United States v. Otter Tail Power Company

• Decision Date: 09 September 1971
• Docket Number: No. 6-69-Civ-139.,6-69-Civ-139.
• Citation: 331 F. Supp. 54
• Parties: UNITED STATES of America, Plaintiff, v. OTTER TAIL POWER COMPANY, Defendant.
• Court: U.S. District Court — District of Minnesota

331 F. Supp. 54

UNITED STATES of America, Plaintiff, v. OTTER TAIL POWER COMPANY, Defendant.

No. 6-69-Civ-139.

United States District Court, D. Minnesota, Sixth Division.

September 9, 1971.

COPYRIGHT MATERIAL OMITTED

Kenneth C. Anderson, William Jaeger and Barry McNeil, Washington, D. C., for plaintiff.

Cyrus Field and David Lundeen, Fergus Falls, Minn., for defendant.

MEMORANDUM AND ORDER

DEVITT, Chief Judge.

In this action brought under Section 2 of the Sherman Act the basic issue is whether the acts of Otter Tail Power Company, a Minnesota public utility, in refusing to sell electric power at wholesale, and refusing to wheel electric power to municipalities it formerly served at retail, constitute a monopolization of commerce in violation of the Act.

The Sherman Act, Section 2, provides:

"Every person who shall monopolize, or attempt to monopolize * * * any part of the trade or commerce among the several States * * * shall be deemed guilty of a misdemeanor * * *, 15 U.S.C. § 2.

Under Section 4 of the Act the United States District Court is vested with jurisdiction to restrain violations of the law. 15 U.S.C. § 4. Plaintiff seeks such an injunction.

Defendant Otter Tail Power Company with headquarters at Fergus Falls, Minnesota, is an investor-owned utility primarily serving small towns in western Minnesota and eastern North and South Dakota. Its business is almost exclusively retail. Its operation consists of an integrated power system running the full gamut from initial production to final sale of electrical power combined with pool arrangements which supply emergency power reserves.

From time to time citizens of some of the municipalities served by defendant have worked for the establishment of municipally owned electric facilities. Otter Tail has opposed such movements and has refused to sell power at wholesale, or to "wheel"¹ power, to its former municipal customers who have converted or who seek to convert to municipal systems. Plaintiff claims this violates the Sherman Act. Defendant asserts this is but the exercise of proper business judgment aimed at protecting the integrity of its business.

The pleadings more particularly shape the issue. The government alleges that Otter Tail has sought to prevent the municipalities from shifting local electric service from defendant to other electric power systems, supplied either by Otter Tail or another supplier of power, by the following acts:

1. By refusing and threatening to refuse to sell power at wholesale to the proposed alternative local electric power system;

2. By refusing and threatening to refuse to wheel electric power from other wholesale suppliers to the proposed alternative local electric power system; and

3. By engaging in other activities designed to obstruct and defeat the attempt by municipalities to establish alternative local electric power system.

Otter Tail specifically denies that it has done anything in violation of Section 2 of the Sherman Act. In its Answer, paragraph IV, it

"admits and alleges that it has refused to permit the use of Otter Tail's facilities (by furnishing either wholesale or wheeling service) to subsidize or support a new municipal electric system which is constructed for the purpose of ousting Otter Tail from the retail electric business in that municipality. Otter Tail also admits and alleges that it has attempted to use all reasonable means to continue in business, and to continue to furnish adequate and reliable service at reasonable rates at retail in the municipalities which are served by its integrated system, and in attempting to present its case that it is to their advantage not to sever their connection with Otter Tail's system and service."

The case was tried to the court June 1 through June 14, 1971. The parties stipulated to many of the facts. Plaintiff called eleven witnesses, the defendant three. Several extensive pretrial conferences preceded trial.

A summary of the facts essential to an understanding of the issue follows:

Otter Tail was incorporated in Minnesota in 1910. Its service area encompasses western Minnesota, northeastern South Dakota and eastern North Dakota. The company's integrated system consists of approximately 5,900 miles of interstate transmission lines which serve at retail, approximately 465 towns, mostly small communities of under 1,500 population. In 1969 Otter Tail sold 1,158,329 kilowatts (Kw.) of power to 103,829 customers, deriving a total operating revenue of $31,191,000. Otter Tail had a net generation capacity of 271,145 Kw. in 1969.

Otter Tail has entered into interconnection contracts with other electric systems. These contracts provide means by which the company can obtain power to supplement that provided by its own generation and sell excess power to others. One of Otter Tail's interconnections is with the United States Bureau of Reclamation. The relationship between the Bureau and Otter Tail is reflected in a comprehensive agreement which dates back to 1950. Pursuant to this contract, Otter Tail purchases a considerable volume of dump and secondary power from the Bureau.

Otter Tail is also directly interconnected with Minnesota Power and Light, Northern States Power Company, Northwestern Public Service Company, Montana-Dakota Utilities Company, Minnkota Power Cooperative, Central Power Association, United Power Association and several smaller rural electric cooperatives.

Generally speaking, Otter Tail provides retail service to municipalities pursuant to franchise agreements awarded to it by the city or town. By state law in each of the three states the franchises are non-exclusive and, depending upon the state, the franchise terms are limited to periods ranging from ten to twenty years. The franchises customarily grant Otter Tail the right to construct and maintain electric distribution systems and necessary transmission lines, and operate these within the regulations and provisions imposed by the municipal government.

Otter Tail also regularly engages in the business of wheeling power. A large proportion of Otter Tail's wheeling activity is done pursuant to its contractual relationship with the Bureau of Reclamation. Beginning in the 1930's Congress appropriated funds for the construction of a series of hydroelectric generation facilities along the Missouri River in Montana, North Dakota and South Dakota. The Bureau of Reclamation of the Department of the Interior handles the marketing of the power generated by the facilities. Congress mandated that public bodies, REA electric cooperatives and municipal electric systems be designated as preference customers for this power; that it, that they be given first option to purchase the power.

The Congress also appropriated funds for the construction of high voltage transmission lines to transport Bureau power from the hydroelectric sites to the areas where the power was to be marketed.

In 1950 Otter Tail and the Bureau entered into the detailed contract which provided, inter alia, for the sale of dump power to Otter Tail and for the wheeling of Bureau power across Otter Tail transmission lines to preference customers. The Bureau pays a set wheeling fee to Otter Tail for this service. At the request of Otter Tail, a renewal contract dated June 14, 1955 contained language which, in the defendant's view, exempted it from any obligation to wheel power to towns which it previously had served at retail. Otter Tail does wheel power to 18 municipal preference customers which it has not previously served at retail. More background facts will be recited in connection with the court's consideration of the issues.

The principal thrust of the government's case is that Otter Tail has a monopoly on the retail distribution and sale of power to towns in its operating area. It is not contended that defendant acted illegally or improperly in achieving this claimed monopoly position but rather in its actions seeking to preserve this position. Specifically, it is urged that Otter Tail's refusal to sell or wheel power to towns desiring to establish municipal systems, and its actions participating in local municipal power political campaigns, and sponsoring, encouraging, and financially supporting court litigation are all intended to impede and frustrate attempts to establish independent municipal electric systems.

Otter Tail does not deny its refusal to sell or wheel power to municipalities which it formerly served at retail but argues that to supply power to these municipalities would aid in its own demise. It admits its participation in local municipal political campaigns and in litigation surrounding attempts to establish municipal systems but contends this is proper and legal conduct. Such actions were taken, defendant argues, to preserve the electric power free enterprise system for the benefit of its customers, shareholders and employees.

Otter Tail denies that it has a monopoly, is attempting to preserve a monopoly, or that it possesses a dominate share of the pertinent market under Sherman Act principles. Defendant points to the many other electric power entities operating in the same area, particularly the United States Bureau of Reclamation, many electric cooperatives, Northern States Power Company, and other private power sources, from one or more of which electric power and the means of transmitting this power are readily available to those municipalities which defendant does not choose to serve.

Otter Tail finally urges a "Rule of Reason" and argues that its conduct is fully justified by its legitimate right to fight for its corporate life, remain viable in serving the public and prevent the erosion of its integrated system and the impairment of its credit.

A monopoly condemned by the Sherman Act is the power to fix prices or exclude competition coupled with policies designed to use or preserve that power. The United States Supreme Court in its most recent decision on the question, United States...