electric rates. App. 23a.

Such broad regulation surely does not show Legislative intent

to suppress competition in energy efficiency, but that is

precisely what the Ninth Circuit affirmed. Also, without

noting that PU Code 747 is section 3 of the above-quoted,

strongly pro-competitive Chapter 1369, it erroneously relied

on this code section as having an anticompetitive intent when

the competitive bidding program it creates is an attempt to

spur, rather than displace competition. App. 21a, 22a.

Indeed, the lower court’s reliance on PU Code 747’s

establishment of DSM bidding pilots to demonstrate intent to

limit competition was starkly contradicted by the California

Legislature’s PU Code 744.7(e) allowing "a competitive

bidding process for all or any part of the work to be

performed under these (energy efficiency) programs." App.

20a. The district court also mentioned PU Code 701.1(c),

1990 (App. 24a-25a), which again promotes - not displaces -

comparison and competition between energy efficiency and

generation resources by including environmental costs in any

cost-effectiveness calculation.

If authority to regulate equates with intent to suppress

competition where the Legislature expressly seeks to promote

competition, the first prong of the Midcal test will have been

interpreted out of existence.

D. Question 3: The District Court’s Refusal to

Convert The Rule 12(b)(6) Motion to a Motion

for Summ Judgement Conflicts With Rule

12(b), Evidence Rule 201(b) and the Third

Circuit.

To satisfy Midcal’s second prong, SCE and SDG&E

each have the burden to prove: (1) that the CPUC ordered

the specific energy efficiency rebate prices as well as other

anticompetitive acts complained of by Transphase, (2) the

CPUC ordered such a scheme only after a substantial

examination, and (3) that the actual prices and conduct

carried out by the defendants complied with the CPUC

orders. FTC v. Ticor, 112 S.Ct. at 2177 and 2179. See

also Patrick v. Burget, 486 U.S. 94, 102, 108 S.Ct. 1658,

1663 (1988). (Active supervision requirement not met where

state did not "exer[t] any significant control" over the

restraint. "The mere presence of some state involvement or

monitoring does not suffice.")

Just what the CPUC did to actively supervise and

control the acts complained of is an issue of fact. While the

District Court may take judicial notice of the 300-plus pages

of CPUC decisions submitted by SCE under Federal Rules

of Evidence 201 (c) and (d), Transphase vigorously contests

that CPUC decisions are factually determinative as to CPUC

control. Indeed, Transphase alleges that even if the CPUC

documents specified the energy efficiency prices (which they

do not), the utilities were not in compliance with these

hypothetical rate orders. Thus, the CPUC documents cannot

factually in and of themselves answer the question of

whether the CPUC controls the prices complained of.

In a motion to dismiss, the court must determine

whether it appears beyond doubt that the plaintiff could

prove no set of facts entitling it to relief. Conley v. Gibson,

supra. It is certainly not "beyond doubt" that the CPUC

decisions could hypothetically set the energy efficiency

rebates and avoided costs, but that in reality the CPUC had

little if any control over actual rebates and avoided costs

established by the utilities. But in response to the utilities’

Motion to Dismiss, Transphase did not just allege a lack of

CPUC control, it filed with the District Court publicly

available documents and affidavit proving total lack of

control by the CPUC.*®

8See Declaration of Douglas A. Ames Accompanying

Submission of Evidence on Second Prong of Midcal test, dated

July 9, 1993, 41 to 11, and accompanying 12 exhibits (130 pages)

demonstrating SCE rebate offers of $0, $100, and $200 per kw,

as well as a one time offer of $600 per kw - none of which were

with CPUC approval. See SDG&E 1992 DSM Annual Report

(establishing variable inducement rebate plan without CPUC

control). See "Demand-Side Report" (establishing that SDG&E

once offered TES rebates at $300 per kw and then lowered rebate

prices to $50 to $200 per kw.) See also Ames Decl., 412 to 19,

and accompanying exhibits, showing, inter alia, SCE setting DSM

The District Court, while taking judicial notice of

CPUC decisions, refused to consider Transphase’s counter-

evidence by converting the 12(b)(6) motion to dismiss, Fed.

R.Civ.P., to a Rule 56 motion for summary judgment. App.

8a to 9a, n. 5. However, Rule 12(b) provides, in part:

If, on a motion asserting the defense numbered (6) to

dismiss for failure of the pleading to state a claim upon

which relief can be granted, matters outside the

pleading are presented to and not excluded by the court,

the motion shall be treated as one for summary

judgment and disposed of as provided in Rule 56, and

all parties shall be given reasonable opportunity to

present all material made pertinent to such a motion by

Rule 56. (emphasis added.)

The Ninth Circuit affirmed the District Court’s refusal to

allow Transphase to present material pertinent if not

dispositive to the issue of active regulatory control, in direct

violation of Rule 12(b).

The Ninth Circuit also affirmed the District Court’s

violation of Federal Rule of Evidence 20i(b) "Judicial

Notice of Adjudicative Facts," by taking judicial notice of

300-plus pages of CPUC documents as factually

determinative of CPUC control over the utilities’ energy

efficiency programs. As made clear in Rule 201’s "Notes of

Advisory Committee on 1972 Proposed Rules", subdivision

(b):

With respect to judicial notice of adjudicative facts,

avoided capacity costs at $295 per kw while simultaneously setting

avoided costs for supply-side solicitations varying between $1350

and $6600 per kw, without CPUC scrutiny.

Oooo

the tradition has been one of caution in requiring

that the matter be beyond reasonable

controversy..."[T]he appropriate fashion for meeting

disputed adjudicative facts includes rebuttal

evidence, cross-examination, usually confrontation,

and argument (either written or oral or both)."

(quoting Professor Davis, "A System of Judicial

Notice Based on Fairness and Convenience")

Whether the utilities’ energy efficiency programs were

actively controlled by the CPUC was in _ vigorous

controversy, and thus the District Court’s taking of judicial

notice of this fact violated Evidence Rule 201(b).

Further still, the District Court’s refusal in this case to

consider Transphase’s material directly conflicts with the

Third Circuit in Yeager’s Fuel, 22 F.3d at 1272, where the

District Court did convert the 12(b)(6) Motion filed by the

utility to a Rule 56 Motion for Summary Judgment so that

the plaintiff could submit material on Midcal’s "active

regulatory supervision" prong.

By deciding a genuine issue of material fact on a

12(b)(6) Motion without considering Transphase’s

submission of publicly available information and material,

the Ninth Circuit violated Rule 12(b), Fed.R.Civ.P., Rule

201(b), Fed.R. of Evid., and set itself in conflict with the

Third Circuit.

V. CONCLUSION

This petition for writ of certiorari should be granted.

Regpectfully submitted,

Wz Walter D. Ames

1400 K. St.,N.W.

Suite 1000

Washington, D.C. 20005-2477

(202) 628-0088

September 1, 1994 Counsel for Petitioner

APPENDIX

NOT FOR PUBLICATION

Filed Stamp

UNITED STATES COURT OF APPEALS

May 9, 1994

FOR THE NINTH CIRCUIT

TRANSPHASE SYSTEMS, INC., )

)

Plaintiff-Appellant, YNo. 93-56550

)

V. )D.C. No. CV-93-

) 02552Kn

)

SOUTHERN CALIFORNIA EDISON )

COMPANY; SAN DIEGO GAS &

) ORDER

ELECTRIC COMPANY, )

)

Defendant-Appellees.

)

Appeal from the United States District Court

for the Central District of California

David V. Kenyon, District Judge, Presiding

Argued and Submitted May 3, 1994

Pasadena, California

Before: KOZINSKI, TROTT, Circuit Judges, and ©

WILLIAMS,”

The order of the district court dismissing Transphase

‘The Honorable Spencer M. Williams, Senior United States

District Judge for the Northern District of California, sitting by

designation.

Systems, Inc.’s complaint for faiJure to state a cause of

action (Federal Rule 12(b)(6)) is affirmed for the reasons

given by Judge Kenyon in his order of October 7, 1993

discussing the "state action” doctrine enunciated in Parker v.

Brown, 317 U.S. 341 (1943) and its progeny.

AFFIRMED.

8 5 Malla ie ial

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

TRANSPHASE SYSTEMS, INC., )

Plaintiff,

CV 93-2552 Kn

(Ex)

SOUTHERN CALIFORNIA EDISON

COMPANY and SAN DIEGO GAS &

ELECTRIC COMPANY,

Defendants.

Nee eee eee ee”

ORDER _ GRANTING DEFENDANTS’ MOTIONS TO

DISMISS

This case comes before the Court on defendants

Southern California Edison Company’s ("SCE") and San

Diego Gas & Electric Company’s ("SDG&E") Motions to

Dismiss Transphase Systems, Inc.’s federal antitrust claims

for failure to state a cause of action pursuant to Federal Rule

12(b)(6). | Defendants allege, among other things, that

Transphase’s antitrust claims are barred by the "state action"

doctrine and that SCE and SDG&E’s participation in

proceedings before the California Public Utilities

Commission ("CPUC") is protected conduct under the

Noerr-Pennington Doctrine. Defendant SDG&E also asserts

that Transphase has failed to allege a claim under the

antitrust laws because it has failed to adequately allege that

the defendants were significant competitors in the relevant

product market and that their conduct created a dangerous

probability that they would monopolize the market.' The

Court agrees with all of these contentions and therefore

GRANTS SCE’s and SDG&E’s Motions to Dismiss

Transphase’s antitrust claims with prejudice. The Court also

dismisses Transphase’s pendent state law claims under the

California Unfair Practices Act and the California Cartwright

Act. The Court explains its reasoning briefly in the

Discussion section below.

I. INTRODUCTION

Plaintiff Transphase Systems, Inc ("Transphase") sells

thermal energy storage ("TES") systems designed to shift

electricity use from high demand periods (such as hot

summer days) when electricity is more expensive to provide

to lower demand times, typically at night. Transphase’s

particular TES system uses cooling tanks containing salt

water that is frozen at night. Water is cooled as the tanks

defrost during the day and is then circulated through a

building’s air conditioning system to provide cool air.

Transphase’s TES system is one of a variety of technologies

in “demand-side management" ("DSM") which are designed

to promote energy conservation and reduce the need for new

power generation by shifting electricity use from high to low

demand periods. DSM resources like Transphase’s TES

system are supposed to benefit ratepayers by offsetting the

'Defendants’ motions present several other arguments in favor

of dismissing Transphase’s complaint, including that Transphase

has failed to allege any anticompetitive conduct or antitrust injury

suffered by Transphase. Although these arguments are closely

related to SDG&E’s argument concerning the relevant product

market, the Court does not directly address them.

need for utilities to build power plants or buy additional

electric capacity from independent power producers at a

higher unit cost than the ratepayers would need to pay for

the DSM system.

Commercial electricity customers can reduce their

electric bills by using Transphase’s product to take advantage

of lower nighttime off peak electricity rates. The drawback

is that Transphase’s TES technology is too expensive to

make it commercially attractive; the typical commercial

electric customer would find the "payback period” needed to

recoup his initial capital investment to be too long to justify

the initial expense of buying one of Transphase’s systems.

In order to remedy this problem and promote the use of

energy conserving/load management technologies, the CPUC

authorizes utility companies like SCE and SDG&E to

provide rebates for electricity customers who utilize DSM

technology. Both SCE? and SDG&E’ provide such rebates

for customers who decide to utilize DSM systems like that

marketed by Transphase. The gist of Transphase’s

complaint is that SCE and SDG&E have conspired with one

another and independently used their monopoly power over

the energy supply in their respective service areas to hold

down the rebate levels awarded to customers who utilize or

Southern California Edison is one of the largest electric

utilities in the United States and distributes and sells electricity to

customers within a large segment of Los Angeles County and

adjacent counties.

*SDG&E is an electric utility based in San Diego which

distributes and sells electricity within a large area of Southern

California, including San Diego County and portions of Orange

County.

desire to utilize DSM systems like that designed by

Transphase. Plaintiffs allege that if the defendants had

awarded consumers with the appropriate sized rebates, more

customers would decide to buy TES systems and the value

of Transphase’s business would have increased by more than

$50 million above its present value.

Transphase alleges two violations of Section 2 of the

Sherman Act: Actual Monopolization (Comp. at 4 19-27)

and Attempted Monopolization, including a conspiracy to

attempt monopolization. In addition, Transphase also alleges

a combination by SCE and SDG&E to restrain trade in

violation of Section 1 of the Sherman Act. (Comp. at ¢§ 40-

43).

Transphase’s actual monopolization claim alleges that the

defendants enjoy monopoly power by "virtue of their ability

to determine the prices of thermal energy storage systems

and the electricity savings provided thereby to both the host

customer and the DSM ratepayers." (Comp. at ¢ 20).

Transphase contends that the defendants have willfully

acquired and maintained their monopoly power over the

"TES retrofit and DSM resources" by (1) "arbitrarily

establish[ing]" rebates by refusing to consider new power

plants when determining "avoided costs" and "manipulating"

avoided costs; (2) controlling the amount of DSM funds to

be budgeted for TES; and (3) controlling the "measuring and

verifying” of whether the projected DSM savings are actually

acquired. (Comp. at 44 20-22). In addition, the defendants

are also accused of "actively resisting" competitive bidding

between DSM and supply side options and thus preventing

Transphase ffom competing directly against proposals to

build additional generating facilities. Id. at 422.

Transphase’s Section 1 conspiracy claim alleges that the

defendants have "conspired to restrain trade by establishing

artificially low rebate levels for TES” and by establishing

different measurement standards for themselves than those to

be applied to independent DSM suppliers. In particular,

Transphase alleges that the defendant utilities have

"combined and conspired to restrain commerce among the

various states by deliberately adjusting their avoided costs"

and "appearing together before regulatory and other bodies"

to oppose joint bidding between suppliers of supply-side

management (SSM) and suppliers of DSM services like

Transphase.. (Comp. at ¥¢ 40-43.)

II. DISCUSSION

A.State Action Doctrine

Defendants contend that Transphase’s antitrust claims are

totally barred by the "state action" doctrine enunciated in

Parker v. Brown, 317 U.S. 341 (1943). The state action

doctrine places state sponsored restraints on competition

beyond the reach of the Sherman Act in order to promote the

principles of federalism and state sovereignty. . City of

Columbia v. Omni Outdoor Advertising, Inc., 111 S.Ct.,

1344, 1349 (1991). The Supreme Court has set forth a two-

pronged test for determining when actions taken by private

parties, pursuant to a state regulatory regime, are immunized

by the state action doctrine. First, the Court must determine

whether the challenged restraint is "one clearly articulated

and affirmatively expressed as state policy." Southern Motor

Carriers Rate Conf. v. U.S., 471 U.S. 48, 57 (1985)(quoting

Lafayette v. Louisiana Power & Light Co., 435 F.2d 389,

410 (1978). Secondly, "the State must supervise actively

any private anticompetitive conduct." Southern Motor

Carriers, at 57 (citing California Retail Liquor Dealers Assn

v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980)).*

This supervision requirement is only satisfied "if state

officials have and exercise power to review particular

anticompetitive acts of private parties and disapprove those

that fail to accord with state policy." Patrick v. Burget, 486

U.S. 94, 101 (1988).

After a thorough analysis of the complaint, the parties’

briefs and documentary exhibits, the relevant sections of the

California Public Utility Code, and the published opinions of

the CPUC, the Court finds that both prongs of the Midcal

test have been satisfied and, accordingly, holds that the

defendants’ allegedly anticompetitive actions are immunized

by the state action doctrine.

Transphase’s complaint alleges that defendants engaged

in two basic anticompetitive acts: (1) failing to directly

compare TES cost savings with the cost of supplying more

electricity; and (2) suppressing both the total funds available

for rebate subsidies and the rebate levels themselves. The

CPUC decisions’ cited by SCE and SDG&E clearly

“This second prong of the Midcal test prevents the State from

frustrating the national policy in favor of competition by casting

a ’gauzy cloak of state involvement’ over what is essentially

private anticompetitive conduct." Southern Motor Carriers, at 57

(citing Midcal, 445 U.S. at 106).

*Transphase objects to the defendants’ submission of and

Citations to these reported CPUC decision and asserts that, if the

Court decides to consider these decisions, defendants’ motions

would be transformed into motions for summary judgment,

pursuant to Rule 56. The Court disagrees. The Court may take

judicial notice of these decisions under Federal Rule of Evidence

establish, however, that the form and extent of ratepayer

funding for all DSM programs, including SCE’s and

SDG&E’s, has been closely scrutinized, repeatedly modified,

and ultimately approved by the CPUC.

1. California Has a "Clearly Articulated and

Affirmatively Expressed" Policy to Displace

Competition with Respect to DSM Bidding and

the Ratemaking Process

The Court’s review of the California Public Utilities

Code reveals that the California legislature has clearly

articulated and expressed its desire to displace competition

with respect to DSM bidding and the ratesetting process.

Section 747 of the Public Utilities Code sets up a

legislatively mandated bidding system for demand side

201(e) since their existence is a fact "capable of accurate and

ready determination by resort to sources whose accuracy cannot

reasonably be questioned." Fed.R.Evid. 201(e). The Ninth

Circuit held in Nugget Hydroelectric v. Pacific Gas and Electric,

981 F.2d 429, 435 (9th Cir. 1992), that a district court could take

published decisions of the CPUC into account on a motion to

dismiss in order to determine whether the State had "actively

supervised" a defendant’s allegedly anticompetitive conduct. The

Nugget court ultimately found that the CPUC decision at issue,

together with the applicable Guidelines, were sufficient to prove

that the state actively supervised the defendant’s conduct, thus

satisfying the second prong of the Midcal test.

The Court therefore finds that it may properly consider the

reported decisions of the CPUC in the context of the defendants’

motion to dismiss. Since the Court’s consideration of these

decisions does not transform this into’a motion for summary

judgment under Rule 56, the Court DENIES Transphase’s request

to submit evidence on the second, "active supervision" prong of

the Midcal test.

services and mandates that the CPUC should establish a pilot

program of "competitive bidding auctions for demand side

services." Other sections of the code, see e.g., § 701.1(c),

set forth the criteria for determining the proper rebate for

DSM services and prohibit the CPUC from changing any

as to result in a new rate, except upon a showing before the

Commission and a finding by the Commission that the new

rate is justified." Cal. Pub. Util. Code § 454(a). Taken as

a whole, the Public Utility Code clearly articulates the state’s

policy of displacing competition in favor of a highly

regulated system of ratesetting and bidding on alternative

DSM systems.

2. The CPUC Has "Actively Supervised" SCE’s

and SDG&E’s DSM Activities

Transphase’s complaint alleges that defendants SCE and

SDG&E control almost every aspect of the DSM ratesetting

and bidding processes in their respective geographic markets.

Transphase alleges, for example, that the defendants (1) have

the power to decide whether DSM vendors like Transphase

should be permitted to bid directly against supply side

alternatives that can generate their own electric power

(Comp. at ¢ 20); (2) determine the amount of DSM funds to

be budgeted for TES systems like Transphase’s (Comp. at {

20); and (3) decide the ways in which "electricity savings

projected from DSM technologies are measured and

verified." Id. Finally, Transphase alleges that the

defendant utilities "choose to conduct" the rebate programs

and that "ratepayers cannot negotiate directly with

Transphase, which must deal with the ratepayers through the

utilities." (Comp. at ¢ 15).

10a

The reported decisions of the CPUC and the relevant

sections of the California Utilities Code clearly establish that

all of these allegations are false and unsupportable as a

matter of law. In fact, the CPUC, not the defendant

utilities, have the sole authority to (1) decide whether DSM

vendors should be permitted to bid directly against supply

side alternatives®: (2) establish the amount of DSM funds

to be budgeted for TES systems’; and (3) decide the ways

in which electricity savings derived from DSM systems are

measured and verified®. Moreover, the rebates provided to

Transphase’s customers are derived from ratepayer funds and

cannot be collected or disbursed without the CPUC’s explicit

approval. Cal. Pub. Util. Code §§ 451, 454. Transphase’s

sweeping allegations about the control exercised by the

defendants are thus totally unfounded. Rather, a careful

review of the CPUC’s published opinions clearly establishes

that the Commission actively supervises every aspect of SCE

and SDG&E’s DSM activities attacked by Transphase’s

complaint.

For the preceding reasons, the Court finds that the

anticompetitive actions alleged to have been committed by

defendants SCE and SDG&E in Transphase’s complaint are

immunized from federal antitrust liability by the "state

action” doctrine.

‘Indeed, the CPUC recently decided, after Transphase filed

this complaint, to set up direct bidding between demand and

supply side alternatives.

"See 1988 GRC at 475-477; 1992 GRC at 144.

’See Interim DSM Bidding Pilots at 22.

lla

B. Defendants’ Actions Are Immunized by the Noerr-

Pennington Doctrine

The defendants also assert that the "anticompetitive acts"

which they are alleged to have committed by Transphase’s

complaint are protected by the Noerr-Pennington doctrine.

The Noerr-Pennington doctrine protects the right of parties

to petition the government even if the impact of their

position is likely to have an anti-competitive effect.

Franchise Realty Interstate Corp. v. San Francisco Local

Joint Exec. Bd., 542 F.2d 1076, 1080-81 (9th Cir. 1976),

cert. denied, 430 U.S. 940, at 1080 (1977) ("Joint efforts to

influence public officials do not violate the antitrust laws

even though intended to eliminate competition. ")

As noted above, Transphase has alleged that the

defendants violated Section 1 of the Sherman Act by (1)

appearing together before the CPUC to take positions that

would disadvantage Transphase; (2) filing joint briefs before

the CPUC; and (3) speaking "in unison before [the CPUC]

to demand the fruits of their monopolies." These actions are

clearly protected by the Noerr-Pennington doctrine and

therefore cannot form the basis for a conspiracy claim under

Section 1.

Transphase’s claims for monopolization and attempted

monopolization under Section 2 of the Sherman Act are also

protected by the Noerr-Pennington doctrine. Transphase

alleges that the defendants have maintained their monopoly

power by "resisting meaningful changes" to their rebate

programs and resisting competitive bidding between DSM

and Supply Side options. Although the complaint does not

explicitly describe how defendants resisted these changes, it

is clear from the context of the allegations, that the

12a

defendants’ alleged resistance was exercised by the

defendants through the public positions they took in the

CPUC proceedings. Thus, Transphase’s claims under

Section 2 of the Sherman Act are also barred by the Noerr-

Pennington doctrine.

Transphase alleges in its Opposition to both SCE and

SDG&E’s Motions that it is relying on the "sham" exception

to the Noerr-Pennington doctrine, but Transphase has failed

to plead anywhere in its complaint that the defendants’

conduct before the CPUC was a "sham". Thus,

Transphase’s complaint must be dismissed. The Ninth

Circuit has held that "a complaint must include allegations of

the specific activities, not protected by Noerr, which

plaintiffs contend have barred their access to a governmental

body." Franchise Realty, supra, 542 F.2d at 1082.

Transphase has failed to meet this demanding pleading

standard.

Transphase asserts in its Opposition, however, that it

should be provided an opportunity to amend its complaint to

allege that the defendants’ actions before the CPUC were a

"sham". The "sham exemption" does not appear to extend

to direct lobbying efforts seeking action by an administrative

body (like the CPUC), however. Franchise Realty, at 1080.

Therefore, Transphase’s request to amend its complaint by

alleging that defendants’ conduct was a "sham" would be

futile.

The Court thus finds that Transphase’s antitrust claims

against the defendants are barred by the Noerr-Pennington

doctrine.

C. Defendants SCE and SDG&E are Not Significant

Competitors in the Relevant Product Market

13a

It is axiomatic in antitrust law that a defendant may not

be found liable under the Sherman Act for monopolizing or

attempting or conspiring to monopolize a market unless that

defendant is a competitor in the relevant market and his

conduct creates a dangerous probability that he will gain a

dominant share of the market. Spectrum Sports, Inc. v.

McQuillan, 113 S.Ct. 884, 890-91 (1993);Mercy-Penninsula

Ambulance v. County of Mateo, 791 F.2d 755, 759 (9th Cir.

1986) (county government, which performed no health care

services, could not be charged with having used its market

power to exclude competition when it refused to license an

ambulance service because it was not a competitor in the

relevant product market). Defendant SDG&E contends that

it cannot be found to have violated the Sherman Act because

it is not a competitor in the relevant product market and

Transphase’s complaint neither alleges that SDG&E is a

competitor in the relevant market nor that it’s conduct

creates a dangerous probability that it will monopolize that

market.?

Transphase claims that the relevant product market "over

which" the utilities exercise their monopoly power are

broadly speaking, DSM resources, and with specific respect

to Transphase, retrofit thermal energy storage (TES) goods

and services" like those supplied by plaintiff. (Comp. at 4

17). SDG&E asserts, however, that Transphase

acknowledges in its complaint that SDG&E and SCE are not

*Although SCE does not present this argument in its own

motion to dismiss, the Court finds that this argument is applicable

to SCE as well as SDG&E and thus dismisses Transphase’s

antitrust claims against SDG&E and SCE on the grounds presented

in SDG&E’s motion and Section C above.

l4a

really competitors in this product market; they merely

exercise control over the DSM goods and services provided

by others by virtue of their alleged power to control the

bidding programs and rebate levels for those services. The

Court agrees with SDG&E’s argument and therefore

GRANTS its Motion to Dismiss on these grounds.

Transphase’s complaint clearly states that while SDG&E

and SCE "have a monopoly over the furnishing of [DSM

systems and, specifically, Transphase’s TES services] to the

ratepayers. . .[they] are not themselves capable of supplying

those_goods_and_services_to the ratepayers. only of

preventing Transphase from so doing." (Comp. at ¢ 19)

(emphasis added). In another paragraph, Transphase again

alleges in a conclusory fashion that the defendants have

monopolies. over the provision of DSM services and have

"willfully maintained" these monopolies; Transphase

concedes in the very next phrase, however, that the utilities

"basically do nothing to supply such DSM resources to the

ratepayers of California but hire others and charge large

administrative costs and profits" to do so. (Comp. at ¢ 25).

Transphase has also failed to allege that either SDG&E or

SCE has significant market share in either the provision of

DSM systems or in the TES systems marketed by

Transphase.

Although the Court must assume that the allegations in

a plaintiff’s complaint are true when considering defendants’

motion to dismiss, N.L. Industries, Inc. v. Kaplan, 792 F.2d

896, 898 (9th Cir. 1986), the Court does not "need to accept

as true conclusory allegations. . .or unreasonable

inferences." Schwarzer, Tashima, and Wagstaffe, Federal

Civil Procedure Before Trial, § 9:221 at page 9-41. The

15a

Court thus rejects Transphase’s conclusory allegations of the

defendants’ market power within the relevant product market

(as opposed to geographic market) since these allegations are

directly contradicted by Transphase’s unambiguous

admission that the utilities "do nothing to supply such DSM

resources to the ratepayers of California but hire others" to

supply these systems. (Comp. at § 25) (emphasis added).

Although Transphase alleges in its Opposition that

"[cJurrently, SDG&E directly provides DSM resources to its

ratepayers” and that Transphase "would never intimate that

the defendant utilities are incapable of hiring someone to

install" TES systems (Opposition at pages 14-15), the

complaint itself clearly fails to allege either that (1) SDG&E

or SCE competes with Transphase in the supply of DSM or

TES systems; or (2) that the defendants’ current activities

create a dangerous probability that they will obtain a

monopoly over, or even a dominant position, in the relevant

product market. Transphase’s complaint therefore fails to

plead an actionable claim under the federal antitrust

statutes. '°

III. CONCLUSION

For the reasons discussed above, the Court GRANTS

Defendants’ Motions to Dismiss Transphase’s federal

‘If there were no independent basis for dismissing

Transphase’s complaint, the Court would allow plaintiff leave to

amend its complaint in the event that it could, in good faith, plead

that the defendants are competitors in the supply or distribution of

DSM or TES systems. Given that the Court has also decided to

dismiss Transphase’s antitrust claims on two independent grounds,

however, the Court does not grant Transphase leave to amend at

this time.

l6a

antitrust claims. The Court also dismisses Transphase’s

pendent state law claims since all of plaintiff’s federal claims

have been dismissed. See Les Shockly Racing, Inc. v.

National Hot Rod Ass’n, 884 F.2d 504, 509 (9th Cir. 1989).

IT IS SO ORDERED.

DATED: October 7, 1993

/s/David V. Kenyon

DAVID V. KENYON

UNITED STATES DISTRICT JUDGE

17a

NOT FOR PUBLICATION

Filed Stamp

UNITED STATES COURT OF APPEALS

June 9, 1994

FOR THE NINTH CIRCUIT

TRANSPHASE SYSTEMS, INC., )

)

Plaintiff-Appellant, ) No. 93-56550

) D.C. No.

Vv. ) 93-02552Kn

)

SOUTHERN CALIFORNIA EDISON ORDER

COMPANY; SAN DIEGO GAS &

ELECTRIC COMPANY,

Defendant-Appellees

Nee eee Nee ee”

Before: KOZINSKI, TROTT, Circuit Judges, and

WILLIAMS,’

The panel as constituted in the above case has voted to

deny the petition for rehearing and to reject the suggestion

for a rehearing en banc.

The full court has been advised of the suggestion for en

"The Honorable Spencer M. Williams, Senior United

States District Judge for the Northern District of California,

sitting by designation.

18a

banc rehearing, and no judge of the court has requested a

vote on the suggestion for rehearing en banc. Fed. R. App. :

P. 35(b). )

The petition for rehearing is denied and the suggestion

for a rehearing en banc is rejected.

19a

Additional California Statutory Provisions:

Public Utilities Code § 744.7 (1993).

Cooperative programs with customers to reduce energy bills

and regulate energy quality:

(e) It is the intention of the Legislature that in

reviewing and supervising programs authorized by this

section, and in establishing the level of direct and indirect

general ratepayer support to be used in these programs the

commission shall pursue the public benefits of these

programs consistent with the policies expressed in Chapter

984 of the Statutes of 1983. The Legislature further intends

that the commission shall, in determining whether and to

what extent direct and indirect general ratepayer support may

be used in these programs, exercise its regulatory and

supervisory powers to promote a competitive marketplace for

energy efficiency equipment and services. The commission’s

findings concerning general ratepayer support of those

programs, and its determination that those programs are

consistent with the policies expressed in Chapter 984, shall

be determ. ~°.ive of those issues unless found to be arbitrary

and capricious. However, nothing in this subdivision is

intended to affect any litigation commenced prior to July 1,

1993. Nothing in this section shall prevent the commission -

from utilizing a competitive bidding process for all or any

part of the work to be performed under these programs.

20a

CHAPTER 1369

CALIFORNIA STATUTES OF 1990:

An act to add Sections 746, 747, and 747.5 to the

Public Utilities Code, relating to public utilities.

The people of the State of California do enact as

follows:

SECTION 1. The Legislature hereby finds and declares

the following:

(a) The maintenance and expansion of existing utility

conservation programs, and the adoption of new conservation

programs, could contribute significantly to the successful

implementation of a long-term, least-cost energy plan for the

citizens of California.

(b) To promote additional energy conservation

measures, the Public Utilities Commission should provide an

Opportunity for conservation to compete on a fair and

reasonable basis with generating resources to fulfill future

utility resources needs.

programs, the Public Utilities Commission should establish

a pilot program to provide incentives for utilities to invest in

conservation programs.

[Section 2 is omitted]

SEC. 3. Section 747 is added to the Public Utilities

Code, to read:

§747. (a) In addition to the incentives program required

by Section 746, the commission shall require one or more

electric utilities to implement pilot projects to accomplish the

2la

following:

(1) On or before June 30, 1991, begin to test separately

from any generation resource bidding system the ability of

demand side bidding to deliver benefits to utility customers.

(2) At the earliest practicable time, test the feasibility of

an integrated bidding system that includes both generation

resources and demand side programs.

(b) The commission shall establish a pilot program for

gas utilities which tests a program of competitive bidding

auctions for demand side services which deliver benefits to

utility customers. However, a pilot program shall not apply

to customer classes for which the gas utility is at risk for

loss of sales or revenues due to the lack of a sales

adjustment mechanism.

consultation with the State Energy Resources Conservation

and Development Commission, shall report the results of the

pilot projects required by subdivisions (a) and (b) to the

Legislature. The report shall assess the feasibility and

implications of implementing the tested bidding systems and

shall include recommendations on whether or not the state

should adopt either, or both, of the following:

(1) An integrated bidding system that allows demand

side services to compete with generation resources to fulfill

future electric utility resource needs, or a program of

separate bidding auctions for demand side services which

deliver benefits to electric utility customers.

(2) A program of separate bidding auctions for demand

side services which deliver benefits to natural gas utility

customers.

22a

§454. Rate increases; Establishment of rules as to

showing required to Support proposed increases;

Testimony by customers

(a) Except as provided in Section 454. ] and 455, no

public utility shall change any rate or so alter any

Classification, contract, practice, or rule as to result in any

new rate, except upon a showing before the commission and

a finding by the commission that the new rate is justified.

Whenever any electrical, gas, heat, telephone, water, or

sewer system corporation files an application to change any

rate, other than a change reflecting and passing through to

customers only new costs to the corporation, which do not

result in changes in revenue allocation, for the services or

commodities furnished by it, the corporation shall furnish to

its customers affected by the proposed rate change notice of

its application to the commission for approval of the new

rate. This notice requirement does not apply to any rate

change proposed by a corporation pursuant to an advice

letter submitted to the commission in accordance with the

commission procedures for this means of

submission...Enacted 1951. Amended Stats. 1961, ch. 943,

§1, p. 2574; Stats. 1973, ch. 1105, §1; Stats. 1974, ch 194,

§1, effective April 30, 1974: Stats. 1975, ch. 518, §1; Stats.

1976, ch. 835, §1; Stats. 1984, ch. 1498, §4, effective

September 27, 1984; Stats. 1988, ch. 108, §1.

Historical Derivation:

(a) Stats. 1915, ch. 91, §63, subd (a), p. 159.

(b) Stats. Ist Ex Sess 1911, ch. 14, §63, subd.(a), p.

aa.

23a

§ 701.1 Legislative findings; Inclusion of value for

costs and benefits to environment in cost effectiveness

calculations; Powerplant bid solicitation.

(a) The Legislature finds and declares that, in addition

to other ratepayer protection objectives, a principle goal of

electric and natural gas utilities’ resource planning and

investment shall be to minimize the cost of society to the

reliable energy services that are provided by natural gas and

electricity, and to improve the environment and to encourage

the diversity of energy sources through improvements in

energy efficiency and development of renewable energy

resources, such as wind, solar, biomass, and geothermal

energy.

(b) The Legislature further finds and declares that, in

addition to any appropriate investments in energy production,

electrical and natural gas utilities should seek to exploit all

practicable and cost-effective conservation and improvements

in the efficiency of energy use and distribution that offer

equivalent or better system reliability, and which are not

being exploited by any other entity.

resources, including conservation and load management

options, the commission shall include, in addition to other

ratepayer protection objectives, a value for any costs and

benefits to the environment, including air quality. The

commission shall ensure that any values it develops pursuant

to this section are consistent with values developed by the

State Energy Resources Conservation and Development

Commission pursuant to Section 25000.i of the Public

Resources Code. However, if the commission determines

that a value developed by the State Energy Resources

24a

Conservation and Development Commission pursuant to

subdivision (c) of Section 25000.1 of the Public Resources

Code, the commission may nonetheless use this value if, in

the appropriate records of its proceedings, it states its

reasons for using the value it has selected.

[Subsections "d" through "i" omitted. ]

25a

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.