Opposition Brief — North Star Steel Co. v. MidAmerican Energy Holdings Co.

No. 99-581

a

IN THE

Supreme Court of the United States

NorTH STAR STEEL COMPANY,

Petitioner,

v.

MIDAMERICAN ENERGY HOLDINGS COMPANY

and MIDAMERICAN ENERGY COMPANY,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Eighth Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

J. A. BOUKNIGHT, JR.

Counsel of Record

SAMUEL T. PERKINS

STEPTOE & JOHNSON LLP

1330 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 429-3000

Counsel for Respondents

MidAmerican Energy

Holdings Co. and

November 4, 1999 MidAmerican Energy Co.

WILSON-EPES PRINTING Co., INC. - (202) 789-0096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

Did the court of appeals correctly apply the “state ac-

tion” doctrine in holding MidAmerican’s alleged anti-

competitive conduct immunized from federal antitrust

claims by reason of (1) Iowa’s clearly articulated and

affirmatively expressed state policy displacing retail com-

petition with regulation in the provision of retail electric

service and (2) Iowa’s active supervision of that policy?

(i)

li

LIST OF PARTIES

All parties to the proceeding below are listed in the

caption. The lowa Utilities Board participated in the pro-

ceedings below as amicus curiae.

RULE 29.6 CORPORATE DISCLOSURE STATEMENT

Respondent MidAmerican Energy Company is a wholly

owned subsidiary of MHC, Inc. MHC, Inc. is a wholly

owned subsidiary of MidAmerican Funding, LLC, which

is in turn wholly owned by respondent MidAmerican En-

ergy Holdings Company, a publicly held company.

Respondent MidAmerican Energy Holdings Company

has no parent company. No publicly held company owns

10 percent or more of the stock of MidAmerican Energy

Holdings Company. However, on October 25, 1999, an

investor group including Berkshire Hathaway, Inc. and

other private investors announced that it had reached a

definitive agreement to acquire MidAmerican Energy

Holdings Company. The transaction is expected to be

completed by April of 2000. After the transaction, Berk-

shire Hathaway, Inc. will own approximately 75 percent

of MidAmerican Energy Holdings Company on a fully

diluted basis. See MidAmerican Energy Holdings Com-

pany, Current Press Releases, Berkshire Hathaway, Walter

Scott and David Sokol to Acquire MidAmerican Energy

Holdines (Oct. 25. 1999), accessed at <http://www.

midemerican.com ‘htinl/news industryl.shtml>.

3

'

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED .0woooooooccecceccceeeeceeeee- i

I sc sseisssdndcaddcaniessininenisnicssinsachbcotéedmas ii

RULE 29.6 CORPORATE DISCLOSURE STATE-

a in cchindnvslaehtblepsdebh ii dtselchdacubesiontuigslocann ii

TABLE OF AUTHORITIES ..0..0...........ccccceccceccsecceceees- iv

RPE REOROPEEED MOMMA on. onccseceesccencscneccccsascnacaseencaceeseceaseree 1

i sa cece ivacsnaindtwe donner 2

STATUTORY PROVISIONS INVOLVED .......00000000..... 2

SLATEMENT OF THE CASE ooonn.on.n...n..cccccccccccccesees 4

REASONS FOR DENYING THE WRIT ............0........ 7

I. THE STATE OF IOWA’S REGULATION OF

RETAIL ELECTRIC SERVICE SATISFIES

BOTH PRONGS OF THE TEST FOR APPLI-

CATION OF THE “STATE ACTION” DOC-

Sau SEES COPIA BAO Aaa eae i en 7

Il. THERE IS NO REASON FOR THIS COURT

TO REVIEW THE DECISION OF THE

COURT OF APPEALS W000... 12

A. The Possibility of Future Retail Deregula-

tion Does Not Negate the Force and Effect

of Current Regulation ea 12

B. This Case Reflects No “Split” Among the

Circuits Meriting Review By This Court... 15

I ies essa asics eubincssenaididiasshvenseedelanicscs 18

APPENDIX ..................... eines ah adenine sis Geclatnene Medien oi cdates la

(iii)

iv

TABLE OF AUTHORITIES

CASES Page

California Retail Liquor Dealers Ass’n v. Midcal

Aluminum, Inc., 445 U.S. 97 (1980) 0.000000... 7

Columbia Steel Casting Co. v. Portland General

Elec. Co., 111 F.3d 1427 (9th Cir. 1997), cert.

denied, 118 8. Ct. 1688 (1998).............................. 16

FTC v. Ticor Title Ins. Co., 504 U.S. 621 (1992)... 10

Fuchs v. Rural Elec. Convenience Co-op., Inc.,

672 F. Supp. 1111 (C.D. Ill. 1987), aff’d, 858

F.2d 1210 (7th Cir. 1988), cert. denied, 490 U.S.

I A a ns rates g pea raeee Ua aa 9

Fuchs v. Rural Elec. Convenience Co-op., Inc., 85 58

F.2d 1210 (7th Cir. 1988), cert. denied, 490 U.S.

TE III Gosh decdtenk: cs bacrestateteekesuatantine nannies 10

Iowa-Illinois Gas & Elec. Co. v. Iowa State Com-

merce Comm’n, 412 N.W.2d 600 (Iowa 1987).... 9

Iowa-Illinois Gas & Elec. Co. v. Iowa State Com-

merce Comm’n, 347 N.W.2d 423 (Iowa 1984).... 9

Municipal Utils. Bd. v. Alabama Power Co., 934

F.2d 1493 (11th Cir. 1991), cert. denied, 513

U.S. 1148 (1995) ......... Siar ieee ee ae ee ares. 9, 10

Nantahala Power & Light Co. v. Thornburg, 476

Sain WO MINED Gasset ce aoe, cxsasee chee asecae eat ceases 13

North Star Steel Co. v. Iowa Utils. Ba., No.

AA3127 (Iowa Dist. Ct. Jan. 29, 1999) ....... 65

North Star Steel Co. v. MidAmerican Energy Hold-

ings Co., No. 4-97-CV-80782, 1998 U.S. Dist.

LEXIS po489 (S.D. Iowa June 23, 1998) bape 1 |

North Star Steel Co. v. MidAmerican Energy Hold- |

ings Co.. 184 F.3d 732 (8th Cir. 1999) ......... passim

Office of Consumer Advocate v. Iowa State Com-

merce Comm’n, 419 N.W.2d 373 (Iowa 1988)... 9

Parker v. Brown, 317 U.S. 341 (1943) 5

as

Patrick v. Burget, 486 U.S. 94 (1988) 0000.

Prarair, Inc. v. Florida Power & Light Co., 64

F.2d 699 (11th Cir. 1995), cert. denied, 517

Ee ee Ae RII pelisiccnsecssnces tunel ecb ote eta ts 10, 16

Southern Motor Carriers Rate Conference, Ine.

v. United States, 471 U.S. 48 (1985) ............ ee 17

v

TABLE OF AUTHORITIES—Continued

Page

Town of Massena v. Niagara Mohawk Power

Corp., 1980-2 Trade Case. (CCH) 63,526

(N.D.N.Y. Sept. 8, 1980) —.........-...------::seccceeeeeeeeees 13

AGENCY PROCEEDINGS

In re MidAmerican Energy Co., Docket No. DRU-

98-1 (I.U.B. May 29, 1998), aff'd, North Star

Steel Co. v. Iowa Utils. Bd., No AA3127 (lowa

Tilak, Cb. Fete. BD, BOR) nncenccnsccsanesacscses sdcaivicdedaatonl passim

STATUTES

Federal

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DB UBC. 6 TRIG) ona oes cctneerdires see 2

State

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Tore Catlin © SFG BGG) in inciccssiincsiscscccccnsacitsnegrsenpictapeceess 2,8

Towa: Cote © GIG ASCE D ...-.----2-0csencscesercncees sea ktoan ee 2,8

Tw, Cle 6 ATG BI neces i niece cn nsascassnsnsnssssasastanctaneronsness passim

Town Cee 8 ATGAL oan nace sncsscsscenssenisncccnssnoroseseveses aan 14

Sores Cae 6 GIGI inc sivsccdicensnsatecicssimeen 4,9

Bown Codie 8 GIGI 2S) ocncivvscnccncccsinestissssaersticeneees 4,9

REGULATIONS

Iowa Admin. Code rr. 199-24.4 ..............--sssscssccccsseseeee 4,9

MISCELLANEOUS

The White House, Office of the Press Secretary,

The Clinton Administration’s Comprehensive

Electricity Competition Plan (Mar. 25, 1998),

accessed at <http://www.pub.whitehouse.gov.

uri.../oma.eop.gov.us/1998/3/26/4.text.1> ........ 14

vi

TABLE OF AUTHORITIES—Continued

Page

MidAmerican Energy Holdings Company, Current

Press Releases, Berkshire Hathaway, Walter

Scott and David Sokol to Acquire MidAmerican

Energy Holdings (Oct. 25, 1999), accessed at

<http ://www.midamerican.com/html/news-in-

Gute LES ceri sins nan ii

IN THE

Supreme Court of the United States

No. 99-581

NorTH STAR STEEL COMPANY,

Petitioner,

MIDAMERICAN ENERGY HOLDINGS COMPANY

and MipAMERICAN ENERGY COMPANY,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Eighth Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

MidAmerican Energy Holdings Company and Mid-

American Energy Company (collectively, “MidAmeri-

can”) respectfully file this brief in opposition to the peti-

tion of North Star Steel Company (“North Star”) for a

writ of certiorari to review the judgment of the United

States Court of Appeals for the Eighth Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals is reported at 184

F.3d 732 (8th Cir. 1999). The opinion of the district

court can be found at No. 4-97-CV-80782, 1998 US.

Dist. LEXIS 22332 (S.D. Iowa June 23, 1998). The

opinions of the court of appeals and the district court are

set out in Appendix A and Appendix B, respectively, of

the Petition.

2

JURISDICTION

The court of appeals entered its judgment on July 7,

1999. Petitioner invokes the jurisdiction of this Court

under 28 U.S.C. § 1254(1) (1994).

STATUTORY PROVISIONS INVOLVED

In addition to the statutes listed in the Petition (“Pet.”),

the following statutory and regulatory provisions are in-

volved in the case:

Iowa Code § 476.8 provides in relevant part:

Every public utility is required to furnish reasonably

adequate service and facilities. ... The charge made

by any public utility for any heat, light, gas, energy

efficiency and renewable energy programs, water or

power produced, transmitted, delivered or furnished,

. or for any service rendered or to be rendered in

connection therewith shall be reasonable and just

Iowa Code § 476.20(1) provides in relevant part:

1. A utility shall not, except in cases of emergency,

discontinue, reduce, or impair service to a commu-

nity, or a part of a community, except for nonpay-

ment of account or violation of rules and regulations,

unless and until permission to do so is obtained from

the board.

lowa Code § 476.23(1) provides in relevant part:

1. An electric utility shall not construct or extend

facilities or furnish or offer to furnish electric service

to the existing point of delivery of any customer al-

ready receiving electric service from another electric

utility without having first filed with the board the

express written agreement of the electric utility pres-

ently serving this customer, except as otherwise pro-

vided in this section... .

3

Iowa Code § 476.25 provides in relevant part:

It is declared to be in the public interest to encour-

age the development of co-ordinated statewide elec-

tric service at retail, to eliminate or avoid unneces-

sary duplication of electric utility facilities, and to

promote economical, efficient, and adequate electric

service to the public. In order to effect that public

interest, the board may establish service arees within

which specified electric utilities shall provide electric

service to customers on an exclusive basis. Except

for good cause expressed through formal public state-

ment, the board shall establish these exclusive service

areas on or before July 1, 1979. ...

1. The service area boundaries . . . may be modified

by the board to promote the public interest, to pre-

serve existing service areas and electric utilities’

rights to serve existing customers, and to prevent

unnecessary duplication of facilities, to take account

of natural and physical barriers which would make

electric service beyond these barriers uneconomic

and impractical and those boundaries shall be modi-

fied by the board to take account of the contracts

between electric utilities which have been approved

by the board... . The board, on its own motion or

at the request of an electric utility or municipal cor-

poration, after notice and opportunity for hearing,

may modify the boundaries of an electric utility ex-

clusive service area which it has previously estab-

lished if this modification, including consideration of

the factors noted in this subsection, is found to be in

the public interest.

* * * *

3. An electric utility shall not serve or offer to serve

electric customers in an exclusive service area as-

signed to another electric utility, nor shall an electric

utility construct facilities to serve electric customers

4

in an exclusive service area assigned to another elec-

tric utility... .

Iowa Code § 476.53 provides in relevant part:

The board shall not allow a return on common equ-

ity on that portion of a public utility’s electric gen-

erating capacity which is determined to be excess

electric generating capacity. Excess electric generat-

ing capacity is that portion of the public utility’s

electric generating capacity which exceeds the

amount reasonably necessary to provide adequate

and reliable service as determined by the board.

lowa Code § 476A.2(1) provides in relevant part:

1. Commencing January 1, 1977, a person shall not

commence to construct a facility except as provided

in section 476A.9 unless a certificate for the facility

has been issued by the board... .

Iowa Administrative Code rr. 199-24 is set out in Re-

spondents’ Appendix attached to this brief.

STATEMENT OF THE CASE

The pertinent factual background is more fully set out

in the opinion of the court of appeals. (Pet. App. A 2a-

6a.)

In brief, North Star alleges that MidAmerican violated

sections | and 2 of the Sherman Act, 15 U.S.C. $$ 1 and

2 (1994), and section 3 of the Clayton Act, 15 U.S.C.

§ 14 (1994), by refusing to enter into agreements with

North Star whereby North Star could purchase electric

power for its Wilton, Iowa mill from retail suppliers other

than MidAmerican.! MidAmerican moved to dismiss the

1 North Star proposed two alternate forms that the transaction

could take: (1) North Star could “purchase directly power pro-

duced by a third party generator” and have MidAmerican distribute

the power to North Star over MidAmerican’s transmission lines; or

ee a a ee

5

complaint in the district court on the ground that Iowa’s

pervasive regulation of retail electric service immunized it

from liability for the alleged anticompetitive conduct

under the “state action” doctrine enunciated by this Court

in Parker v. Brown, 317 U.S. 341 (1943), and subse-

quent cases.

After initial argument on the motion to dismiss, Mid-

American filed a petition for declaratory ruling from the

Iowa Utilities Board (“IUB”) concerning MidAmerican’s

rights and obligations pursuant to the Iowa Code provi-

sions regarding the supply of retail electric service. (Pet.

App. A 4a.) Among other questions, MidAmerican

asked:

1. Does the Board’s assignment of an exclusive

service area to MidAmerican, pursuant to Iowa

Code §§ 476.22 through 476.26 and related sec-

tions, give MidAmerican the exclusive right and

responsibility to sell electricity to retail customers

within the assigned service area. or are Mid-

American’s rights and obligations limited to the

transmission and distribution of electricity that

may be provided competitively by other sellers to

retail customers?

(Pet. App. D 21a.) North Star filed comments in opposi-

tion to the petition, while the Office of Consumer Advo-

cate, a division of the Iowa Department of Justice, filed a

response concurring with MidAmerican’s position. (Pet.

App. D 19a-20a.)

Following a hearing, the IUB issued a Declaratory Rul-

ing in which it held that retail electric service under Iowa’s

exclusive service territory statutes includes the supply of

electricity, as well as transmission and distribution func-

(2) MidAmerican could “purchase power from a third party ex-

pressly for transmission to North Star’s mill.” (Pet. App. A 8a.)

6

tions. Jn re MidAmerican Energy Co., Docket No. DRU-

98-1 (I.U.B. May 29, 1998) (“IUB Declaratory Rul-

ing”). (Pet. App. D 23a.) The IUB further held that

MidAmerican’s obligation to provide “reasonably ade-

quate” service at “reasonable and just” rates to retail cus-

tomers within its assigned exclusive service territory, lowa

Code § 476.8, carried with it a corresponding right to

provide such service—including the supply of electricity

—on an exclusive basis. (Pet. App. D 23a-24a.) The

IUB described exclusivity of electric service as a deliberate

choice that the Iowa General Assembly had made in order

to induce the capital investment necessary for utilities to

provide reliable electric service to retail consumers. (Pet.

App. D 23a.) Accordingly, the IUB held that MidAmeri-

can’s denial of proposals such as North Star’s was proper

and expected.? (Pet. App. D 24a.)

North Star appealed the IUB Declaratory Ruling to the

Iowa state district court, which affirmed the ruling. North

Star Steel Co. v. lowa Utils. Bd... No. AA3127 (Towa

Dist. Ct. Jan. 29, 1999). North Star has in turn appealed

that ruling to the lowa Supreme Court. North Star Steel

Co. v. lowa Utils. Bd., No. 99-0342 (lowa appeal

docketed Mar. 5, 1999).

On June 23, 1998, the district court below (Wolle, J.)

granted summary judgment to MidAmerican. On appeal,

the Eighth Circuit Court of Appeals affirmed. The court

of appeals held that, under Iowa law, preclusive effect

must be given to the prior Iowa state court determination

that the assignment of exclusive service territories by the

IUB includes generation, and that utilities such as Mid-

American therefore have the exclusive right to sell elec-

2 The IU'B found that the alternate forms of transaction proposed

by North Star made no difference to these conclusions. (Pet. App.

D 25a.)

7

tricity in their assigned service areas. (Pet. App. A 8a-

10a.)

The court of appeals went on to hold that “the exclu-

sive service territory statute is explicit state authorization

for displacing competition in both the distribution and

generation of retail electric service” and that “the Board

has continued to implement the state policy of displacing

competition by assigning new customers to exclusive serv-

ice providers and determining the assigned exclusive service

provider in cases of doubt or conflict.” (Pet. App. A 11a,

12a.) Accordingly, the court of appeals held that the dis-

trict court had not erred in finding both prongs of the

state action doctrine to be satisfied and in granting sum-

mary judgment to MidAmerican. (Pet. App. A at 13a.)

REASONS FOR DENYING THE WRIT

I. THE STATE OF IOWA’S REGULATION OF RE-

TAIL ELECTRIC SERVICE SATISFIES BOTH

PRONGS OF THE TEST FOR APPLICATION OF

THE “STATE ACTION” DOCTRINE

The “state action doctrine” immunizes a private party

from liability under the federal antitrust laws if (1) the

private party acts pursuant to a “clearly articulated” and

“affirmatively expressed” state policy to displace competi-

tion, and (2) the state has “actively supervised” discre-

tionary conduct by private parties undertaken pursuant to

the clearly articulated state policy. California Retail

Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 USS.

97, 105 (1980); Patrick v. Burget, 486 U.S. 94, 100

(1988).

The State of Iowa’s control of the provision of retail

electric service satisfies both prongs of the state action

test. In 1977, the Iowa General Assembly declared the

establishment of exclusive electric service areas to be in

8

the public interest and directed the Iowa State Commerce

Commission (predecessor to the current IUB) to establish

a system of exclusive retail electric service territories.

Iowa Code § 476.25. The same statute provides that an

electric utility cannot “serve or offer to serve electric cus-

tomers in an exclusive service area assigned to another

electric utility” or construct facilities to provide such serv-

ice. Iowa Code § 476.25(3). Likewise, the construction

of facilities or furnishing of electric service to “the exist-

ing point of delivery of any customer already receiving

electric service from another electric utility,” without the

express written consent of that utility, is forbidden. Iowa

Code § 476.23(1). These provisions constitute a clear

determination by the State of Iowa to displace competi-

tion in the provision of retail electric service with a system

of exclusive service territories.*

The structure of exclusive retail service territories, in-

cluding exclusivity in the supply of electricity, is central

to lowa’s regulation of retail electric service. For ex-

ample, Iowa Code § 476.8 requires each utility to furnish

“reasonably adequate service and facilities” at “reasonable

and just” rates. “Adequate service and facilities” include

sufficient generating capacity to supply the utility’s service

area.* However, capacity that “exceeds the amount rea-

sonably necessary to provide adequate and reliable serv-

ice” is “excess electric generating capacity”; the utility is

3As MidAmerican demonstrated before the district court and

court of appeals, this statutory system was adopted to replace a

prior system that permitted utilities to compete for customers. Pet.

App. A 38a.)

4J]d.; see also IUB Declaratory Ruling. (Pet. App. D 28a.) In

addition, lowa Code § 476.20(1) provides that no utility may aban-

don, reduce, discontinue or impair service to any community or part

of a community without prior Board approval.

9

not allowed a return on common equity on such capacity.°

The sufficiency of capacity (or the existence of excess

capacity) can only be determined in light of the utility's

retail service obligation.®

Similarly, persons seeking to construct new generation

facilities with a capacity of 25 megawatts or more must

obtain a certificate of public convenience, use and neces-

sity from the IUB. Iowa Code § 476A.2(1). The current

and projected future demand for power in the exclusive

service areas of the participants proposing to construct or

purchase power from a proposed generating facility are

key factors in the [UB's consideration of an application

for a certificate. See Iowa Admin. Code rr. 199-24.4(3)-

(4). (Respondents’ App.)

Courts have found an intent to displace competition in

even less comprehensive enactments. In Municipal Utils.

Board v. Alabama Power Co., 934 F.2d 1493 (11th Cir.

1991), cert. denied, 513 U.S. 1148 (1995), Alabama

legislation establishing exclusive service territories per-

mitted some competition for large industrial customers.

Fuchs v. Rural Elec. Convenience Co-op., Inc., 672 F.

Supp. 1111 (C.D. Ill. 1987), aff'd, 858 F.2d 1210 (7th

Cir. 1988), cert. denied, 490 U.S. 1020 (198°), involved

a statute similar to Iowa’s, except that the utilities them-

selves were authorized to determine the exclusive service

areas in the first instance by agreement (failing which,

the Illinois Commerce Commission would make the deter-

SIowa Code § 476.53. See aso Office of Consumer Advoente v.

Iowa State Commerce Comm'n, 419 N.W.2d 373, 375-76 (lown

1988); Jowa-Illinois Ges & Elee. Co. v. Iowa State Commerce

Comm’n, 412 N.W.2d 600, 604-05 (Iowa 1987); Jowa-Iinois Gas &

Elec. Co. v. lowa State Commerce Comm'n, 347 N.W.2d 422, 427-20

(lowa 1984).

6 See Consumer Advocate, 419 N.W.2d at 375-76: lowe-I!inois,

412 N.W.2d at 604-05; Jowa-Illinois, 347 N.W.2d at 427-30.

10

mination). In Praxair, Inc. v. Florida Power & Light

Co., 64 F.3d 609 (llth Cir. 1995), cert. denied, 517

U.S. 1190 (1996), exclusive service territories were vol-

untarily negotiated by the utilities concerned, not assigned

by the State of Florida. In each of these cases, the courts

found clear articulation of a state policy to displace com-

petition by means of exclusive service territories and found

the alleged anticompetitive conduct immunized by the ap-

plication of the state action doctrine. Alabama Power

Co., 934 F.2d at 1502; Fuchs v. Rural Elec. Convenience

Co-op, Inc., 858 F.2d 1210, 1216 (7th Cir. 1988), cert.

denied, 490 U.S. 1020 (1989); Praxair, 64 F.3d at 612.

Active supervision, the second prong of the state action

test, is required in order to show that the state, not pri-

vate parties, has ultimate control in implementing a policy

displacing competition. “The question is not how well

state regulation works but whether the anticompetitive

scheme is the State’s own.” FTC v. Ticor Title Ins. Co.,

S04 U.S. 621, 635 (1992). In Towa, the controlling

statutes explicitly authorize the state regulatory agency to

assign territories for exclusive retail electric service. The

Iowa State Commerce Commission, not the utilities, estab-

lished the exclusive service territories in the first instance.

(Pet. App. A 3a.) The IUB has continued to implement

the General Assembly’s policy of exclusive service areas

by assigning new customers to exclusive service providers.

modifying assigned territories, and determining the as-

signed exclusive service provider when doubt or conflict

arises. (Pet. App. A 12a.) It must review and approve

each change to those territories, whether contested or un-

contested by the utilities affected. Iowa Code § 476.25

(1).7

7 MidAmerican supplied the District Court with scores of admin-

istrative decisions in which the IUB has applied the exc!usive serv-

ice territory statutes. (JA 136-38, 140-43.)

11

In the IUB’s Declaratory Ruling (Pet. App. D), the

agency carefully analyzed the scope of Iowa’s exclusive

service territory statutes, and held that they “apply to the

provision of electricity, and the provision of electricity

includes generation, distribution, and transmission. Mid-

American has a statutory right, and an obligation, to pro-

vide electric service to retail customers located within its

exclusive service territory.” (Pet. App. D 23a). The

IUB found that a utility’s corresponding rights under the

exclusive service territory statutes were not limited to

transmission and distribution. Rather, the exclusive serv-

ice territory statutes represented a legislative balancing of

rights and obligations on the “fulcrum” of “the long-term,

heavy capital investment traditionally associated with elec-

tric utility operations.” Jd. North Star’s election of an

alternate supplier would undercut the utility’s commitment

of capital and upset that balance:

The Iowa legislature made the policy decision to dis-

place competition with the regulatory scheme found

in Chapter 476. If Iowa is to change to a competi-

tive retail electric environment to respond to changes

occurring in the electric industry, statutory change;

are required. Presumably, any changes would create

a new balance of rights and obligations for those

who provide generation, transmission, or distribution

service.

(Pet. App. A 23a-24a.)

In the decision below, the Eighth Circuit Court of Ap-

peals gave preclusive effect to the state district court rul-

ing affirming the IUB’s Declaratory Ruling that the exclu-

sive retail electric service territories under the Iowa

statutes comprised the supply of electricity as well as dis-

tribution and transmission. (Pet. App. A 8a-10a.) North

Star’s third question (Pet. i) misstates the court of ap-

peals’ action, because the court of appeals held that the

12

state court decision, not the IUB ruling, had preclusive

effect. Nowhere in the body of its Petition does North

Star suggest that the court of appeals erred in that deter-

mination, nor does it offer any reason for this Court to

review the determination. Rather, North Star appears to

attack the IUB for not having limited the term “retail

electric service” to “the distribution of electricity.” But

North Star’s assertion that “the term ‘at retail’ refers to

the distribution function” (Pet. 12) is based solely on an

argumentative affidavit submitted by one of its consult-

ants. To the contrary, as the IUB, the district court, and

the court of appeals all recognized, “retail electric service”

within the meaning of the Iowa statutes comprises the

entirety of the service that a public utility provides for its

retail customers.

Far from relying on a particular characterization of

“industry segments” in the electric industry, as North

Star’s third question suggests (Pet. 1), the TUB, the dis-

trict court, and the court of appeals simply recognized

that Iowa Code § 476.25 “expressly provides that its pur-

pose is to create exclusive service areas which have only

one supplier of electricity.” (Pet. App. A 10a-11a.)

MidAmerican is that retail supplier within its own service

territory, and its exclusivity extends to the retail supply of

electricity, whether by purchase or from its own genera-

tion.

II. There Is No Reason for This Court to Review the De-

cision of the Court of Appeals

A. The Possibility of Future Retail Deregulation Does

Not Negate the Force and Effect of Current Regula-

tion

In arguing that this case is worthy of review, North

Star asserts that “[d]Jecreased regulation of the electric

industry will increase reliance upon the antitrust laws to

13

preserve competition and it is important, therefore that

there be a clear and uniform standard governing the ap-

plicability of the ‘state action’ immunity doctrine.” (Pet.

6.) However, North Star mixes its doctrines and con-

fuses deregulation at the wholesale level with deregulation

at the retail level. Where regulation does not displace

competition in the provision of electricity, or where it no

longer does so because of deregulation, the state action

doctrine is irrelevant. However, as long as Iowa perva-

sively regulates retail electric service, including the assign-

ment of exclusive electric service areas, the doctrine will

apply precisely because deregulation has not occurred.

North Star insinuates that regulation of retail electric

service has been displaced by virtue of the deregulation

that has occurred at the wholesale level of the electric in-

dustry. (See Pet. 6-7.) That is not the case. Competi-

tion to sell power to utilities, including competition among

utilities to sell power on the wholesale level, is not the

same as competition in the provision of retail electric

service.®

Wholesale sales are subject to exclusive federal jurisdic-

tion under the Federal Power Act. 16 U.S.C. $$ 824(b),

(d), (e) (1994); see Nantahala Power & Light Co. v.

Thornburg, 476 U.S. 953, 956 (1986). North Star is a

retail electricity customer, and its electric service is sub-

ject to regulation by the State of Iowa. Significantly, the

Energy Policy Act of 1992, which North Star cites.® con-

tains an express prohibition on any Federal Energy Regu-

8 For example, Town of Massena v. Niagara Mohawk Power Corp.,

1980-2 Trade Case. (CCH) © 63,526, at 76,792 (N.D.N.Y. Sept. 8,

1980) (Pet. 6-7), dealt with a dispute between a municipality and

the utility from which it sought to obtain power for resale, not the

sale of electricity directly from a third-party provider to a retail

customer.

9 (Pet. at 7.)

14

latory Commission (“FERC”) order “which is inconsist-

ent with any State law which governs the retail marketing

areas of electric utilities” and on any FERC order requir-

ing retail wheeling of the type North Star seeks here. 16

U.S.C. $$ 824k(g),(h) (1994). Even less to the point

are North Star’s citations to the Public Utility Regulatory

Practices Act, 16 U.S.C. § 824a-3 (1994) (“PURPA”),

and Iowa Code § 476.41, each of which deals with co-

generation and similar small power production facilities,

and neither of which encourages retail wheeling of the

type sought by North Star. Indeed, PURPA expressly

bars FERC from authorizing qualifying facilities to make

retail sales.°

Retail deregulation (also referred to as retail choice)

in the electric industry presents issues of policy for state

legislatures, including the need to assure that small busi-

nesses and families will continue to have access to reliable

electric service at reasonable cost; the need to assure that

utilities that have made prudent investments in the past

to meet consumer needs will be able to recover the costs

of those investments; and the effect of deregulation on

the environment. In considering these and other issues,

states have moved toward deregulation at different speeds

and through different programs. The President has pro-

posed legislation to build on this progress, but not to dis-

rupt it or to interfere with the states’ processes."

North Star’s demands are an effort to end-run the right

of the lowa General Assembly to consider retail choice

1016 U.S.C. § 824a-3(a) (“Such [FERC] rules may not authorize

a qualifying . . . facility to make any sale for purposes other than

resale.’’).

11 See The White House, Office of the Press Secretary, The

Clinton Administration’s Comprehensive Electricity Competition

Plan (Mar. 25, 1998), accessed at <http://www.pub.whitehouse.

gov/uri-.../oma.eop.gov.us/1998/3/26/4.text.1>.

15

legislation on its own terms. North Star’s assertions about

the importance of the antitrust laws in a deregulated in-

dustry puts the cart before the horse. Should Iowa enact

retail choice, the antitrust laws will certainly become an

important tool for protecting competition. Until that time,

however, pervasive state regulation in the provision of

retail electric service remains the operative system.

B. This Case Reflects No “Split” Among the Circuits

Meriting Review By This Court

North Star also asserts that there is a “split among the

federal circuit courts” with respect to the first prong of

the state action doctrine, which requires that a state policy

displacing competition with regulation be “clearly articu-

lated” and “affirmatively expressed.” North Star character-

izes this split as one between those courts that have

adopted a “foreseeability” standard in which “inference”

of a policy is accepted, and those which still require

“clear articulation” of a policy pursuant to the Midcal

standard. (Pet. 8-12.) These claims both mischaracterize

the decision below and overstate the extent of any sup-

posed split among circuits. The “split in the circuits”

hypothesized by North Star is not presented by this case,

and is in any event overstated by North Star.

As an initial matter, the court of appeals did not rely

on an inference from ambiguous or unclear statutory lan-

guage, as North Star asserts. (Pet. 12.) Rather, the

court of appeals based its decision on the express language

of the Iowa statute, which directly displaces competition

with regulation by the establishment of exclusive retail

electric service territories, and the preclusive affect of the

state court decision affirming the IUB’s Declaratory Rul-

ing. As the court of appeals found:

The state statute expressly provides that its purpose

is to create exclusive service areas which have only

16

one supplier of electricity. See IowA CopE § 476.25

(1997). [Footnote omitted.] The policy to displace

competition in the provision of retail electric service,

including the generation of electricity, is unambigu-

ous because the statute has been interpreted to in-

clude the generation of electricity. See In re Mid-

American Energy Co., Docket No. DRU-98-1, slip

op. at 5. Thus, the exclusive service territory statute

is explicit state authorization for displacing competi-

tion in both distribution and generation of retail elec-

tric service.

(Pet. App. A at 10a-lla.) Thus, the court of appeals

applied the “clear articulation” test enunciated by this

Court, and did not rely not on an impermissible “infer-

ence,” as North Star contends (Pet. 13). North Star’s

quarrel is, as it properly should be, with the IUB and the

Iowa General Assembly, not with the federal court of

appeals.

North Star also asserts that the split is presented by the

contrast between Columbia Steel Casting Co. v. Portland

General Elec. Co., 111 F.3d 1427 (9th Cir. 1997), cer*.

denied, 118 S. Ct. 1688 (1998) and cases such as

Praxair, 64 F.3d 609. The Petitioner in Cclumbia Steel

Casting Co. raised a similar contention last Term, also

contrasting Praxair and Columbia Steel Casting Co. This

Court requested briefing by the Solicitor General, who in

turn recommended denial of the petition for certiorari,

stating that his office “perceive[d] no conflict that calls

for resolution by this Court.” '* Specifically, the Solicitor

General observed:

[Unlike petitioner (Pet. 25), we see no firm basis

for concluding that the Praxair court would have

recognized immunity on the facts of this case, or that

12 Brief for the United States as Amicus Curiae at 14, Co’umbia

Steel Casting Co. v. Portland General Elec. Co., No. 97-49, cert.

denied, 118 S. Ct. 1688 (1998).

17

the court below would have rejected a claim of im-

munity on the facts of Praxair.

Id. at 16 (footnote omitted).

The Solicitor General’s reference to “the facts of [the]

case” is a reminder that cases involving the state action

doctrine are heavily dependent on the facts and circum-

stances of each case. (See Pet. 10.) The issues to be

decided include whether the state has clearly articulated

and affirmatively expressed a policy to displace competi-

tion with regulation, whether that policy has been actively

supervised by the state, and whether it extends to im-

munize the particular conduct in question. Because such

cases are “fact-bound,” Brief for the United States as

Amicus Curiae in No. 97-49 at 8, in the absence of

significant doctrinal issues, they are not ordinarily appro-

priate for review by this Court on certiorari. See also id.

at 11 n.5. North Star has offered no rationale that justifies

a grant of certiorari in this case.

North Star’s final argument is that the IUB’s approval

of an experimental program of customer choice somehow

demonstrates that Iowa’s policy is not “clearly articulated,”

“affirmatively expressed,” or “actively supervised.” (Pet.

13-14.) However, the fact that the Board, which has au-

thority to establish exclusive service territories, may also

have authority to approve a limited experimental program

for the purpose of testing how retail competition might

work hardly suggests the absence of a clearly articulated

state policy. As this Court has made clear, the state ac-

tion doctrine should not be construed in a way that un-

necessarily reduces the “range of regulatory alternatives

available to the State.” 15 Likewise the fact that the pro-

13 Southern Motor Carriers Rate Conference, Inc. v. United States,

471 U.S. 48, 61 (1985) (rejecting argument that state policy must

“require, rather than merely permit, anticompetitive conduct” in

order for the state action doctrine to apply).

18

gram—limited in duration and extent—was subject to the

IUB’s detailed review and approval?* confirms that the

State’s policy is, in fact, closely supervised.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted,

J. A. BOUKNIGHT, JR.

Counsel of Record

SAMUEL T. PERKINS

STEPTOE & JOHNSON LLP

1330 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 429-3000

Counsel for Respondents

MidAmerican Energy

Holdings Co. and

November 4, 1999 MidAmerican Energy Co.

14 Sec Pet. App. E.

£ PR LF OIE OF 12

APPENDIX

PRA” -

BL AI FOTW 7 *

la

APPENDIX

IOWA ADMINISTRATIVE CODE rr. 199.24,4(3), (4)

199—24.4(476A) Application for a certificate—con-

tents. Each person or group of persons proposing to con-

Struct a facility after January 1, 1977, or a significant

alteration to a facility shall file an application for certifi-

cate of public convenience. use, and necessity with the

board, unless otherwise provided by these rules.

24.4(3) In section 3, entitled “Current system informa-

tion,” the applicant shal] include the following:

a. A specific and complete description of all Partici-

pants’ operating generating units in all Participants’ op-

erating electric power generating stations. Such descrip-

tion shall include, but shall not be limited to, installed

Senerating capacity including nameplate, net to the busbar

ratings and net to the distribution system of each unit in

megawatts, primary fuel types and sources for each unit.

the heat rate of each unit in BTU‘/kWh over the range

of operating capacity, date placed in service and pro-

jected retirement date. Applicant shall also describe all

Other sources of electricity available to serve Participants’

Service area, Description of other sources of electricity

shall include, but shall not be limited to, total kilowatts

and kilowatt hours available in each quarter of the year.

Fer this purpose, a group of several similar generating

units operated together at the same location such that

Segregated records of energy output are not available shall

be considered as a single unit.

b. For each quarter of the ten (10) years preceding

the date of application. system load level information in

the form of duration curves, load curves and integrated

energy curves. Supporting data for each curve shall be

supplied in tabular form.

POPS UN e RT ire SON te

cree nen 5, ye

2a

c. For each quarter of the ten (10) years preceding

the date of application, in each participant’s service area,

the number of customers in each customer class, the aver-

age customer consumption in each customer class and the

average price per kilowatt hour for each customer class.

Data for the largest industrial users shall be further classi-

fied according to two digit Standard Industrial Classifica-

tion (SIC) Codes. Applicant must indicate whether any

information provided under this subsection constitutes a

clearly unwarranted invasion of personal privacy or trade

secrets required to be kept confidential by the board under

the Iowa Administrative Procedure Act. Applicant shall

provide capital costs and operating and maintenance ex-

penses per kilowatt hour by generating station for each

quarter of the ten (10) years preceding the date of appli-

cation.

d. For purposes of this subsection, the period chosen

for presentation of quarterly data shall be any appropriate

three (3)-month interval, selected on the basis of the

shape of the load curve or any other load characteristics

of the installed generating capacity.

24.4(4) *In section 4, entitled “Future system projec-

tions,” the applicant shall include the following:

a.(1) A description of each participant’s projected in-

stalled generating capacity for each year from the date

of application through the proposed facility’s life. Such

description shall include but not be limited to the pri-

mary type of fuel projected to be used by each generating

unit in the system and the proportion each generating unit

is projected to contribute to total installed generating

capacity.

* Objection, see filed rules published IAC Supp. 1/9/77, 5/4/77,

7/13/77.

RE RAISES MOO ie tates

POR RS Sead aby

3a

(2) A description of other sources of electricity avail-

able or likely to be available to supply participants’ serv-

ice areas. Such description shall include, but shall not be

limited to, total kilowatts and kilowatt hours available for

each year from the date of application through the pro-

posed facility’s life. :

b. (1) Identification and description of participants’ ex-

isting and planned programs designed to conserve energy.

Such description shall include, but shall not be limited to,

estimated kilowatt hours saved for each year from the

date of application through the proposed facility’s life.

(2) An analysis of the effect construction of the facil-

ity would have on the demand for electricity. This analy-

sis shall include, but shall not be limited to, all antici-

pated changes in demand due to community developments

induced by construction of the facility.

(3) An identification of the forecast methodology used

by applicant including a discussion of the analytical tech-

niques used, the manner in which the techniques are

related to the forecast, and the confidence levels and ex-

pected range of accuracy for the components of the fore-

cast.

(4) A projection of system load levels in the form of

duration curves, load curves and integrated energy curves,

for each year from the date of application through the

proposed facility’s life. Supporting data for each curve

shall be supplied in tabular form.

c. For each participants’ service area, a projection of

the number of customers in each customer class, average

customer consumption by customer class and average

price per kilowatt hour for each year from the date of

application through the proposed facility’s life. Applicant

shal! provide projections of capital costs and operating

4a

and maintenance costs per kilowatt hour for each station

in the participants’ system and for the proposed facility

for each year from the date of application through the

proposed facility’s life. Average price per kilowatt hour

may be stated as an aggregate index of all rate classifica-

tions.