City of Pittsburgh v. West Penn Power Co., 98-3014

• Decision Date: 12 June 1998
• Docket Number: No. 98-3014,98-3014
• Parties: 1998-1 Trade Cases P 72,178, Util. L. Rep. P 14,208 CITY OF PITTSBURGH, Appellant, v. WEST PENN POWER COMP., d/b/a Allegheny Power; Allegheny Power System, Incorporated; Duquesne Light Company; Dqe, Inc.
• Court: U.S. Court of Appeals — Third Circuit

Page 256

147 F.3d 256

1998-1 Trade Cases P 72,178, Util. L. Rep. P 14,208

CITY OF PITTSBURGH, Appellant, v. WEST PENN POWER COMP., d/b/a Allegheny Power; Allegheny

Power System, Incorporated; Duquesne Light

Company; Dqe, Inc.

No. 98-3014.

United States Court of Appeals, Third Circuit.

Argued March 20, 1998.

Decided June 12, 1998.

Wendelynne J. Newton, Thomas L. Van Kirk (argued) Sheila S. Dinardo, David J. Porter, Pittsburgh, PA, for City of Pittsburgh.

David L. McClenahan, James E. Scheuermann, (argued) Wendy E.D. Smith, Kirkpatrick & Lockhart, Pittsburgh, PA, William J. Murphy, Murphy & Schaffer, Baltimore, MD, for West Penn Power Company d/b/a Allegheny Power and Allegheny Power Systems.

Thomas L. Allen, Donna Maus, Reed Smith Shaw & McClay, Pittsburgh, PA, for Duquesne Light Company and DQE, Inc.

Before: BECKER, Chief Judge, RENDELL and HEANEY, ^* Circuit Judges.

OPINION OF THE COURT

RENDELL, Circuit Judge.

Appellant, the City of Pittsburgh, filed this antitrust action against West Penn Power Company, d/b/a Allegheny Power, and Duquesne Light Company alleging that the two companies entered into a pre-merger agreement in restraint of trade and that their proposed merger would substantially lessen competition or tend to create a monopoly. The City claims that an agreement between Allegheny Power and Duquesne Light to withdraw Allegheny Power's application before the Public Utility Commission to provide electric service to two Redevelopment Zones within the City violated Section 1 of the Sherman Act. ¹ The City also seeks injunctive relief against the proposed merger between the two utilities arguing that it violates Section 7 of the Clayton Act. ² The district court granted the utility companies' motions to dismiss, finding that given the allegations of the complaint, the City lacked standing because it had not experienced an antitrust injury. Because we agree that the City has failed to allege that it meets the prudential requirements of antitrust standing, we will affirm the decision of the district court.

I. FACTUAL BACKGROUND AND ALLEGATIONS

As an initial matter, we must determine the extent of our consideration of the materials submitted by the parties. When deciding a motion to dismiss, it is the usual practice for a court to consider only the allegations contained in the complaint, exhibits attached to the complaint and matters of public record. See 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1357 (2d ed.1990). However, the parties here have provided the court with numerous documents pertaining to the regulatory proceedings that are at the heart of the instant controversy. We note--as did the district court--that it can be, and is in this instance, proper to consider these documents in reviewing a motion to dismiss. See Pension Benefit Guar. Corp. v. White Consol. Industries, 998 F.2d 1192, 1196 (3rd Cir.1993) (finding that "a court may consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document. Otherwise, a plaintiff with a legally deficient claim could survive a motion to dismiss simply by failing to attach a dispositive document on which it relied."). Our recounting of the averments of the complaint, therefore, is informed by the context provided by these documents and other public records of which we can take judicial notice. ³ Our factual recitation will also include a short discussion of the nature of the utility industry in Pennsylvania which provides the regulatory context of this case.

The City of Pittsburgh, located in Allegheny County, is currently embarking on a plan to revitalize several urban areas, called the Redevelopment Zones, which were formerly industrial sites. ⁴ According to the City's plans, these currently vacant sites will eventually be home to industrial, commercial and residential activity. Compl. pp 12, 13. The City believes that competition for retail electric service would facilitate economic development in these areas. Id. p 14. This desire for competition comes at a time when the regulatory landscape for utilities in Pennsylvania is undergoing significant change.

In Pennsylvania, the regulation of electric service distribution has traditionally afforded utility companies natural monopolies. See Barasch v. Pennsylvania Pub. Util. Com'n, 119 Pa.Cmwlth. 81, 546 A.2d 1296, 1298 (1988). The industry operates in a comprehensive regulatory structure supervised by the Pennsylvania Public Utility Commission ("PUC"), which is an independent administrative agency authorized by the state to regulate public utility companies doing business in Pennsylvania. 66 Pa.C.S.A. §§ 301, 501. The Pennsylvania Public Utility Code gives the PUC broad power to "supervise and regulate" public utilities. Id. § 501(b). The PUC is mandated to act in the public interest in overseeing public utilities. A utility company must obtain a certificate of public convenience from the PUC in order to provide retail electric service to a particular area. Id. § 1101. ⁵ Each certificate describes the geographic territory in which the holder is permitted to supply electric service. Id. A Recently, the Pennsylvania legislature passed the Electricity Generation Customer Choice and Competition Act. Id. § 2801 et seq. The Competition Act sets forth a plan that will gradually introduce competition within the retail generation function of the electric utility industry. ⁷ This legislation envisions a transition from an industry which is largely regulated to one where there is a competitive market. This statute recognizes continued PUC oversight of electricity generation during the "transition" period from January 1, 1997 to January 1, 2001. Id. §§ 2804, 2806. While the Competition Act will introduce some competition among electric service providers in Pennsylvania, it does not entirely displace the regulatory function of the PUC. Because the Competition Act did not alter the statutory requirement that Allegheny Power petition the PUC to amend its certificate, that Act's passage does not alter our analysis of this case. At all times relevant to the events recounted in the City's complaint, Allegheny Power and Duquesne Light were operating under the regulated industry conditions. ⁸

certificate may be amended only with permission from the PUC, pursuant to 66 Pa.C.S.A. § 1102. Historically, a utility is able to enter another's service area only if it demonstrates that the area's certificated utility is providing inadequate service to customers in the proposed new territory. See Lansberry, Inc. v. Pennsylvania Pub. Util. Com'n, 66 Pa.Cmwlth. 381, 444 A.2d 832, 834-35 (1982) (discussing requirement of demonstrating inadequacy of service in context of PUC certificate to transport). In addition, generally, the retail rates that a utility charges must be approved by the PUC. 66 Pa.C.S.A. § 1303. For example, the rates of both Allegheny Power and Duquesne Light are now, and have always been, subject to regulatory approval by the PUC. Further, the PUC reviews all proposed utility mergers. Id. §§ 1102, 2811. ⁶

In the summer of 1996, Allegheny Power and Duquesne Light were the only electric utilities possessing certificates of public convenience from the PUC to provide electric service in Allegheny County. Compl. p 17. It is uncontested that Allegheny Power's certificate does not permit it to provide electric service to the area of the City in which the Redevelopment Zones are located. JA at 197 (p 11). Duquesne Light is the only utility with a certificate to provide electric service to this area of the City. JA at 195(p 1). Duquesne Light claims that its certificate grants it the exclusive right to provide power to the Redevelopment Zones. Compl. p 28. Because of its belief that competition for retail electric power was "essential" to the success of this redevelopment effort, and because Allegheny Power's tariff rates are substantially lower than those of Duquesne Light, the City entered into discussions with Allegheny Power regarding the possibility of having Allegheny Power submit a proposal to provide electric service to the Redevelopment Zones. Id. pp 18, 20, 26. In furtherance of its goal of obtaining competitive utilities for the area, the City filed a "Petition in Support of Choice for Retail Electric Service Within Certain Redevelopment Zones Within the City of Pittsburgh" with the PUC in September of 1996. Id. p 22. Allegheny Power intervened in support of this petition and also filed a separate application with the PUC for permission to supply electrical service to the Redevelopment Zones. Id. pp 24, 30. Duquesne Light opposed both of these petitions. Id. pp 27, 32.

In their petitions before the PUC both the City and Allegheny Power contested Duquesne In its filing to intervene in support of the City's petition, Allegheny Power asserted that it would "apply for authority to provide retail electric service in the Redevelopment Areas and that subject to approval of the Commission, [Allegheny Power] will provide retail electric service to the Redevelopment Areas pursuant to [Allegheny Power's] tariff rates and terms." JA at 200(p 3). In its own application to the PUC, Allegheny Power requested approval for the utility "to begin to offer, render, furnish or supply electric service in two specific additional territories within the boundaries of the City of Pittsburgh." JA at 235 (emphasis added). These documents make clear that both the City and Allegheny Power were applying to the PUC so that Allegheny Power would be given the regulatory permission to begin to supply electric power in the area of the Redevelopment Zones.

                Light's assertion of exclusive rights.  A review of the applications made to the PUC is useful to clarify exactly what the City and Allegheny Power were seeking with respect to Allegheny Power's ability to offer electric service in the Redevelopment Zones.

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