Opposition Brief — Schuylkill Energy Resources, Inc. v. Pennsylvania Power & Light Co.

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No, 97-387

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In the Supreme Court of the United States

OCTOBER TERM, 1997

SCHUYLKILL ENERGY RESOURCES, INC.,

is Petitioner,

PENNSYLVANIA POWER & LIGHT COMPANY,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Third Circuit

RESPONDENT'S BRIEF IN OPPOSITION

PETER BUSCEMI * GLEN R. STUART

STEPHEN PAUL MAHINKA CHARLES J. REITMEYER

MORGAN, LEWIs & BOcKIUS MORGAN, LEWIS & BOCKIUS

LLP LLP

1800 M Street, N.W. 2000 One Logan Square

Washington, D.C. 20036-5869 Philadelphia, PA 19103

(202) 467-7190 (215) 963-5883

JESSE A. DILLON

Pennsylvania Power &

Light Company

Two North Ninth Street

Allentown, Pennsylvania 18101

Attorneys for Respondent

* Counsel of Record

minds

WILSON - Epes PrintinG Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

1. Whether the courts below correctly ruled that peti-

tioner was unable properly to allege antitrust injury given

the absence of any existing relevant market in which to

measure the effects of the alleged anticompetitive conduct

about which petitioner complains.

2. Whether the court of appeals properly concluded

that, given the absence of any existing relevant market,

further amendment of petitioner’s amended complaint

would be futile.

(i)

iii

ii

STATEMENT UNDER RULE 29.6

In accordance with Rule 29.6 of the Rules of this

Court, respondent Pennsylvania Power & Light Company

(now known as PP&L, Inc.) states that its parent com- |

pany is PP&L Resources, Inc. and that it has the following

nonwholly owned subsidiary: Safe Harbor Water Power

Corporation.

TABLE OF CONTENTS

Page

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STAT ees OT Bee CASE ............0..0...................... 1

yg TE 2

B. Proceedings in the District Court .._...........00020.0... 3

C. The Court of Appeals’ Decision ....................0....... 5

EIT ERE SE Ree eS 8

I. THE COURTS BELOW FULLY CONSIDERED

AND CORRECTLY REJECTED SER’S AT-

TEMPT TO ASSERT ANTITRUST CLAIMS

GIVEN THE ABSENCE OF ANY EXISTING

RELEVANT MARKET IN WHICH TO MEAS-

URE THE EFFECTS OF THE ALLEGED

ANTICOMPETITIVE CONDUCT ....._............... 8

II. THE COURT OF APPEALS CORRECTLY

HELD THAT ANY ATTEMPT BY SER TO

AMEND FURTHER ITS AMENDED COM-

PLAINT WOULD BE FUTILE ........0..00.00.20........ 16

a ei eraiansteoree appaaecnninieeashedsnopseenpicanauies 17

(iii)

iv

TABLE OF AUTHORITIES

CASES

Associated Gen. Contractors of California, Inc. v.

California State Council of Carpenters, 459 U.S.

3: Sy) | SPRRsarapeemepereteree cdo Bx rem © RP apenas

Austin v. Blue Cross and Blue Shield of Alabama,

908 F.2d 1885 (llth Cir. 1990) ...........................

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429

REN Ee CED seta nitsitientaneeallaiindsiiallianpanilguet

Bubar v. Ampco Foods, Inc., 752 F.2d 445 (9th Cir.

| RELIES ST ene EE ame aire LES ETE emae

Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S.

I I acasciekcigadeig cash ieee ahattactaenaalinaeee

Catlin v. Washington Energy Co., 791 F.2d 1343

I On I rg he acca ec ae arena eae

Continental T.V., Inc. v. GTE Sylvania Inc., 433

Weel Be I A ittecetceics edt neevenniiclnt pack dn talent

Drs. Steuer and Latham, P.A. v. National Medical

Enters., 672 F. Supp. 1489 (D.S.C. 1987), aff’d,

Sa8 F.SA 7 (ith Cir. WEB) ..W............ ass...

Florida Seed Co. v. Monsanto Co., 915 F. Supp.

1167 (M.D. Ala. 1995), aff’d, 105 F.3d 1872

Bh Be Rs eee ee Gar Re BOR pe ore Ae

Great Western Directories, Inc. v. Southwestern

Bell Tel. Co., 74 F.3d 613 (5th Cir.), cert. dis-

UE, Fe Gs See GR octets cirri

Greensboro Lumber Co. v. Georgia Power Co., 643

F. Supp. 1345 (N.D. Ga. 1986), aff'd, 844 F.2d

sh Rt | RNUIRR ore enon eanrt er aN

Miklavic v. USAir Inc., 21 F.3d 551 (3d Cir.

I iicists a hee his ascitic casas ese a detest cha hehe iaaics

Pennsylvania Power & Light Company, Dkt. No.

ER97-3055-000, 80 FERC { 61,053, 1997 WL

Se Se as SIF Niddrie

Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447

hE ERE aden Oe PEER. ee ORO

Thurman Indus., Inc. v. Pay ’N Pak Stores, Inc.,

875 F.2d 1869 (9th Cir. 1969) ..............................

Vinci v. Waste Management, Inc., 80 F.3d 1372

(9th Cir. 1996), cert. denied, 117 S. Ct. 1252

CEA wicvkaccskivicetsuciinitocti ket anee aepieteaebiasbnrseaaiainciesce

Page

10

14, 16

4,16

v

TABLE OF AUTHORITIES—Continued

Walker Process Equip., Inc. v. Food Machinery &

Chem. Corp., 382 U.S. 172 (1965) .......-..-..----------

RULES AND STATUTES

66 Pa. C.S.A. § 2801 ef seq. .....-...-.---------e----eeceeenseneee

66 Pa. C.S.A. § 2802 (21) ............--.----- a

66 Pa..C.S.A. § 2804 (6) .......—......--.---—--.------erneneseneeee

66 Pa. CBA. 8 BOOB 2... .n2.n-2-0n---220-ncnesennrensnmeennnnsensee

66 Pa. C.S.A. § 2806 (b) (3) .....-.--—--------------0--eeeeeeeeeeeee

21k Fe | See eae eee ener enn

16 U.S.C. $ 824a-8 ..........-......----------ns0-cnm-emenneromrenennns

OTHER AUTHORITY

Kahn, “Surprises of Airline Deregulation,” 78 Am.

Benen, Bae, Bh. CIID saisariciicitcncns esse oeecttinngessenae

Kleit, “Computer Reservations Systems: Competi-

tion Misunderstood,” 37 Antitrust Bull. 833

RODE) aaacncceniec nessa vine enstnnnsennnnevnncicntinensintinistawensanivores

U.S. Department of Transportation, “Airline Mar-

keting Practices: Travel Agencies, Frequent-

Flyer Programs, and Computer Reservation

Systems,” Secretary’s Task Force on Competi-

tion in the U.S. Domestic Airline Industry (Feb.

Page

10

13

13

4

In the Supreme Court of the United States

OCTOBER TERM, 1997

No. 97-387

SCHUYLKILL ENERGY RESOURCES, INC.,

Petitioner,

¥.

PENNSYLVANIA POWER & LIGHT COMPANY,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Third Circuit

RESPONDENT'S BRIEF IN OPPOSITION

STATEMENT OF THE CASE

Petitioner, Schuylkill Energy Resources, Inc. (“SER”),

asks this Court to grant certiorari to review SER’s merit-

less antitrust claims. It does so despite the fact that both

lower courts fully considered and properly rejected the

effort of a high-priced supplier, SER, to transform its

contract-based claims into federal antitrust claims. SER

has conceded its inability to compete with respondent,

Pennsylvania Power & Light Company (“PP&L”), in the

existing, regulated retail market. SER, therefore, bases

its challenge to the decisions of the courts below on its

allegations about harm to SER as PP&L’s potential com-

petitor in the hypothesized future, deregulated market. As

2

recognized by the court of appeals, however, SER is un-

able to properly define a relevant existing market in which

to measure the effects of the alleged anticompetitive con-

duct about which SER complains. PP&L respectfully sub-

mits that the petition for a writ of certiorari should be

denied.

A. The Parties’ Contract

On October 17, 1986, PP&L and SER entered into a

Power Purchase Agreement under which SER agreed to

sell ali of its electrical energy exclusively to PP&L and

PP&L agreed to purchase all of SER’s net electric energy

up to 79.5 megawatts for a period of twenty years.

Amended Complaint (“Am. Compl.”), 20 and 22;

Pet. App. 5a, 17a, 28a.

Pursuant to the parties’ contract, PP&L is permitted to

purchase less than SER’s total electric energy output when

curtailed purchases are necessary for PP&L “to make

repairs, changes, tests or inspections, or for reasons of

an actual or potential system Emergency, Forced Outage,

Force Majeure or PP&L System operating condition which

necessitates such disconnections or curtailments.” Am.

Compl., § 31 (quoting Agreement, Art. 9.E). A “sys-

tem emergency” is defined under the contract as “any con-

dition on the PP&L System or PJM System which, in

PP&L’s opinion, may disrupt service to customers or

endanger life or property.” Am. Compl., {32 (quoting

Agreement, Art. 1.CC).’ Article 9.F of the Agreement

provides that the manner in which SER is required to

operate its facility is set forth in Exhibits B and C to the

1As noted by the court below, “PP&L is a member of the

Pennsylvania-New Jersey-Maryland Interconnection (‘PJM’), a

power pool maintained [at all relevant times] by an unincorporated

association of approximately eight member utilities located in Penn-

sylvania, New Jersey, Maryland, Delaware and Washington, D.C.”

Pet. App. 4a-5a.

3

Agreement. It states that “[i]n the event of any incon-

sistencies or conflicts between Exhibits B and C and the

terms hereof, the terms and conditions of Exhibits B and

C shall take precedence over the terms and conditions of

this Agreement.” Article III of Exhibit B permits PP&L,

at its sole discretion, to curtail purchases from SER in

the event of minimum generation conditions on the PJM

system (i.e., when PJM generation exceeds PJM load).

During the first four and a half years of the parties’

contract, PP&L curtailed purchases from SER due to sys-

tem emergencies on numerous occasions without com-

plaint from SER. Am. Compl., 94 47-48. From mid-

1994 to mid-1995, due to increased minimum generation

conditions on the PJM system, PP&L had to curtail its

own generation, as well as its power purchases from

qualifying facilities such as SER, more frequently than it

had in the past. Am. Compl., 44 45-49.

B. Proceedings in the District Court

On August 7, 1995, SER filed this lawsuit in the United

States District Court for the Eastern District of Pennsyl-

vania. The complaint alleged that PP&L’s conduct under

the parties’ contract constituted monopolization or at-

terapted monopolization, in violation of Section 2 of the

Sherman Act, 15 U.S.C. § 2. SER also asserted related

state-law claims for breach of contract, breach of duty of

good faith and fair dealing, and negligent and intentional

misrepresentation. The primary thrust-of SER’s com-

plaint was that PP&L had breached the contract by cur-

tailing purchases from SER, a high cost supplier, during

minimum generation conditions for reason of “economic

dispatch.” Am. Compl., 4440 and 42 (quoting Agree-

ment, Art. 9.E). However, SER sought to fashion an

antitrust claim out of an alleged breach of the contract

imposed on PP&L by a federal law designed to insulate

SER from competition.’

2PP&L was required to enter into this contract pursuant to

Section 210 of the Public Utility Regulatory Practices Act of 1978

4

PP&L moved to dismiss, arguing, inter alia, that SER

had failed to allege a cognizable antitrust injury and that

SER improperly sought to transform the parties’ contract

dispute into a federal antitrust action. SER then amended

its complaint, and PP&L again moved to dismiss, because

SER’s amendments did not cure the substantive deficien-

cies in the original complaint, including the failure prop-

erly to allege antitrust injury.

At oral argument on PP&L’s motion, the district court

directed SER to file a supplemental letter brief identifying

any factual issues raised by SER’s antitrust claims. SER

thereafter filed three such supplemental letter briefs, the

first and third of which SER has reproduced in the ap-

pendix to the petition. Pet. App. 59a-76a, 98a-103a.

After full consideration, the district court dismissed

SER’s federal antitrust claims with prejudice for failing

to allege cognizable antitrust injury. The court declined

to exercise supplemental jurisdiction over SER’s related

state-law claims and therefore dismissed those claims with-

out prejudice. Pet. App. 27a-40a.° The court provided a

three-part explanation for its holding regarding the lack

of a proper allegation of antitrust injury.

First, with respect to SER’s claims of lost electricity

sales revenues, increased operating costs, and accelerated

depreciation, the court ruled that “[s]uch injuries to an

individual competitor company, without allegations of in-

(“PURPA”), 92 Stat. 3144, as amended, 16 U.S.C. § 824a-3. Con-

trary to SER’s assertions, the Third Circuit properly recognized

that “[i]n establishing PURPA, .. . Congress did not intend to

place qualifying facilities in competition with public utilities. .. .

Qualifying facilities are not authorized under PURPA to sell at

retail. . . . They are not competitors of public utilities.” Pet. App.

15a n. 10 (quoting Greensboro Lumber Co. v. Georgia Power Co.,

643 F. Supp. 1345, 1873 (N.D. Ga. 1986), aff'd, 844 F.2d 1538

(11th Cir. 1988) ).

8 SER shortly thereafter refiled its state law claims in Pennsyl-

vania state court, which claims remain pending.

a

5

jury to competition or consumer welfare, are insufficient

as a matter of law to establish a violation of federal anti-

trust law.” Pet. App. 33a (citing Brunswick Corp. v.

Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977)).

Turning to SER’s claims that PP&L’s curtailment of

energy purchases from SER and other independent power

producers somehow harmed competition, the court ob-

served that, as a regulated electric utility, “PP&L has no

unilateral ability to change its rates; any increase or de-

crease must be filed with the PUC [i.e., the Pennsylvania

Public Utility Commission] and conform to PUC regula-

tions or orders.” Pet. App. 34a. In addition, the court

said, although SER’s allegations about “the reliability

and environmental qualities of energy sources may be

worthwhile concerns, they are not within the scope of

federal antitrust laws.” Id.

Finally, in response to SER’s assertions that, by curtail-

ing power purchases from SER, PP&L might enable itself

in the future to obtain rate base increases that ultimately

would operate to consumers’ detriment, the court stated

that “this allegation of speculative future antitrust injury,

especially in the context of a highly regulated industry,

is insufficient to survive PP&L’s motion to dismiss.” Pet.

App. 37a.‘

C. The Court of Appeals’ Decision

The court of appeals affirmed. Pet. App. la-26a. The

court agreed with the district court that the question of

4In a footnote, the district court remarked that “SER’s own

allegations could be construed as demonstrating that PP&L’s actions

are actually procompetitive: SER alleges that it is PP&L’s policy

to ‘curtail[] purchases of electric energy first from independent

power producers [such as SER] to whom PP&L must pay the high-

est price for electricity.’ (Am. Compl. { 40). As a matter [of]

basic economic theory, the loss of a higher price supplier would not

tend to chill competition or raise prices to consumers; instead, it

would seem likely to produce the opposite effect.” Pet. App. 35a

n. 7 (emphasis by the court).

6

“whether and to what extent PP&L maintains an artificially

high rate base is not within the purview of the antitrust

laws.” Pet. App. lla. Like the district court, the court

of appeals stressed that “Pennsylvania regulators—not the

market—determine PP&L’s rate base. PP&L has no uni-

lateral ability to change its rates; any increase or decrease

in rates must be filed with the PUC and conform to PUC

regulations and orders.” Jd. Similarly, the court rejected

the notion that an alleged diminution in the availability

of alternative energy sources or environmentally sensitive

energy sources could constitute antitrust injury. Pet. App.

12a & n.9.

The court of appeals then ruled that, even if SER’s com-

plaint were construed to allege a reduction in competition

in the provision of retail energy to consumers, it still

would not assert any cognizable antitrust claim. The court

emphasized that, in evaluating any antitrust claim, it is

essential to “consider the scope of the relevant market.”

Pet. App. 13a. At present, the court observed, as far as

providing retail service to consumers in eastern Pennsyl-

vania is concerned, “SER is not PP&L’s competitor—it is

PP&L’s supplier. . . . Pursuant to the Agreement which

SER now seeks to enforce, SER is currently prohibited

from competing with PP&L in the relevant market.” Pet.

App. 14a.° Accordingly, the court concluded, if SER is

seeking to allege an injury in connection with the provi-

sion of retail electric service, it necessarily would involve

the imposition of some sort of obstacle to SER’s ability

to compete with PP&L in a “future market,” after deregu-

lation. Pet. App. 16a. The court ruled that it could not

“permit SER to pursue such a speculative path to recovery

under the Sherman Act.” 7d.

5 The court of appeals noted SER’s concessions that it “normally

cannot, by virtue of state and federal regulation and physical limi-

tations, sell power directly to consumers” (Pet. App. 15a, citing

Am. Compl., { 12) and that “SER did not, at the time the complaint

was drafted, have the ability to deliver environmentally friendly

energy directly to retail consumers” (Pet. App. 15a, citing Oral

Arg. Trans. at 5).

7

During the pendency of SER’s appeal, SER advised the

court of the December 3, 1996 enactment of the Pennsy]l-

vania Electricity Generation Customer Choice and Com-

petition Act, 66 Pa. C.S.A. § 2801 et seq. SER sought

to use the new statute as a means of breathing new life

into its antitrust claims» The court of appeals observed,

however, that under the statute “[c]ompetitive retail ac-

cess will be phased in over time, and direct access to

competition will not exist across Pennsylvania until Janu-

ary 1, 2001.” Pet. App. 16a. See also 66 Pa. C.S.A.

§ 2806(b)(3). Stressing the uncertain contours of what-

ever future retail market(s) may exist after deregulation,

the court declared that “[w]e do not know whether SER

or PP&L will even exist in 2001, and we certainly do not

know whether PP&L will enjoy an unlawful monopoly in

its service area at that time.” Jd. The court noted the

concession of SER’s counsel during oral argument that

“it’s true that we don’t know exactly what the market will

look like [following deregulation]. . . .” Pet. App. 16a

n.12. Because SER currently is not permitted to compete

with PP&L in retail sales of electricity and because any

future relevant market for such sales cannot be defined in

the abstract, in advance of actual deregulation and the

inevitable (but unknown and unknowable) economic

changes it will bring, the court of appeals sustained the

district court’s ruling that SER did not and could not

adequately plead antitrust injury.*

The court of appeals also addressed SER’s contention

that the district court abused its discretion in refusing to

permit SER to make further amendments to the amended

complaint. Pet. App. 2la-24a. After considering the

potential amendments mentioned in two footnotes of one

of SER’s supplemental letter briefs, the court concluded

*In a portion of the court of appeals’ opinion that SER does not

challenge in this Court, the court also rejected SER’s contention

that PP&L’s alleged anticompetitive conduct somehow injured SER

as a competitor of PP&L in the wholesale distribution of electric

energy. Pet. App. 17a-19a.

8

that “SER’s proposed amendments will not enable [SER]

to withstand a renewed motion to- dismiss, and we will

not grant SER leave to amend further its Amended Com-

plaint.” Pet. App. 23a-24a. The court based its ruling

on the facts that SER is not currently free to compete

with PP&L,’ and any future deregulated retail market does

not currently exist and therefore cannot serve as the basis

for evaluating SER’s antitrust claims, no matter how

many times the complaint is amended.*

ARGUMENT

I. THE COURTS BELOW FULLY CONSIDERED AND

CORRECTLY REJECTED SER’S ATTEMPT TO

ASSERT ANTITRUST CLAIMS GIVEN THE AB-

SENCE OF ANY EXISTING RELEVANT MARKET

WITHIN WHICH TO MEASURE THE EFFECTS OF

THE ALLEGED ANTICOMPETITIVE CONDUCT.

The court of appeals correctly concluded that SER did

not assert any cognizable antitrust injury in an existing

relevant market, and further review is not warranted.

SER does not argue that the Third Circuit failed to follow

or apply properly any established precedent from this

Court. Nor does SER contend that there is a split among

the circuits on any relevant legal standard. Instead, given

the total absence of any precedent to support its position,

SER argues that this matter is a “case of first impression”

and that this Court should “seize this moment to define

the indicia of actionable antitrust injury during a transi-

tion from regulated to free markets.” Pet. 17. However,

SER’s argument wholly ignores the elementary antitrust

7 Even SER concedes that its proposed amendment was designed

to characterize retail competition as “imminent” (Pet. 7), not

existing.

® Given its conclusion that any amendment would be futile, the

court did not need to reach the separate issue of whether SER’s

two belated footnotes should have been construed as a motion for

leave to amend. Pet. App. 24a n. 18.

9

principle that any allegation of antitrust injury must be

assessed in the context of a properly defined market.

SER alleged below that PP&L’s curtailment of energy

purchases from SER and other independent power pro-

ducers caused antitrust injury “by keeping PP&L’s rate

base artificially high, by depriving consumers within

PP&L’s service area of energy sources other than those

owned and/or exploited by PP&L (which, in turn, re-

duces the reliability of electric service provided), and by

reducing the availability to consumers of power produced

using alternative, environmentally pro-active energy

sources.” Pet. App. 9a (quoting Am. Compl., { 66).

The court of appeals (Pet. App. 11a-12a) and the district

court (Pet. App. 34a-38a) properly applied established

principles of law concerning antitrust injury and found

these allegations did not constitute antitrust injury. SER

does not argue that this Court should review this aspect

of the Third Circuit’s ruling.

Instead, SER challenges the court of appeals’ holding

that SER’s antitrust injury claim in the context of the

future deregulated market is too speculative. Pet. 15-17.

In this regard, the Third Circuit stated:

SER asks us to find that PP&L’s generation curtail-

ment policy injures SER today, and that those in-

juries will inhibit SER’s ability to compete with

PP&L in the future market. We cannot permit SER

to pursue such a speculative path to recovery under

the Sherman Act.

Pet. App. 16a. In holding that SER’s allegations of anti-

trust injury in the future, deregulated market are too

speculative, the Third Circuit affirmed the district court’s

finding that SER’s “allegation of speculative future anti-

trust injury, especially in the context of a highly regulated

industry, is insufficient to survive PP&L’s motion to dis-

miss.” Pet. App. 37a (citing Austin v. Blue Cross and

Blue Shield of Alabama, 903 F.2d 1385, 1392 (11th Cir.

1990) ).

10

SER asks this Court to grant certiorari in this case so

that this Court may define the elements of antitrust injury

in the context of an emerging and as-yet nonexistent de-

regulated market. Pet. 11. This Court should decline the

invitation. The court of appeals properly rejected SER’s

effort to assert claims of antitrust injury in the context of

the future deregulated market, the “outline” of which even

SER concedes has only “begun to develop.” Pet. 16. A

properly defined relevant market is the framework within

which the competitive impact of any alleged anticompeti-

tive conduct must be assessed and is a requisite element

of a cause of action under Section 2 of the Sherman Act

because “[w]ithout a definition of that market there is no

way to measure [the defendant’s] ability to lessen or

destroy competition.” Walker Process Equip., Inc. v. Food

Machinery & Chem. Corp., 382 U.S. 172, 177 (1965).

This Court recently emphasized the importance of defin-

ing the relevant market in which the alleged conduct

would have an anticompetitive effect, and the defendant’s

market share in that market, in Spectrum Sports, Inc. v.

McQuillan, 506 U.S. 447 (1993). In that case, this

Court rejected the Ninth Circuit’s ruling that it was not

necessary to define the relevant market and the defend-

ant’s market share in that market in an attempt to

monopolize action. Id. at 459-60.°

In this case, SER claims that PP&L’s curtailment of

electric power purchases from SER during minimum gen-

eration conditions potentially will have some anticompeti-

tive effect in an unknown and unknowable market at

® See also Continental T.V., Inc. v. GTE Sylvania Inc., 423 U.S.

36, 53 n. 21 (1977) (“. .. an antitrust policy divorced from market

considerations would lack any objective benchmarks.) ; Thurman

Indus., Inc. v. Pay ’N Pak Stores, Inc., 875 F.2d 1369, 1373 (9th

Cir. 1989) (“defining the relevant market is indispensable to a

monopolization claim”); and Drs. Steuer and Latham, P.A. v. Na-

tional Medical Enters., 672 F. Supp. 1489, 1510 (D.S.C. 1987)

(“Market power cannot be assessed in a vacuum. Instead, the exist-

ence of a properly defined antitrust market is a prerequisite to

determining the existence of market power.”), aff'd, 846 F.2d 70

(4th Cir. 1988).

1]

some time in the future. However, determining this poten-

tial anticompetitive effect will depend on numerous factors

that cannot be accurately assessed at this time, including

but not limited to the following: PP&L’s market share in

the future market; the identity and market share of

PP&L’s competitors in the future deregulated market;

the nature and effect of any barriers to entry after de-

regulation; the definition of the product market; the

geographic area within which PP&L and its competitors

will compete given the elimination of regulated service

territories; and the nature and extent of barriers to

expansion, if any, in that market.

Perhaps most important of these factors, SER’s analysis

is based on the false assumption that PP&L will have

monopoly power in a relevant geographic market after

deregulation occurs.** That assumption is entirely specula-

tive, if not plainly false, given the fact that numerous

other electric power companies, including some substan-

tially larger than PP&L, are lining up to compete with

PP&L.” Given the economic opportunity presented by

10SER itself expressly recognizes that one of the objectives of

deregulation is to remove barriers to market entry. Pet. 9.

11 In fact, the Pennsylvania Competition Act encourages the de-

velopment of “competition” and “industry restructuring on a regional

basis.” See 66 Pa. C.S.A. § 2805 (emphasis added). See also 66 Pa.

C.S.A. § 2802(21) (anticipating “competition among electricity gen-

erators located in different states and different regions within this

Commonwealth”).

12 SER improperly seeks to mix and match various elements of

the current regulated market (e.g., PP&L as a regulated monopolist

in its service territory) with potential aspects of the future de-

regulated market (e.g., SER as a potential competitor) to create

the appearance of cognizable antitrust injury. Under the Pennsyl-

vania Competition Act, any electric generation supplier will be able

to transmit and distribute electric power into PP&L’s service terri-

tory over PP&L’s facilities. See 66 Pa. C.S.A. § 2804(6).

13In addition to PP&L, more than forty companies to date have

filed applications with the Pennsylvania PUC to become competitive

electric suppliers, brokers, or aggregators in a service area encom-

12

this new market and the high degree of interest in enter-

ing that market that has already been manifested, quick

and effective new competition entering PP&L’s traditional

service territory is likely. The full nature and extent of

competition within future deregulated markets cannot now

be accurately assessed. Indeed, even the likely product

and geographic boundaries of such future markets cannot

be known or reliably predicted. This point is confirmed

by the experience in other restructured industries, such

as airlines, in which the new patterns of competition were

not apparent at the time of initial restructuring.“

passing all of Pennsylvania: Affiliated Power Purchases; Allegheny

Electric Cooperative, Inc.; Allegheny Energy Solutions, Inc.; Ameri-

can Energy Solutions; Cinergy Resources, Inc.; CNG Energy

Services Corporation; CNG Retail Services Corporation (Peoples

Plus) ; Competitive Utility Services Corporation; Conectiv Energy

(a division of Delmarva Power); DTE-CoEnergy; Duke Trading

and Marketing, L.L.C.; DuPont Power Marketing, Inc.; e prime,

inc.; Eastern Power Distribution, Inc.; Energis Resources Incor-

porated; Engelhard Power Marketing, Inc.; Enron Power Marketing,

Inc.; Equitable Power Services Company; GPU Advanced Resources,

Inc.; Horizon Energy Company; mc2, Inc.; Mid American Natural

Resources, Inc.; MidCon Gas Services Corp.; Nev East, LLC (New

Energy Ventures-Mid Atlantic) ; NorAm Energy Management, Inc. ;

PacifiCorp Power Marketing, Inc.; PECO Energy Company; Penn-

sylvania Power Company; QST Energy, Inc.; Service, Technology

and Resources Corporation (STARcorp Int’l); Southern Energy

Retail Trading & Marketing, Inc.; Strategic Energy Partners Ltd.

(Strategic Energy Ltd.) ; UGI-Power Supply, Inc.; Virginia Electric

& Power Company d/b/a Evantage; West Penn Power Company

(Allegheny Power); Wheeled Electric Power Company and Cinergy

Services, Inc.; Woodruff Oil Company d/b/a Woodruff Energy; and

ENERGY, Inc. Many of these companies are located within the

PJM interconnection system, a geographic market in which the

Federal Energy Regulatory Commission has found PP&L lacks

market power. Pennsylvania Power & Light Company, Dkt. No.

ER97-3055-000, 80 FERC { 61,053, 1997 WL 564530 (July 17, 1997).

14 Only after airline deregulation did such new important aspects

of competition such as hub-and-spoke systems, frequent flyer pro-

grams, and computerized reservations systems develop. See, e.¢.,

U.S. Department of Transportation, “Airline Marketing Practices:

Travel Agencies, Frequent-Flyer Programs, and Computer Reserva-

KK 0

13

The Third Circuit’s analysis properly recognized that

the Pennsylvania Competition Act does not provide for

direct access to competition across Pennsylvania until Jan-

uary 1, 2001. See Pet. App. 16a and 66 Pa. C.S.A.

§ 2806(b)(3). It correctly observed that “[w]e do not

know whether SER or PP&L will even exist in 2001, and

we certainly do not know whether PP&L will enjoy an

unlawful monopoly in its service area at that time.” Pet.

App. 16a. Emphasizing that SER’s own counsel had

conceded that “it’s true that we don’t know exactly what

the market will look like [following deregulation],” the

Third Circuit concluded that it “cannot permit SER to

pursue such a speculative path to recovery under the

Sherman Act.” Pet. App. 16a & n.12.

Without a properly defined relevant market, the analysis

of the elements of antitrust injury in the emerging de-

regulated market hypothesized by SER in this case would

have no context and would have little, if any, precedential

value. Indeed, any pronouncement as to what would

constitute antitrust injury in a market that is four years

from existence would necessarily be vague, to put the

point mildly.%

SER attempts to create the appearance of precedential

support for its antitrust claims as a “potential competitor”

tion Systems,” Secretary’s Task Force on Competition in the U.S.

Domestic Airline Industry (Feb. 1990) ; Kahn, “Surprises of Airline

Deregulation,” 78 Am. Econ. Rev. 316 (1988) ; and Kleit, “Computer

Reservations Systems: Competition Misunderstood,” 37 Antitrust

Bull. 833 (1992).

1° The limited utility of any pronouncement here would be di-

minished further by the fact that each state attempting to deregu-

late its electric power industry is likely to do so in a different man-

ner. SER notes in footnote 2 of its Petition that, as of mid-1997,

eleven of the fifty states were actively implementing electric industry

deregulation as directed by statute or regulatory initiative, more

than 20 state legislatures were considering bills that could provide

retail electric market competition, and nine other states had intro-

duced deregulation study bills.

14

by asserting that “[v]arious federal courts throughout the

country, in non-regulated market contexts, have long recog-

nized that ‘potential competitors’ may employ the antitrust

laws to fend off anticompetitive conduct engaged in by

monopolies.” Pet. 12. But those cases involve existing

markets and in no way support SER’s effort to assert a

cognizable antitrust injury in a hypothesized future, dereg-

ulated market. Indeed, the cases cited by SER confirm

that, even in the context of an existing market, a potential

competitor faces a significant hurdle to establish that its

claims of antitrust injury are not too speculative or re-

mote. See Great Western Directories, Inc. v. Southwest-

ern Bell Tel. Co., 74 F.3d 613, 614 (Sth Cir.) (plaintiff's

claims of future antitrust violations were too speculative

to support a damage award), cert. dismissed, 117 S. Ct.

26 (1996),** Bubar v. Ampco Foods, Inc., 752 F.2d 445,

452-54 (9th Cir. 1985) (plaintiffs lacked standing be-

cause they were not prepared to enter the market and

become a viable competitor); and Florida Seed Co. v.

Monsanto Co., 915 F. Supp. 1167, 1176 (M.D. Ala.

1995) (distributor, who was barred by contract from

entering manufacturing market, lacked standing to bring

an antitrust action), aff'd; 105 F.3d 1372, 1374 (11th

Cir. 1997) (“[{T]he doctrine of antitrust standing reflects

prudential concerns and is designed to avoid burdening

the courts with speculative or remote claims.” ).””

Therefore, even the cases cited by SER in the context

of existing markets confirm that the analysis of a potential

competitor’s ability to assert cognizable antitrust injury

must reflect prudential concerns about speculative or re-

16 SER cited the 1995 decision of a panel of the Fifth Circuit in

the Great Western case, but did not advise this Court of the subse-

quent 1996 en bane decision of the Fifth Circuit (which itself was

subsequently vacated pursuant to settlement).

17 Although SER cited the district court’s 1995 decision in the

Florida Seed case, it did not advise this Court of the Eleventh

Circuit’s subsequent 1997 decision.

15

mote allegations.” That concern is raised to a different

level altogether—one that was properly recognized by the

court of appeals to be dispositive—when the claim is

based on the speculative possibility of antitrust injury to a

potential future competitor in a future deregulated market,

the contours of which are unknown and in which SER

and/or PP&L may not exist, PP&L most likely will not

be a monopolist, barriers to entry most likely will not

exist, and the geographic market most likely will expand

far beyond the bounds of PP&L’s current regulated service

territory.

For all of the foregoing reasons, SER may not assert a

viable antitrust cause of action based on the alleged anti-

competitive effect of PP&L’s conduct in the future, de-

regulated market that is four years away. Moreover, even

if it were theoretically possible for SER to state a cogniza-

ble antitrust claim in a future deregulated market, SER

would be unable to do so in this case. As the court of

appeals expressly ruled, “[p]ursuant to the Agreement

which SER now seeks to enforce, SER is currently pro-

hibited from competing with PP&L in the relevant mar-

ket.” Pet. App. 14a. In October 1986, SER entered into

an agreement with PP&L under which SER is required to

18 See also Associated Gen. Contractors of California, Inc. v.

California State Council of Carpenters, 459 U.S. 519, 545 (1983)

(affirming the district court’s dismissal of plaintiff’s complaint due

to “the tenuous and speculative character” of plaintiff’s antitrust

injury allegations) ; Cargill, Inc. v. Monfort of Colorado, Inc., 479

U.S. 104, 117-19 (1986) (the record did not support a finding of

antitrust injury where plaintiff alleged that, after the merger at

issue, defendant could potentially attempt to drive plaintiff out of

business with predatory pricing tactics) ; Vinei v. Waste Manage-

ment, Inc., 80 F.3d 1372, 1375 (9th Cir. 1996) (speculative allega-

tions of injury are a factor to be considered in determining whether

a plaintiff has antitrust standing), cert. denied, 117 S. Ct. 1252

(1997) ; Austin, 903 F.2d at 1392 (speculative allegations concern-

ing antitrust injury can be the basis for finding no standing) ; and

Catlin v. Washington Energy Co., 791 F.2d 1343, 1347 (9th Cir.

1986) (“The trier of fact must be able to ascertain causal antitrust

injury ‘without engaging in speculation.’ vet

a ee

16

sell its electrical energy exclusively to PP&L for twenty

years. Pet. App. 5a and 14a (citing Am. Compl., 4 20,

22). Pursuant to this agreement, SER is prohibited from

competing with PP&L for the sale of electricity until at

least 2006. Thus, prohibitive contractual clauses bar

SER’s claims here.”

Il. THE COURT OF APPEALS CORRECTLY HELD

THAT ANY ATTEMPT BY SER TO AMEND FUR-

THER ITS AMENDED COMPLAINT WOULD BE

FUTILE.

SER alternatively seeks an order summarily reversing

the denial of SER’s purported request for leave to amend

further its amended complaint. Pet. 17-21. This conten-

tion is highly case-specific and in no way satisfies any of :

the criteria that might justify review by this Court. In

any event, the requested relief is unwarranted here because

the court of appeals properly determined that any further

attempt to amend the amended complaint would be futile.

SER attempts to focus this Court on the district court’s

alleged failure to address the futility of amendment. Pet. i

(i.e., “where the District Court made no finding that

amendment would be futile”). The court of appeals, how-

- ever, expressly addressed the futility of amendment. The

court of appeals gave SER the benefit of the doubt as to

whether it raised the request for leave to amend in a

timely and sufficient manner. Pet. App. 24a n. 18.”

19 As noted above (see footnote 2, supra), PP&L was required to

enter into this contract under PURPA, a federal statute designed

“to encourage the development of qualifying facilities by insulating

them from competition.” Greensboro Lumber, 643 F. Supp. at 1373

(emphasis added).

20 See, e.g., Florida Seed, 915 F. Supp. at 1176 (plaintiff lacked

antitrust standing because prohibitive contractual clauses barred

plaintiff from entering relevant market).

21 The court of appeals emphasized that any review of the district

court’s failure to grant a motion for leave to amend would be

performed under an abuse of discretion standard. App. 24a n. 18,

citing Miklavic v. USAir Inc., 21 F.3d 551, 553 (3d Cir. 1994).

17

The Third Circuit reviewed SER’s proposed amendments

and expressly concluded that those amendments would

“not enable [SER] to withstand a renewed motion to dis-

miss.” Pet. App. 23a.

Based on the rationale underlying its rejection of SER’s

arguments on the substantive antitrust claims, the court

of appeals properly found that SER’s proposed amend-

ments would not cure the contractual and practical ob-

stacles to SER’s ability to state cognizable antitrust injury

to SER as a potential competitor of PP&L in the future

deregulated market.

The court of appeals, therefore, correctly determined

that SER’s proposed amendments would be futile. In view

of that futility, the court properly held that SER should

not be given leave to amend further its amended complaint.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted,

PETER BUSCEMI * GLEN R. STUART

STEPHEN PAUL MAHINKA CHARLES J. REITMEYER

MORGAN, LEWIs & BockIUs MORGAN, LEWIs & BocKIUS

LLP LLP

1800 M Street, N.W. 2900 One Logan Square

Washington, D.C. 20036-5869 Philadelphia, PA 19103

(202) 467-7190 (215) 963-5883

JESSE A. DILLON

Pennsylvania Power &

Light Company

Two North Ninth Street

Allentown, Pennsylvania 18101

Attorneys for Respondent

* Counsel of Record