City of Mishawaka, Ind. v. Am. Elec. Power Co., Inc., S 74-72

• Decision Date: 30 January 1979
• Docket Number: S 75-210 and S 77-209.,No. S 74-72,S 74-72
• Citation: 465 F. Supp. 1320
• Parties: CITY OF MISHAWAKA, INDIANA, City of Niles, Michigan, City of Columbia City, Indiana, City of Bluffton, Indiana, City of Garrett, Indiana, City of Gas City, Indiana, Town of Frankton, Indiana, Town of Warren, Indiana, Town of New Carlisle, Indiana and Town of Avilla, Indiana, Municipal Corporations, Plaintiffs, v. AMERICAN ELECTRIC POWER COMPANY, INC., American Electric Power Service Corporation, and Indiana & Michigan Electric Company, Corporations, Defendants.
• Court: U.S. District Court — Northern District of Indiana

465 F. Supp. 1320

CITY OF MISHAWAKA, INDIANA, City of Niles, Michigan, City of Columbia City, Indiana, City of Bluffton, Indiana, City of Garrett, Indiana, City of Gas City, Indiana, Town of Frankton, Indiana, Town of Warren, Indiana, Town of New Carlisle, Indiana and Town of Avilla, Indiana, Municipal Corporations, Plaintiffs, v. AMERICAN ELECTRIC POWER COMPANY, INC., American Electric Power Service Corporation, and Indiana & Michigan Electric Company, Corporations, Defendants.

Nos. S 74-72, S 75-210 and S 77-209.

United States District Court, N. D. Indiana, South Bend Division.

January 30, 1979.

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Thomas Ewald, Washington, D. C., James J. Olson, Mishawaka, Ind., Theodore L. Bendall, Huntington, Ind., Edward A. Chapleau, South Bend, Ind., Gerald M. Stern and David R. Boyd, Washington, D. C., James R. Fleck, Columbia City, Ind., John M. Rigby, Niles, Mich., for plaintiffs.

Thomas W. Yoder, Fort Wayne, Ind., Peter J. Schlesinger, Dennis G. Jacobs, Lawrence A. Levy, Kenneth R. Logan, Blair C. Fensterstock, and Kathleen Schaaf, New York City, for defendants.

MEMORANDUM OPINION

ALLEN SHARP, District Judge.

This will state the legal basis for the separately entered findings of fact and conclusions of law.

Plaintiffs are ten municipalities that operate their own electric utilities pursuant to State statutory authority. Each is located within the service area of defendant Indiana & Michigan Electric Company and each purchases its bulk electric power requirements from I & M. The evidence shows that I & M has a monopoly of retail sales of electric power within its service area, and that the company also controls the supply of electric power to all of the plaintiff municipalities while competing against their municipal electrical utilities for the right to serve all consumers within their corporate limits. I & M and the plaintiffs also compete for the right to serve individual customers located in or near each town or who might choose to locate either in the town or elsewhere in I & M's area.

The rates the plaintiffs pay I & M for electric service are the wholesale rates unilaterally set by the defendants in I & M's filings before the Federal Energy Regulatory Commission. Under the Federal Power Act, as interpreted by the Supreme Court and the Federal Energy Regulatory Commission, in filing new wholesale rates, I & M must compare those rates against its retail rates, consider their possible anticompetitive impact, and not require any of the plaintiffs to pay more at wholesale than it would pay under I & M's retail rates then in effect without justifying the higher wholesale rates. Defendants have ignored this obligation. Since July 1976, defendants I & M and American Electric Power Service Corporation have unilaterally and without justification filed new wholesale rates that have required the plaintiff municipalities to pay over $4 million more than they would have paid under I & M's retail rates then in effect. The evidence shows that the defendants made no attempt to compare their wholesale and retail rates, much less to consider the possible anticompetitive impact of that relationship and try to avoid or at least justify these anticompetitive consequences. All three defendants—I & M, the Service Corporation, and their parent, American Electric Power Company, Inc.— have cast doubt on the continuity of plaintiffs' future supply of electric power by attempting to withdraw from the wholesale market and by seeking to impose time limits on I & M's obligation to serve plaintiffs and restrictions on the quantity of power they may purchase at current rates. Defendants I & M and Service Corporation also have filed and I & M has charged unjust and unreasonable rates which required the plaintiffs to pay over $1,600,000 in excess of reasonable rates for the period 1973-1976 and required the Cities of Niles and Columbia City to pay a total of over $285,000 more than they would have paid under I & M's retail rates in effect during that same period. These practices are designed to promote defendants' policy of taking over utilities operated by municipalities.

Plaintiffs' consolidated complaint seeks relief from defendants' monopolization of the sale of retail electric power within I & M's service area and in each of the plaintiff municipalities, in violation of Section 2 of the Sherman Act. The evidence clearly shows that I & M has monopoly power, and that the defendants' anticompetitive acts tend to exclude the plaintiff municipalities from the electric utility business. Damages and injunctive relief are necessary and appropriate.

In order to establish a violation of the monopolization provision of Section 2, plaintiffs must demonstrate "the existence of monopoly power, whether lawfully or unlawfully acquired, and the general intent to abuse that power." Sargent-Welch Scientific Co. v. Ventron Corp., 567 F.2d 701, 709 (7th Cir. 1977), cert. den. ___ U.S. ___, 99 S.Ct. 87, 58 L.Ed.2d 113 (1978) (Citations omitted). "A specific intent to monopolize need not be shown to establish the offense of monopolization when the monopolist undertakes anticompetitive actions." Id. at 711 (Citations omitted). Nor is it necessary to establish that these anticompetitive actions are "predatory" in nature.

In order to recover damages under Section 4 of the Clayton Act, the antitrust plaintiff must demonstrate that he has been injured in his business or property. Id. at 709; see 15 U.S.C. § 15. To obtain an injunction under Section 16 of the Clayton Act, however, the plaintiff need only demonstrate "threatened loss or damage by a violation of the antitrust laws . . . when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity . . .." 15 U.S.C. § 26.

I.

The Court's initial determination of the issue of monopoly power controls the standards to be applied thereafter. Where monopoly power is found to exist, a defendant's conduct is assessed in accordance with the monopolization provision of Section 2. If monopoly power is not proved, a plaintiff must satisfy the more rigorous proof requirements of the attempt to monopolize provision of Section 2.

The record demonstrates that defendants possess monopoly power in two respects. First, through defendant I & M, they presently have a monopoly of the retail sales of electricity in the geographic market occupied by I & M. I & M's only competition in that market comes from the plaintiffs and I & M's other wholesale customers. Second, defendants also have a monopoly of the supply of electric power and energy on which the plaintiffs depend to serve their customers and to compete with I & M for retail sales. Establishment of either monopoly brings the monopolization provision of Section 2 into operation.

It is clear that the relevant product market is electric power and energy. There is no substitute for electric power which might be acceptable to industrial, commercial, and residential consumers in Northern Indiana and Southwestern Michigan. Defendants have offered no evidence suggesting that sufficient interchangeability exists between electricity and other forms of power and energy even to give rise to an issue on this point.

Assessment of defendants' monopoly in retail sale of electric power and energy involves definition of the geographic market. In determining the relevant market, the Court must "delineate markets which conform to areas of effective competition and to the realities of competitive practice." Sargent-Welch, supra, 567 F.2d at 710, quoting L. G. Balfour Co. v. F. T. C., 442 F.2d 1, 11 (7th Cir. 1971). Applying this practical approach to the geographic market in this case is relatively simple. As one very distinguished commentator has observed:

"The geographic location of the market is usually determined by an examination of the areas in which the particular firm actually competes or operates. If it concentrates its sales and service in one area, this area will normally be the relevant market." E. Kintner An Antitrust Primer, A Guide To Antitrust And Trade Regulation Laws For Businessmen, pp. 102-103 (2d Ed. 1973).

Here, defendant I & M has a clearly defined service area in Indiana and Michigan within which it sells electric power and energy at retail pursuant to franchises granted by the municipalities and townships. I & M has tariffs on file for those areas in the Public Service Commissions of Indiana and Michigan, pursuant to which it offers to sell electricity at retail to all interested buyers. Moreover, as the defendants have stated, no other public utility is allowed to sell electric energy at retail within this area.

Using the method for identifying the nature and control of the relevant market approved and relied on by the Supreme Court of the United States in Otter Tail Power Co. v. United States, 410 U.S. 366, 370, 93 S.Ct. 1022, 1026, 35 L.Ed.2d 359 (1973), the evidence indicated that I & M serves 89% of the municipalities and townships located within its service area directly at retail. The remaining 11% are served at retail by the plaintiffs and by other municipal wholesale customers of I & M. Defendants' share of the relevant market in this case is comparable to the 91% share found to constitute a monopoly by the Supreme Court of the United States in Otter Tail, id., and is substantially greater than the 75.6% that the District Court in Otter Tail deemed sufficient to support a conclusion of monopoly power. United States v. Otter Tail Power Co., 331 F.Supp. 54, 59 (D.Minn. 1971), aff'd 410 U.S. 366, 93 S.Ct. 1022, 35 L.Ed.2d 359 (1973).

Defendants' monopoly of retail sales within the geographic market is equally clear when measured in terms of the amount of electric power and energy sold there. The evidence shows that I & M made 85% of all the retail sales made by public utilities and municipalities in the...