Appeal from a decision of the United States District Court for the District of Connecticut, M. Joseph Blumenfeld, Judge, which found that defendants, investor-owned utilities, had not violated the Sherman Act. Held that judgment for the defendants was proper except with respect to two price-squeeze claims, as to which further findings are necessary. Affirmed in part and remanded in part.
Before Oakes and Kearse, Circuit Judges, and Re,*fn* Chief Judge, United States Court of International Trade.
The State of Connecticut, like many other states, grants exclusive franchise areas to private utilities and to certain municipalities to provide retail electric service to customers within the franchise area. The Town of Wallingford, the Second Taxing District of Norwalk, and the Third Taxing District of Norwalk each have municipal franchises; the first two also have a limited generation capacity which supplements their wholesale purchases of bulk power. Along with certain other municipalities now no longer involved, they brought suit, alleging certain antitrust violations, against the investor-owned private Connecticut utilities, Connecticut Light and Power Company (CL&P) and Hartford Electric Light Co. (HELCO), as well as the Massachusetts holding company, Northeast Utilities, Inc. (NU), that wholly owns the common stock of CL&P and HELCO. The plaintiff municipalities' dealings and transactions were solely with CL&P. After denying the defendants' motion for summary judgment, City of Groton v. Connecticut Light & Power Co., 456 F. Supp. 360 (D.Conn.1978), the United States District Court for the District of Connecticut, M. Joseph Blumenfeld, Judge, held, after a seven-week trial, for the defendants on the merits. City of Groton v. Connecticut Light & Power Co., 497 F. Supp. 1040 (D.Conn.1980). The municipalities appeal.*fn1
Appellants make eight claims on appeal and in order to understand them properly it will be necessary to set forth in some detail the determinations made by the district court below. However, for purposes of brevity we will assume familiarity with the history of the contractual relationships between the municipalities and CL&P, as set forth in Part II of the opinion below, 497 F. Supp. at 1043-47, though we summarize that history here for simplicity.
In 1963-64 CL&P and the municipalities entered into agreements (the 1963 agreements) whereby CL&P supplied electricity to the municipalities on the basis of a "demand" charge to recoup fixed costs and an "energy" charge to recover variable costs. The Federal Power Commission (FPC), the predecessor of the Federal Energy Regulatory Commission (FERC), accepted the contracts for filing and review. In 1967 the parties modified the 1963 agreements by adjusting the rates, reducing the notice-of-cancellation clause from three years to one year, clarifying the municipalities' right to install new generating equipment, and establishing a joint advisory and review committee. In 1968 the parties again altered the 1963 contracts, with CL&P agreeing to purchase certain "excess" generating capacity of the municipalities. In late 1969 and early 1970, as the result of complaints by the municipalities about the level and structure of rates, CL&P offered three alternative proposals based on the same demand/energy rate structures contained in the 1963 agreements. Neither these proposals nor the municipalities' counter-proposals were accepted. In the late 1960s and early 1970s the cost of supplying energy began to rise and CL&P began to realize losses in its sale of electricity to the municipalities. CL&P therefore exercised its right to cancel the supply contracts unilaterally; the FPC upheld this cancellation, which became effective in 1972. Meanwhile, the municipalities had declined offers of "entitlements" of power by the Maine Yankee and Vermont Yankee Nuclear Power Corporations and had also declined an opportunity to participate in a pump-storage electrical plant of CL&P at Northfield, Massachusetts.
In 1972 CL&P filed a tariff with the FPC known as the R-1 rate which remained in effect until 1974 when it was replaced by a new R-2 rate. The R-1 rate, objected to by the municipalities, used a new type of rate structure which established rates based on "stratified" costs rather than overall average costs. Under the stratified rates, demand costs were based on each generating plant's costs rather than the costs of all CL&P generating equipment divided by the total kilowatts of demand. This change resulted in a lower demand charge for a unit of peak power than for base-intermediate power, 497 F. Supp. at 1047 n.7.
The R-1 rate was a total requirements tariff and contained Rider A, which permitted a negotiation of a partial-requirements rate when a wholesale customer such as a municipality began participating in the New England Power Pool (NEPOOL), see note 1 supra, and took entitlements from sources outside of the CL&P system. The municipalities challenged the R-1 rate and its successors, R-2, R-3, and R-4, before the FPC. All these rates contained the same basic concept of stratification to which the municipalities object here, but only the R-1 rate contained Rider A.
NEPOOL is an agreement among New England utilities, including some fifty municipalities outside Connecticut, whereby all New England generation is controlled by a central dispatcher without reference to ownership, permitting an "economy interchange" of power among the utilities. Resources are pooled to construct large units capable of economies of scale; members have an entitlement to have energy generated by a pooled plant to be transmitted or "wheeled," without regard to distance, over the transmission lines of other NEPOOL participants; and the utilities systems are interconnected, promoting greater reliability of services so as to avoid major disruptions such as the 1965 power blackout in New York and New England that created the impetus for NEPOOL. The Court of Appeals for the District of Columbia Circuit has approved the NEPOOL agreement, see note 1 supra, upholding the FERC's affirmance of an administrative law judge's determination that the NEPOOL agreement was not contrary to antitrust law and policy except for two discriminatory provisions.
II. THE DISTRICT COURT'S ANALYSIS
The district court divided the claims of anticompetitive behavior into two groups, the first relating to the terms in the 1963 contracts (or their modifications) and the R tariffs, all promulgated pursuant to the Federal Power Act, 16 U.S.C. §§ 791a-825r (1976), and reviewed by the relevant commissions; and the second group consisting of claims of anticompetitive behavior other than the promulgation of rates and conditions of services. This second group consisted of four complaints: "(1) that CL&P refused to wheel power to or from outside sources over its transmission lines, (2) that CL&P joined a NEPOOL agreement containing anticompetitive terms, (3) that (under the 1963 contracts) CL&P delayed in offering a partial-requirements rate which would have permitted the plaintiffs an opportunity to supplement CL&P power with power from other utilities, and (4) that CL&P placed the municipalities in a price squeeze by charging more for its sale of power to the plaintiffs at wholesale than it did for the sale of power at retail to its own industrial customers." 497 F. Supp. at 1049-50.
As to the rate and tariff claims, the first group, the court, after noting that the mere existence of a regulatory body does not provide a defendant with immunity from all antitrust liability, Otter Tail Power Co. v. United States, 410 U.S. 366, 93 S. Ct. 1022, 35 L. Ed. 2d 359 (1973), held that because the contract rates and tariffs challenged were filed with the appropriate federal regulatory commission and were the legal rates, the municipalities, like the carrier in Keogh v. Chicago & Northwestern Railway, 260 U.S. 156, 162-63, 43 S. Ct. 47, 49-50, 67 L. Ed. 183 (1922), were not injured and hence had no right of action under the Sherman Act, 15 U.S.C. §§ 1-7 (1976). See Gas Light Co. of Columbus v. Georgia Power Co., 440 F.2d 1135, 1137-40 (5th Cir. 1971), cert. denied, 404 U.S. 1062, 92 S. Ct. 732, 30 L. Ed. 2d 750 (1972).
The district court went on to hold that even if the Keogh doctrine did not apply, the municipalities had not proved any antitrust violation with respect to the terms of the 1963 contracts and R tariffs, for they "were not so devoid of reasonableness as to justify the inference that they were intended to enhance CL&P's alleged monopoly power. City of Mishawaka v. American Electric Power Co., Inc., 616 F.2d 976, 985 (7th Cir. 1980) (, cert. denied, 449 U.S. 1096, 101 S. Ct. 892, 66 L. Ed. 2d 824 (1981))." 497 F. Supp. at 1051. The court also found that there was no evidence of any intent on the part of the defendants to monopolize, noting in dictum that specific intent has been required when the defendant is a regulated utility that is entitled to recover its costs of service and provide investors with a reasonable rate of return, id. at 1051 n.13 (citing City of Mishawaka, 616 F.2d at 985, and Almeda Mall, Inc. v. Houston Lighting & Power Co., 615 F.2d 343, 354 (5th Cir. 1980) ("Monopolization cases involving such regulated industries are special in nature and require close scrutiny")). The court also found that the rates did not involve unreasonable restraints of trade under section 1 of the Sherman Act or amount to conduct in violation of section 2 of the Act.
The district court discussed each of the claims not relating to rates individually as follows:
While a refusal to wheel power would satisfy the conduct element under both sections 1 and 2 of the Sherman Act, see Otter Tail Power Co., the plaintiffs showed no such refusal to wheel. Rather, the district court held, "NU repeatedly announced its general willingness to wheel power" even though the defendant utilities "were often unwilling to commit themselves as to what the charge would be until they were supplied details concerning the extent and timing of the requested wheeling." 497 F. Supp. at 1053. The court found this a reasonable approach in view of the limited capacity of the transmission facilities and further held that a thirteen-month CL&P delay in ...