We consider Pennsylvania Power Company's second motion for summary judgment and plaintiff's motion for leave to amend the complaint. We previously considered defendant's motion to dismiss, which was treated, in part, as one for summary judgment pursuant to Fed. R. Civ. P. 12(b)(6), in Borough of Ellwood City v. Pennsylvania Power Company, 462 F. Supp. 1343 (W.D. Pa. 1979). We incorporate by reference our prior opinion in this matter. For the reasons stated below, defendant's present motion will be granted in part and denied in part, and plaintiff's motion to amend will be denied.
Plaintiffs, Boroughs of Ellwood City and Grove City (hereinafter Boroughs), are municipal corporations of Pennsylvania located within the service area of defendant, Pennsylvania Power Company (hereinafter Penn Power). Plaintiffs sell electric power at retail to consumers within their respective corporate boundaries. The power that plaintiffs sell is acquired through wholesale purchases from Penn Power, as neither borough has any generation or transmission facilities. Defendant Penn Power has been a wholly-owned subsidiary of Ohio Edison Company since 1944. Penn Power directly services consumers in 137 communities and also sells energy for resale to five municipalities, including plaintiffs.
Penn Power's wholesale rates are regulated by the Federal Energy Regulatory Commission (hereinafter FERC)
pursuant to the Federal Power Act, 16 U.S.C. § 824 et seq. (& Supp. V). Penn Power's retail rates are regulated by the Pennsylvania Public Utility Commission (hereinafter PPUC or Commission) pursuant to the Public Utility Code (hereinafter Code), 66 Pa. C.S. § 101 et seq.
All rates subject to FERC's jurisdiction are required to be just and reasonable and not unduly discriminatory or preferential. 16 U.S.C. § 824d(a) and (b). Penn Power is required to file schedules with FERC listing all wholesale rates, the classifications, practices and regulations affecting the rates, and all contracts relating to the rates. 16 U.S.C. § 824d(c). Pursuant to 16 U.S.C. (Supp. V) § 824d(d), Penn Power must give sixty days notice to FERC and the public before modifying its wholesale rates. In response to a complaint, or on its own initiative, FERC is empowered by 16 U.S.C. § 824d(e) to order a hearing to consider the lawfulness of a filed rate change and authorized to suspend the proposed change for a period not to exceed five months beyond the time when the rate would otherwise go into effect. If a hearing is not ordered, the new rate takes effect at the end of the sixty-day notice period. Pursuant to 16 U.S.C. § 824d(e), if a hearing is not concluded before the expiration of the suspension period, the proposed rate takes effect. Any portion of the increase subsequently determined to be unjustified is then subject to refund with interest.
Pennsylvania law requires utilities to file all tariffs, defined by 66 Pa. C. S. § 1302 as all rules, regulations, practices or contracts involving any rates, with the PPUC. 66 Pa. C. S. § 1302.
Rates may not be preferential to any person, corporation or municipal corporation, nor may a public utility unreasonably discriminate between localities or classes of service. 66 Pa. C. S. § 1304. A retail rate may not go into effect until the PPUC approves it. The Code mandates, as does its federal counterpart, that the utility give sixty days notice to the PPUC before changing any existing or established rate. 66 Pa. C. S. § 1308(a). Upon complaint or upon its own motion, the PPUC may order a hearing to consider the lawfulness of a proposed rate change. Absent an order permitting a proposed tariff to become effective, the proposed rate is automatically suspended for up to seven months following the sixty-day notice period. 66 Pa. C. S. § 1308(d). If an order has not been made prior to the expiration of the seven-month period, the proposed rate takes effect, subject to refund. Id.
Prior to October 7, 1977, the Pennsylvania Public Utility Code had no provision for giving effect to a proposed rate-change should the Commission fail to conclude its hearing and/or reach a decision within the suspension period. However, the PPUC was authorized to suspend rate increases for up to nine months. 66 P. S. § 1148(b). The rate in force at the time the proposed rate was filed remained in effect, unless the PPUC ordered that a temporary rate be collected, until the time that the Commission rendered a final decision. Id. The collection was subject to refund if it were greater than the subsequently approved rate. If it were less than the approved rate, a surcharge could be added. 66 P. S. §§ 1150(e) and 1153(a).
On October 4, 1977, plaintiffs filed a complaint alleging that Penn Power had violated the Sherman Act, 15 U.S.C. §§ 1 and 2, and the Robinson-Patman Act, 15 U.S.C. § 13(a). The complaint alleges that Penn Power imposed an anticompetitive price squeeze upon Boroughs by manipulating the relationship between its wholesale rate to plaintiffs and its retail industrial rates. We stayed the rate-related aspects of Boroughs' claim until the determination of the rate proceedings then-pending before FERC. Borough of Ellwood City v. Pennsylvania Power Co., supra. Boroughs also allege in their complaint that Penn Power prevented plaintiffs from gaining access to alternative sources of power, refused to deal with Boroughs, adopted a policy of denying access by municipal electric systems to nuclear generating facilities and refused to wheel service to Boroughs. These claims were dismissed by our prior opinion. Id.
We initially address Boroughs' motion for leave to amend the complaint. Plaintiffs wish to amend para. 14 to state (A) defendant's actions, as indicated in the 1977 and 1981 docket proceedings before FERC, constitute unlawful violations of the Federal Power Act and the Sherman Act, and (B) defendant's wheeling rate filed with FERC on November 1, 1982, in response to Grove City Borough's proposed Shenango River Hydroelectric Project, constitutes an unlawful constructive refusal to wheel and refusal to deal in violation of the Federal Power Act and the Sherman Act.
Leave to amend pleadings out of time under Fed. R. Civ. P. 15(a) is discretionary with the trial court. Foman v. Davis, 371 U.S. 178, 9 L. Ed. 2d 222, 83 S. Ct. 227 (1962). In exercising its discretion, the court may consider the following factors: undue delay, bad faith or dilatory motive on the movant's part, repeated failure to cure deficiencies by previous amendments, undue prejudice to the opposing party by virtue of the allowance of the amendment, and futility of the amendment. Addington v. Farmer's Elevator Mut. Ins. Co., 650 F.2d 663 (5th Cir. 1981). However, there are additional considerations when a plaintiff files a motion to amend after the defendant has moved for summary judgment, as in the present case.
In such a case, the motion to amend
will not be granted unless the party seeking amendment can show not only that the proposed amendment has "substantial merit," Verhein v. South Bend Lathe, Inc., 598 F.2d 1061, 1063 (7th Cir. 1979), but also come forward with "substantial and convincing evidence" supporting the newly asserted claim. Artman v. International Harvester, Inc., 355 F. Supp. 476, 481 (W.D. Pa. 1972). . . . This more demanding burden, which the party seeking amendment bears at this procedural juncture, evolves from the truism that "prejudice to the non-moving party is the touchstone for denial of the amendment." Cornell & Co., Inc. v. Occupational Safety and Health Administration, 573 F.2d 820 (3d Cir. 1978).
Carey v. Beans, 500 F. Supp. 580, 582 (E.D. Pa. 1980), aff'd mem., 659 F.2d 1065 (3d Cir. 1981). The trial court's decision is not subject to reversal except for an abuse of discretion. Heyl & Patterson International v. F.D. Rich Housing, 663 F.2d 419 (3d Cir. 1981), cert. denied, 455 U.S. 1018, 102 S. Ct. 1714, 72 L. Ed. 2d 136 (1982).
The proposed amendment alleging violations of the Sherman Act would cause defendant to suffer undue prejudice because it would cause discovery, now completed, to begin again. We note, infra, that discovery in this complex case has been extensive and lengthy. Plaintiffs note, at p. 38 of their brief in opposition to the motion for summary judgment, that should the amendment be permitted, they will begin discovery concerning Penn Power's actions regarding the Shenango hydro project. To require defendant, at this late date, to begin discovery anew is indefensible. See Roberts v. Arizona Bd. of Regents, 661 F.2d 796 (9th Cir. 1981) (Court of Appeals upheld district court's refusal to permit amendment of complaint, where the issue was raised at the "eleventh hour," after discovery was virtually complete, and the defendant's motion for summary judgment was pending before the court). See also Mende v. Dun & Bradstreet, Inc., 670 F.2d 129 (9th Cir. 1982). Accordingly, the motion for leave to amend the complaint is denied.
Turning to the motion for summary judgment, the allegations of the complaint pertinent to the claim of price squeeze accuse defendant of discriminating in price between rates applicable to municipal wholesale customers and those charged retail industrial customers. Boroughs allege that they pay more, as wholesale customers, than retail industrial customers pay for similar service. The effect of this rate differential is alleged, inter alia, to prevent plaintiffs from competing with Penn Power for industrial customers.
The proceedings before FERC required two separate opinions and orders because the administrative law judge had severed the price squeeze issue from the issues of cost of service, rate design and compliance. The latter were considered in Phase I, Opinion No. 89, 21 F. P. S. 5-37, issued July 18, 1980. The price squeeze claim was dealt with in Phase II, Opinion No. 157, 23 F. P. S. 5-928, issued December 21, 1982. FERC denied Penn Power's and Boroughs' requests for rehearing in Opinion No. 157-A, 24 F. P. S. 5-115, issued February 18, 1983. A petition for review has been filed. Boroughs of Ellwood City v. FERC, 701 F.2d 266 (D.C. Cir. 1983).
As noted above, FERC considered, in Opinion No. 157, whether Penn Power engaged in an anticompetitive price squeeze. Boroughs argued to FERC, and argue here, that the disparity between the wholesale rate they paid, and the retail rate charged to industrial customers, created a price squeeze. It's effect was to preclude competition between Boroughs and Penn Power. In resolving this claim, FERC compared the rates of return indicated by consistent cost of service analyses of the wholesale and relevant retail rates. FERC concluded that a disparity of rates of return, which was unexplained by differences in cost factors, existed during the period from September 11, 1977, to September 1, 1978. However, FERC also determined that factual circumstances existed that justified the tolerance of the price discrimination.
As noted previously, Penn Power's retail rates are governed by the PPUC, and wholesale rates are governed by FERC. Thus, different statutes and agencies govern the rates and the dates on which changes in the rates may be implemented. This dual utility rate regulation was a significant factor in FERC's determination that the price disparity should be tolerated in the instant case.
Defendant alleged that it needed rate relief immediately to maintain its construction program. Therefore, it filed a proposed wholesale rate increase in accordance with the Federal Power Act. However, Penn Power did not simultaneously file its proposed retail rate increase with the PPUC, so that it could take advantage of the newly enacted Public Utility Code. As we noted supra, a change in the Code provided that when the PPUC failed to reach a decision before the expiration of the suspension period, the utility's proposed rate would take effect, subject to refund. This is a departure from the prior statute which required that either the rate in force at the time the proposed rate was filed, or a temporary rate imposed by the Commission, remain in effect until the PPUC concluded its investigation and reached a decision.
Therefore, Penn Power's decision to delay its retail rate filing in 1977, provided it assurance of either a prompt Commission ruling on its rate application (within the seven month suspension period) or the right to implement its proposed rates in full, subject to refund, after the suspension period. Had Penn Power filed prior to October 7, 1977, it would have faced the possibility of an even longer suspension period and temporary rates thereafter that may have been substantially less than the proposed rate relief.
Opinion No. 157-A, supra, at 5-115-116 (footnote omitted).
FERC thus concluded that by waiting to file its retail tariff, so as to take advantage of the newly enacted Code, Penn Power actually mitigated the price squeeze. FERC reasoned that by delaying the state filing, Penn Power may have shortened the duration of the disparities in its wholesale and retail rates that would have resulted from earlier, simultaneous filings. FERC therefore held that although there was a price squeeze for eleven and one-half months, Penn Power demonstrated mitigating circumstances that rendered the price discrimination not undue.
We are now asked to give full effect to the decision of the Federal Energy Regulatory Commission in Opinions Nos. 157 and 157-A, and thereby grant Penn Power's motion for summary judgment. Following argument on the motion and extensive research, we conclude that the motion must be denied even though FERC has decided the main issue before the court.
Penn Power cites the Supreme Court's decision in FPC v. Conway Corp., 426 U.S. 271, 96 S. Ct. 1999, 48 L. Ed. 2d 626 (1976), in which the Court concluded that FERC (then the Federal Power Commission) has the authority and the duty under the Federal Power Act to consider allegations of price squeeze in a ratemaking proceeding. The Supreme Court stated,
The Commission thus cannot so easily satisfy its obligation to eliminate unreasonable discriminations or put aside its duty to consider whether a proposed rate will have anticompetitive effects. . . . The Commission must arrive at a rate level deemed by it to be just and reasonable, but in doing so it must consider the tendered allegations that the proposed rates are discriminatory and anticompetitive in effect.
FPC v. Conway, supra, at 278-79.
The Conway Court made it clear that FERC is empowered to determine "whether a utility's wholesale rates [are] discriminatory and noncompetitive when compared with a utility's non-jurisdictional retail rates." Note, The Applicability of Antitrust Laws to Price Squeezes in the Electric Utility Industry, 54 St. John's L. Rev. 103, 110 (1979) (hereinafter Note, The Applicability of Antitrust Laws). This relationship between wholesale and retail rates and their potential for working an anticompetitive effect is the essence of the price squeeze issue presently before us.
FERC and the parties expended considerable time and expense developing and considering this case. Discovery commenced in September, 1977, producing thousands of pages of material. The hearing before FERC lasted over four weeks, producing thousands of pages of testimony and exhibits. FERC made a thorough analysis of the relationship between the rates and the dual regulation to which Penn Power is subject. Penn Power argues that the court should not second guess FERC's determination, especially in light of its particular expertise in the areas of rate-making and anti-competitive price squeezes. The Supreme Court's pronouncement in Conway, Penn argues, would be a hollow directive if this court should now undertake the identical analysis and consideration recently completed by FERC. Both parties, it is argued, will have the benefit of appellate review by virtue of the District of Columbia Circuit Court's consideration of FERC's decision on appeal.
FERC has determined that although there existed a price disparity for eleven and one-half months, it is explained and justified by the effects of dual regulation to which Penn Power is subject. Penn Power argues that the Boroughs should not be entitled to relitigate the factual or legal issues determined by FERC under the fundamental principles of issue preclusion expressed by the Restatement (Second) of Judgments § 27 (1980):
When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.