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Otter Tail Power Co. v. United States (full text) :: 410 U.S. 366 (1973) :: Justia U.S. Supreme Court Center Log In
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Otter Tail Power Co. v. United States 410 U.S. 366 (1973)
U.S. Supreme CourtOtter Tail Power Co. v. United States, 410 U.S. 366 (1973)Otter Tail Power Co. v. United StatesNo. 71-991Argued December 5, 1972Decided February 22, 1973410 U.S. 366APPEAL FROM THE UNITED STATES DISTRICT COURT
3. The record supports the District Court's findings that Otter Tail -- solely to prevent the municipal systems from eroding its monopolistic position -- refused to sell at wholesale or to wheel, and that Otter Tail, to the same end, invoked restrictive provisions in its contracts with the Bureau of Reclamation and other suppliers, the court correctly concluding that such provisions, per se, violated the Sherman Act. Pp. 410 U. S. 377-379. Page 410 U. S. 367
DOUGLAS, J., delivered the opinion of the Court, in which BRENNAN, WHITE, and MARSHALL, JJ., joined. STEWART, J., filed an opinion concurring in part and dissenting in part, in which BURGER, C.J., and REHNQUIST, J., joined, post, p. 410 U. S. 382. BLACKMUN and POWELL, JJ., took no part in the consideration or decision of the case. Page 410 U. S. 368
Otter Tail sells electric power at retail in 465 towns in Minnesota, North Dakota, and South Dakota. The District Court's decree enjoins it from refusing to sell electric power at wholesale to existing or proposed municipal electric power systems in the areas serviced by Otter Tail, from refusing to wheel electric power over the lines from the electric power suppliers to existing or proposed municipal systems in the area, from entering into or enforcing any contract which prohibits use of Otter Tail's lines Page 410 U. S. 369 to wheel electric power to municipal electric power systems, or from entering into or enforcing any contract which limits the customers to whom and areas in which Otter Tail or any other electric power company may sell electric power.
In towns where Otter Tail distributes at retail, it operates under municipally granted franchises which are limited from 10 to 20 years. Each town in Otter Tail's service area generally can accommodate only one distribution system, making each town a natural monopoly market for the distribution and sale of electric power at retail. The aggregate of towns in Otter Tail's service area is the geographic market in which Otter Tail competes for the right to serve the towns at retail. [Footnote 1] That competition is generally for the right to serve the entire Page 410 U. S. 370 retail market within the composite limits of a town, and that competition is generally between Otter Tail and a prospective or existing municipal system. These towns number 510 and of those Otter Tail serves 91, or 465.
The antitrust charge against Otter Tail does not involve the lawfulness of its retail outlets, but only its methods of preventing the towns it served from establishing their own municipal systems when Otter Tail's Page 410 U. S. 371 franchises expired. The critical events centered largely in four towns -- Elbow Lake, Minnesota, Hankinson, North Dakota, Colman South Dakota, and Aurora, South Dakota. When Otter Tail's franchise in each of these towns terminated, the citizens voted to establish a municipal distribution system. Otter Tail refused to sell the new systems energy at wholesale and refused to agree to wheel power from other suppliers of wholesale energy.
As respects Elbow Lake and Hankinson, Otter Tail simply refused to deal, although according to the findings it had the ability to do so. Elbow Lake, cut off from all sources of wholesale power, constructed its own generating plant. Both Elbow Lake and Hankinson requested the Bureau of Reclamation and various cooperatives to furnish them with wholesale power; they were willing to supply it if Otter Tail would wheel it. But Otter Tail refused, relying on provisions in its contracts which barred the use of its lines for wheeling power to towns which it had served at retail. Elbow Lake, after completing its plant, asked the Federal Power Commission, under § 202(b) of the Federal Power Act, 49 Stat. 848, 16 U.S.C. § 824a(b), to require Otter Tail to interconnect with the town and sell it power at wholesale. The Federal Power Commission ordered first a temporary [Footnote 4] and then a permanent connection. [Footnote 5] Hankinson tried unsuccessfully to get relief from the North Dakota Commission and then filed a complaint with the federal commission Page 410 U. S. 372 seeking an order to compel Otter Tail to wheel. While the application was pending, the town council voted to withdraw it and subsequently renewed Otter Tail's franchise.
United States v. Philadelphia National Bank, 374 U. S. 321, 374 U. S. 350-351. See also Silver v. New York Stock Exchange, 373 U. S. 341, 373 U. S. 357-361. Activities which come under the jurisdiction of a regulatory agency nevertheless may be subject to scrutiny under the antitrust laws. Page 410 U. S. 373
There is nothing in the legislative history which reveals Page 410 U. S. 374 a purpose to insulate electric power companies from the operation of the antitrust laws. To the contrary, the history of Part II of the Federal Power Act indicates an overriding policy of maintaining competition to the maximum extent possible consistent with the public interest. As originally conceived, Part II would have included a "common carrier" provision making it "the duty of every public utility to . . . transmit energy for any person upon reasonable request. . . ." In addition, it would have empowered the Federal Power Commission to order wheeling if it found such action to be "necessary or desirable in the public interest." H.R. 5423, 74th Cong., 1st Sess.; S. 1725, 74th Cong., 1st Sess. These provisions were eliminated to preserve "the voluntary action of the utilities." S.Rep. No. 621, 74th Cong., 1st Sess., 19.
Thus, there is no basis for concluding that the limited authority of the Federal Power Commission to order interconnections was intended to be a substitute for, or Page 410 U. S. 375 to immunize Otter Tail from, antitrust regulation for refusing to deal with municipal corporations.
So far as wheeling is concerned, there is no authority granted the Commission under Part II of the Federal Power Act to order it, for the bills originally introduced contained common carrier provisions which were deleted. [Footnote 6] The Act as passed contained only the interconnection provision set forth in § 202(b). [Footnote 7] The common carrier Page 410 U. S. 376 provision in the original bill and the power to direct wheeling were left to the "voluntary coordination of electric facilities." [Footnote 8] Insofar as the District Court ordered wheeling to correct anticompetitive and monopolistic practices of Otter Tail, there is no conflict with the authority of the Federal Power Commission.
As respects the ordering of interconnections, there is no conflict on the present record. Elbow Lake applied to the Federal Power Commission for an interconnection with Otter Tail and, as we have said, obtained it. Hankinson renewed Otter Tail's franchise. So the decree of the District Court, as far as the present record is concerned, presents no actual conflict between the federal judicial decree and an order of the Federal Power Commission. The argument concerning the preemption of the area by the Federal Power Commission concerns only instances which may arise in the future, if Otter Tail continues its hostile attitude and conduct against "existing or proposed municipal electric power systems." The decree of the District Court has an open end by which that court retains jurisdiction "necessary or appropriate" to carry out the decree or "for the modification of any of the provisions." It also contemplates that future disputes over interconnections and the terms Page 410 U. S. 377 and conditions governing those interconnections will be subject to Federal Power Commission perusal. It will be time enough to consider whether the antitrust remedy may override the power of the Commission under § 202(b) as, if, and when the Commission denies the interconnection and the District Court nevertheless undertakes to direct it. At present, there is only a potential conflict, not a present concrete case or controversy concerning it.
The record makes abundantly clear that Otter Tail used its monopoly power in the towns in its service area to foreclose competition or gain a competitive advantage, or to destroy a competitor, all in violation of the antitrust laws. See United States v. Griffith, 334 U. S. 100, 334 U. S. 107. The District Court determined that Otter Tail has "a strategic dominance in the transmission of power in most of its service area," and that it used this dominance to foreclose potential entrants into the retail area from obtaining electric power from outside sources of supply. 331 F.Supp. at 60. Use of monopoly power "to destroy threatened competition" is a violation of the "attempt to monopolize" clause of § 2 of the Sherman Act. Lorain Journal v. United States, 342 U. S. 143, 342 U. S. 154; Eastman Kodak Co. v. Southern Photo Materials Co., 273 U. S. 359, 273 U. S. 375. S o are agreements not to compete, with the aim of preserving or extending a monopoly. Schine Chain Theatres v. United States, 334 U. S. 110, 334 U. S. 119. In Associated Press v. United States, 326 U. S. 1, a cooperative news association had bylaws that permitted member newspapers to bar competitors from joining the association. We held that that practice violated the Sherman Act, even though the transgressor "had not yet achieved a complete monopoly." Id. at 326 U. S. 13. Page 410 U. S. 378
Otter Tail relies on its wheeling contracts with the Bureau of Reclamation and with cooperatives which it says relieve it of any duty to wheel power to municipalities served at retail by Otter Tail at the time the contracts were made. The District Court held that these restrictive provisions were, "in reality, territorial allocation schemes," 331 F.Supp. at 63, and were per se violations of the Sherman Act, citing Northern Pacific R. Co. v. United States, 356 U. S. 1. Like covenants were there held to "deny defendant's competitors access to the fenced-off market on the same terms as the defendant." Id. at 356 U. S. 12. We recently reemphasized the vice under the Sherman Act of territorial restrictions among potential competitors. United States v. Topco Associates, 405 U. S. 596, 405 U. S. 608. The fact that some of the restrictive provisions were contained in a contract with the Bureau of Reclamation is not material to our problem for, as the Solicitor General says, "government contracting Page 410 U. S. 379 officers do not have the power to grant immunity from the Sherman Act." Such contracts stand on their own footing, and are valid or not, depending on the statutory framework within which the federal agency operates. The Solicitor General tells us that these restrictive provisions operate as a "hindrance" to the Bureau, and were "agreed to by the Bureau only at Otter Tail's insistence," as the District Court found. The evidence supports that finding.
The District Court found that the litigation sponsored by Otter Tail had the purpose of delaying and preventing the establishment of municipal electric systems "with the expectation that this would preserve its predominant position in the sale and transmission of electric power in the area." [Footnote 9] 331 F.Supp. at 62. The District Court, in discussing Eastern Railroad Conference v. Noerr Motor Freight, 365 U. S. 127, explained that it was applicable "only to efforts aimed at influencing the legislative and executive branches of the government." Ibid. Page 410 U. S. 380 That was written before we decided California Motor Transport Co. v. Trucking Unlimited, 404 U. S. 508, 404 U. S. 513, where we held that the principle of Noerr may also apply to the use of administrative or judicial processes where the purpose to suppress competition is evidenced by repetitive lawsuits carrying the hallmark of insubstantial claims and thus is within the "mere sham" exception announced in Noerr. 365 U.S. at 365 U. S. 144. On that phase of the order, we vacate and remand for consideration in light of our intervening decision in California Motor Transport Co.
The same may properly be said of § 2 cases under the Sherman Act. That Act assumes that an enterprise will protect itself against loss by operating with superior service, lower costs, and improved efficiency. Otter Tail's theory collided with the Sherman Act as it sought to substitute for competition anticompetitive uses of its dominant economic power. [Footnote 10] Page 410 U. S. 381
We do not suggest, however, that the District Court, concluding that Otter Tail violated the antitrust laws, should be impervious to Otter Tail's assertion that compulsory interconnection or wheeling will erode its integrated system and threaten its capacity to serve adequately the public. As the dissent properly notes, the Commission may not order interconnection if to do so "would impair [the utility's] ability to render adequate service to its customers." 16 U.S.C. § 824a(b). The District Court in this case found that the "pessimistic view" advanced in Otter Tail's "erosion study" "is not supported by the record." Furthermore, it concluded that "it does not appear that Bureau of Reclamation power is a serious threat to the defendant, nor that it will be in the foreseeable future." Since the District Page 410 U. S. 382 Court has made future connections subject to Commission approval, and, in any event, has retained jurisdiction to enable the parties to apply for "necessary or appropriate" relief and presumably will give effect to the policies embodied in the Federal Power Act, we cannot say under these circumstances that it has abused its discretion.
It is undisputed that Otter Tail refused either to wheel power or to sell it at wholesale to the towns of Elbow Lake, Minnesota, and Hankinson, North Dakota, both of which had formerly been its customers and had elected to establish municipally owned electric utility systems. The District Court concluded that Otter Tail had substantial monopoly power at retail and "strategic dominance" Page 410 U. S. 383 in the subtransmission of power in most of its market area. [Footnote 2/1] 331 F.Supp. 54, 560. The District Court then mechanically applied the familiar Sherman Act formula: since Otter Tail possessed monopoly power and had acted to preserve that power, it was guilty of an antitrust violation. Nowhere did the District Court come to grips with the significance of the Federal Power Act, either in terms of the specific regulatory apparatus it established or the policy considerations that moved the Congress to enact it. Yet it seems to me that these concerns are central to the disposition of this case.
"[w]hile the distribution of gas or electricity in any given community is tolerated as a 'natural monopoly' to avoid local duplication of plants, there is no Page 410 U. S. 384 justification for an extension of that idea of local monopoly to embrace the common control, by a few powerful interests, of utility plants scattered over many States and totally unconnected in operation."
"Whenever the Commission, after notice and opportunity for hearing, finds such action necessary or desirable in the public interest, it may by order direct a public utility to make additions, extensions, repairs, or improvements to or changes in its facilities, to establish physical connection with the facilities Page 410 U. S. 385 of one or more other persons, to permit the use of its facilities by one or more persons, or to utilize the facilities of, sell energy to, purchase energy from, transmit energy for, or exchange energy with, one or more other persons. [Footnote 2/2]"
"When interconnection cannot be secured by voluntary action, subsection (b) gives the Commission limited authority to compel interstate utilities to connect their lines and sell or exchange energy. The power may only be invoked upon complaint by a State commission or a utility subject to the act. S.Rep. No. 621, 74th Cong., 1st Sess., 49. "Page 410 U. S. 386
This legislative history, especially when viewed in the light of repeated subsequent congressional refusals to impose common carrier obligations in this area, [Footnote 2/4] indicates a clear congressional purpose to allow electric utilities to decide for themselves whether to wheel or sell at wholesale as they see fit. This freedom is qualified by a grant of authority to the Commission to order interconnection (but not wheeling) in certain circumstances. Page 410 U. S. 387 But the exercise of even that power is limited by a consideration of the ability of the regulated utility to function. The Commission may not order interconnection where this would entail an "undue burden" on the regulated utility. In addition, the Commission has
As the District Court found, Otter Tail is a vertically integrated power company. But the bulk of its business -- some 90% of its income -- derives from sales of power at retail. Left to its own judgment in dealing with its customers, it seems entirely predictable that Otter Tail would decline wholesale dealing with towns in which it had previously done business at retail. If the purpose of the congressional scheme is to leave such decisions to the power companies in the absence of a contrary requirement imposed by the Commission, it would appear that Otter Tail's course of conduct in refusing to deal with the municipal system at Elbow Lake and in refusing to promise to deal with the proposed system at Hankinson, was foreseeably within the zone of freedom specifically created by the statutory scheme. [Footnote 2/5] As a retailer Page 410 U. S. 388 of power, Otter Tail asserted a legitimate business interest in keeping its lines free for its own power sales and in refusing to lend a hand in its own demise by wheeling cheaper power from the Bureau of Reclamation to municipal consumers which might otherwise purchase power at retail from Otter Tail itself.
The opinion of the Court emphasizes that Otter Tail's actions were not simple refusals to deal -- they resulted in Otter Tail's maintenance of monopoly control by hindering the emergence of municipal power companies. The Court cites Lorain Journal v. United States, 342 U. S. 143, for the proposition that "[u]se of monopoly power to destroy threatened competition' is a violation of the `attempt to monopolize' clause of § 2 of the Sherman Act." This proposition seems to me defective. Lorain Journal dealt neither with a natural monopoly at retail nor with a congressionally approved system predicated on the existence of such monopolies. In Lorain Journal, a newspaper in Lorain, Ohio, used its monopoly position to discourage advertisers from supporting a nearby radio station seen by the newspaper to be a competitor. The theory of the case was that competition in the communications business was being foreclosed by the newspaper's exercise of monopoly power. Here, Page 410 U. S. 389 by contrast, a monopoly is sure to result either way. If the consumers of Elbow Lake receive their electric power from a municipally owned company or from Otter Tail, there will be a monopoly at the retail level, for there will, in any event, be only one supplier. The very reason for the regulation of private utility rates -- by state bodies and by the Commission -- is the inevitability of a monopoly that requires price control to take the place of price competition. Antitrust principles applicable to other industries cannot be blindly applied to a unilateral refusal to deal on the part of a power company, operating in a regime of rate regulation and licensed monopolies.
The Court's opinion scoffs at Otter Tail's defense of business justification. United States v. Arnold, Schwinn & Co., 388 U. S. 365, is cited for the proposition that "[t]he promotion of self-interest alone does not invoke the rule of reason to immunize otherwise illegal conduct." This facet of the Court's reasoning also escapes me in the case before us, where the health of power companies and the abundance of our energy supply were considerations central to the congressional purpose in devising the regulatory scheme. As noted above, the Commission is specifically prohibited from imposing interconnection requirements that are unduly burdensome or that interfere with a public utility's ability to serve its customers efficiently. The District Court noted that Otter Tail had offered a "so-called erosion study'" documenting the way in which its business would suffer if it were forced to wholesale and wheel power to municipally owned companies. The District Court gave little credence to the report's predictions. "But regardless," the court went on, "even the threat of losing business does not justify or excuse violating the law." 331 F.Supp. at 665. This question-begging disregard of the economic health of Otter Tail is wholly at odds with the congressional.purpose in Page 410 U. S. 390 specifying the conditions under which interconnections can be required.
This is not to say that Otter Tail's financial health is paramount in all instances, [Footnote 2/6] or that the electric power industry as regulated by the Commission is per se exempt from the antitrust laws. In the absence of a specific statutory immunity, cf. Hughes Tool Co. v. Trans World Airlines, 409 U. S. 363, such exemptions are not lightly to be implied, United States v. Philadelphia National Bank, 374 U. S. 321. Furthermore, no sweeping antitrust exemption is warranted, as it has been in cases involving certain pervasively regulated industries, under the doctrine of "primary jurisdiction." [Footnote 2/7] Cf. 358 U. S. S. 391Á States v. Radio Corp of America, 358 U. S. 334, 358 U. S. 346-352. See Far East Conference v. United States, 342 U. S. 570; Terminal Warehouse Co. v. Pennsylvania R. Co., 297 U. S. 500; United States Navigation Co. v. Cunard S.S. Co., 284 U. S. 474; Keogh v. Chicago & N.W. R. Co., 260 U. S. 156; Texas Pacific R. Co. v. Abilene Cotton Oil Co., 204 U. S. 426; cf. Carnation Co. v. Pacific Westbound Conference, 383 U. S. 213. Our duty in attempting to reconcile the Federal Power Act with the Sherman Act on the facts of the case before us requires a judgment regarding the "character and objectives" of the regulatory scheme and the extent to which they "are incompatible with the maintenance of an antitrust action." Silver v. New York Stock Exchange, 373 U. S. 341, 373 U. S. 358. "Repeal [of the antitrust laws] is to be regarded as implied only if necessary to make the . . . [Act] work, and even then only to the minimum extent necessary." Id.@ at 373 U. S. 357.
With respect to decisions by regulated electric utilities as to whether or not to provide non-retail services, I think that, in the absence of horizontal conspiracy, the teaching of the "primary jurisdiction" cases argues for leaving governmental regulation to the Commission, instead of the invariably less sensitive and less specifically expert process of antitrust litigation. I believe this is Page 410 U. S. 392 what Congress intended by declining to impose common carrier obligations on companies like Otter Tail, and by entrusting the Commission with the burden of "assuring an abundant supply of electric energy throughout the United States" and with the power to order interconnections when necessary in the public interest. This is an area where "sporadic action by federal courts" can "work mischief." Cf. United States v. Radio Corp. of America, 358 U.S. at 358 U. S. 350. [Footnote 2/8]
Even assuming that Otter Tail's refusals to wholesale or wheel power to Elbow Lake and Hankinson were colorably within the reach of the antitrust laws, I cannot square the opinion of the Court with our recent decision in Ricci v. Chicago Mercantile Exchange, 409 U. S. 289. Otter Tail's refusal to wholesale or wheel power to Elbow Lake was the subject of two concurrent proceedings -- one in the District Court and another in the Federal Power Commission. It seems to me that the principles of Ricci, related to but not identical with the traditional doctrine of "primary jurisdiction," should require a District Court in a case like this one to defer to the Commission proceeding then in progress. Surely the regulatory authority of the Commission with respect to interconnection Page 410 U. S. 393 is at least as substantial as the responsibility of the Commodity Exchange Commission, in Ricci, for the implementation of reasonable membership practices by its regulated contract markets. Id. at 409 U. S. 310-311 (MARSHALL, J., dissenting). The responsibility of the Commission for "assuring an abundant supply of electric energy throughout the United States" and its authority to order compulsory wholesaling satisfy the three criteria enunciated in Ricci for a deferral of antitrust jurisdiction to an administrative agency: (1) that the court must first decide whether the conduct complained of, in light of the regulatory statute, is immune from the antitrust laws; (2) that "some facets of the dispute" are "within the statutory jurisdiction" of the agency; and (3) "that adjudication of that dispute . . . promises to be of material aid in resolving the immunity question." Id. at 402 U. S. 302.
"[W]e cannot disagree with the Examiner's view that Elbow Lake has engaged in 'an ill-advised excursion into the power business.' Given the facts of record before us, it is plain that Elbow Lake's effort has not brought it the rewards it expected; indeed, its first year of operations, during which it perpetuated the rates formerly charged by Otter Tail, resulted in a financial loss. Unlike Otter Tail's earlier service to Elbow Lake, Elbow Lake's own system is of doubtful reliability, as evidenced by its presence before us now. . . . While it is our responsibility to take all possible steps to insure to Elbow Lake's customers a high standard of service Page 410 U. S. 394 reliability, our terms and conditions must not invite improvident ventures elsewhere."
This injunction is qualified by a provision that such wholesaling be done at "compensatory" rates and under "terms and conditions which are filed Page 410 U. S. 395 with and subject to approval by the Federal Power Commission." The setting of rates, terms, and conditions, however, is but part of the Commission's authority under § 202(b), 16 U.S.C. § 824a(b). The Court's decree plainly ignores the Commission's authority to decide whether involuntary interconnection is warranted under the enunciated statutory criteria. Unless the decree is modified, its future implementation will starkly conflict with the explicit statutory mandate of the Federal Power Commission.