Court Opinion

ID: 9477565
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:26:22.132585+00
Date Added: 2024-06-11T17:45:55.318980
License: Public Domain

WILLIAMS, Circuit Judge,
dissenting:
In Federal Power Commission v. Conway Corp., 426 U.S. 271, 96 S.Ct. 1999, 48 L.Ed.2d 626 (1976), the Supreme Court established the “price squeeze” doctrine. It held that the Commission’s duty to set nondiscriminatory rates for wholesale interstate power sales, under §§ 205(b) and 206(a) of the Federal Power Act, 16 U.S.C. §§ 824d(b) and 824e(a) (1982), required it to consider possible discrimination, by a company subject to its jurisdiction, between those rates — which are subject to Commission jurisdiction under the Act — and the company’s retail sales, even though the latter are “non-jurisdictional.” It reasoned that where the wholesale seller and buyer were in competition with each other for retail sales, prices discriminating against the wholesale buyers could subject them to a price squeeze, i.e., unfairly disable them from effective competition with their supplier. Further, since the Commission could not directly reach the wholesaler’s retail sales, it was to remedy the discrimination by reducing the firm’s wholesale rates to some level “in the lower range of the zone of reasonableness.” Id. at 279, 96 S.Ct. at 2004 (internal quotations omitted). Thus, since Conway we know that the Commission may not dismiss a discrimination claim simply because the party asserting it identifies only a disparity between jurisdictional and non-jurisdictional rates or service.
Here the City of Vernon, a power retailer that buys at wholesale from Southern California Edison, makes a claim that, to succeed, must carry Conway well beyond its origins. Edison provides interruptible service to some of its large industrial and commercial retail customers. This service, though at rates well below its firm service, is very nearly firm. Presumably because of the beneficent operation of the law of large numbers (i.e., the proposition that one may reduce risk by holding a portfolio of at least partly independent risks — the reason mortality tables are quite reliable for a million people but almost worthless for one), Edison rarely needs to cut short service to its interruptible customers.
Vernon has a potential claim under Conway that Edison discriminates against it by failing to provide it with interruptible service. If it had made such a claim, and the Commission had responded simply by noting that Edison only offered the interrupti-ble service to non-jurisdictional customers, Conway would automatically require remand for further explanation. But that is not the claim Vernon makes. What it seeks is a service not hitherto offered by Edison to any customer, jurisdictional or non-jurisdictional. For clarity’s sake, we may best call it “pass-through” service. It would enable Vernon to pass through to its own customers the interruptible rates and service that Edison is able to provide by *1050virtue of its customer profile. This would, obviously, enhance Vernon’s capacity to compete with Edison for large industrial and commercial customers.
That this claim takes us well beyond Conway seems clear. It is hard to tell how far, as Vernon has never stated the principle on which it relies. The closest anyone has come to stating a theory, so far as I can discern, is a suggestion by counsel for intervenors at oral argument. The theory appeared to be that when a wholesaler enjoys some important business advantage it is its duty to share that with competing retailers to whom it sells, so long as doing so will not involve drastic additional costs.
As Vernon has never presented this theory to the Commission, it is certainly not for us to assess whether it is compelled by the non-discrimination provisions of the Federal Power Act. (For an effort to assess a comparable proposition in the antitrust context, see Travers, Does a Monopolist Have a Duty to Deal With Its Rivals? Some Thoughts on the Aspen Skiing Case, 57 Colo.L.Rev. 727 (1986)). Some general questions do come to mind. I mention them only to suggest how far this takes us beyond Conway.
First, at what point does this principle stop? For example, suppose a wholesaler has transmission lines to an end-user and a nearby retailer does not. Does the principle require the wholesaler to share the line with the retailer? If not, why not? May this be combined with a pass-through of interruptible service of the kind sought here? Need the retailer provide anything other than billing services? Indeed, may not the principle cover them?
Second, is the competition promoted by such a policy rather synthetic? If the retailer is essentially getting everything from the wholesaler, and operating really as no more than a billing agency, will it actually be able to compete in an economic sense? Will it in reality secure customers through political advantages over the wholesaler? Will the regulatory system flow through to it the true costs of the service? After all, along with the wholesaler’s economies may well come some diseconomies.
The Commission of course did not at all address such questions — for the good reason that no one presented them. If Vernon had presented a theory, the Commission would have a duty to analyse its merits and establish some sort of policy. On that we all agree. I further agree with the court that, as Judge Silberman nicely puts it, “the Commission cannot be asked to make silk purse responses to sow’s ear arguments.” Maj. at 1047. I part company only on the application of that principle. Vernon, in my judgment, either didn’t understand the nature of its claim and therefore misstated it, or understood it well but sought to sneak its difficult aspects past the Commission.
So far as I can determine, Vernon consistently argued that all it was asking was “the same” treatment as retail interrupti-ble customers — thereby evading the reality that what it asked was unique and depended on a far-reaching and evidently novel principle. Thus, in Vernon’s Application for Rehearing, it states that its
proposal was so structured that Edison would have precisely the same rights and responsibilities vis-a-vis Vernon in performing the proposed service as Edison experiences in connection with equivalent service to its own industrial customers.
See J.A. 151 (emphasis added). And later it said that
there is no substantive distinction whatever in the one instance in which the industrial entity is an Edison customer directly and the other instances in which billing is through Vernon but the physical implementation of the interruptible rate schedule methodology is the same.
Id. (emphasis added).
It is true that Vernon cited Conway in its initial brief before the Administrative Law Judge, J.A. 67, but simply for the proposition that a regulatory commission may entertain (and remedy) a discrimination claim where the parties compared are jurisdictional and non-jurisdictional purchasers. This, of course, isn’t the half of what is necessary for Vernon to succeed. On the page before Vernon makes its ap*1051proach clear — and with it the simplistic (or disingenuous) character of that approach. The city pulled it all together with the observation that:
The position of Vernon, as expressed at the hearing, is that Edison discriminates against resale customers when it refuses to make the same interruptible service available to them that is available to retail customers.
J.A. 66 (emphasis added). See also Brief of City of Vernon Opposing Exceptions, J.A. 110 (same). (Intervenors City of Anaheim, et al., at least raised the analogy to price squeeze in their brief to this court, see Petitioner/Intervenor Brief at 9, but had not participated in the interruptible-rate dispute before the Commission.) Thus Vernon pretended that it sought relief from plain vanilla discrimination, while in fact its underlying theory was hot fudge strawberry banana swirl with sprinkles.
Given the elusive nature of Vernon’s claim, it is hardly surprising that the Commission’s response missed the subtleties. On one hand, it did directly answer Vernon’s purported claim. To the central thesis that Vernon was asking only to be treated as Edison treated some of its retail customers, the Commission replied, rather mildly, “[I]t is not apparent that the service requested is the same service that is being offered at the retail level.” J.A. 140. That of course was a tremendous understatement.
The Commission obviously also sensed that Vernon was asserting some complex spin on Conway. But with no help from Vernon as to just how the theory ran, it failed to tackle the theory head on. Indeed, it groped around, plucked a phrase from the bright lexicon of administratese (“prima facie case”), and got on with its other work. Under the sow’s ear/silk purse principle, I think we should ask no more.
When a party blunders in with a half- (or quarter-) baked theory, we cannot reasonably expect the Commission to sift the claim, search out and articulate some intelligible principle, and then develop an intellectually satisfying policy response. The Commission is not some Socratic teacher, struggling to tease brilliance out of the Thrasymachi who turn up in its corridors. When applicants for relief disclaim novelty, the Commission should be free to take them at their word. If the applicant’s request does not fit the category into which it has been shoehorned, the Commission should be free to show the applicant to the door without much ado, and get on with more pressing claims.
Of course this son of Conway was bound to arrive on the Commission’s doorstep sooner or later. The risk from the court’s present opinion is that, with the claim as ill-presented as it has been here, the Commission is less likely to handle it adroitly. Even now, however, the Commission can at least ask for more sophisticated briefing than the parties have yet offered. And it may enlist the skills of its Office of Regulatory Analysis. Even in these unpromising circumstances it may yet, with luck, arrive at a satisfactory approach.