Subject Matter Jurisdiction over Rate Claim
Penn Power has moved to dismiss the rate related price squeeze counts in plaintiffs' complaint, arguing that ratemaking on both the wholesale and retail levels is so regulated by the state and federal governments as to create immunity from antitrust review of rate decisions. Penn Power relies on the rule of Parker v. Brown, 317 U.S. 341, 63 S. Ct. 307, 87 L. Ed. 315 (1943) in contending that any antitrust violations based on retail rates as set by the Pennsylvania Public Utility Commission (PUC) are immune from antitrust review. Penn Power also argues that wholesale rates set by the FERC cannot create liability due to the rule of Gordon v. New York Stock Exchange, 422 U.S. 659, 95 S. Ct. 2598, 45 L. Ed. 2d 463 (1975), the federal correlate of the Parker rule. Finally, Penn Power inferentially argues that the combined effect of federal and state regulation creates antitrust immunity. Each of these arguments must be separately considered.
Insofar as state regulation is urged as a basis of antitrust immunity, this action is controlled by the holding of Cantor v. Detroit Edison, 428 U.S. 579, 96 S. Ct. 3110, 49 L. Ed. 2d 1141 (1976). Cantor was a private antitrust suit brought as a result of actions of Detroit Edison, a public utility, pursuant to a binding tariff approved by the state regulatory commission. Detroit Edison provided customers with lightbulbs in an amount determined by the power usage of the customer. No charge for the bulbs, beyond that of the rate charged for power usage, was made. The program was designed to stimulate the use of power by Detroit Edison customers. The plaintiff, a retail distributor of lightbulbs, brought an antitrust action against Detroit Edison, alleging the lightbulb program was a tying arrangement in violation of the antitrust laws.
The bulb distribution plan was submitted as part of a comprehensive tariff filed with and approved by the state regulatory commission. The tariff could not be varied by the utility while it remained in effect. The utility could, however, file a new tariff at any time, dropping the lightbulb program. Such a tariff would be effective upon approval of the commission. The issue presented was whether such a tariff would create antitrust immunity as an act under compulsion of the sovereign. The Court held it did not.
Justice Stevens, joined by a plurality of the Court, wrote the opinion of the Court, an opinion in which Chief Justice Burger concurred in two significant parts. Justice Brennan concurred in the result, but not the reasoning of the plurality.
Justice Stevens discusses the holding of Parker in the first section of the plurality opinion. Based on the history and careful language of Parker, Justice Stevens concludes that Parker applies only to acts of the state or its agents. Since Cantor does not involve actions of the state alone, Parker does not control. This holding was not joined by the majority of the Court, however. As a result, the scope of Parker is unclear. See Burger Concurrence, 428 U.S. 604, 96 S. Ct. 3110.
Part two of the plurality opinion is joined by Chief Justice Burger. Because of the concurrence of the Chief Justice, this section (and section four) contains the critical majority holding of the Court.
The question considered in part two of the decision is whether "private conduct required by state law is exempt from the Sherman Act." Parker, itself, is not considered. The Court turns rather to other precedent in attempting to define a rule controlling the question posed.
The Court initially accepted the contention that it would be fundamentally unfair to impose liability upon individuals acting entirely under compulsion by the state. Most state compulsion is, however, a mixture of state and private decision-making. A fairness standard, therefore, beyond being unhelpful in most cases, rarely would apply, and was thus rejected.
Amici Curiae argued that antitrust concepts are fundamentally inconsistent with the regulation of public utilities, which is usually on a "public interest" basis, thus regulation required immunization. The Court rejected this argument as well, based on three grounds. First, the mere co-application of state and antitrust regulation in an industry does not imply inconsistency between these standards. Second, assuming inconsistency, it is not necessary that when inconsistency arises, antitrust review should be subordinated to state interests. Third, even when exemption is found, that exemption must be limited to policies and activities in the regulated area only. In Cantor, given the fact that the lightbulb market was not a regulated market, exemption was not justified.
Turning to precedent concerning implied exemption from the antitrust laws by federal regulatory legislation, the Court held that exemption would be found only if "exemption was necessary in order to make the regulatory act work "and even then to the minimum extent necessary.' " Id., at 597, 96 S. Ct. at 3121, quoting Otter Tail Power Company v. U. S., 410 U.S. 366, 389, 93 S. Ct. 1022, 35 L. Ed. 2d 359 (1973).
Under the holding of Cantor, it was clear that a lightbulb distribution program was not necessary to the regulation of electric power sales.
We conclude, based on the Cantor holding, that state regulation of retail rates does not immunize the wholesale rates when, as here, a price squeeze is alleged and wholesale rates are beyond state jurisdiction.
The Pennsylvania Public Utility Code, 66 P.S. § 1101 Et seq., requires all tariffs to be approved by the PUC prior to becoming effective. 66 P.S. § 1142. The rates approved must be just and reasonable. 66 P.S. § 1141. There is nothing in this regulatory scheme which would be inconsistent with the prohibition of a price squeeze such as that asserted by plaintiffs. In fact, the wholesale rates controlled by the FERC are not controlled by the PUC. 66 P.S. § 1142. The full mechanism of price squeeze, therefore, the control of both retail and wholesale rates, is not within PUC control. Applying antitrust review to the differential between these rates is thus not inconsistent with the state regulatory scheme; the subject of the claims falls outside the regulatory regime. State regulation does not provide grounds for an implied exemption to the antitrust laws in this instance. Accord, City of Mishawaka v. Indiana & Michigan Electric Company, 560 F.2d 1314 (7th Cir. 1977), and City of Shakopee v. Northern States Power Co., Civ. No. 4-75-591 (D.Minn.1976).
Penn Power relies heavily upon a recent opinion of the Court of Appeals for the Third Circuit, Mobilfone of Northeastern Pennsylvania v. Commonwealth Telephone Co., 571 F.2d 141 (3d Cir. 1978), in arguing against application of Cantor. This reliance is misplaced. In Mobilfone the Court of Appeals found the Parker exemption to be justified due to the pervasive regulation of the defendant telephone system pursuant to the Pennsylvania Public Utility Code, the same code under which Penn Power is regulated. The activities challenged in Mobilfone differ significantly, however, from those questioned in this action.
In Mobilfone, a radio-telephone paging company sought to bar Commonwealth Telephone Company from entering the radio-telephone paging market, arguing that entrance by Commonwealth constituted a monopolization of the market violative of the antitrust laws. The action brought into question the basic power of the state to admit a competitor into a regulated market; this challenge cut to the heart of the state interest in regulating a market in which it had determined competition not to be in the public interest. The court determined that three requirements needed to be fulfilled for Parker to apply:
". . . the defendant must show that the state has an independent regulatory interest in the subject matter of the antitrust controversy; that there exists a clear and affirmative articulation of the state's policy with regard to that interest; and that the state supervision is active."
Id., at 144. All of these requirements were found to be satisfied, due to the fact that the challenged activity was operating in the radio paging market. Since the market was actively and pervasively regulated, and the state had expressed an interest in limiting competition through regulation, Parker immunity was present. In this action, the challenged activity falls beyond PUC regulation. Since wholesale rates are not within PUC purview, at least the third element of the Mobilfone holding, active supervision, is necessarily absent. Mobilfone, therefore, supports plaintiffs' position and not that of Penn Power. Parker immunity based on state regulation is absent.
Federal regulation provides no exemption either. Penn Power argues that since the FERC has jurisdiction over wholesale rates and can consider the price squeeze alleged in the setting of these rates, there is an implied exemption from District Court jurisdiction over price squeeze antitrust claims.
Penn Power bases its argument upon FPC v. Conway Corp., 426 U.S. 271, 96 S. Ct. 1999, 48 L. Ed. 2d 626 (1976). The question presented by Conway, as framed by the Court, was this:
"When a power company that sells electricity at both wholesale and retail seeks to raise its wholesale rates, does the Federal Power Commission have jurisdiction to consider the allegations of the company's wholesale customers that the proposed wholesale rates, which are within the Commission's jurisdiction, are discriminatory and noncompetitive when considered in relation to the company's retail rates, which are not within the jurisdiction of the Commission?
Id., at 272, 96 S. Ct. at 2001.
The factual background of Conway is very similar to the case at hand. Arkansas Power and Light (APL) sought to raise its wholesale rates, filing a revised tariff with the FERC (then the Federal Power Commission). Wholesale customers sought to intervene before the Commission, opposing the rates. Price squeeze allegations similar to those asserted here were made by the customers. The Commission allowed intervention but would not hear argument based on the differential between the wholesale and retail rates, since the retail rates were beyond the jurisdiction of the Commission, being set by the State Commission.
The Supreme Court rejected the position of the Commission. Although the retail rate is not within the jurisdiction of the FERC, there is adequate variance in the zone within which wholesale rates may be set as to enable the Commission to set a rate which would ameliorate the condition of wholesale customers subject to the price squeeze. "The Commission must arrive at a rate level deemed by it to be just and reasonable, but in so doing, it must consider the tendered allegations that the proposed rates are discriminatory and anti-competitive in effect." Id., at 279, 96 S. Ct. at 2004.
Penn Power maintains that since the FERC has jurisdiction to hear the arguments raised by plaintiffs in this action, the FERC has exclusive jurisdiction over those antitrust claims.
An implied repeal of the antitrust laws is not so easily established, however. Conway is not a jurisdictional case.
Further, the mere fact that FERC may consider arguments based on antitrust concepts does not preclude later antitrust review. There is no certainty that use of the limited powers of the FERC can fully remedy an antitrust violation. Mere consideration of a claim does not rise to the level of complete disposition of the underlying violation.
Conway does not mandate an exemption from antitrust review under Gordon v. New York Stock Exchange, 422 U.S. 659, 95 S. Ct. 2598, 45 L. Ed. 2d 463 (1974). The Gordon rule does not differ appreciably from that announced in Cantor. Exemption results only if there is a clear repugnancy between the regulatory legislation and antitrust review. Justice Douglas, in his concurring opinion writes:
"The mere existence of a statutory power of review by the SEC over fixed commission rates cannot justify immunizing those rates from antitrust challenges. The antitrust laws are designed to safeguard a strong public interest in free and open competition, and immunity from those laws should properly be implied only when some equivalent mechanism is functioning to protect that public interest."