838 F.2d 268 (8th Cir. 1988), 87-1471, City of Mt. Pleasant, Iowa v. Associated Elec. Co-op., Inc.

Docket Nº:87-1471, 87-1603.
Citation:838 F.2d 268
Party Name:CITY OF MT. PLEASANT, IOWA, Appellant, v. ASSOCIATED ELECTRIC COOPERATIVE, INC.; Central Electric Power Cooperative; Northeast Missouri Electric Power Cooperative; Tri-County Electric Cooperative Association; Macon Electric Cooperative; and Ralls County Electric Cooperative, Appellees. CITY OF MT. PLEASANT, IOWA, Appellee, v. ASSOCIATED ELECTRIC CO
Case Date:January 29, 1988
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

Page 268

838 F.2d 268 (8th Cir. 1988)




Power Cooperative; Northeast Missouri Electric Power

Cooperative; Tri-County Electric Cooperative Association;

Macon Electric Cooperative; and Ralls County Electric

Cooperative, Appellees.




Power Cooperative; Northeast Missouri Electric Power

Cooperative; Tri-County Electric Cooperative Association;

Macon Electric Cooperative; and Ralls County Electric

Cooperative, Appellants.

Nos. 87-1471, 87-1603.

United States Court of Appeals, Eighth Circuit

January 29, 1988

Submitted Oct. 12, 1987.

Rehearing and Rehearing En Banc Denied in No. 87-1471 April 1, 1988.

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[Copyrighted Material Omitted]

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Charles F. Wheatley, Jr., Annapolis, Md., for appellant.

W. Stanley Walch, St. Louis, Mo., for appellees.

Before ARNOLD, Circuit Judge, HENLEY, Senior Circuit Judge, and BOWMAN, Circuit Judge.

ARNOLD, Circuit Judge.

This antitrust case comes to us on appeal from a summary judgment entered in favor of defendants. Plaintiff, the City of Mount Pleasant, Iowa, 1 alleges that defendants, a group of related corporations which comprise part of a rural electric cooperative, violated Sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1-2, and Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Price Discrimination Act, 15 U.S.C. Sec. 13(a). The City's legal theories are that defendants participated in a price-squeeze conspiracy, monopolized the relevant market for wholesale electricity, monopolized the market for transporting electricity into Mount Pleasant from outside sources, and charged the City higher prices for wholesale electricity than they charged their own retail-distribution cooperatives. The District Court 2 granted summary judgment on the conspiracy claim on the basis of Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984), holding that defendants are part of a single enterprise and therefore cannot conspire among themselves within the meaning of the Sherman Act. On the price-discrimination claim, the Court ruled that the cooperatives cannot make "sales" among themselves for purposes of the Robinson-Patman Act, relying on Security Tire & Rubber Co. v. Gates Rubber Co., 598 F.2d 962 (5th Cir.1979), cert. denied, 444 U.S. 942, 100 S.Ct. 298, 62 L.Ed.2d 309 (1979). On the two monopoly claims, the Court held that the City could not, as a matter of law, prove that defendants monopolized the market for wholesale electricity because it admitted that, whenever its wholesale-supply contracts expired, it requested bids from three utilities other than the cooperative and always accepted the lowest-priced offer, and in 1984 that offer came from a competitor of the defendants, Iowa Southern Utilities. Finally, on the claim that defendants monopolized the market for delivering electricity to Mount Pleasant, the Court ruled that the claim failed because defendants had never denied any request that they wheel power to the City from outside sources.

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We agree with the District Court's analysis, and we affirm the judgment in its entirety. 3


The City owns an electric utility that sells electricity at retail to industrial, commercial, and residential customers. Its service area, which is fixed by the Iowa Commerce Commission, extends to the city limits of Mount Pleasant as they existed at some time before 1974, but does not include subsequently annexed areas. Joint Appendix (J.A.) 722. The municipal utility has generating facilities that can supply most of the electricity it needs, but they run on diesel fuel, and, since the oil embargo in 1974, it has been less expensive for the City to buy wholesale electricity from other utilities than to produce its own. The only existing interconnection between the City and other utilities is a transmission line the defendants built in 1969. J.A. 391.

Defendants are separate corporations comprising part of a rural electric cooperative organized in Missouri and Iowa under the Rural Electrification Act of 1936, 7 U.S.C. Secs. 901-16. The cooperative, unlike an investor-owned utility, receives financial assistance from the United States in the form of loans and loan guarantees under the aegis of the Rural Electrification Administration. This organization has three tiers. At the top of the organizational chart is Associated Electric Cooperative, Inc., which owns all but a fraction of the cooperative's electrical-generating capacity, 4 and all of the larger power lines in the cooperative's transmission grid; it controls all of the production and distribution of electricity for the organization. J.A. 197-200. At the next level are six generation-and-transmission cooperatives (G & Ts), including defendants Central Electric Power Cooperative and Northeast Missouri Electric Power Cooperative, each of which owns a portion of the remainder of the transmission grid, and which are responsible for transporting and selling wholesale electricity. Id. The third tier contains 43 local retail-distribution cooperatives, which buy wholesale power from the G & Ts and sell it to the cooperative's consumer-members in their service areas. Id.

While management of the cooperative's activities flows down the organizational chart, ownership runs from the bottom up. About 425,000 consumer-members own the 43 local distribution cooperatives. Each member joins the cooperative that sells him retail electricity, and each distribution cooperative is managed by a board of directors elected by its members. Each local cooperative, in turn, owns a portion of the G & T that sells it wholesale power, and the board of each G & T is made up of representatives elected by its cooperative-members, plus two directors of Associated. J.A. 636. Finally, the six G & Ts are common owners of Associated, and each has two representatives on Associated's board of directors--the G & T's general manager and one of its board members. J.A. 627.

Each cooperative is autonomous, sets its own rates for the power it sells, and manages its own profits and losses, but each is linked to the organization by long-term, all-requirements supply contracts. Under these agreements, Associated generates and supplies all of the electricity its owners, the G & Ts, need. The G & Ts supply all of the power their owners, the distribution cooperatives, need, and these cooperatives, in turn, supply all of their owners' needs. In utility parlance, these contracts are for "firm" energy; this means that the buyer will pay for the electricity regardless of whether it actually uses the power, and the seller will always make that power available. See J.A. 668-71. The price for firm energy has two components, a demand charge and an energy charge. The demand

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charge is a set fee for the service of providing elecricity which does not vary, in a contract year, according to the amount of energy actually consumed. The energy component is a direct charge for each unit of electricity that the customer takes, measured in terms of kilowatt hours (kwh). See J.A. 347.

The cooperative's in-house demand does not require that it always generate electricity at peak capacity, and, since it reduces the unit cost of producing electricity to operate as near as possible to peak capacity, the cooperative looks for other, nonmember customers, such as the City, during "off-peak" periods. Delivery of this so-called "surplus" power must be interruptible, so that the cooperative can, if necessary, divert electricity from nonmembers to members when its internal demand for electricity approaches its peak. Because this interruptible electricity is less reliable than firm power, it is worth less to the customer, but the unit cost of production generally is higher than that for firm energy, for surplus power is sold only during times of slack demand, when the percentage of production capacity in use is generally lower.

Beginning in 1974, the City contracted to buy power from Northeast to supply its wholesale needs. The first contract, which was in effect through 1979, called for the City to buy 3000 kwh of firm power per year at a demand charge of $27.00 per kilowatt and an energy charge of 7.6 mills per kwh, and allowed it to buy an unlimited amount of surplus power, above this block of firm power, for 10.2 mills per kwh. J.A. 492-93, 499. In 1978, Associated's board of directors decided to implement a dual-rate structure for its electricity, with one for the rural members of the cooperative and another, higher rate for surplus power sold to nonmember municipalities. For instance, for the year 1980, Associated charged the City $3.78 per kilowatt per month demand charge and 13 mills per kwh for firm power, and 19.5 mills per kwh for surplus energy. J.A. 347. Some of Associated's directors from Central and Northeast voiced their disagreement at what they called this discrimination against municipalities. J.A. 348.

Before the 1974 contract expired at the end of 1979, the City solicited bids for wholesale power from several utilities. Union Electric Company reviewed the request in a very cursory manner and made a vague response. J.A. 515. Iowa Southern Utilities was somewhat less cursory. It made a proposal, but not a very attractive one. J.A. 506-7, 510. Rather than accept these offers, the City chose to enter into a new five-year contract with Northeast, which provided for a 3500-kilowatt block of firm power, at a demand charge of $5.80 per kilowatt per month and an energy charge of 19 mills per kwh, and surplus power at 24.5 mills per kwh. J.A. 519, 525.

The City apparently purchased all of its wholesale electricity from the cooperative under this agreement until it expired in...

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