Kamine also argues that RG&E is actually paying far more than $ .06 per kwh for energy from some of its own plants, so that paying Kamine the PPA price will actually save RG&E money. RG&E disputes this assertion.
It appears that the cause of this dispute is a difference of opinion over whether RG&E's fixed costs (i.e. costs stemming simply from the existence of a facility, irrespective of the costs of actual energy production) should be figured into the calculation of RG&E's energy costs. Kamine contends that they should be, RG&E that they should not.
I find RG&E's arguments in this regard more persuasive. Fixed costs are just that--fixed. As such, they cannot be "avoided." Whether RG&E purchases power from Kamine or not, then, it will still have to bear these fixed costs. It is not logical, therefore, to say that RG&E will somehow save money by buying additional power from Kamine. The proper measure to determine the effect of buying power from Kamine under the PPA is to examine the difference between the PPA price and RG&E's cost of the same amount of power at RG&E's "variable", cost--i.e., the actual cost of the power itself, not counting unavoidable, fixed costs. Kamine has not rebutted RG&E's showing that under that calculation, purchasing power under the PPA will greatly increase RG&E's costs for that power.
Kamine also asserts that RG&E is collaterally estopped from raising the whole issue of excess costs by reason of FERC's decision in New York State Elec. and Gas Corp., 71 F.E.R.C. 61,027 (1995) ("NYSEG") (Kamine's App. Tab H). In NYSEG, FERC rejected an argument by a utility (an argument in which RG&E joined as an intervenor) that the utility should not have to pay the contract price for power from a QF if that price exceeded the utility's actual avoided cost. FERC held that the contract price was controlling even if avoided costs had risen unexpectedly.
I am not persuaded by Kamine's argument that this ruling estops RG&E from raising issues concerning excess costs under the PPA. For the doctrine of collateral estoppel, or issue preclusion, to apply, the issues involved in the current and prior litigation must be "substantially the same." ITT Corp. v. United States, 963 F.2d 561, 564 (2d Cir. 1992).
The utility's claim in NYSEG was based on PURPA; the utility argued in favor of a literal reading of PURPA's provision that the price paid by a utility for energy from a QF should not exceed the utility's actual avoided cost. RG&E, however, is currently litigating in state court whether, as a matter of state contract law, the PPA should be reformed or rescinded. RG&E is not arguing that the PPA price is invalid under PURPA.
Thus, the issues in NYSEG and in the state court action are not substantially the same. RG&E's present dispute with Kamine is basically about New York contract law, not PURPA. Since the legal issues therefore turn upon fundamentally different bodies of law, RG&E is not estopped from arguing in this court that the excess cost imposed by the PPA may be considered in assessing the harm that would result from the issuance of an injunction. Based on the evidence presented, I find that RG&E would be harmed by an injunction, and that the balance of hardships does not tip decisively in Kamine's favor.
IV. Likelihood of Success
In the TRO I stated that "there were serious questions going to the merits to make them a fair ground for litigation." Decision and Order, Mar. 20, 1995 at 18. I also noted, however, that the more serious and imminent the potential harm to the movant, the less need there is for the movant to show a likelihood of success on the merits. Id. at 14, 17. It is clear from the language of the TRO that the primary reason for granting the TRO was not that Kamine was likely to succeed on the merits, but that, if Kamine's allegations were true, it was "faced with imminent, irreparable injury" which suggested that "at the very least, the situation should be preserved long enough for the court to decide the motion for a preliminary injunction." Id. at 15.
I also noted in the TRO decision, however, that "many of the facts have yet to be proved ..." Id. at 18. As the preceding discussion explains, the evidence that has been produced during discovery and submitted to the court in connection with the motion for an injunction suggests that the potential harm to Kamine may not be as imminent or catastrophic as it previously alleged. That being so, whether Kamine is likely to succeed on the merits becomes of correspondingly greater concern.
I find that Kamine has not demonstrated a likelihood of success on the merits in this litigation. The fundamental difficulty with Kamine's case is that whatever the merits of its contentions regarding PURPA and state contract law, this action is predicated not on PURPA or contract law, but on the antitrust laws. Kamine has simply not shown that it is likely to succeed on an antitrust theory.
The basic thrust of Kamine's antitrust allegations is that RG&E has a monopoly in its geographic area as a producer and seller of electric power, and that RG&E wants to maintain that monopoly by preventing new producers or sellers from entering the market. Having failed thus far to prevent Kamine from entering the market (insofar as Kamine is now selling power to RG&E), RG&E is allegedly trying to drive Kamine out of business by its actions.
The principal means by which RG&E is doing this, Kamine alleges, is RG&E's use of its monopsony power as a buyer of wholesale electric power within RG&E's geographic area. Kamine contends that this monopsony power allows RG&E to demand a predatory price from Kamine, i.e., a price below that which Kamine needs if it is to survive.
Kamine's allegations, however, fail to indicate a truly anticompetitive effect as a result of RG&E's actions. The chief danger associated with monopsony power--market power on the buying side of the market--occurs when a company has significant market power both "upstream" and "downstream," meaning that the company can control the level of demand for the product that it buys and the level of supply for the product that it sells to its own buyers. Such a market position allows the company to demand a low price from its suppliers while simultaneously raising the prices it charges its buyers.
The problem with this type of monopsony power, then, is that ultimately it can injure consumers by forcing up the price of the end product. Where the risk of that happening is slight or nonexistent, however, monopsony power per se does not create an antitrust concern. IIA Areeda, supra, P 574 at 300 (citing Kartell v. Blue Shield of Massachusetts, 749 F.2d 922, 930-31 (1st Cir. 1984), cert. denied, 471 U.S. 1029, 85 L. Ed. 2d 322, 105 S. Ct. 2040, 105 S. Ct. 2049 (1985)).
There is little evidence here that RG&E's alleged use of its monopsony power poses a threat of increased consumer prices. In fact, the evidence suggests the opposite--that paying the price under the PPA, which Kamine demands, will drive up the cost to the ratepayer. Furthermore, although RG&E does possess both upstream and downstream power in the energy market, its position is not analogous to that of a manufacturer of goods that can simply reduce its output in order to increase its price. As a state-regulated utility, RG&E cannot unilaterally reduce its output of electric power to the point where consumers are willing to pay an exorbitant price. If anything, if RG&E's own cost of power drops, it would have greater difficulty justifying approval of a rate increase. See IIA Areeda, supra at 300 (noting that "if selling prices are regulated, they may fall as costs fall").
A further weakness with Kamine's case is that it is based more on alleged violations of PURPA than of the antitrust laws. Although actions that violate PURPA could conceivably violate the antitrust laws as well, they are not the same thing, and one does not necessarily flow from the other. Even if Kamine's allegations that RG&E has violated PURPA are true, that does not mean that RG&E has acted in an anticompetitive manner.
PURPA itself makes little mention of antitrust laws, other than the following statement contained in 16 U.S.C. § 2603(1):
Nothing in this Act or in any amendment made by this Act affects--
(1) the applicability of the antitrust laws to any electric utility or gas utility ...
This statement, then, indicates that while PURPA was not intended to protect utilities from the reach of the antitrust laws, neither was it meant to create antitrust liability where none existed previously. In short, PURPA was designed to be antitrust-neutral. As it states, it does not directly affect the applicability of the antitrust laws one way or the other.
This conclusion is also reinforced by the legislative history of PURPA, which reveals that Congress's motive in creating PURPA was not to foster competition in the utility industry, but to deal with a perceived energy crisis.
The Supreme Court analyzed the legislative history and objectives of PURPA at some length in FERC v. Mississippi, 456 U.S. 742, 72 L. Ed. 2d 532, 102 S. Ct. 2126 (1982). The Court noted that at the time PURPA was enacted, "committees in both Houses of Congress noted the magnitude of the Nation's energy problems and the need to alleviate those problems by promoting energy conservation and more efficient use of energy resources. Congress was aware that domestic oil production had lagged behind demand and that the Nation had become increasingly dependent on foreign oil." Id. at 756 (citations omitted). The Court also noted that PURPA's provisions encouraging the development of cogeneration facilities were intended to "reduce the demand for traditional fossil fuels," Id. at 750. "Congress also determined that the development of cogeneration and small power production facilities would conserve energy." Id. at 757.
Thus, it is clear that the policies underlying PURPA are quite distinct from those underlying the antitrust laws. PURPA was created as a vehicle to reduce the nation's dependency on foreign oil and to conserve energy, not to foster competition.
Arguably, of course, the encouragement of the creation and development of cogeneration facilities and other alternative-energy sources would also promote competition in the power industry, inasmuch as new energy producers would enter the market. Nonetheless, it cannot be gainsaid that, while increased competition might be a byproduct of PURPA, it is not its purpose. In enacting PURPA, Congress was not concerned with fostering competition for competition's sake, but with energy conservation. As another court put in a case also involving both PURPA and the antitrust laws:
In establishing PURPA, ... Congress did not intend to place qualifying facilities in competition with public utilities. To the contrary, Congress has sought to encourage the development of qualifying facilities by insulating them from competition. ... In general, qualifying facilities produce a component which is used by public utilities and consume utility service; but, they are not competitors of public utilities.