Town of Norwood MA v. New England Power

Decision Date05 October 1999
Docket NumberNo. 99-1047,99-1047
Citation202 F.3d 408
CourtU.S. Court of Appeals — First Circuit


[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Charles F. Wheatley, Jr. with whom Wheatley & Ranquist, Kenneth M. Barna, Alan K. Posner and Rubin & Rudman were on brief for plaintiff.

Edward Berlin with whom Robert V. Zener, Swidler Berlin Shereff Friedman, LLP, John F. Sherman, III, Associate General Counsel, The NEES Companies, David H. Erichsen, Peter A. Spaeth and Hale and Dorr LLP were on brief for appellees New England Power Company and New England Electric System (NEES).

Steven W. Phillips with whom Richard M. Brunell, Robert L. Bocchino, Jr. and Foley, Hoag & Eliot LLP were on brief for appellees Pacific Gas & Electric Company and PG&E Corporation.

Before Boudin, Stahl and Lipez, Circuit Judges.

BOUDIN, Circuit Judge.

The Town of Norwood, Massachusetts ("Norwood") filed a complaint against New England Power Company ("New England Power") and others alleging antitrust violations and breach of contract. The district court dismissed the complaint and Norwood now appeals. This decision assumes a familiarity with our decision today in Town of Norwood v. FERC, 202 F.3d 392 resolving petitions filed by Norwood and another challenging orders of the Federal Energy Regulatory Commission ("FERC") in related administrative proceedings.


To summarize the facts,1 New England Power is a major wholesaler of electric power in New England, and Norwood owns and operates a municipal utility that distributes retail electric power to residents and businesses in the town. For some years Norwood purchased its power at wholesale from Boston Edison Company, but in the 1970s Norwood sought instead to purchase its power from New England Power and have that power delivered over the intercity transmission network of Boston Edison. Boston Edison and New England Power resisted, but the matter was resolved by settlement after Norwood brought an antitrust suit against them.

The settlements, arrived at in 1980 and 1983, included the agreement of Boston Edison to "wheel" power for Norwood over Boston Edison's transmission network and the agreement of New England Power to furnish all of Norwood's requirements for electricity through October 31, 1998, under New England Power's FERC Tariff No. 1 "as [it] may be amended from time to time." Under that tariff, New England Power then supplied power to its own retail affiliates such as Massachusetts Electric Company ("Mass Electric"). The decree in the antitrust case directed that the annexed settlement agreement and power contract were "approved as a settlement of this case and shall be carried out by both parties."

The parties amended the power contract in 1989 to give Norwood an option to extend the minimum term, and it then exercised the option to extend the contract to at least October 31, 2008.2 Each side could terminate on seven years' advance notice. New England Power had somewhat similar requirements contracts with its own affiliates and with other independent retailers embodying similar lengthy periods of notice before termination. The function of such lengthy notice periods is to permit stability for each side; the wholesaler, for example, ordinarily makes investments or other arrangements to assure a stable supply of power either by generation, purchase contracts of its own, or both. See generally Kentucky Utils. Co. v. FERC, 766 F.2d 239, 243 (6th Cir. 1985).

Beginning in December 1996, New England Power made a set of regulatory filings to restructure itself and to revise its existing tariffs for wholesale power sales in Massachusetts and Rhode Island. These filings, described in more detail in our companion decision, had several aims: approval by FERC of the sale of New England Power's non-nuclear generating facilities to a west coast utility; the release of New England Power affiliates like Mass Electric from their long-term obligations to purchase their power from New England Power; and the restructuring of New England Power's wholesale rates to affiliates and interested purchasers to facilitate customer choice and market-based pricing at both the wholesale and retail level.

To accommodate policies of both the Massachusetts and Rhode Island state utility commissions, New England Power also proposed a temporary, non-cost- based wholesale offering called "standard offer service." This temporary offering was to provide power at predetermined rates, increasing rapidly over a multi-year period,3 to those retailers required by the states to offer counterpart retail standard offer rates to their own customers; the states were introducing competition at the retail level and wanted retail purchasers to have an initial low-rate offering as a backup while competitive sources of supply developed for them, e.g., In re Massachusetts Elec. Co., Mass. D.P.U. 96-25, at 23-25 (Feb. 26, 1997); see also Mass. Gen. Laws ch. 164, § 1B(b); R.I. Gen. Laws § 39-1-27.3. Such retail sellers include Mass Electric and other investor-owned retailers but not municipalities like Norwood, which have no obligation to allow competitive access to their customers. See Mass. Gen. Laws ch. 164, § 47A.

The prospective sale by New England Power of its low-cost hydroelectric and fossil generating facilities posed a potential problem for existing requirements-contract purchasers like Norwood, since New England Power's existing tariff rates (filed with FERC and incorporated by reference into power contracts) were normally amended to provide for price increases as New England Power's costs went up. To meet this objection, New England Power proposed to implement a rate freeze that would prevent increases in wholesale rates for its requirements-contract customers, including Norwood, during the term of their agreements.

While the initial filings of various proposals were under consideration by FERC, Norwood, on April 14, 1997, filed the present suit in the district court; this complaint, as later amended, named as defendants New England Power, its parent New England Electric System, and two companies that were part of the California-based parent utility system (collectively "PG&E") whose subsidiary ("USGenNE") was to acquire New England Power's non-nuclear generating facilities in New England. Between the original filing of the complaint and its later substantial revision through two amendments, additional events took place that are important to the present action.

First, in the FERC proceedings, the Commission ultimately approved a settlement agreement permitting (on payment of contract termination charges) early termination of requirements contracts by the affiliates of New England Power, New England Power Co., 81 F.E.R.C. ¶ 61,281 (1997), reh'g denied, 83 F.E.R.C. ¶ 61,265 (1998); approved the offering of the new backup wholesale standard offer service, id.; approved the transfer of generating facilities and associated contracts to USGenNE, New England Power Co., 82 F.E.R.C. ¶ 61,179 (1998), reh'g denied, 83 F.E.R.C. ¶ 61,275 (1998); and agreed to the FERC Tariff No. 1 rate freeze that would prevent post-divestiture rate increases to purchasers who chose to avoid the termination charge by continuing as wholesale customers of New England Power under their existing contracts, id.

Second, regarding itself as disadvantaged by the wholesale standard offer service made available to New England Power's retail affiliates--whom Norwood regards as retail competitors--Norwood notified New England Power on March 4, 1998, that it was switching to a different wholesale supplier, Northeast Utilities; a tariff and agreement to that effect were filed with FERC and have gone into effect. Two weeks later, on March 18, 1998, New England Power filed a revised FERC Tariff No. 1 permitting its non-settling wholesale customers like Norwood to terminate their contracts early, and on only 30 days' notice, with the condition that the customers pay a large contract termination charge. The charge was calculated based on the revenues that New England Power would have expected to collect had a customer continued to pay the now-frozen tariff rate through the contract term, less the expected costs avoided by not providing service.

As finally amended in April 1998, Norwood's complaint made a number of separate claims. In count 1, it charged that New England Power had violated the prior 1983 antitrust decree and power contract by divesting itself of its generating facilities, shifting Norwood to a fixed rate based on pre-divestiture costs, and proposing to serve its own affiliates on a quite different basis than the fixed rate (namely, market-based rates subject to the availability of the initially low-cost wholesale standard offer service).

The remaining three counts in Norwood's second amended complaint charged violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1-2, and sections 3 and 7 of the Clayton Act, 15 U.S.C. §§ 14, 18. The company attacked the contract termination charge imposed on Norwood under the revised FERC No. 1 Tariff as an illegal restraint of trade, an unlawful tying arrangement, and, in combination with the standard offer rates, an illegal price squeeze; it alleged a conspiracy to fix prices in the wholesale market; and it alleged a lessening of competition from the transfer of New England Power's non-nuclear generating assets to USGenNE.

After a motion by Norwood for partial summary judgment and motions to dismiss by the defendants, the district court on September 28, 1998,...

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