In this Sherman Act suit, brought by the Government, the
District Court enjoined as violative of § 2 the following practices
in which appellant, Otter Tail Power Co. (Otter Tail), engaged to
prevent towns from establishing their own power systems when Otter
Tail's retail franchises expired: refusals to wholesale power to
the municipal systems or transfer ("wheel") it over Otter Tail's
facilities from other sources, litigation intended to delay
establishment of municipal systems, and invocation of transmission
contract provisions to forestall supplying by other power
companies.
Held:
l. Otter Tail is not insulated from antitrust regulation by
reason of the Federal Power Act, whose legislative history
manifests no purpose to make the antitrust laws inapplicable to
power companies. The essential thrust of the authority of the
Federal Power Commission (FPC) is to encourage voluntary
interconnections. Though the FPC may order interconnections if
"necessary or appropriate in the public interest," antitrust
considerations, though relevant under that standard, are not
determinative. Pp.
410 U. S.
372-375.
2. The District Court's decree does not conflict with the
regulatory responsibilities of the FPC. Pp.
410 U. S.
375-377.
(a) The court's order for wheeling to correct Otter Tail's
anticompetitive and monopolistic practices is not counter to the
authority of the FPC, which lacks the power to impose such a
requirement. Pp.
410 U. S.
375-376.
(b) Appellant's argument that the decree overrides FPC's power
over interconnections is premature, there being no present conflict
between the court's decree and any contrary ruling by the FPC. Pp.
410 U. S.
376-377.
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
4. The District Court should determine on remand whether the
litigation that Otter Tail was found to have instituted for the
purpose of maintaining its monopolistic position was "a mere sham"
within the meaning of
Eastern Railroad Conference v. Noerr
Motor Freight, 365 U. S. 127, so
that the litigation would lose its constitutional protection in
line with the Court's decision in
California Motor Transport
Co. v. Trucking Unlimited, 404 U. S. 508,
which was decided after the District Court had entered its decree.
Pp.
410 U. S.
379-380.
5. The District Court's retention of jurisdiction to afford the
parties "necessary and appropriate relief" provides an adequate
safeguard against the possibility that compulsory interconnections
or wheeling might threaten Otter Tail's ability adequately to serve
the public. Pp.
410 U. S.
380-382.
331 F.
Supp. 54, affirmed in part and vacated and remanded in
part.
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
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
In this civil antitrust suit brought by appellee against Otter
Tail Power Co. (Otter Tail), an electric utility company, the
District Court found that Otter Tail had attempted to monopolize
and had monopolized the retail distribution of electric power in
its service area in violation of § 2 of the Sherman Act, 26 Stat.
209, as amended, 15 U.S.C. § 2. The District Court found that Otter
Tail had attempted to prevent communities in which its retail
distribution franchise had expired from replacing it with a
municipal distribution system. The principal means employed were
(1) refusals to sell power at wholesale to proposed municipal
systems in the communities where it had been retailing power; (2)
refusals to "wheel" power to such systems, that is to say, to
transfer by direct transmission or displacement electric power from
one utility to another over the facilities of an intermediate
utility; (3) the institution and support of litigation designed to
prevent or delay establishment of those systems; and (4) the
invocation of provisions in its transmission contracts with several
other power suppliers for the purpose of denying the municipal
systems access to other suppliers by means of Otter Tail's
transmission systems.
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.
The decree also enjoins Otter Tail from instituting, supporting,
or engaging in litigation, directly or indirectly, against
municipalities and their officials who have voted to establish
municipal electric power systems for the purpose of delaying,
preventing, or interfering with the establishment of a municipal
electric power system.
331 F. Supp.
54. Otter Tail took a direct appeal to this Court under § 2 of
the Expediting Act, as amended, 62 Stat. 989, 15 U.S.C. § 29, and
we noted probable jurisdiction, 406 U.S. 944.
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.
Otter Tail's policy is to acquire, when it can, existing
municipal systems within its service areas. It has acquired six
since 1947. Between 1945 and 1970, there were contests in 12 towns
served by Otter Tail over proposals to replace it with municipal
systems. In only three -- Elbow Lake, Minnesota, Colman, South
Dakota, and Aurora, South Dakota -- were municipal systems actually
established. Proposed municipal systems have great obstacles; they
must purchase the electric power at wholesale. To do so, they must
have access to existing transmission lines. The only ones available
[
Footnote 2] belong to Otter
Tail. While the Bureau of Reclamation has high-voltage bulk-power
supply lines in the area, it does not operate a subtransmission
network, but relies on wheeling contracts with Otter Tail and other
utilities to deliver power for its bulk supply lines to its
wholesale customers. [
Footnote
3]
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.
Colman and Aurora had access to other transmission. Against
them, Otter Tail used the weapon of litigation.
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.
It was found that Otter Tail instituted or sponsored litigation
involving four towns in its service area which had the effect of
halting or delaying efforts to establish municipal systems.
Municipal power systems are financed by the sale of electric
revenue bonds. Before such bonds can be sold, the town's attorney
must submit an opinion which includes a statement that there is no
pending or threatened litigation which might impair the value or
legality of the bonds. The record amply bears out the District
Court's holding that Otter Tail's use of litigation halted or
appreciably slowed the efforts for municipal ownership.
"The delay thus occasioned and the large financial burden
imposed on the towns' limited treasury dampened local enthusiasm
for public ownership."
331 F.
Supp. 54, 62.
I
Otter Tail contends that, by reason of the Federal Power Act, it
is not subject to antitrust regulation with respect to its refusal
to deal. We disagree with that position.
"Repeals of the antitrust laws by implication from a regulatory
statute are strongly disfavored, and have only been found in cases
of plain repugnancy between the antitrust and regulatory
provisions."
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
In
California v. FPC, 369 U. S. 482,
369 U. S. 489,
the Court held that approval of an acquisition of the assets of a
natural gas company by the Federal Power Commission pursuant to § 7
of the Natural Gas Act "would be no bar to [an] antitrust suit."
Under § 7, the standard for approving such acquisitions is "public
convenience and necessity." Although the impact on competition is
relevant to the Commission's determination, the Court noted that
there was "no
pervasive regulatory scheme' including the
antitrust laws that ha[d] been entrusted to the Commission."
Id. at 369 U. S. 485.
Similarly, in United States v. Radio Corp. of America,
358 U. S. 334, the
Court held that an exchange of radio stations that had been
approved by the Federal Communications Commission as in the "public
interest" was subject to attack in an antitrust
proceeding.
The District Court determined that Otter Tail's consistent
refusals to wholesale or wheel power to its municipal customers
constituted illegal monopolization. Otter Tail maintains here that
its refusals to deal should be immune from antitrust prosecution
because the Federal Power Commission has the authority to compel
involuntary interconnections of power pursuant to § 202(b) of the
Federal Power Act. The essential thrust of § 202, however, is to
encourage voluntary interconnections of power.
See S.Rep.
No. 621, 74th Cong., 1st Sess., 19-20, 48-49; H.R.Rep. No. 1318,
74th Cong., 1st Sess., 8. Only if a power company refuses to
interconnect voluntarily may the Federal Power Commission, subject
to limitations unrelated to antitrust considerations, order the
interconnection. The standard which governs its decision is whether
such action is "necessary or appropriate in the public interest."
Although antitrust considerations may be relevant, they are not
determinative.
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.
It is clear, then, that Congress rejected a pervasive regulatory
scheme for controlling the interstate distribution of power in
favor of voluntary commercial relationships. When these
relationships are governed in the first instance by business
judgment, and not regulatory coercion, courts must be hesitant to
conclude that Congress intended to override the fundamental
national policies embodied in the antitrust laws.
See United
States v. Radio Corp. of America, supra, at
358 U. S. 351.
This is particularly true in this instance because Congress, in
passing the Public Utility Holding Company Act, which included Part
II of the Federal Power Act, was concerned with "restraint of free
and independent competition" among public utility holding
companies.
See 15 U.S.C. § 79a(b)(2).
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.
II
The decree of the District Court enjoins Otter Tail from
"[r]efusing to sell electric power at wholesale to existing or
proposed municipal electric power systems in cities and towns
located in [its service area]"
and from refusing to wheel electric power over its transmission
lines from other electric power lines to such cities and towns. But
the decree goes on to provide:
"The defendant shall not be compelled by the Judgment in this
case to furnish wholesale electric service or wheeling service to a
municipality except at rates which are compensatory and under terms
and conditions which are filed with and subject to approval by the
Federal Power Commission."
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.
III
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
When a community serviced by Otter Tail decides not to renew
Otter Tail's retail franchise when it expires, it may generate,
transmit, and distribute its own electric power. We recently
described the difficulties and problems of those isolated electric
power systems.
See Gainesville Utilities v. Florida Power
Corp., 402 U. S. 515,
402 U. S.
517-520. Interconnection with other utilities is
frequently the only solution.
Id. at
402 U. S. 519
n. 3. That is what Elbow Lake in the present case did. There were
no engineering factors that prevented Otter Tail from selling power
at wholesale to those towns that wanted municipal plants or
wheeling the power. The District Court found -- and its findings
are supported -- that Otter Tail's refusals to sell at wholesale or
to wheel were solely to prevent municipal power systems from
eroding its monopolistic position.
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.
IV
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.
V
Otter Tail argues that, without the weapons which it used, more
and more municipalities will turn to public power and Otter Tail
will go downhill. The argument is a familiar one. It was made in
United States v. Arnold, Schwinn & Co., 388 U.
S. 365, a civil suit under § 1 of the Sherman Act
dealing with a restrictive distribution program and practices of a
bicycle manufacturer. We said: "The promotion of self-interest
alone does not invoke the rule of reason to immunize otherwise
illegal conduct."
Id. at
388 U. S.
375.
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
The fact that three municipalities which Otter Tail opposed
finally got their municipal systems does not excuse Otter Tail's
conduct. That fact does not condone the antitrust tactics which
Otter Tail sought to impose. Moreover, the District Court repeated
what we said in
FTC v. National Lead Co., 352 U.
S. 419,
352 U. S. 431,
"those caught violating the Act must expect some fencing in." The
proclivity for predatory practices has always been a consideration
for the District Court in fashioning its antitrust decree.
See
United States v. Crescent Amusement Co., 323 U.
S. 173,
323 U. S.
190.
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.
Except for the provision of the order discussed in part IV of
this opinion, the judgment is
Affirmed.
MR. JUSTICE BLACKMUN and MR. JUSTICE POWELL took no part in the
consideration or decision of this case.
[
Footnote 1]
Northern States Power Co. also supplies some towns in Otter
Tail's area with electric power at retail. But the District Court
excluded these towns from Otter Tail's area because the two
companies do not compete in the towns served by each other. Of the
615 remaining towns in the area, 465 are served at retail by Otter
Tail, 45 by municipal systems, and 105 by rural electric
cooperatives. The cooperatives are barred by § 4 of the Rural
Electrification Act of 1936, 49 Stat. 1365, as amended, 7 U.S.C. §
904, from borrowing federal funds to provide power to towns already
receiving central station service. For this and related reasons,
the District Court excluded the rural cooperatives from the
relevant market.
[
Footnote 2]
Subtransmission lines, with voltages from 34.5 kv to 69 kv are
used for moving power from the bulk supply lines to points of local
distribution. Of Otter Tail's basic subtransmission system in this
area, two-thirds of those lines are 41.6 kv subtransmission
lines.
[
Footnote 3]
The 38 distribution rural cooperatives in Otter Tail's area
generally own only low-voltage distribution lines, which in most
instances could not be used to supply power to proposed municipal
utilities. The few rural cooperatives that have generation and
transmission services do not, it was found, cut significantly into
Otter Tail's dominant position in subtransmission.
[
Footnote 4]
Elbow Lake v. Otter Tail Power Co., 40 F.P.C. 1262,
aff'd, Otter Tail Power Co. v. FPC, 429 F.2d 232 (CA8),
cert. denied, 401 U.S. 947.
[
Footnote 5]
Elbow Lake v. Otter Tail Power Co., 46 F.P.C. 675.
[
Footnote 6]
See S.Rep. No. 621, 74th Cong., 1st Sess.; H.R.Rep. No.
1318, 74th Cong., 1st Sess.;
Elbow Lake v. Otter Tail Power
Co., 46 F.P.C. at 679.
[
Footnote 7]
Section 202(b) provides:
"Whenever the Commission, upon application of any State
commission or of any person engaged in the transmission or sale of
electric energy, and after notice to each State commission and
public utility affected and after opportunity for hearing, finds
such action necessary or appropriate in the public interest, it may
by order direct a public utility (if the Commission finds that no
undue burden will be placed upon such public utility thereby) to
establish physical connection of its transmission facilities with
the facilities of one or more other persons engaged in the
transmission or sale of electric energy, to sell energy to or
exchange energy with such persons:
Provided, That the
Commission shall have no authority to compel the enlargement of
generating facilities for such purposes, nor to compel such public
utility to sell or exchange energy when to do so would impair its
ability to render adequate service to its customers. The Commission
may prescribe the terms and conditions of the arrangement to be
made between the persons affected by any such order, including the
apportionment of cost between them and the compensation or
reimbursement reasonably due to any of them."
[
Footnote 8]
S.Rep. No. 621,
supra, n 6, at 19.
[
Footnote 9]
After noting that the "pendency of litigation has the effect of
preventing the marketing of the necessary bonds thus preventing the
establishment of a municipal system," 331 F. Supp. at 62, the
District Court went on to find:
"Most of the litigation sponsored by the defendant was carried
to the highest available appellate court, and, although all of it
was unsuccessful on the merits, the institution and maintenance of
it had the effect of halting, or appreciably slowing, efforts for
municipal ownership. The delay thus occasioned and the large
financial burden imposed on the towns' limited treasury dampened
local enthusiasm for public ownership. In some instances, Otter
Tail made offers to the towns to absorb the towns' costs and
expenses, and enhance the quality of its service in exchange for a
new franchise. Hankinson, after several years of abortive effort,
accepted this type of offer and renewed defendant's franchise."
Ibid.
[
Footnote 10]
The Federal Power Commission said in
Elbow Lake v. Otter
Tail Power Co., 46 F.P.C. at 678:
"The public interest is far broader than the economic interest
of a particular power supplier. It is our legal responsibility, as
the Supreme Court made clear in
Pennsylvania Water & Power
Co. v. FPC, 343 U. S. 414 (1952), to use our
statutory authority to assure 'an abundant supply of electric
energy throughout the United States,' and particularly to use our
statutory power under Section 202(b) to compel interconnection and
coordination when the public interest requires it. The exercise of
that authority may well require, as it does here, that we order a
public utility to interconnect with an isolated municipal system.
The private company's lack of enthusiasm for the arrangement cannot
deter us, so long as the public interest requires it."
MR. JUSTICE STEWART, with whom THE CHIEF JUSTICE and MR. JUSTICE
REHNQUIST join, concurring in part and dissenting in part.
I join Part IV of the Court's opinion, which sets aside the
judgment and remands the case to the District Court for
consideration of the appellant's litigation activities in light of
our decision in
California Motor Transport Co. v. Trucking
Unlimited, 404 U. S. 508. As
to the rest of the Court's opinion, however, I respectfully
dissent.
The Court in this case has followed the District Court into a
misapplication of the Sherman Act to a highly regulated, natural
monopoly industry wholly different from those that have given rise
to ordinary antitrust principles. In my view, Otter Tail's refusal
to wholesale power through interconnection or to perform wheeling
services was conduct entailing no antitrust violation.
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.
In considering the bill that became the Federal Power Act of
1935, the Congress had before it the report of the National Power
Policy Committee on Public Utility Holding Companies. That report
chiefly concerned patterns of ownership in the power industry and
the evils of concentrated ownership by holding companies. The
problem that Congress addressed in fashioning a regulatory system
reflected a purpose to prevent unnecessary financial concentration
while recognizing the "natural monopoly" aspects, and concomitant
efficiencies, of power generation and transmission. The report
stated that,
"[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."
S.Rep. No. 621, 74th Cong., 1st Sess., 55 (emphasis added).
The resulting statutory system left room for the development of
economics of large scale, single company operations. One of the
stated mandates to the Federal Power Commission was for it to
assure
"an abundant supply of electric energy throughout the United
States with the greatest possible economy and with regard to the
proper utilization and conservation of natural resources,"
16 U.S.C. § 824a. In the face of natural monopolies at retail
and similar economics of scale in the subtransmission of power,
Congress was forced to address the very problem raised by this case
-- use of the lines of one company by another. One obvious solution
would have been to impose the obligations of a common carrier upon
power companies owning lines capable of the wholesale transmission
of electricity. Such a provision was originally included in the
bill. One proposed section provided that:
"It shall be the duty of every public utility to furnish energy
to, exchange energy with, and transmit energy for any person upon
reasonable request therefor. . . ."
S. 1725, 74th Cong., 1st Sess., § 213.
Another proposed provision was that:
"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]"
Ibid.
Had these provisions been enacted, the Commission would clearly
have had the power to order interconnections and wheeling for the
purpose of making available to local power companies wholesale
power obtained from or through companies with subtransmission
systems. The latter companies would equally clearly have had an
obligation to provide such services upon request. Yet, after
substantial debate, [
Footnote 2/3]
the Congress declined to follow this path. As the Senate report
indicates in discussing § 202 as enacted:
"The committee is confident that enlightened self-interest will
lead the utilities to cooperate with the commission and with each
other in bringing about the economics which can alone be secured
through the planned coordination which has long been advocated by
the most able and progressive thinkers on this subject."
"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
"no authority to compel the enlargement of generating facilities
for such purposes, nor to compel such public utility to sell or
exchange energy when to do so would impair its ability to render
adequate service to its customers."
16 U.S.C. § 824a(b).
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. 391� 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.
With respect to the last of the
Ricci criteria, it is
useful to contrast the cursory treatment given to Otter Tail's
business justification defense by the Court today with the opinion
of the Commission ordering permanent interconnection:
"[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."
"We also share the Examiner's view that Otter Tail is
legitimately concerned about the possible erosion of its system. If
other communities were to follow Elbow Lake's route, and if, having
miscalculated the results, they could expect to be rescued by
overly generous interconnection terms, then Otter Tail's fears that
it will lose its customers
seriatim seem to us to be
supported. We do not mean by this that we accept a captive market
concept, however. . . . The exercise of that [statutory] authority
may well require, as it does here, that we order a public utility
to interconnect with an isolated municipal system."
Elbow Lake v. Otter Tail Power Co., 46 F.P.C. 675,
677-678.
The opinion of the Court attempts to sidestep the
Ricci
problem by noting that the Commission has in fact, ordered
interconnection with Elbow Lake, resulting in the absence of a
present actual conflict with the decree entered by the District
Court. The Court goes on vaguely to suggest that there will be time
to cope with the problem of a Commission refusal to order
interconnection which conflicts with this antitrust decree when
such a conflict arises.
But the basic conflict between the Commission's authority and
the decree entered in the District Court cannot be so easily wished
away. The decree enjoins Otter Tail from
"[r]efusing to sell electric power at wholesale to existing or
proposed municipal electric power systems in cities and towns
located in any area serviced by Defendant. [
Footnote 2/9]"
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.
Both because I believe Otter Tail's refusal to wheel or
wholesale power was conduct exempt from the antitrust laws and
because I believe the District Court's decree improperly preempted
the jurisdiction of the Federal Power Commission, I would reverse
the judgment before us.
[
Footnote 2/1]
The District Court looked to Otter Tail's service area, and
measured market dominance in terms of the number of towns within
that area served by Otter Tail. Computed this way, Otter Tail
provides 91% of the retail market.
331 F.
Supp. 54, 59. As the appellant points out, however, these towns
vary in size from more than 29,000 to 20 inhabitants. If Otter
Tail's size were measured by actual retail sales, its market share
would be only 28.9% of the electricity sold at retail within its
geographic market area. It is important to note that another
reasonable geographical market unit might be each individual
municipality. Viewed this way, whichever power company sells
electricity at retail in a town has a complete monopoly.
[
Footnote 2/2]
Both of these provisions had identical counterparts in H.R.
5423, 74th Cong., 1st Sess.
[
Footnote 2/3]
Hearings on S. 1725 before the Senate Committee on Interstate
Commerce, 74th Cong., 1st Sess. (1935); Hearings on H.R. 53 before
the House Committee on Interstate and Foreign Commerce, 74th Cong.,
1st Sess. (1935).
[
Footnote 2/4]
See, e.g., S. 350 and H.R. 2101, 88th Cong., 1st Sess.,
providing that:
"Any certificate issued under the provisions of this subsection
authorizing the operation of transmission facilities shall be
subject to the condition that any capacity of such facilities not
required for the transmission of electric energy in the ordinary
scope of such applicant's business shall be made available on a
common carrier basis for the transmission of other electric
energy."
This bill was re-introduced as S. 1472 and H.R. 2072 in the 89th
Congress, 1st Session, and also failed to pass.
See also
S. 2140 and H.R. 7791, 89th Cong., 1st Sess.
These bills were all reintroduced in the 90th Congress, as was
H.R. 12322, proposing an Electric Power Reliability Act that would
have specifically provided the Commission with authority to order
wheeling. In the 91st Congress, bills to establish an Electric
Power Reliability Act were again introduced. Section 3 of that
proposed Act included a grant of authority for the FPC to order
wheeling,
see, e.g., S. 1071, 91st Cong., 1st Sess. Yet
another bill, H.R. 12585, 91st Cong., 1st Sess., included a very
broad provision establishing open access to transmission networks
at reasonable rates.
The proposed Electric Power Reliability Act was reintroduced in
the 92d Congress, 1st Session, as S. 294 and H.R. 605. H.R. 12585
from the 91st Congress was also reintroduced, as H.R. 6972, 92d
Cong., 1st Sess. Still another bill would have prevented proposed
regional bulk-power supply corporations from contracting with an
electric utility unless that utility
"permit[s] . . . the use of its excess transmission capacity for
the purpose of wheeling power from facilities of such corporation .
. . to load centers of other electric utilities contracting to
purchase electric power from such corporation."
S. 2324, H.R. 9970, 92d Cong., 1st Sess., § 103(c)(1)(B). None
of these bills was enacted.
[
Footnote 2/5]
The District Court was persuaded that the restrictions on
wheeling contained in Otter Tail's contracts with the Bureau of
Reclamation were, "in reality, territorial allocation schemes." 331
F. Supp. at 63. I think this finding was clearly erroneous.
Territorial allocation arrangements that have run afoul of the
antitrust laws have traditionally been horizontal, and have
involved the elimination of competition between two enterprises
that were similarly situated in the market.
United States v.
Topco Associates, 405 U. S. 596;
Timken Roller Bearing Co. v. United States, 341 U.
S. 593;
cf. White Motor Co. v. United States,
372 U. S. 253,
372 U. S.
261-264. Otter Tail and the Bureau of Reclamation stand
in a vertical, not a horizontal, relationship. Furthermore, though
Otter Tail refused to wheel power to towns whose consumers it
formerly served at retail, it did not exact from the Bureau a
promise that the latter would not provide power to such towns by
alternative means. Hence, I cannot see how these contracts operate
as territorial allocation schemes. If Otter Tail had demanded that
the Bureau not sell to former Otter Tail customers, or if Otter
Tail had combined with other retailers of electricity and
undertaken mutual noncompetition agreements, this would be a
different case.
[
Footnote 2/6]
In ordering permanent interconnection between Otter Tail and the
town of Elbow Lake municipal system, for example, the Commission
correctly noted that
"The public interest is far broader than the economic interest
of a particular power supplier. . . . The private company's lack of
enthusiasm for . . . [the interconnection order] cannot deter us,
so long as the public interest requires it."
Elbow Lake v. Otter Tail Power Co., 46 F.P.C. 675,
678.
[
Footnote 2/7]
The Federal Power Commission, as noted above, only orders
interconnection under the provisions of § 202(b), 16 U.S.C. §
824a(b), though it has broader powers in times of war or other
emergency. 16 U.S.C. § 824a(c). The Commission does not normally
set rates, though utilities subject to its jurisdiction must file
proposed rate schedules with it, and it has the opportunity of
assessing the lawfulness of those rates. 16 U.S.C. § 824d. In the
event the Commission concludes that any rate or practice is
"unjust, unreasonable, unduly discriminatory or preferential," it
determines the "just and reasonable rate. . . ." 16 U.S.C. §
824e(a). Under these same provisions, the Commission regulates the
terms and conditions of interconnections and wheeling arrangements
voluntarily entered into.
The resulting system of regulation is thus more comprehensive
than the regulatory apparatus applicable to bank mergers, which was
held to be insufficient to oust antitrust jurisdiction in
United States v. Philadelphia National Bank, 374 U.
S. 321, and the regulatory scheme with respect to
broadcasters, which similarly failed to displace the antitrust laws
in
United States v. Radio Corp. of America, 358 U.
S. 334. Nevertheless, the considerable freedom allowed
to electric utilities with respect to coordination of service
persuades me that the antitrust laws apply to the extent they are
not repugnant to specific features of the regulatory scheme. For
this reason, litigation and political activities that come within
the so-called "sham" exception in
California Motor Transport
Co. v. Trucking Unlimited, 404 U. S. 508,
might constitute an antitrust violation. Similarly, a genuine
territorial allocation agreement might be prohibited under the
Sherman Act,
see 410
U.S. 366fn2/5|>n. 5,
supra. Were it not for the
legislative history noted above, a consistent refusal to deal with
municipally owned power companies might also be impermissible under
the Sherman Act. For me, however, the legislative history with
respect to wheeling and interconnection is dispositive.
[
Footnote 2/8]
Unlike the situation presented in
R.C.A. supra, where
the regulatory agency filed a brief in this Court disavowing any
conflict between its regulatory functions and the operation of the
antitrust laws,
id. at
358 U. S. 350
n. 18, in this case, the Federal Power Commission has taken the
unusual step of filing a brief as
amicus curiae in support
of Otter Tail. The Commission points out that it was considering an
application for interconnection filed by the town of Elbow Lake at
the same time this lawsuit was progressing in the District Court.
An order requiring long-term interconnection by Otter Tail with the
Elbow Lake municipal system was entered by the Commission on
September 13, 1971 -- just four days after the District Court
entered judgment. The Commission reads its authority to order
interconnection, 16 U.S.C. § 824a, as a grant of exclusive
jurisdiction in matters involving interconnection.
[
Footnote 2/9]
The decree of the District Court is unreported.