Schuylkill Energy v. PA Power & Light Co ( 1997 )

Opinions of the United
1997 Decisions States Court of Appeals
for the Third Circuit
5-5-1997
Schuylkill Energy v. PA Power & Light Co
Precedential or Non-Precedential:
Docket 96-1447
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Filed May 5, 1997
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 96-1447
SCHUYLKILL ENERGY RESOURCES, INC.,
Appellant
v.
PENNSYLVANIA POWER & LIGHT COMPANY
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 95-civ-04885)
Argued
February 6, 1997
Before: STAPLETON and MANSMANN, Circuit Judges, and
RESTANI, Judge, Court of International Trade.*
(Filed May 5, 1997)
Richard L. Caplan, Esquire
Mary Huwaldt, Esquire (ARGUED)
Michelle L. Davis, Esquire
Caplan & Luber
40 Darby Road
Paoli, Pennsylvania 19301
COUNSEL FOR APPELLANT
_________________________________________________________________
* Honorable Jane A. Restani, Judge, United States Court of International
Trade, sitting by designation.
Glen R. Stuart, Esquire (ARGUED)
David B. MacGregor, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
Stephen Paul Mahinka, Esquire
Elizabeth A. Powell, Esquire
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036-5869
OF COUNSEL:
Jesse A. Dillon, Esquire
Pennsylvania Power & Light
Company
Two North Ninth Street
Allentown, Pennsylvania 18101
COUNSEL FOR APPELLEE
OPINION OF THE COURT
MANSMANN, Circuit Judge.
Schuylkill Energy Resources, Inc., ("SER") filed this
antitrust action against Pennsylvania Power & Light Co.
("PP&L") for allegedly monopolizing and attempting to
monopolize the provision of electric energy to retail
consumers within PP&L's service area and to wholesale
resellers affiliated with PP&L. SER contends that PP&L
impermissibly curtailed purchases of SER-generated
electric energy and that SER was therefore unable to
compete with PP&L in the provision of electric energy to
consumers in the retail market and resellers in the
wholesale market.
The district court granted PP&L's motion to dismiss
SER's antitrust claims for failure to state a claim upon
which relief can be granted and declined to exercise
supplemental jurisdiction over SER's pendent state law
2
claims. We must decide whether SER has adequately pled
antitrust injury. We find that by agreement and by law,
SER is PP&L's supplier, not PP&L's competitor, and that
PP&L's generation curtailment policy does not create an
injury of the type the antitrust laws were intended to
prevent. We will affirm.
I.
Under the Federal Power Act, 16 U.S.C. § 791a et seq.,
any person who owns or operates facilities used to transmit
or sell electric energy in interstate commerce is subject to
the jurisdiction and regulatory power of the Federal Energy
Regulatory Commission ("FERC"). 16 U.S.C. § 824. In 1978,
Congress amended the Federal Power Act by passing the
Public Utility Regulatory Practices Act of 1978 ("PURPA").
Congress passed PURPA to encourage the development of
alternative energy sources in an effort to reduce United
States' dependence on foreign oil. Congress believed that
the development of alternative energy sources was impeded
by the reluctance of traditional electric utilities to purchase
energy from and sell energy to non-traditional facilities as
well as by the substantial financial burdens imposed on
non-traditional facilities by pervasive federal and state
regulation. See FERC v. Mississippi, 456 U.S. 742, 750-51,
102 S.Ct. 2126, 2132-33 (1982) (citing legislative history of
PURPA).
To further this goal, PURPA requires electric utilities to
purchase electric energy produced by independent power
producers operating so-called "qualifying cogeneration
facilities." See 16 U.S.C. §§ 796(18)(B), 824a-3. Congress
directed FERC to promulgate rules and regulations
governing the terms of such purchases and sales, and state
agencies such as the Pennsylvania Public Utility
Commission ("PUC") are empowered to regulate the facilities
and approve the contracts covered by PURPA. See 16
U.S.C. § 824a-3(f); 18 C.F.R. pt. 292.1
_______________________________________________1__________________
1. The PUC is an independent state administrative commission
authorized to regulate public utility companies doing business in
Pennsylvania. See 66 Pa. Cons. Stat. Ann. §§ 301, 501. The Pennsylvania
Public Utility Code provides the PUC with broad authority to "supervise
and regulate" public utilities doing business in Pennsylvania. Id.
§ 501(b). PUC regulations, like their FERC counterpart, require utilities
to purchase energy from "qualifying facilities." 52 Pa. Code § 57.34.
3
II.2
SER is an independent power producer that owns and
operates an anthracite coal refuse-fired cogeneration plant
in Shenandoah, Pennsylvania. The plant is a qualifying
facility under PURPA, the Federal Power Act, and PUC
regulations. See 16 U.S.C. § 796(18); 18 C.F.R. pt. 292; 52
Pa. Code § 57.31.3PP&L is an electric utility chiefly reliant on coal-burning
and nuclear power sources. PP&L services Allentown,
Pennsylvania, and surrounding areas. PP&L is regulated by
the PUC. PP&L is a member of the Pennsylvania-New
Jersey-Maryland Interconnection ("PJM"), a power pool
maintained by an unincorporated association of
approximately eight member electric utilities located in
Pennsylvania, New Jersey, Maryland, Delaware and
Washington, D.C. PJM member companies sell excess
electric generation capacity to PJM, which is then sold to
other PJM member companies or to other power pools.
Pursuant to the regulations promulgated by FERC under
the authority of PURPA, PP&L is required to purchase
electric energy from SER.4 On October 17, 1986, SER and
PP&L entered into a twenty-year Power Purchasing
Agreement. Under the terms of the Agreement, "SER is
required to sell exclusively to PP&L, and PP&L is required
to purchase SER's entire net power output up to 79.5
_________________________________________________________________
2. When reviewing a Rule 12(b)(6) dismissal for failure to state a claim
upon which relief can be granted, we must accept as true the factual
allegations in the complaint and all reasonable inferences that can be
drawn from them. Fuentes v. South Hills Cardiology, 946 F.2d 196, 201
(3d Cir. 1991).
3. SER asserts that it is both an independent power producer and a
qualifying facility. We note, however, that an "independent power
producer" is by definition "[a]n electric power supplier which is not a
qualifying facility . . . ." 52 Pa. Code § 57.31. This potential conflict is not
relevant for the purposes of this appeal, however, and throughout this
opinion we will refer to SER as both an independent power producer and
a qualifying facility without deciding whether either designation is
inappropriate.
4. PP&L is also required to (and does) purchase electric energy from
independent power producers other than SER.
4
megawatts at a price per kilowatt hour which is either fixed
within the agreement or calculated as a percentage of
PP&L's Energy-Only Avoided Cost." Amended Complaint,
¶ 22. PP&L is permitted to purchase less than SER's total
electric energy output "only when curtailed purchases are
necessary for PP&L ``to make repairs, changes, tests or
inspections, or for reasons of an actual or potential System
Emergency, Forced Outage, Force Majeure or PP&L System
operating condition which necessitates such disconnections
or curtailments . . . .' " Amended Complaint, ¶ 31 (quoting
Agreement, Art. 9, ¶ E). PP&L may not curtail purchases of
SER's electric output " ``for reasons of economic dispatch.' "
Amended Complaint, ¶ 42 (quoting Agreement, Art. 9, ¶ E).
The Agreement defines "system emergency" as "any
condition on the PP&L System or PJM System which, in
PP&L's opinion, may disrupt service to customers or
endanger life or property." Amended Complaint, ¶ 32
(quoting Agreement, Art. 1, ¶ CC). According to SER, PP&L
has improperly construed the term "system emergency" to
include "minimum generation emergencies" and "minimum
generation events" (collectively "MINGENS") identified by
PJM. MINGENS occur when the aggregate power demand
within the regions serviced by PJM is expected to fall below
its normal or emergency minimum generation floor level
and PJM cannot sell the pool's excess power to the other
pools or reduce PJM member company purchases.
SER alleges that when MINGENS are issued by PJM,
PP&L has a policy of reducing purchases of energy from
independent power producers with high energy prices first
and cutting purchases from PP&L-owned energy producers
less severely. SER alleges that the majority of PP&L's
declarations of system emergencies are disingenuous and
are actually declared for reasons of "economic dispatch." In
other words, when total electric power available for
distribution by PJM exceeds aggregate customer demand,
PP&L disproportionately curtails the purchase of electric
energy generated by SER and other independent power
producers.
SER complains that when PP&L curtails purchases of
energy from SER (as it has on several occasions), SER is
unable to satisfy its own parasitic load requirements and
5
must purchase oil and electricity. SEC also alleges that
PP&L's generation curtailments have caused it to lose
revenues and to incur other incidental costs.
III.
In its Amended Complaint, SER alleges two separate
federal antitrust violations by PP&L under Section 2 of the
Sherman Act, 15 U.S.C. § 2. In Count I, SER alleges a claim
of monopolization. In Count II, SER alleges a claim of
attempt to monopolize. SER also alleges related state-law
claims for intentional misrepresentation, negligent
misrepresentation, breach of contract, and breach of duty
of good faith and fair dealing.
On November 2, 1995, PP&L moved pursuant to Fed. R.
Civ. P. 12(b)(6) to dismiss the Amended Complaint in its
entirety. In the alternative, PP&L sought to have the district
court stay the federal proceeding and refer the case on
primary jurisdiction grounds to the PUC for an
administrative proceeding to determine the regulatory
propriety of PP&L's generation curtailment policies. On
January 23, 1996, the district court invoked the doctrine of
primary jurisdiction, entered a stay order suspending all
further proceedings pending the outcome of the anticipated
PUC proceeding, and denied without prejudice PP&L's
motion to dismiss the Amended Complaint.
On February 2, 1996, SER filed a motion for
reconsideration of the stay order. On April 15, 1996, the
district court heard oral argument on both SER's motion for
reconsideration and the merits of PP&L's motion to dismiss
the Amended Complaint. The court directed the parties to
file letter briefs on these motions. In its April 19, 1996,
letter brief, SER included two footnotes in which it
requested an opportunity to amend its Amended Complaint
in lieu of dismissal. SER never filed a formal motion to
amend its Amended Complaint.
On May 21, 1996, the district court granted PP&L's
motion to dismiss SER's Amended Complaint in its entirety.
After dismissing SER's federal antitrust claims, the district
court declined to exercise supplemental jurisdiction over
SER's state law claims pursuant to 28 U.S.C. § 1367(c)(3).
6
The court dismissed as moot SER's motion to lift the stay
order. SER filed this timely appeal. We have jurisdiction
pursuant to 28 U.S.C. § 1291.5IV.
Section 2 of the Sherman Act provides that "[e]very
person who shall monopolize, or attempt to monopolize, or
combine or conspire with any other person or persons, to
monopolize any part of the trade or commerce among the
several States, or with foreign nations, shall be deemed
guilty of a felony . . . ." 15 U.S.C. § 2.
To state a claim for monopolization, a plaintiff must
allege "(1) the possession of monopoly power in the relevant
market and (2) the willful acquisition or maintenance of
that power as distinguished from growth or development as
a consequence of a superior product, business acumen, or
historical accident." Fineman v. Armstrong World Indus.,
Inc., 980 F.2d 171, 197 (3d Cir. 1992) (quoting United
States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct.
1698, 1704 (1966)). To state a claim for attempted
monopolization, a plaintiff must allege "(1) that the
defendant has engaged in predatory or anticompetitive
conduct with (2) a specific intent to monopolize and (3) a
dangerous probability of achieving monopoly power."
Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113
S.Ct. 884, 890-91 (1993); see also Barr Lab., Inc. v. Abbott
Lab., 978 F.2d 98, 112 (3d Cir. 1992) (plaintiff must allege
that defendant "(1) had specific intent to monopolize the
relevant market, (2) engaged in anti-competitive or
exclusionary conduct, and (3) possessed sufficient market
power to come dangerously close to success.").
SER's right to maintain a private cause of action for
damages arising under Section 2 of the Sherman Actflows
_________________________________________________________________
5. We exercise plenary review over the district court's grant of PP&L's
Rule 12(b)(6) motion to dismiss for failure to state a claim upon which
relief can be granted. Jeremy H. v. Mount Lebanon Sch. Dist., 95 F.3d
272, 277 (3d Cir. 1996). We apply the same standard as the district
court; that is, we must "refrain from granting a dismissal unless it is
certain that no relief can be granted under any set of facts which could
be proved." Fuentes, 946 F.2d at 201.
7
from Section 4 of the Clayton Act, which provides for suits
by "any person who shall be injured in his business or
property by reason of anything forbidden in the antitrust
laws." 15 U.S.C. § 15(a). In Brunswick Corp. v. Pueblo Bowl-
O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690 (1977), the
Supreme Court limited the class of Section 4 plaintiffs to
those who plead and prove "antitrust injury." Observing
that the antitrust laws were designed for the "protection of
competition, not competitors," the Court stated:
[P]laintiffs . . . must prove more than injury causally
linked to an illegal presence in the market. Plaintiffs
must prove antitrust injury, which is to say injury of
the type the antitrust laws were intended to prevent
and that flows from that which makes defendants' acts
unlawful. The injury should reflect the anticompetitive
effect either of the violation or of anticompetitive acts
made possible by the violation.
Id. at 489, 97 S.Ct. at 697 (emphasis in original); see also
Brader v. Allegheny Gen. Hosp., 64 F.3d 869, 875 (3d Cir.
1995); International Raw Materials, Ltd. v. Stauffer Chem.
Co., 978 F.2d 1318, 1327-28 (3d Cir. 1992).
SER alleges that PP&L's curtailment of energy purchases
from SER and other independent power producers harms
competition and consumer welfare
by keeping PP&L's rate base artificially high, by
depriving consumers within PP&L's service area of
energy sources other than those owned and/or
exploited by PP&L (which, in turn, reduces the
reliability of electric service provided), and by reducing
the availability to consumers of power produced using
alternative, environmentally pro-active energy sources.
Amended Complaint, ¶ 66.6 We address each of these
alleged injuries in turn.
_________________________________________________________________
6. SER also alleged a list of its damages, including the loss of electricity
sales revenues, increased costs to purchase fuel oil and electricity, and
accelerated depreciation of the plant through increased stress upon vital
components attributable to excessive cycling. Amended Complaint, ¶ 70.
These allegations do not constitute antitrust injury. As the district court
8
We begin with SER's allegation that PP&L's generation
curtailment policy enables PP&L to keep its rate base
artificially high. SER contends that PP&L's rate base is a
function of the value of "used and useful" capital equipment
owned by PP&L for generating, transmitting and
distributing electricity to the public. PP&L may not,
however, include the cost of electrical power purchased
from independent power producers like SER in PP&L's rate
base.7 According to SER, during periods of lower demand,
PP&L has an economic incentive to maintain power
generation at its own facilities (to preserve a high rate base)
and to reduce energy purchases from independent power
producers, which cost PP&L money but contribute nothing
to PP&L's rate base.
Under the circumstances of this case, whether and to
what extent PP&L maintains an artificially high rate base is
not within the purview of the antitrust laws. As SER
concedes, Pennsylvania regulators -- not the market --
determine PP&L's rate base. PP&L has no unilateral ability
to change its rates; any increase or decrease in rates must
be filed with the PUC and conform to PUC regulations and
orders. See 66 Pa. Cons. Stat. Ann. #8E8E # 1301, 1308; Yeager's
Fuel, Inc. v. Pennsylvania Power & Light Co., 22 F.3d 1260,
1270 (3d Cir. 1994) ("Pennsylvania statutes expressly
provide for PUC regulation of rates . . . .").
PP&L contends that "[t]he antitrust laws are intended to
protect the competitive process by which prices and other
terms of trade are established by the marketplace, not how
regulators administer the accounting formulas that [are
_________________________________________________________________
properly concluded, "[s]uch injuries to an individual competitor
company, without allegations of injury to competition or consumer
welfare, are insufficient as a matter of law to establish a violation of
federal antitrust law." Dist. Ct. Op., at 7, 1996 WL 284994, at *3 (E.D.
Pa. May 21, 1996); see Brunswick, 429 U.S. at 488, 97 S.Ct. at 697.
7. "Utilities earn a return only on their property which is used and useful
in producing and delivering power. The utilities earn no return on costs,
such as those incurred to purchase fuel or power from other sources
such as [qualifying facilities]." Lehigh Valley Power Comm. v.
Pennsylvania Pub. Util. Comm'n, 563 A.2d 548, 552 n.10 (Pa. Commw.
Ct. 1989).
9
used in] ratemaking." Appellee Brief, at 20. We agree. SER's
complaints about PP&L's allegedly high rate base should be
brought before the PUC, not to federal court on an antitrust
complaint.8
SER also alleges that PP&L's curtailment of energy
purchases from SER and other independent power
producers "depriv[es] consumers within PP&L's service area
of energy sources other than those owned and/or exploited
by PP&L." Amended Complaint, ¶ 66. Depriving consumers
of "energy sources" is not, however, cognizable antitrust
injury. An "energy source" is not the same as a
"competitor," and the fact that PP&L obtains the majority of
its energy from few energy sources does not indicate an
absence of competition. For example, if PP&L were to "own
and/or exploit" a diverse supply of energy sources, thus
satisfying SER's expressed concern, the relevant question of
whether PP&L was unlawfully monopolizing the relevant
market would remain unanswered. Consumers within
PP&L's service area would still receive the same product
(electricity) and the same amount of competition (none). At
issue is whether PP&L unlawfully excluded independent
power producers like SER from the relevant market, not
whether consumers receive electricity generated by nuclear,
coal, culm, solar, or any other energy source.9
_________________________________________________________________
8. In Pennsylvania, the PUC has been entrusted with "full power and
authority . . . to enforce, execute and carry out, by its regulations,
orders, or otherwise, . . . the provisions of [the Code] and the full intent
thereof." 66 Pa. Cons. Stat. Ann. § 501; see id. § 1301 (rates shall be
"just and reasonable").
SER's assertion that PP&L's curtailments allow it to"unfairly and
illegally skew the evidence, concerning the extent to which its capital
equipment is utilized that it presents the PUC in support of rate
requests, thereby misleading the PUC in its rate determinations,"
Appellant Brief, at 18-19, might also appropriately be grounds for a
complaint before the PUC, but it is not a basis for an antitrust
complaint. See 66 Pa. Cons. Stat. Ann. § 1311 (PUC may ascertain and
fix fair value of public utility's property); id. §§ 505, 1302 (public utilities
shall furnish information to PUC).
9. In addition, while the environmental quality of energy sources may be
a worthwhile concern, it does not appear to be a problem whose solution
is found in the Sherman Act. See, e.g., In re Multidistrict Vehicle Air
10
Even if we construe SER's Amended Complaint to find an
assertion that PP&L's generation curtailment policy
destroys competition in the provision of energy to
consumers, we would still not find any cognizable antitrust
claim in this case. To state a claim for monopolization, SER
must allege, inter alia, that PP&L willfully acquired or
maintained monopoly power in the relevant market. To
state a claim for attempted monopolization, SER must
allege, inter alia, that PP&L had a dangerous probability of
achieving monopoly power in the relevant market. For both
claims, we must consider the scope of the relevant market.
Spectrum Sports, 506 U.S. at 456-59, 113 S.Ct. at 891-92.
According to SER, the primary relevant market in this case
is the retail service of 1.2 million customers in PP&L's
service area, which covers approximately 10,000 square
miles of central eastern Pennsylvania. Amended Complaint,
¶ 16.
Thus, SER must allege that PP&L unlawfully acquired
monopoly power or had a dangerous probability of
unlawfully achieving monopoly power in its service area. To
do this, SER must allege that PP&L in some way acted to
_________________________________________________________________
Pollution, 538 F.2d 231, 236 (9th Cir. 1976) (where "the harm to be
alleviated is environmental, not economic in the antitrust sense," court
affirmed dismissal of antitrust suit); Conservation Council of W. Austl.,
Inc. v. Aluminum Co. of Am., 518 F. Supp. 270, 281 (W.D. Pa. 1981)
(where plaintiff "attempt[s] to raise environmental issues under the guise
of antitrust laws," court dismissed plaintiff 's complaint for failure to
state claim upon which relief can be granted); see also Gutierrez v. E. &
J. Gallo Winery Co., Inc., 604 F.2d 645, 646 (9th Cir. 1979) (affirming
dismissal of antitrust claims brought by farm workers complaining about
work reduction; plaintiffs' goals were unrelated to purpose of antitrust
laws); Marchwinski v. Oliver Tyrone Corp., 83 F.R.D. 606 (W.D. Pa. 1979)
(dismissing antitrust claims that sought to remedy gender
discrimination); cf. National Soc'y of Prof'l Eng'rs v. United States, 435
U.S. 679, 693-95, 98 S.Ct. 1355, 1366-67 (1978) (rejecting defendant's
attempt to use safety and health to justify anticompetitive behavior).
We do not decide that environmental quality can never be considered
when conducting antitrust analysis. Rather, we conclude that when an
antitrust defendant's conduct cannot be linked to antitrust injury, the
fact that the conduct may be otherwise undesirable is not a concern of
the antitrust laws.
11
exclude SER as a competitor in the delivery of electricity to
customers in PP&L's service area. In Vinci v. Waste
Management, Inc., 80 F.3d 1372 (9th Cir. 1996), the Court
of Appeals for the Ninth Circuit explained:
The antitrust laws are intended to preserve competition
for the benefit of consumers in the market in which
competition occurs. . . . The requirement that the
alleged injury be related to anti-competitive behavior
requires, as a corollary, that the injured party be a
participant in the same market as the alleged
malefactors. . . . A plaintiff who is neither a competitor
nor a consumer in the relevant market does not suffer
antitrust injury.
Id. at 1376 (internal quotations and citations omitted); see
also International Raw Materials, 978 F.2d at 1328. SER
attempts to satisfy its pleading obligation by contending
that it is PP&L's competitor in the retail market:
PP&L gets reimbursed dollar for dollar from its
customers . . . for all power which it purchases from
SER . . . . Therefore, SER, to all intents and purposes,
is selling its power to the public with PP&L acting as a
distribution agent or middleman. . . . SER, therefore, is
a competitor with PP&L for the sale of electric energy to
PP&L's consumers within PP&L's service area.
Amended Complaint, ¶¶ 24-25. According to SER, PP&L's
generation curtailment policy harms SER, and thus harms
competition. We do not agree. SER is not PP&L's competitor
-- it is PP&L's supplier. SER concedes that in October
1986, it entered into an agreement with PP&L in which
"SER is required to sell [its electric energy] exclusively to
PP&L" for twenty years. Amended Complaint, ¶¶ 20, 22.
Pursuant to the Agreement which SER now seeks to
enforce, SER is currently prohibited from competing with
PP&L in the relevant market. A supplier of a product does
not become a competitor of the purchaser merely because
the purchaser in turn sells the product to the ultimate
user. SER cannot allege that PP&L's purported breach of
contract establishes injury to competition when that very
contract prevents SER from competing with PP&L in the
first place.
12
In addition to the fact that the Agreement on its face
defeats SER's claim that it is PP&L's competitor, state and
federal laws prohibit SER from competing in the relevant
market. SER concedes that independent power producers
such as SER "normally cannot, by virtue of state and
federal regulation and physical limitations, sell power
directly to consumers." Amended Complaint, ¶ 12. SER
does not allege that it is currently permitted to sell
electricity directly to consumers, and SER concedes that
"SER did not, at the time the complaint was drafted, have
the ability to deliver environmentally friendly energy directly
to retail consumers." Oral Arg. Trans. at 5. 10
SER directs our attention to the Pennsylvania Electricity
Generation Customer Choice and Competition Act, 66 Pa.
Cons. Stat. Ann. § 2801 et seq., which was signed into law
on December 3, 1996. The Choice and Competition Act will
fundamentally restructure Pennsylvania's retail electric
industry by providing consumers with a choice of electric
generation suppliers. The Act will permit competition in
PP&L's service area.
The Choice and Competition Act comes too late for SER's
Amended Complaint. Competitive retail access will be
phased in over time, and direct access to competition will
not exist across Pennsylvania until January 1, 2001.
Competitive retail access pilot programs did not begin until
April 1, 1997, id. § 2804(12), long after SER filed its
Amended Complaint, and the pilot programs are only
available to five percent of the "peak load." Id. § 2806(B).11
SER asks us to find that PP&L's generation curtailment
policy injures SER today, and that those injuries will inhibit
SER's ability to compete with PP&L in the future market.
_________________________________________________________________
10. See also Greensboro Lumber Co. v. Georgia Power Co., 643 F. Supp.
1345, 1373 (N.D. Ga. 1986) ("In establishing PURPA, . . . Congress did
not intend to place qualifying facilities in competition with public
utilities. . . . Qualifying facilities are not authorized under PURPA to sell
at retail . . . . [T]hey are not competitors of public utilities."), aff'd, 844
F.2d 1538 (11th Cir. 1988).
11. At oral argument, counsel for SER conceded that "the first
opportunity for customers to choose their electric generation suppliers is
April 1st of this year . . . ." Oral Arg. Trans. at 13.
13
We cannot permit SER to pursue such a speculative path
to recovery under the Sherman Act.
We will not attempt to predict the future of competitive
retail access in Pennsylvania. We do not know whether SER
or PP&L will even exist in 2001, and we certainly do not
know whether PP&L will enjoy an unlawful monopoly in its
service area at that time.12 What we do know is that SER is
presently unable to compete with PP&L, both by agreement
and by law. While SER attempts to characterize itself as
PP&L's competitor on the eve of deregulation, we conclude
that SER cannot, as a matter of law, establish that PP&L's
generation curtailment policy creates an injury of the type
the antitrust laws were intended to prevent.13
As noted, we read SER's Amended Complaint to address
primarily SER's intention to compete with PP&L in the
retail market -- the 1.2 million customers within PP&L's
service area. SER also contends, however, that it is PP&L's
competitor for the wholesale distribution of power to PJM
member companies and other power pools. Amended
Complaint, ¶ 37.14 According to the Amended Complaint,
however, the Power Purchase Agreement requires SER to
sell its energy exclusively to PP&L. SER is therefore
contractually prohibited from selling energy to wholesale
resellers other than PP&L. We cannot conceive how SER
_________________________________________________________________
12. At oral argument, counsel for SER conceded that "it's true that we
don't know exactly what the market will look like[following deregulation]
. . . ." Oral Arg. Trans. at 16.
13. We do not decide whether PP&L's generation curtailment policy
would violate the Sherman Act in a competitive market where no
agreement precluded competitive activity. That scenario, while it may
arise at some point in the future, is not presently before us.
14. At oral argument, counsel for SER suggested that the relevant
"wholesale market" includes sales to industrial consumers who attach
transmission lines to SER's line. Oral Arg. Trans. at 25. We disagree. The
"sale of electric energy at wholesale" is defined by statute as the "sale of
electric energy to any person for resale." 16 U.S.C. § 824(d) (emphasis
supplied). Industrial consumers who purchase electric energy for their
own use (i.e., not for resale), are not wholesale customers; they are retail
consumers. The relevant wholesale market in this case, as suggested in
SER's Amended Complaint, is the sale of energy to PJM member
companies and other power pools.
14
intends to compete with PP&L in the wholesale market
without violating the very agreement which it seeks to
enforce here.15
In addition, SER's failure to obtain FERC approval
precludes it from compelling other PJM member companies
to accept energy directly from SER in the wholesale market
as a matter of law. Before PJM member companies may be
compelled to accept energy directly from SER: (1) SER must
file an application with FERC; (2) affected State
commissions and utilities must receive notice; (3) there
must be an opportunity for a hearing; and (4) FERC must
find that such action is necessary or appropriate in the
public interest. 16 U.S.C. § 824a(b); 18 C.F.R. pt. 32. In
addition, FERC may not compel the enlargement of
generating facilities for such purposes, and it may not
compel a public utility to sell or exchange energy when to
do so would impair the utility's ability to render adequate
service to its customers. 16 U.S.C. § 824a(b). SER does not
allege that it has applied to FERC or that the other
requirements of section 824a(b) have been satisfied.
SER does not allege that it has the ability or desire to sell
energy directly to PJM member companies other than
PP&L. SER does not even allege that it has taken any steps
to secure voluntary interconnection with PJM member
companies other than PP&L. See id. § 824a(a); 18 C.F.R.
_________________________________________________________________
15. While the Amended Complaint clearly states that SER must sell its
energy exclusively to PP&L, the Power Purchase Agreement itself is
ambiguous and can be read to permit SER to sell energy to third parties
once it provides 79.5 megawatts to PP&L. Agreement, Art. 3. We rely on
the plain language of the Amended Complaint in concluding that the
Agreement precludes SER from competing with PP&L in the wholesale
market. As we note in the text, however, even if the Agreement does not
prevent SER from selling excess energy in the wholesale market: (1) SER
may not compel other PJM member companies to accept energy directly
from SER due to its failure to comply with 16 U.S.C.§ 824a(b); and (2)
as a matter of undisputed fact, SER must supply its energy exclusively
to PP&L, cannot physically provide energy directly to other utilities, and
has not attempted to secure voluntary interconnections with PJM
member companies other than PP&L. We will not permit SER to amend
its Amended Complaint to clarify its rights under the Agreement as such
amendment would be futile.
15
§ 32.1(g). Indeed, as Judge Stapleton observes, "SER has
not alleged that it has sold, attempted to sell, or even
intends to sell any excess capacity" to others in the
wholesale market. Rather, SER contends that it competes
with PP&L in the wholesale market by selling excess energy
to PP&L and having PP&L resell the energy to other
utilities. See Amended Complaint, ¶¶ 23, 37. As our
rejection of SER's identical retail market argument makes
clear, however, an arrangement whereby SER sells energy
to PP&L and PP&L resells the energy to third parties (retail
or wholesale) makes SER PP&L's supplier, not PP&L's
competitor.
In effect, SER's argument turns on itself. In an effort to
demonstrate the existence of potential competition in the
wholesale market, SER argues that it is not required to sell
its excess energy to PP&L. SER also argues, however, that
it competes with PP&L in the wholesale market by selling
its excess energy to PP&L and hoping that PP&L resells that
energy to other utilities. SER cannot have it both ways. If
SER is not required to sell its excess energy to PP&L, SER
cannot complain that PP&L's failure to purchase that
energy constitutes an antitrust violation.
When reviewing a Rule 12(b)(6) dismissal, we must accept
as true the factual allegations in the complaint and all
reasonable inferences that can be drawn from them.
Fuentes, 946 F.2d at 201. We are not, however, required to
accept as true unsupported conclusions and unwarranted
inferences. Violanti v. Emery Worldwide A-CF Co., 847 F.
Supp. 1251, 1254-55 (M.D. Pa. 1994); Resolution Trust
Corp. v. Farmer, 823 F. Supp. 302, 305 (E.D. Pa. 1993);
Sinchak v. Parente, 262 F. Supp. 79, 81 (W.D. Pa. 1966).
While SER alleges in its Amended Complaint that it is
PP&L's competitor in the retail and wholesale markets,
those assertions are belied by both the remaining factual
allegations and the law.
Finally, SER contends that PP&L's curtailment practice
reduces the "availability to consumers of power produced
using alternative, environmentally pro-active energy
sources." Amended Complaint, ¶ 66. As discussed above,
however, this allegation does not implicate the antitrust
laws. If PP&L did hold an unlawful monopoly in its service
16
area but it decided to generate power with "environmentally
pro-active energy sources," PP&L would satisfy SER's
alleged concerns, but it would still hold an unlawful
monopoly. Likewise, since we conclude that PP&L does not
hold an unlawful monopoly in its service area, the fact that
PP&L allegedly does not rely on "environmentally pro-active
energy sources" does not change our conclusion about
PP&L's generation curtailment policy.
We recognize that the existence of antitrust injury is not
typically resolved through motions to dismiss. Brader, 64
F.3d at 876. This is not, however, a typical case. The
fundamental dispute between SER and PP&L concerns the
interpretation of the Power Purchasing Agreement. This
dispute should be resolved pursuant to common-law
contract principles and with reference to PURPA. Cf.
Kamine/Besicorp Allegany L.P. v. Rochester Gas & Elec.
Corp., 908 F. Supp. 1194, 1208 (W.D.N.Y. 1995); id. at
1203-04 ("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.").16 Since both law and contract prevent SER from
competing with PP&L, PP&L's generation curtailment policy
cannot be said to harm competition. SER has failed to
allege any injuries of the type the antitrust laws were
designed to prevent, and the district court properly
dismissed Counts I and II of the Amended Complaint. Given
our disposition of SER's federal antitrust claims, we will
also affirm the decision of the district court to decline to
exercise supplemental jurisdiction over SER's state law
claims.
_________________________________________________________________
16. Kamine/Besicorp involved allegations that a public utility used its
monopsony power as the exclusive buyer of wholesale electric power
within the utility's service area to drive a qualifying facility out of
business by demanding a predatory price. 908 F. Supp. at 1203. The
district court determined that the utility's monopsony power did not pose
a threat to increased consumer prices and that the qualifying facility's
demand for payments in excess of the utility's avoided cost was not
supported by the antitrust laws. Id. at 1203-05.
17
V.
SER also contends that the district court abused its
discretion by not affording SER an opportunity to amend
further its Amended Complaint. As noted above, on April
15, 1996, the district court heard oral argument on both
SER's motion for reconsideration of the court's stay order
and the merits of PP&L's motion to dismiss the complaint.
The court directed the parties to file letter briefs on these
motions.
In its April 19, 1996, letter brief, SER included two
footnotes that suggested its desire to amend the Amended
Complaint. SER never filed a formal motion to amend
further its Amended Complaint. See Fed. R. Civ. P. 15(a).
Nonetheless, SER contends that its failure to file a motion
for leave to amend should be excused and that it should be
permitted to amend its Amended Complaint. District Council
47, Am. Fed'n of State, County & Mun. Employees, AFL-CIO
v. Bradley, 795 F.2d 310, 316 (3d Cir. 1986) (amendment
is not precluded merely because plaintiff elects to appeal
Rule 12(b)(6) dismissal based on lack of factual specificity
rather than seek leave to amend complaint).17
Unfortunately, on appeal SER does not indicate what it
would do with a second opportunity to amend its
Complaint. We look, therefore, to SER's letter brief.
Footnote 1 of the brief provides:
1. SER believes that all of these inferences[regarding
present competition with PP&L in the sale of power to
resellers such as municipal utilities, and future
competition in a deregulated retail market] are implicit
in the language of its Complaint, as well as the
suggestion that PP&L's predatory conduct will have a
chilling effect upon the future entry into the relevant
_________________________________________________________________
17. SER's assertion that the stay prevented SER from filing a motion for
leave to amend the Amended Complaint is belied by the fact that (1)
almost three months elapsed between the time PP&Lfiled its motion to
dismiss and the time the court entered its stay order; (2) SER filed
several letter briefs with the court during the stay; and (3) SER did not
seek leave from the stay for permission to file a motion for leave to
amend. Thus, we will focus on whether we should excuse SER's failure
to seek leave to amend its Amended Complaint.
18
market of potential new electricity generation
competitors to PP&L. Should the court decide that
these assertions or others discussed in this letter must
be expressly pled, SER asks the court to consider this
letter as a request to amend the Complaint
appropriately.
SER Letter Brief, at 2 n.1 (April 19, 1996). Footnote 2
states:
2. While this fact issue could be resolved through
discovery, SER now seeks leave to amend the
Complaint to recite the Plant's actual capacity to
generate at least 5.5 megawatts, for potential sale to
third parties, in excess of the amount which it
presently provides by contract to PP&L.
Id. at 6 n.2. Thus, SER's letter brief suggests a desire to
amend its Amended Complaint to detail allegations
regarding (1) SER's present ability to compete with PP&L in
the wholesale market, (2) SER's future ability to compete
with PP&L in the retail market, and (3) PP&L's efforts to
thwart SER's present and future competitive undertakings.
If further amendment of the Amended Complaint will not
result in a determination that the newly amended
complaint is sufficient to withstand a renewed motion
under Rule 12(b)(6), we need not permit the amendment.
See Dykes v. Southeastern Pa. Transp. Auth., 68 F.3d 1564,
1572 n.7 (3d Cir. 1995), cert. denied, #6D 6D6D# U.S. ___, 116
S.Ct. 1434 (1996); Colburn v. Upper Darby Township, 838
F.2d 663, 666 (3d Cir. 1988). After review of SER's new
assertions, we conclude that SER's proposed amendments
will not enable it to withstand a renewed motion to dismiss.
SER's physical ability to generate sufficient power to
serve directly both wholesale and retail customers is not
relevant. First, SER's Amended Complaint clearly states
that SER is contractually bound to sell its power exclusively
to PP&L. Second, SER concedes that at the time itfiled its
Amended Complaint it was legally prohibited from
competing with PP&L and that retail competition did not
begin until pilot programs were initiated in April of 1997.
Thus, SER could not compete with PP&L, even if it had the
capacity to do so. We conclude that SER's proposed
19
amendments will not enable it to withstand a renewed
motion to dismiss, and we will not grant SER leave to
amend further its Amended Complaint.18
VI.
We do not decide whether PP&L's generation curtailment
policy violates the Power Purchasing Agreement, PURPA, or
Pennsylvania regulations. We also do not decide whether
PP&L's practices will violate the antitrust laws in the
future. We are limited to deciding whether SER can plead
that, at the time the Amended Complaint was filed, PP&L
was unlawfully monopolizing or attempting to monopolize
the markets for the provision of electric energy to retail
consumers or wholesale resellers. SER cannot meet this
burden. The Power Purchasing Agreement and the law
prevent SER from competing with PP&L in the relevant
markets. SER cannot, therefore, plead antitrust injury. We
will affirm the judgment of the district court. 19
_________________________________________________________________
18. We do not decide whether the district court should have construed
the two footnotes as a motion for leave to amend, and we, therefore, do
not decide whether the district court abused its discretion in failing to
grant such a motion. Miklavic v. USAir Inc., 21 F.3d 551, 553 (3d Cir.
1994) (decision to dismiss with prejudice without granting leave to
amend is subject to appellate review under abuse of discretion standard).
It is sufficient that we find that SER is not entitled to amend its
Amended Complaint.
19. SER also argued that the district court erred in granting PP&L's
motion for a stay of proceedings and referring the case on primary
jurisdiction grounds to the PUC for an administrative proceeding to
determine the regulatory propriety of PP&L's generation curtailment
policies. See United States v. Western Pac. R.R. Co., 352 U.S. 59, 63-64,
77 S.Ct. 161, 165 (1956) (discussing application of primary jurisdiction
doctrine); Fulton Cogeneration Assocs. v. Niagara Mohawk Power Corp.,
84 F.3d 91, 97 (2d Cir. 1996) (same). Given our disposition of the other
issues raised in this appeal, we need not decide SER's challenge to the
district court's stay order.
20
STAPLETON, Circuit Judge, concurring:
I believe that the Power Purchase Agreement between
SER and PP&L is susceptible of an interpretation that
SER's duty to sell exclusively to PP&L is limited to the first
79.5 megawatts of its output. Therefore, I cannot agree with
the majority that the "contract prevents SER from
competing with PP&L." Maj. Op. at 12.
Nonetheless, I concur in the judgment to affirm the
district court's dismissal of SER's complaint with respect to
the retail market on the alternative ground on which the
majority relies: by law there was no competition in the
retail market during the period complained of in the
complaint. Competition in the retail market is currently
being phased in, see Pennsylvania Electricity Generation
Customer Choice and Competition Act, 66 Pa. Cons. Stat.
Ann. § 2801 et seq., but there was no competition prior to
the passage and implementation of the recent legislation.
Without a competitive market, SER could not have been
PP&L's competitor, and there cannot have been antitrust
injury.
I also agree that SER's complaint with respect to the
wholesale market should be dismissed, but I reach this
conclusion for a different reason than the majority. SER
has not alleged that it has sold, attempted to sell, or even
intends to sell any excess capacity (i.e. above what it
provides under the Agreement to PP&L) on the wholesale
market to others for resale. The proposed amendment to
the complaint would only clarify SER's interpretation of the
Power Purchase Agreement and allege that SER is capable
of producing more than 79.5 megawatts. Thus, even if the
amendment were permitted, the complaint would still be
devoid of an allegation that SER has competed, or has even
formulated a plan to compete, with PP&L in some
designated wholesale market. SER's conclusory allegation
that it is a competitor with PP&L in the wholesale market
is entirely without factual context. Even on a motion to
dismiss, a district court need not credit unsubstantiated
conclusions and bald assertions. See Washington Legal
Foundation v. Massachusetts Bar Foundation, 993 F.2d
962, 971 (1st Cir. 1993); Wright & Miller, Federal Practice
and Procedure: Civil 2d § 1357 at 311 (1989). In the
21
absence of some description of past or anticipated
competition between SER and PP&L in a wholesale market,
there is no basis for inferring the existence of, or potential
for, antitrust injury.
For these reasons, I would affirm the judgment of the
district court.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
22