Case No. 15-17302
IN THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SolarCity Corporation,
Respondent,
v.
Salt River Project Agricultural Improvement and Power District,
Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA, No. 1:15-cv-00374 (Rayes, J.)
BRIEF FOR THE AMERICAN PUBLIC POWER ASSOCIATION AND
THE LARGE PUBLIC POWER COUNCIL
AS AMICI CURIAE, IN SUPPORT OF REVERSAL
John M. Baker, Reg. No. 174403
Counsel of Record
Bethany D. Krueger, Reg. No. 306368
Janine W. Kimble, Reg. No. 392032
Chris L. Schmitter, Reg. No. 395916
GREENE ESPEL PLLP
222 S. Ninth Street, Suite 2200
Minneapolis, MN 55402
[email protected]
[email protected]
[email protected]
[email protected]
(612) 373-0830
May 9, 2016
TABLE OF CONTENTS
TABLE OF CONTENTS ........................................................................................... i
TABLE OF AUTHORITIES ................................................................................... iii
CORPORATE DISCLOSURE STATEMENT .........................................................1
STATEMENT OF INTEREST ..................................................................................1
ARGUMENT .............................................................................................................3
I.
PUBLIC POWER ENTITIES WERE ESTABLISHED TO SERVE
IMPORTANT PUBLIC INTERESTS UNRELATED TO
PROFITABILITY. ......................................................................................... 3
II. SOLARCITY IS SEEKING TO USE ANTITRUST STATUTES TO
MAKE A FEDERAL CASE OUT OF THE WAY THAT PUBLIC POWER
ENTITIES ATTEMPT TO RESOLVE DIFFICULT PROBLEMS OF FAIR
COST ALLOCATION. .................................................................................. 5
III. THE STATE ACTION IMMUNITY PROTECTS CHOICES MADE BY
STATES TO DISPLACE FULL COMPETITION WITH
REGULATION…. ...................................................................................... 11
IV. THE STATE-ACTION IMMUNITY HAS TRADITIONALLY
INSULATED THE COST-ALLOCATION CHOICES OF PUBLIC
POWER ENTITIES FROM THE DISRUPTIVE AND DISTORTING
EFFECT OF ANTITRUST LITIGATION. ................................................. 12
A. Historically, the state action immunity doctrine has provided public
power entities around the nation with important latitude to fairly resolve
competing interests of stakeholders. ..................................................... 13
B. Special latitude is demonstrated in the way that the Supreme Court and
this Court have applied the “clearly articulated” element of state-action
immunity to prices that were the outcome of a legislatively-created
ratemaking process. ............................................................................... 13
C. When a public power entity’s rates are set under a regulatory regime
that requires them to be nondiscriminatory, just, and reasonable, that
regime has displaced competition with regulation for purposes of
applying the first element of state-action immunity. ............................ 15
i
V. THE CLEAR ARTICULATION REQUIREMENT SET FORTH BY
MIDCAL AND EXPOUNDED UPON BY A NUMBER OF SUPREME
COURT CASES, INCLUDING PHOEBE PUTNEY, CONTINUES TO
BE SATISFIED BY STATE STATUTORY RATEMAKING
RESTRICTIONS.......................................................................................... 19
CONCLUSION ........................................................................................................23
CERTIFICATE OF COMPLIANCE .......................................................................25
CERTIFICATE OF SERVICE ................................................................................25
ii
TABLE OF AUTHORITIES
Page(s)
Federal Cases
A–1 Ambulance Serv. Inc. v. Cnty. of Monterey,
90 F.3d 333 (9th Cir.1996) ................................................................................. 12
Ala. Elec. Coop., Inc. v. FERC,
684 F.2d 20 (D.C. Cir. 1982) .............................................................................. 10
Buckley v. Valeo,
424 U.S. 1 (1976) ..........................................................................................21, 22
Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc.,
445 U.S. 97 (1980) ........................................................................................12, 19
City & Cnty. of San Francisco v. United Airlines,
616 F.2d 1063 (9th Cir. 1979) .............................................................................. 9
In re Flores,
692 F.3d 1021 (9th Cir. 2012) ............................................................................ 20
FTC v. Phoebe Putney Health System, Inc.,
133 S. Ct. 1003 (2013) .................................................................................passim
Grason Electric Co. v. Sacramento Municipal Utility District,
770 F.2d 833 (9th Cir. 1985) .......................................................................passim
Lafayette v. La. Power & Light Co.,
435 U.S. 389 (1978) ............................................................................................ 21
Lair v. Bullock,
697 F.3d 1200 (9th Cir. 2012) ......................................................................20, 21
Lancaster Cmty. Hosp. v. Antelope Valley Hosp. Dist.,
940 F.2d 397 (9th Cir. 1991) ........................................................................13, 19
Lease Lights, Inc. v. Public Service Co. of Oklahoma,
849 F.2d 1330 (10th Cir. 1988) ....................................................................15, 23
Municipal Utilities Board of Albertville v. Alabama Power Co.,
934 F.2d 1493 (11th Cir. 1991) ....................................................................18, 23
iii
New Motor Vehicle Board of California v. Orrin W. Fox Co.,
439 U.S. 96 (1978) .............................................................................................. 21
North Carolina State Board of Dental Examiners v. FTC,
135 S. Ct. 1101 (2015) ........................................................................................ 19
Parker v. Brown,
317 U.S. 341 (1943) ............................................................................................ 11
Preferred Commc’ns, Inc. v. City of Los Angeles, Cal.,
754 F.2d 1396 (9th Cir. 1985) ......................................................................11, 13
Randall v. Sorrell,
548 U.S. 230 (2006) ............................................................................................ 22
Rodriguez v. AT&T Mobility Servs. LLC,
728 F.3d 975 (9th Cir. 2013) .............................................................................. 20
S. Motor Carriers Rate Conference, Inc. v. United States,
471 U.S. 48 (1985) ..................................................................................11, 14, 15
Snake River Valley Elec. Ass’n v. PacifiCorp,
238 F.3d 1189 (9th Cir. 2001) ............................................................................ 12
Southern Motor Carriers. Agostini v. Felton,
521 U.S. 203 (1997) ..........................................................................13, 14, 15, 19
Tenn. Elec. Power Co. v. Tenn. Valley Auth.,
306 U.S. 118 (1939) .............................................................................................. 4
Town of Hallie v. City of Eau Claire,
471 U.S. 34 (1985) ..................................................................................11, 14, 21
United Nat’l Maint., Inc. v. San Diego Convention Ctr., Inc.,
766 F.3d 1002 (9th Cir. 2014) ............................................................................ 19
United States v. Delgado-Ramos,
635 F.3d 1237 (9th Cir. 2011) ............................................................................ 20
United States v. Orm Hieng,
679 F.3d 1131 (9th Cir. 2012) ............................................................................ 20
iv
State Cases
Am. Hoechest Corp. v. Dep’t of Pub. Utils.,
399 N.E.2d 1 (Mass. 1980) ................................................................................. 10
Cent. Me. Power Co. v. Pub. Utils. Comm’n,
382 A.2d 302 (Me. 1978).................................................................................... 17
Citizens Action Coal. of Ind., Inc. v. Pub. Serv. Co. of Ind.,
450 N.E.2d 98 (Ind. Ct. App. 1983) ................................................................... 10
Commonwealth Edison Co. v. Ill. Commerce Comm’n,
937 N.E.2d 685 (Ill. App. Ct. 2010) ..................................................................... 9
Indus. Energy Consumer Grp. v. Pub. Utils. Comm’n,
773 A.2d 1038 (Me. 2001).................................................................................. 17
Uhlmann v. Wren,
401 P.2d 113 (Ariz. 1965) .............................................................................. 4, 23
State Statutes
Ariz. Rev. Stat. Ann. §§ 30-802, 30-803, and 48-2334 ........................................... 17
Ariz. Rev. Stat. Ann. §§ 30-803(A) and (B) ............................................................ 17
Ariz. Rev. Stat. Ann. § 30-805(A) .....................................................................16, 18
Ariz. Rev. Stat. Ann. § 30-805(E) ........................................................................... 17
Ariz. Rev. Stat. Ann. §§ 30-811(A), 30-812(A) ........................................................ 8
Ariz. Rev. Stat. Ann. § 40-202(B) ........................................................................... 17
Cal. Pub. Util. Code § 12809 (West 1984) .............................................................. 14
Rules
Fed. R. App. P. 29(a) ................................................................................................. 2
Fed. R. App. P. 29(c)(1) ............................................................................................. 1
Fed. R. App. P. 29(c)(5) ............................................................................................. 2
v
Constitutional Provisions
Okla. Const. Article IX, § 18 .............................................................................15, 16
Other Authorities
ABA Section of Antitrust Law, State Action Practice Manual (2d ed.
2010) ................................................................................................................... 13
Application of the City of Whitehall, Trempealeau Cnty., Wis. as an
Electric Public Utility, for Authority to Increase Rates (Wis. Pub.
Serv. Comm’n final decision Apr. 29, 2015), available at
https://psc.wi.gov/apps35/ERF_view/viewdoc.aspx?docid=235623 ................... 8
Areeda, IA Phillip E. & Herbert Hovenkamp, Antitrust Law (4th ed.
2013) ................................................................................................................... 15
Bonbright, James C., et al., Principles of Public Utility Rates (2d ed.
1988) ..................................................................................................................... 9
Borenstein, William J., Is the Future of Electricity Generation Really
Distributed?, Energy Institute at Haas (May 4, 2015), available at
https://energyathaas.wordpress.com/2015/05/04/is-the-future-ofelectricity-generation-really-distributed/ .............................................................. 7
Bureau of Labor Statistics, Comparing Measures of Residential
Energy Consumption from Two Surveys for 2001, 2005, & 2009
(2013), available at
http://www.bls.gov/cex/cecomparison.htm#RECS .............................................. 6
Hausman, William J. & John L. Neufeld, How Politics, Economics, &
Institutions Shaped Electric Utility Regulation in the United States:
1879-2009, 53 Bus. Hist. 723 (2011) ................................................................... 4
Hernández, Diana, Energy Insecurity: A Framework for
Understanding Energy, the Built Environment, & Health Among
Vulnerable Populations in the Context of Climate Change, Am. J.
Pub. Health, Apr. 2013 ..................................................................................... 5, 6
Hernández, Diana, et al., Columbia Univ. Academic Commons,
Energy Insecurity among Families with Children 3, available at
http://academiccommons.columbia.edu/catalog/ac:174892 (2014) ................. 5, 7
vi
Inskeep, Benjamin, et al., NC Clean Energy Tech. Ctr., Solar on
Multi-Unit Buildings: Policy and Financing Options to Address
Split Incentives (2015), available at
http://solaroutreach.org/resource/solar-multi-unit-buildings-policyfinancing-options-address-split-incentives/#.VyumXY32aUk; ........................... 6
Kwoka, Jr., John E., Governance Alternatives & Pricing in the U.S.
Electric Power Industry, 18 J.L., Econ. & Org. 278 (2002) ................................ 5
McQuillan, Municipal Corporations ......................................................................... 9
Murray, Anthony G. & Bradford F. Mills, The Impact of Low-Income
Home Energy Assistance Program Participation on Household
Energy Insecurity, 32 Contemp. Econ. Pol’y 811 (2014) ................................ 5, 6
Nat’l Black Caucus of State Legislators Comm. on Energy,
Transportation, & the Env’t, The Need to Develop & Implement
Equitable Energy Policies (2014), available at
http://www.nbcsl.org/component/k2/item/1293-2014-white-paperthe-need-to-develop-implement-equitable-energy-policies.html ......................... 7
Pivo, Gary, Unequal Access to Energy Efficiency in US Multifamily
Rental Housing: Opportunities to Improve, 42 Bldg. Research &
Info. 551 (2014) .................................................................................................... 6
Rudolph, Richard & Scott Ridley, Power Struggle: The Hundred-Year
War over Electricity (1986) .................................................................................. 3
Rule, Troy A., Solar Energy, Utilities, & Fairness, 6 San Diego J.
Climate & Energy L. 115 (2015) ...................................................................... 8, 9
Satchwell, Andrew, et al., Lawrence Berkeley Nat’l Laboratory,
Financial Impacts of Net-Metered PV on Utilities & Ratepayers: A
Scoping Study of Two Prototypical U.S. Utilities (2014), available
at https://emp.lbl.gov/publications/financial-impacts-net-meteredpv........................................................................................................................... 7
Tocco, Peter, The Night They Turned the Lights On in Wabash, 95
Ind. Magazine of History 350 (1999) ................................................................... 4
Twentieth Century Fund, Electric Power and Government Policy
(1947) ................................................................................................................ 4, 5
vii
CORPORATE DISCLOSURE STATEMENT
Neither of these amici curiae are corporations, so under Fed. R. App. P.
29(c)(1), no further disclosure is required.
STATEMENT OF INTEREST
The American Public Power Association (“APPA”) is the service
organization representing the interests of not-for-profit, publicly-owned electric
utilities throughout the United States. More than 2,000 public power utilities,
doing business in every state except Hawaii, own about 10 percent of the nation’s
electric generating capacity, but purchase nearly 70 percent of the power they use
to serve their customers and provide electric service to approximately 48 million
consumers, or about 15% of the nation’s electric customers. Of the 2,000-plus
public power utilities in the United States, 203 are in the Ninth Circuit states and
territories.
The Large Public Power Council (“LPPC”) is an organization of the twentysix largest U.S. public utilities. The member utilities provide electricity across
twelve states, from Washington State to Florida and Arizona to New York, as well
as the island of Puerto Rico. By definition, LPPC member utilities are not-forprofit entities with a state or municipal chartered responsibility to provide reliable,
affordable electricity in their service areas. LPPC member utilities provide lowcost power to more than 30 million people—about 10 percent of the U.S.
1
population.
Collectively, LPPC member utilities own and operate more than
71,000 megawatts of generation capacity and over 30,000 circuit miles of highvoltage transmission lines. Of the LPPC members, four are in the Ninth Circuit
states and territories.
The APPA, the LPPC, and their members have a strong interest in
preserving the state-action immunity as it has been interpreted for decades.
Specifically, they have an interest in preserving the ability of states to adopt and
implement statutory ratemaking regimes, free from the distorting burdens that are
often imposed by antitrust litigation. Members of these amici should not be placed
between the “Scylla” of mandatory statutory ratemaking standards and the
“Charybdis” of third parties disappointed with—and seeking to collaterally attack
through antitrust laws—the final outcome of the public power entity’s
implementation of those state-law standards.
Counsel for the two parties to this appeal have given consent to the
participation of these amici, so these amici have authority to file this brief under
Fed. R. App. P. 29(a).1
1
Pursuant to Fed. R. App. P. 29(c)(5), no party’s counsel authored the brief
in whole or in part. No party or party’s counsel contributed money intended to
fund the brief’s preparation or submission. No person—other than the amici, their
members, or their counsel—contributed money intended to fund the brief’s
preparation or submission.
2
ARGUMENT
Public power entities in Arizona and elsewhere are charged with the
important but difficult mission of delivering electricity to customers, while
allocating the fixed and operating costs of providing this service in a way that
honors state statutory requirements of fair, just, and nondiscriminatory rates.
This appeal involves whether scrutiny of those pricing choices must also be
subject to a federal antitrust “overlay,” in which rate-relief for lower and middleclass customers that is achieved through a reduction in subsidies for those who
have installed alternative energy systems becomes the subject of an antitrust suit, if
a company that benefits from the subsidies would prefer to litigate whether the
change in rates is anticompetitive, rather than to demonstrate that the resulting rate
design is unreasonable, unjust, or discriminatory.
For the reasons set forth below, this Court should reaffirm the longstanding
principle that the state-action immunity protects the ratemaking function of public
power entities.
I.
PUBLIC POWER ENTITIES WERE ESTABLISHED TO SERVE IMPORTANT
PUBLIC INTERESTS UNRELATED TO PROFITABILITY.
The first public power systems were created by municipalities to assure their
residents—especially rural residents—access to affordable electric power. Richard
Rudolph & Scott Ridley, Power Struggle: The Hundred-Year War over Electricity
37-38 (1986). For example, the Wabash, Indiana city council created the first
3
public power system in 1880 when it decided to purchase the city’s electric
lighting system. Peter Tocco, The Night They Turned the Lights On in Wabash, 95
Ind. Magazine of History 350, 352-53 (1999).
By 1917, utility-generated
electricity was available only to slightly over 60% of the United States population;
because private utilities had largely neglected rural areas, electricity was rarely
available to rural residents. William J. Hausman & John L. Neufeld, How Politics,
Economics, & Institutions Shaped Electric Utility Regulation in the United States:
1879-2009, 53 Bus. Hist. 723, 726, 733 (2011).
With the New Deal came increased interest in public ownership of utilities
as a means of promoting both electrification and economic development in rural
areas. See id. at 733. In many places, electrical service was supplied by publiclyaccountable non-profit public power entities as a byproduct of irrigation, flood
control, or other reclamation activities. See, e.g., Tenn. Elec. Power Co. v. Tenn.
Valley Auth., 306 U.S. 118, 146 (1939) (describing plans of TVA to support new
public power entities with electricity generated from its water projects); Uhlmann
v. Wren, 401 P.2d 113, 117-19 (Ariz. 1965) (Salt River Project Agricultural
Improvement and Power District). By 1940, 84% of the United States population
lived in homes with electric light. Twentieth Century Fund, Electric Power and
Government Policy 3 (1947). In addition to the economic benefits associated with
extending power to underserved areas, public ownership of power systems has
4
been associated with lower prices for electricity, which may reflect that electoral
accountability and consumer pressure cause decision makers to emphasize
affordability over profitability. Electric Power and Government Policy, supra, at
29-30; John E. Kwoka, Jr., Governance Alternatives & Pricing in the U.S. Electric
Power Industry, 18 J.L., Econ. & Org. 278, 279, 293 (2002).
II.
SOLARCITY IS SEEKING TO USE ANTITRUST STATUTES TO MAKE A
FEDERAL CASE OUT OF THE WAY THAT PUBLIC POWER ENTITIES
ATTEMPT TO RESOLVE DIFFICULT PROBLEMS OF FAIR COST
ALLOCATION.
Energy costs make up a disproportionately large share of the budgets of
lower and middle-income citizens, reducing their ability to pay for food, shelter,
and other necessities. See Diana Hernández, Energy Insecurity: A Framework for
Understanding Energy, the Built Environment, & Health Among Vulnerable
Populations in the Context of Climate Change, Am. J. Pub. Health, Apr. 2013, at
e32 (noting that residential energy expenditures represent 33% of after-tax income
for households earning less than $10,000); Anthony G. Murray & Bradford F.
Mills, The Impact of Low-Income Home Energy Assistance Program Participation
on Household Energy Insecurity, 32 Contemp. Econ. Pol’y 811, 812 (2014) (noting
low-income households’ ratio of energy costs to income is nearly double the
national average, and that almost four million low-income households spend over
25% of income on energy costs); Diana Hernández et al., Columbia Univ.
Academic Commons, Energy Insecurity among Families with Children 3, 4,
5
available at http://academiccommons.columbia.edu/catalog/ac:174892 (2014).
Vulnerable populations—the elderly, the disabled, single parents, and others with
low or fixed incomes—are especially affected by increasing energy costs. See
Hernández, Energy Insecurity: A Framework, supra, at e32. Electricity accounts
for the majority of utility expenses.
Bureau of Labor Statistics, Comparing
Measures of Residential Energy Consumption from Two Surveys for 2001, 2005, &
2009, at 2 (2013), available at http://www.bls.gov/cex/cecomparison.htm#RECS.
Even with incentives and subsidies, alternative-energy generating systems
are rarely affordable to low-income citizens. Many low-income citizens rent older,
less-energy-efficient multifamily housing units, and have limited opportunities to
make building improvements, while their landlords—who do not bear the
increased cost of utilities—have little incentive to do so. Benjamin Inskeep et al.,
NC Clean Energy Tech. Ctr., Solar on Multi-Unit Buildings: Policy and Financing
Options
to
Address
Split
Incentives
2-3
(2015),
available
at
http://solaroutreach.org/resource/solar-multi-unit-buildings-policy-financingoptions-address-split-incentives/#.VyumXY32aUk; Murray & Mills, supra, at 816;
Gary Pivo, Unequal Access to Energy Efficiency in US Multifamily Rental
Housing: Opportunities to Improve, 42 Bldg. Research & Info. 551, 551-52
(2014). And the priorities of the federal Low Income Home Energy Assistance
Program have historically favored immediate needs, assisting low-income citizens
6
with paying for energy bills and weatherization, rather than supporting residential
investment in alternative energy sources. Hernández, Energy Insecurity among
Families with Children, supra, at 8. Although the cost of solar installations has
decreased, residential-rooftop solar photovoltaic panels remain about twice as
expensive (per kilowatt-hour generated) to install and maintain as utility-scale
solar generation plants. Severin Borenstein, Is the Future of Electricity Generation
Really
Distributed?,
Energy
Institute
at
Haas
(May
4,
2015),
https://energyathaas.wordpress.com/2015/05/04/is-the-future-of-electricitygeneration-really-distributed/.
Thus, pricing schemes that subsidize efforts by public power customers to
generate alternative energy can place economic pressure on utilities, and by
extension on the rest of a public power entity’s customer base, because they
require customers without alternative energy systems to bear a greater share of the
fixed costs of maintaining the traditional electrical system’s infrastructure.
Andrew Satchwell et al., Lawrence Berkeley Nat’l Laboratory, Financial Impacts
of Net-Metered PV on Utilities & Ratepayers: A Scoping Study of Two
Prototypical
U.S.
Utilities,
at
viii-ix
(2014),
https://emp.lbl.gov/publications/financial-impacts-net-metered-pv;
available
Nat’l
at
Black
Caucus of State Legislators Comm. on Energy, Transportation, & the Env’t, The
Need to Develop & Implement Equitable Energy Policies 2, 5 (2014), available at
7
http://www.nbcsl.org/component/k2/item/1293-2014-white-paper-the-need-todevelop-implement-equitable-energy-policies.html.
In addition, “[a]s solar arrays appear on more and more rooftops within a
given area, a utility's daily task of balancing load supply and demand on the
electricity grid also becomes more difficult.”
Troy A. Rule, Solar Energy,
Utilities, & Fairness, 6 San Diego J. Climate & Energy L. 115, 120 (2015).
“Balancing loads in a grid with thousands of rooftop solar energy systems requires
estimating how productive all of these customer-controlled systems will be at any
given moment—a chore that can be particularly difficult on partly cloudy days
when the amount and intensity of sunlight in a region is constantly in flux. Further
rate increases are often the only feasible way for utilities to fund the expensive grid
upgrades needed to address the new load management challenges associated with
distributed solar power.” Id. (footnote omitted).
Such pricing decisions are already subject to oversight within the framework
of traditional ratemaking review. In Arizona, review of pricing decisions by public
power entities occurs as a form of administrative, then judicial, review of
administrative action. Ariz. Rev. Stat. Ann. §§ 30-811(A), 30-812(A). In some
(but not all) states, that review occurs before a regulatory agency, subject to
judicial on-the-record review. See, e.g., Application of the City of Whitehall,
Trempealeau Cnty., Wis. as an Electric Public Utility, for Authority to Increase
8
Rates, 6490-ER-106 (Wis. Pub. Serv. Comm’n final decision Apr. 29, 2015),
available at https://psc.wi.gov/apps35/ERF_view/viewdoc.aspx?docid=235623.
Under the traditional cost-of-service model for setting electrical rates,
subsidies that impose inter-customer burdens are often disfavored. See James C.
Bonbright, et al., Principles of Public Utility Rates 384 (2d ed. 1988). “To the
extent that they compel utilities to raise electricity rates, net metering and existing
rate designs can potentially create cross-subsidies in favor of solar energy users.”
Rule, supra, at 131. Rate changes designed to neutralize such subsidies could
therefore be expected to cause energy-generating customers to pay higher rates.
As a matter of state utilities law, a rate change that replaces a subsidy for one type
of customer that was not based on the actual costs of providing the service
received, with a higher rate that is more in line with actual service delivery costs,
has been considered fair and reasonable. See, e.g., Commonwealth Edison Co. v.
Ill. Commerce Comm’n, 937 N.E.2d 685, 714 (Ill. App. Ct. 2010).
Moreover, state (and federal) laws most often mandate nondiscriminatory
rates for electricity.2 Such mandates generally require nondiscriminatory rates for
2
As this Court has noted when describing the authority of the San Francisco
Public Utilities Commission when setting rates for electricity generated at one of
its facilities, “[t]he same criteria of reasonableness of rates apply to a municipality
as apply to private utilities. The rates charged must be ‘fair, reasonable, just,
uniform and nondiscriminatory.’” City & Cnty. of San Francisco v. United
Airlines, 616 F.2d 1063, 1066-67 (9th Cir. 1979) (quoting 12 McQuillan,
Municipal Corporations § 35.37(a), at 483).
9
customers within the same class. “While the typical complaint of unlawful rate
discrimination is leveled at a rate design which assigns different rates to customer
classes which are similarly situated, a single rate design may also be unlawfully
discriminatory,” such as where “a uniform rate creates an undue disparity between
the rates of return on sales to different groups of customers.” Ala. Elec. Coop., Inc.
v. FERC, 684 F.2d 20, 27 (D.C. Cir. 1982). Although courts in some, but not all,
states have allowed rate designs that provide discounted “lifeline” electrical service
to elderly low-income customers,3 it hardly follows that courts that allow discounts
to protect the safety of low-income customers will be as accepting of solar
subsidies that disproportionately benefit higher-income customers, at the expense
of lower-income customers.
In this context, setting rates that comply with state standards and fairly
allocate costs is difficult enough.
But if a stakeholder whose interest in the
continuation of a subsidy can bypass the state’s administrative and judicial review
processes and claim that a loss or decline in that subsidy is fair game for a federal
antitrust suit, it will add dramatically to that difficulty, while compounding
pressures on regulators to adopt general rate increases that are, in effect, regressive.
3
Compare Am. Hoechest Corp. v. Dep’t of Pub. Utils., 399 N.E.2d 1, 4
(Mass. 1980) (allowing state regulators to consider the age and income of
customers receiving discounted rates), with Citizens Action Coal. of Ind., Inc. v.
Pub. Serv. Co. of Ind., 450 N.E.2d 98, 101 (Ind. Ct. App. 1983) (targeted lifeline
rates violate state statute prohibiting undue discrimination).
10
III.
THE STATE ACTION IMMUNITY PROTECTS CHOICES MADE BY STATES TO
DISPLACE FULL COMPETITION WITH REGULATION.
In Parker v. Brown, 317 U.S. 341 (1943), the Supreme Court held that the
Sherman Act should not be read to bar States from imposing market restraints “as
an act of government.” Id. at 352. “The Parker doctrine represents an attempt to
resolve conflicts that may arise between principles of federalism and the goal of
the antitrust laws, unfettered competition in the marketplace.” S. Motor Carriers
Rate Conference, Inc. v. United States, 471 U.S. 48, 61 (1985) (“Southern Motor
Carriers”).
“Were it otherwise, the specter of antitrust liability would unduly hamper the
state’s ability to allocate governmental authority between itself and its
subdivisions.” Preferred Commc’ns, Inc. v. City of Los Angeles, Cal., 754 F.2d
1396, 1414 (9th Cir. 1985), aff’d and remanded sub nom. City of Los Angeles v.
Preferred Commc’ns, Inc., 476 U.S. 488 (1986).
In applying these principles, it is important to recall Justice Powell’s
admonition (when writing for a unanimous Court) that too “close examination of a
state legislature’s intent . . . would embroil the federal courts in the unnecessary
interpretation of state statutes. . . . [and] undercut the fundamental policy of
Parker.” Town of Hallie v. City of Eau Claire, 471 U.S. 34, 44 n.7 (1985)
(“Hallie”).
11
IV.
THE STATE-ACTION IMMUNITY HAS TRADITIONALLY INSULATED
COST-ALLOCATION CHOICES OF PUBLIC POWER ENTITIES FROM
DISRUPTIVE AND DISTORTING EFFECT OF ANTITRUST LITIGATION.
THE
THE
In order for a state to remove activities from the purview of the antitrust
laws under the state-action immunity, the Supreme Court has specified two
elements. The first element is that “the challenged restraint . . . be one clearly
articulated and affirmatively expressed as state policy.” Cal. Retail Liquor Dealers
Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980) (“Midcal”) (citation
omitted) (internal quotation marks omitted). “‘[T]o meet the clearly articulated
requirement it is not necessary for the State to expressly permit the displacement of
competition. Instead, it is only required that suppression of competition is the
foreseeable result of what the statute authorizes.’” Snake River Valley Elec. Ass’n
v. PacifiCorp, 238 F.3d 1189, 1192 (9th Cir. 2001) (quoting A–1 Ambulance Serv.
Inc. v. Cnty. of Monterey, 90 F.3d 333, 336 (9th Cir.1996)) (internal quotation
marks omitted).
In three important respects, federal appellate courts have applied the “clearly
articulated” requirement to public power entities (and other utilities) in a way that
prevents antitrust law from unreasonably distorting their state-regulated ratesetting decisions.
12
A.
Historically, the state action immunity doctrine has provided
public power entities around the nation with important latitude to
fairly resolve competing interests of stakeholders.
The ABA Section of Antitrust Law recognizes that, in the field of utilities,
“[c]ourts generally have found that the clear articulation test has been satisfied
where the state’s enabling statute provides broad and extensive authority to
Statutes that provide ‘comprehensive’
regulate retail utility service areas.
regulatory schemes, including ‘detailed and specific’ provisions, appear to be
favored.” ABA Section of Antitrust Law, State Action Practice Manual 92 (2d ed.
2010) (footnote omitted).
As this Court has recognized:
[B]ecause utilities place a burden on public resources—for example,
they often string high voltage wires about—they are usually
intensively regulated. Since utilities are usually regulated, we have
been more willing to find that a statute displaces competition with
regulation if the statute concerns a utility.
Lancaster Cmty. Hosp. v. Antelope Valley Hosp. Dist., 940 F.2d 397, 401-02 (9th
Cir. 1991) (emphasis added) (citation omitted); Preferred Commc’ns, Inc., 754
F.2d at 1414-15.
B.
Special latitude is demonstrated in the way that the Supreme
Court and this Court have applied the “clearly articulated”
element of state-action immunity to prices that were the outcome
of a legislatively-created ratemaking process.
Under cases such as Southern Motor Carriers, the Court has recognized that
state statutory ratemaking restrictions and processes displace competition with
13
regulation. The goals of the states feed into the reasoning of Southern Motor
Carriers that a state policy balancing competition with other interests should be
preserved:
[T]hrough the self-interested actions of private common carriers, the
States may achieve the desired balance between the efficiency of
collective ratemaking and the competition fostered by individual
submissions. Construing the Sherman Act to prohibit collective rate
proposals eliminates the free choice necessary to ensure that these
policies function in the manner intended by the States.
Southern Motor Carriers, 471 U.S. at 59-60. For example, within months of the
Supreme Court’s twin rulings in Southern Motor Carriers and Hallie, this Court
held in Grason Electric Co. v. Sacramento Municipal Utility District, 770 F.2d
833, 838 (9th Cir. 1985), that California statutes regulating municipal public
utilities “evidence a clearly articulated and affirmatively expressed state policy to
displace competition with regulation in the area of electrical power and light.” The
defendant municipal utility had been authorized to fix its rates below cost, which
this Court concluded “appears to represent . . . a clear legislative imprimatur for
displacement of competition.” Id. at 837 (citing Cal. Pub. Util. Code § 12809
(West 1984)). Referring to this statute in combination with general grants of
authority, this Court explained that “[t]hese statutes ‘clearly contemplate that
[SMUD] may engage in anticompetitive conduct’ such as that alleged by the
plaintiffs; it is apparent ‘that anticompetitive effects logically would result from
this broad authority to regulate.’” Id. at 838 (quoting Hallie, 471 U.S. at 42).
14
C.
When a public power entity’s rates are set under a regulatory
regime that requires them to be nondiscriminatory, just, and
reasonable, that regime has displaced competition with regulation
for purposes of applying the first element of state-action
immunity.
In Southern Motor Carriers, the Court did not require the Mississippi state
legislature to directly or expressly authorize private parties to act anticompetitively
in collective ratemaking.
Because the Mississippi State Public Service
Commission had the power to prescribe “just and reasonable” rates for the
intrastate transportation of general commodities, the Court held that the
“legislature thus made clear its intent that intrastate rates would be determined by a
regulatory agency, rather than by the market.” 471 U.S. at 63-64. The Court then
relied on the discretion of the State Commission, in turn, to authorize collective
ratemaking among private parties pursuant to the clearly articulated Mississippi
policy. Id. at 64. “State legislatures should not be less free than Congress to
delegate significant discretion to regulatory agencies.” IA Phillip E. Areeda &
Herbert Hovenkamp, Antitrust Law ¶ 225b, at 152 (4th ed. 2013).
Other U.S. Courts of Appeals have applied the Southern Motor Carriers
approach to electric utilities. For example, in Lease Lights, Inc. v. Public Service
Co. of Oklahoma, 849 F.2d 1330, 1333-34 (10th Cir. 1988), a grant of authority to
a state commission to establish and enforce rates “as may be reasonable and just,”
Okla. Const. art. IX, § 18, was one important factor in the court’s conclusion that
15
“these constitutional and statutory provisions indicate a clear intent by the state to
supplant the market for leased outdoor lighting with active regulation by the
Commission.”
The other factors referenced were general regulatory and
investigative powers. Id.
The prices that may be charged in Arizona by a public power entity are
subject to the same kinds of state-law restrictions that public power entities have
faced around the nation for many decades, because they subject their rates and
rate-designs to the prospect of judicial scrutiny on questions that include whether
they are nondiscriminatory, just and, reasonable.
Most notably, Ariz. Rev. Stat. Ann. § 30-805(A) provides that “Public
power entities shall: 1. Establish unbundled ancillary electric transmission and
distribution and other service prices and terms and conditions that are
nondiscriminatory and that reflect the just and reasonable price for providing
the service,” and must “[a]dopt reasonable terms and conditions governing the
electric distribution utility’s obligation to provide electric distribution and other
services.” (Emphasis added). Subdivision E of the same statute provides that
“[p]ublic power entities shall allow any provider of electric generation service
access to the electric power transmission and distribution facilities of public power
entities under rates and terms and conditions of service that are
nondiscriminatory, cost based, just and reasonable and comparable to the
16
rates charged for the public power entity’s own use of the same facilities.”4
Ariz. Rev. Stat. Ann. § 30-805(E) (emphasis added).
In that setting, prices will not be a reflection of the value of those services
that a willing buyer and willing seller will pick (which is the universal meaning of
competitive pricing). Instead, the express requirement that the prices be just and
reasonable adds an element of fairness to the prices that are set;5 and the
requirement that those prices not be discriminatory effectively precludes negotiated
solutions (like one would find in a competitive marketplace).6
4
As the District has explained in greater detail in its brief, Arizona law also
places significant procedural limitations on the ability of public power entities to
set and change their rates. See Ariz. Rev. Stat. Ann. §§ 30-802, 30-803, and 482334.
5
See, e.g., Indus. Energy Consumer Grp. v. Pub. Utils. Comm’n, 773 A.2d
1038, 1042 (Me. 2001) (“‘The concept of a ‘just and reasonable’ rate does not
signify a particular single rate as the only lawful rate but rather encompasses a
range within which rates may be deemed just and reasonable both in terms of
revenue level and rate design.’” (quoting Cent. Me. Power Co. v. Pub. Utils.
Comm’n, 382 A.2d 302, 327-28 (Me. 1978))).
6
The established principle that substantive statutory requirements of
nondiscriminatory, just, and reasonable rates reflect an intention to displace
competition with regulation should govern even where, as in Arizona, a statute
includes this sentence: “It is the public policy of this state that a competitive
market shall exist in the sale of electric generation service.” Ariz. Rev. Stat. Ann.
§ 40-202(B). Sections of 30-803 that were adopted at the same time as that
sentence in Section 40-202(B) clarify what Arizona considers to be competition in
the retail supply of electricity; it relates first and foremost to assuring access to
markets for approved electricity providers (coupled with a prohibition on public
power entities providing services in service territories of other electric distribution
utilities). Ariz. Rev. Stat. Ann. §§ 30-803(A) and (B). A competitive market
“exists” under the Arizona regulatory regime in the sense that the statute removed
17
That is true whether the ratemaking process requires pre-approval by a state
administrative agency, or whether (as in Arizona for public power entities) the
ratemaking process is subject to statutorily-imposed procedures and substantive
standards, which are enforceable through civil actions. For example, in Municipal
Utilities Board of Albertville v. Alabama Power Co., 934 F.2d 1493, 1502-03 (11th
Cir. 1991), the court held that the Alabama Legislature “has clearly articulated a
policy to displace competition in the retail electric market except for large
industrial customers,” and “the Acts provide for a regulatory scheme that clearly
displaces competition,” in part because “[t]he Acts also grant state courts
jurisdiction to resolve disputes over alleged violations of the Acts. An electric
supplier may initiate an action to enjoin another supplier from violating the
provisions of the Acts, e.g., invading the service area of another supplier, and to
obtain damages.” (Citation omitted).
a geographic barrier that kept certified electricity suppliers and providers of other
services from participating in the service territories of public power entities.
However, the existence of a competitive market does not require or even imply that
the legislature has directed that the market will determine the prices as well.
Otherwise, the legislature would have repealed the substantive rate-setting
standards in Section 30-805.
18
V.
THE CLEAR ARTICULATION REQUIREMENT SET FORTH BY MIDCAL AND
EXPOUNDED UPON BY A NUMBER OF SUPREME COURT CASES, INCLUDING
PHOEBE PUTNEY, CONTINUES TO BE SATISFIED BY STATE STATUTORY
RATEMAKING RESTRICTIONS.
As this Court recognized most recently in 2014, the first element of state
action immunity continues to turn on whether the challenged restraint is “‘one
clearly articulated and affirmatively expressed as state policy.’” United Nat’l
Maint., Inc. v. San Diego Convention Ctr., Inc., 766 F.3d 1002, 1009 (9th Cir.
2014) (quoting Midcal, 445 U.S. at 105). The test that was described and applied
in the sections above has not changed.
In FTC v. Phoebe Putney Health System, Inc., 133 S. Ct. 1003 (2013)
(“Phoebe Putney”) and North Carolina State Board of Dental Examiners v. FTC,
135 S. Ct. 1101 (2015) (“Dental Examiners”), the Court did not overrule Southern
Motor Carriers. Indeed, in Phoebe Putney, the Court specifically cited it. 133 S.
Ct. at 1013 n.7. The rule against implied overruling should discourage this Court
from focusing exclusively on the Supreme Court’s latest word, and disregarding
cases such as Southern Motor Carriers. Agostini v. Felton, 521 U.S. 203, 237
(1997).
In addition, this Court should continue to respect its earlier precedents in
Lancaster Community Hospital, 940 F.2d 397, and Grason Electric Co., 770 F.2d
833, regarding the viability of state-action immunity in the public utility context,
because those decisions “can reasonably be harmonized with the intervening
19
authority.” In re Flores, 692 F.3d 1021, 1030 (9th Cir. 2012) (“[W]e are bound by
our prior precedent if it can be reasonably harmonized with the intervening
authority.”), rev’d en banc on other grounds, 735 F.3d 855 (9th Cir. 2013); Lair v.
Bullock, 697 F.3d 1200, 1206 (9th Cir. 2012) (same). In Lair this Court elaborated
on the circumstances that must be present before it can disregard an earlier
precedent by reference to an intervening higher court decision:
It is not enough for there to be “some tension” between the
intervening higher authority and prior circuit precedent, or for the
intervening higher authority to “cast doubt” on the prior circuit
precedent. The intervening higher precedent must be “clearly
inconsistent” with the prior circuit precedent. This is a “high
standard.”
697 F.3d at 1207 (quoting United States v. Orm Hieng, 679 F.3d 1131, 1140-41
(9th Cir. 2012) and United States v. Delgado-Ramos, 635 F.3d 1237, 1239 (9th Cir.
2011)). Put another way, this Court must “determine whether [Phoebe Putney’s or
Dental Examiners’] reasoning so undercuts the principles on which [Lancaster
Community Hospital and Grason Electric Co.] relied that [this Court’s] prior
decision[s] cannot stand.” Rodriguez v. AT&T Mobility Servs. LLC, 728 F.3d 975,
980 (9th Cir. 2013).
Regarding the “clear articulation” element, the Court’s ruling in Phoebe
Putney reaffirmed that “substate governmental entities do receive immunity from
antitrust scrutiny when they act ‘pursuant to state policy to displace competition
with regulation or monopoly public service.’” Phoebe Putney, 133 S. Ct. at 1010
20
(quoting Lafayette v. La. Power & Light Co., 435 U.S. 389, 413 (1978) (plurality
opinion)).
The Court also reaffirmed its holding in Hallie that a legislative
statement of an express policy to displace competition is not required:
“[T]o pass the ‘clear articulation’ test,” a state legislature need not
“expressly state in a statute or its legislative history that the legislature
intends for the delegated action to have anticompetitive effects.”
Rather, we explained in Hallie that state-action immunity applies if
the anticompetitive effect was the “foreseeable result” of what the
State authorized.
Id. at 1011 (quoting Hallie, 471 U.S. at 42, 43). Instead, the first element of stateaction immunity is satisfied “where the displacement of competition was the
inherent, logical, or ordinary result of the exercise of authority delegated by the
state legislature. In that scenario, the State must have foreseen and implicitly
endorsed the anticompetitive effects as consistent with its policy goals.” Id. at
1012-13. In the regulatory context, Phoebe Putney cited (with approval) New
Motor Vehicle Board of California v. Orrin W. Fox Co., 439 U.S. 96 (1978), as a
case “where there was not an express intent to displace the antitrust laws, but
where the regulatory structure at issue restricting the establishment or relocation of
automobile dealerships inherently displaced unfettered business freedom.” Phoebe
Putney, 133 S. Ct. at 1013 at n.7 (internal quotation marks omitted).
These excerpts from Phoebe Putney underscore its limited reach. It does not
constitute a valid basis for this Court to disregard its earlier precedents. See Lair,
697 F.3d at 1207 (following this Court’s earlier precedent that rested on Buckley v.
21
Valeo, 424 U.S. 1 (1976), notwithstanding the Supreme Court’s intervening
decision in Randall v. Sorrell, 548 U.S. 230 (2006), because“[o]n its face, Justice
Breyer’s plurality opinion [in Randall] does not purport to change the state of the
law but expressly looked to Buckley and its progeny”). Even after Phoebe Putney,
legislatively-imposed ratemaking processes for public power entities reflect a
clearly articulated policy decision by the state to displace federal antitrust law.
That is because the first element continues to be satisfied where the displacement
of competition was the inherent, logical, or ordinary result of the exercise of
authority delegated by a legislature. Phoebe Putney, 133 S. Ct. at 1012-13.
Arizona and other states have done much more than authorizing “simple
permissive play in a market” by public power entities. Id. at 1013. In Phoebe
Putney the petitioner’s claim to state-action immunity failed because it rested on
little more than “[g]rants of general corporate power” to locally-created hospital
authorities. Id. at 1012. For public power entities in Arizona such as the District,
like public power entities in other states, the legislature has gone further, in ways
that displace competition with regulation.
To use the language of Phoebe Putney in combination with established stateaction immunity decisions in the public utility context, when a state legislature:
 creates agricultural improvement districts (as political
subdivisions of itself), see Grason Elec. Co., 770 F.2d at 83738,
22
 authorizes them to sell surplus public power as needed to
subsidize water reclamation activities, see id.,7
 mandates by statute a set of procedures that must be followed
when changing rates, see Mun. Utils. Bd. of Albertville, 934
F.2d at 1503-04, and
 then subjects their pricing decisions to review and potential
reversal based on whether those prices are nondiscriminatory,
just, or reasonable, see Lease Lights, Inc., 849 F.2d at 1333-34,
“displacement of competition was the inherent, logical, or ordinary result of the
exercise of authority delegated by the state legislature.” Phoebe Putney, 133 S. Ct.
at 1012-13.
CONCLUSION
For the reasons set forth above, the American Public Power Association and
Large Public Power Council urge this Court to reaffirm the vitality of the stateaction immunity of public power entities in this context, and for that reason reverse
the district court’s refusal to dismiss Appellee SolarCity’s antitrust claims on that
basis.
7
Arizona courts interpret the statutes governing the Salt River Project as
requiring that “such ‘surplus’ power must be produced, owned or controlled only
in relationship to the use of power revenues to support its primary irrigation and
reclamation functions.” Uhlmann, 401 P.2d at 130. That interpretation further
constrains the ability of such public power entities to discount the prices for power
sold to solar-energy-generating customers, because such discounts are designed to
further a goal (encouraging solar energy generation) which has little to do with a
district’s primary irrigation and reclamation functions, and can burden a district’s
ability to support its “primary irrigation and reclamation functions.”
23
Respectfully submitted,
GREENE ESPEL PLLP
By s/John M. Baker
John M. Baker, Reg. No. 174403
Bethany D. Krueger, Reg. No. 306368
Janine W. Kimble, Reg. No. 392032
Chris L. Schmitter, Reg. No. 395916
222 S. Ninth Street, Suite 2200
Minneapolis, MN 55402
[email protected]
[email protected]
[email protected]
[email protected]
(612) 373-0830
Attorneys for the American Public Power
Association and the Large Public Power
Council, as Amici Curiae
24
CERTIFICATE OF COMPLIANCE
Pursuant to Fed. R. App. P. 32(a)(7)(C), the undersigned certifies that this
brief complies with the type-volume limitations of Fed. R. App. P. 32(a)(7)(B).
The brief was prepared Microsoft Word 2010, which reports that the brief contains
5,402 words, excluding items listed in Fed. R. App. P. 32(a)(7)(B)(iii).
s/John M. Baker
John M. Baker
CERTIFICATE OF SERVICE
On this 9th day of May, 2016, I electronically filed the foregoing with the
Court using the appellate CM/ECF system, which will serve counsel for all parties
to the case.
s/John M. Baker
John M. Baker
25