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City of Pittsburgh v. West Penn Power Co.

June 12, 1998


(D.C. No. 97-1772)

Before: Becker, Chief Judge, Rendell, and HEANEY,*fn1 Circuit Judges

The opinion of the court was delivered by: Rendell, Circuit Judge

On Appeal from the United States District Court for the Western District of Pennsylvania

Argued March 20, 1998


Appellant, the City of Pittsburgh, filed this antitrust action against West Penn Power Company, d/b/a Allegheny Power, and Duquesne Light Company alleging that the two companies entered into a pre-merger agreement in restraint of trade and that their proposed merger would substantially lessen competition or tend to create a monopoly. The City claims that an agreement between Allegheny Power and Duquesne Light to withdraw Allegheny Power's application before the Public Utility Commission to provide electric service to two Redevelopment Zones within the City violated Section 1 of the Sherman Act.*fn2 The City also seeks injunctive relief against the proposed merger between the two utilities arguing that it violates Section 7 of the Clayton Act.*fn3

The district court granted the utility companies' motions to dismiss, finding that given the allegations of the complaint, the City lacked standing because it had not experienced an antitrust injury. Because we agree that the City has failed to allege that it meets the prudential requirements of antitrust standing, we will affirm the decision of the district court.



As an initial matter, we must determine the extent of our consideration of the materials submitted by the parties. When deciding a motion to dismiss, it is the usual practice for a court to consider only the allegations contained in the complaint, exhibits attached to the complaint and matters of public record. See 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1357 (2d ed. 1990). However, the parties here have provided the court with numerous documents pertaining to the regulatory proceedings that are at the heart of the instant controversy. We note -- as did the district court -- that it can be, and is in this instance, proper to consider these documents in reviewing a motion to dismiss. See Pension Benefits Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993) (finding that "a court may consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff 's claims are based on the document. Otherwise, a plaintiff with a legally deficient claim could survive a motion to dismiss simply by failing to attach a dispositive document on which it relied."). Our recounting of the averments of the complaint, therefore, is informed by the context provided by these documents and other public records of which we can take judicial notice.*fn4 Our factual recitation will also include a short Discussion of the nature of the utility industry in Pennsylvania which provides the regulatory context of this case.

The City of Pittsburgh, located in Allegheny County, is currently embarking on a plan to revitalize several urban areas, called the Redevelopment Zones, which were formerly industrial sites.*fn5 According to the City's plans, these currently vacant sites will eventually be home to industrial, commercial and residential activity. Compl. ¶¶ 12, 13. The City believes that competition for retail electric service would facilitate economic development in these areas. Id. ¶ 14. This desire for competition comes at a time when the regulatory landscape for utilities in Pennsylvania is undergoing significant change. In Pennsylvania, the regulation of electric service distribution has traditionally afforded utility companies natural monopolies. See Barasch v. Pennsylvania Pub. Util. Comm'n, 546 A.2d 1296, 1298 (Pa. Commw. Ct. 1988). The industry operates in a comprehesive regulatory structure supervised by the Pennsylvania Public Utility Commission ("PUC"), which is an independent administrative agency authorized by the state to regulate public utility companies doing business in Pennsylvania. 66 Pa. C.S.A. §§ 301, 501. The Pennsylvania Public Utility Code gives the PUC broad power to "supervise and regulate" public utilities. Id. § 501(b). The PUC is mandated to act in the public interest in overseeing public utilities. A utility company must obtain a certificate of public convenience from the PUC in order to provide retail electric service to a particular area. Id. § 1101.*fn6 Each certificate describes the geographic territory in which the holder is permitted to supply electric service. Id. A certificate may be amended only with permission from the PUC, pursuant to 66 Pa.C.S.A. § 1102. Historically, a utility is able to enter another's service area only if it demonstrates that the area's certificated utility is providing inadequate service to customers in the proposed new territory. See Lansberry, Inc. v. Pennsylvania Pub. Util. Comm'n, 444 A.2d 832, 834-35 (Pa. Commw. Ct. 1982) (discussing requirement of demonstrating inadequacy of service in context of PUC certificate to transport). In addition, generally, the retail rates that a utility charges must be approved by the PUC. 66 Pa. C.S.A. § 1303. For example, the rates of both Allegheny Power and Duquesne Light are now, and have always been, subject to regulatory approval by the PUC. Further, the PUC reviews all proposed utility mergers. Id. §§ 1102, 2811.*fn7

Recently, the Pennsylvania legislature passed the Electricity Generation Customer Choice and Competition Act. Id. § 2801 et seq. The Competition Act sets forth a plan that will gradually introduce competition within the retail generation function of the electric utility industry.*fn8 This legislation envisions a transition from an industry which is largely regulated to one where there is a competitive market. This statute recognizes continued PUC oversight of electricity generation during the "transition" period from January 1, 1997 to January 1, 2001. Id. §§ 2804, 2806. While the Competition Act will introduce some competition among electric service providers in Pennsylvania, it does not entirely displace the regulatory function of the PUC. Because the Competition Act did not alter the statutory requirement that Allegheny Power petition the PUC to amend its certificate, that Act's passage does not alter our analysis of this case. At all times relevant to the events recounted in the City's complaint, Allegheny Power and Duquesne Light were operating under the regulated industry conditions.*fn9

In the summer of 1996, Allegheny Power and Duquesne Light were the only electric utilities possessing certificates of public convenience from the PUC to provide electric service in Allegheny County. Compl. ¶ 17. It is uncontested that Allegheny Power's certificate does not permit it to provide electric service to the area of the City in which the Redevelopment Zones are located. JA at 197 (¶ 11). Duquesne Light is the only utility with a certificate to provide electric service to this area of the City. JA at 195 (¶ 1). Duquesne Light claims that its certificate grants it the exclusive right to provide power to the Redevelopment Zones. Compl. ¶ 28. Because of its belief that competition for retail electric power was "essential" to the success of this redevelopment effort, and because Allegheny Power's tariff rates are substantially lower than those of Duquesne Light, the City entered into Discussions with Allegheny Power regarding the possibility of having Allegheny Power submit a proposal to provide electric service to the Redevelopment Zones. Id. ¶¶ 18, 20, 26. In furtherance of its goal of obtaining competitive utilities for the area, the City filed a "Petition in Support of Choice for Retail Electric Service Within Certain Redevelopment Zones Within the City of Pittsburgh" with the PUC in September of 1996. Id. ¶ 22. Allegheny Power intervened in support of this petition and also filed a separate application with the PUC for permission to supply electrical service to the Redevelopment Zones. Id. ¶¶ 24, 30. Duquesne Light opposed both of these petitions. Id. ¶¶ 27, 32.

In their petitions before the PUC both the City and Allegheny Power contested Duquesne Light's assertion of exclusive rights. A review of the applications made to the PUC is useful to clarify exactly what the City and Allegheny Power were seeking with respect to Allegheny Power's ability to offer electric service in the Redevelopment Zones. In its filing, the City requested that the PUC "take actions necessary to allow choice and competition for retail electric service in two discrete areas in the City undergoing redevelopment . . . wherein Duquesne Light Company .. . and [Allegheny Power Company] . . . would compete for new customers and new electric load." JA at 194 (emphasis added). Further, the City stated in this petition that "[t]o the best of the City's knowledge, Duquesne is at the present the only electric utility possessing a certificate of public convenience ("certificate") from the Commission to serve the City and its citizens." JA at 195 (¶ 1). In its reply to Duquesne Light's Answer to the City's Petition, the City states that it is requesting that the "two utilities, Duquesne and [Allegheny Power], upon the latter's application and grant therefor, hold overlapping certificates to provide retail electric service in the two discrete Redevelopment Zones . . ." JA at 223 (¶ 24).

In its filing to intervene in support of the City's petition, Allegheny Power asserted that it would "apply for authority to provide retail electric service in the Redevelopment Areas and that subject to approval of the Commission, [Allegheny Power] will provide retail electric service to the Redevelopment Areas pursuant to [Allegheny Power's] tariff rates and terms." JA at 200 (¶ 3). In its own application to the PUC, Allegheny Power requested approval for the utility "to begin to offer, render, furnish or supply electric service in two specific additional territories within the boundaries of the City of Pittsburgh." JA at 235 (emphasis added). These documents make clear that both the City and Allegheny Power were applying to the PUC so that Allegheny Power would be given the regulatory permission to begin to supply electric power in the area of the Redevelopment Zones.

In November of 1996, the Urban Redevelopment Authority of Pittsburgh*fn10 issued a Request for Proposals ("RFP") soliciting bids for the provision of the "electric utility infrastructure development" of the Redevelopment Zones. Compl. ¶ 33. Both Allegheny Power and Duquesne Light responded to the RFP with significantly different bids, Allegheny Power's being the lower of the two. Id. ¶ 35. On February 25, 1997, an Administrative Law Judge ("ALJ") held a prehearing conference on Allegheny Power's PUC application. At this hearing the ALJ set a schedule for the submission of testimony regarding Allegheny Power's application and scheduled further hearings for the week of June 9, 1997. Id. ¶ 39. In March of 1997, the PUC consolidated the proceedings involving the City's petition with those of Allegheny Power's application. Id. ¶ 40. On April 7, 1997, Duquesne Light and Allegheny Power announced their intention to merge. Id. ¶ 42. The City alleges that under the terms of the premerger agreement, the two utilities agreed that they would not file any applications with the government without prior consultation and would not make any changes with respect to rates without first consulting each other. Id. ¶ 45. The City avers that these agreements constitute impermissible premerger coordination. Id. ¶ 46. Later in April, Duquesne Light requested a stay of the PUC proceedings before the ALJ, which was denied. Id. ¶ 48, 50. On June 6, 1997, Allegheny Power filed a petition to withdraw its PUC application and to withdraw as an intervenor in the City's pending PUC petition. Id. ¶ 52. The ALJ granted these petitions. Id. ¶ 54. After filing this complaint in federal court, the City petitioned the PUC for a stay of the regulatory proceedings. JA at 445. When this petition was denied, the City withdrew its petition seeking choice for retail electric service. JA at 523-28. Because the City's petition and Allegheny Power's application were withdrawn, the PUC never made a determination as to whether Duquesne Light's certificate gave it exclusive rights to serve the Redevelopment Zones or whether the Commission could or would amend Allegheny Power's certificate in order to permit it to provide electric service in these areas.

In its complaint, the City contends that the actions of Allegheny Power and Duquesne Light violated 15 U.S.C. § 1 ("the Sherman Act") and 15 U.S.C. § 18 ("the Clayton Act"). The City asserts that it has suffered the following damage as a result of the alleged Sherman Act violations: "expending significant efforts to bring competition to the Redevelopment Zones; paying higher, non-competitive rates for electric utility service generally; and losing the opportunity to have lower electric service charges .. . ." Compl. ¶ 59. The City seeks treble damages for the alleged Sherman Act violation.*fn11 The City further argues that a merger between the two utility companies violates the Clayton Act in that it would have anticompetitive effects, and thus seeks injunctive relief to prevent the proposed merger.*fn12 Id. ¶ 66. The City also raises the related state law claims of restraint of trade, civil conspiracy, breach of contract, tortious interference, breach of good faith and fair dealing, and detrimental reliance.

Allegheny Power and Duquesne Light each moved to dismiss the City's complaint pursuant to Fed. R. Civ. P. 12(b)(6). This motion was referred to a Magistrate Judge who issued a report recommending that the motions be granted. On January 6, 1998, the district court adopted this report thereby granting defendants' motions to dismiss and declining to exercise jurisdiction over the City's state law claims. The City filed this timely appeal. Our jurisdiction is founded on 28 U.S.C. § 1291.*fn13



The district court granted the defendants' motions to dismiss because the City lacked standing to bring an antitrust claim. It reasoned that there had been no antitrust injury to the City for two reasons:

First, since Allegheny Power and Duquesne Light had not engaged in competition in light of their regulated provision of services, the agreement between Duquesne Light and Allegheny Power to withdraw Allegheny Power's bid, as well as the proposed merger, did not lessen competition. City of Pittsburgh v. West Penn Power Co., ___ F. Supp. ___, 1998 WL 64074, at * 4 (W.D. Pa. Jan. 6, 1998). As to the City's claim that the proposed merger would eliminate prospective competition, the court found this claim to be too speculative to be actionable. Id.

Second, the court found that the City was denied an opportunity that was contingent on the decision of the PUC and thus, the fact that no competition existed was the result of the regulatory structure. Id. at *5. The district court found that as the City's alleged damages were not the result of harm to competition, they did not constitute the type of injury the antitrust laws were intended to prevent. Id. at *4-5. The district court therefore concluded that, because any injury that was experienced or threatened was not an antitrust injury, the City lacked standing to pursue its claims under the Sherman and Clayton Acts. Id. at *5.



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