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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1994
- **Citation:** 513 U.S. 962

## Text

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)

On

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.

A

(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

3

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

5

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

6

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

9

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

10

a

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."

11

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

12

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

13

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.

i4

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

15

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

16

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

17

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.

18

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.

19

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.

20

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

21

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

22

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

23

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

24

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,

25

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.

26

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

27

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

28

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

29

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.

30

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.

31

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

32

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.

la

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.

2a

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

3a

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.

4a

|

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.

5a

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.

6a

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

Ta

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

8a

,

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.

9a

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
rate or altering "any classification, contract, practice, or rule ©
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

ee

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.

(c) To promote additional utility financed conservation
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.

(c) At the earliest practicable time, the commission, in
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.

(c) In calculating the cost effectiveness of energy
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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_0361%3A1. Public record. Not legal advice.