Ninth Circuit Finds No Antitrust Immunity for Public Utility

Ninth Circuit Finds No Antitrust Immunity for Public Utility

The U.S. Ninth Circuit Court of Appeals’ recent decision in Ellis v. Salt River Project Agricultural Improvement & Power District, __ F.4th __; 2022 U.S. App. LEXIS 2719 (Jan. 31, 2022), is an example of how federal courts evaluate complaints alleging local governments’ violation of federal antitrust laws.

Defendant Salt River Project Agricultural Improvement and Power District (“SRP”), a public power and water utility that services most of the Phoenix metropolitan area, controls the electrical grid and has authority to set prices for the sale and distribution of electricity to retail customers in its service area. The only competition faced by SRP comes from solar energy system vendors, who provide SRP’s customers the ability to self-generate power and reduce, but not eliminate, the amount of electricity solar customers purchased from SRP.  In 2014, SRP announced a new price plan that increased the rates charged to solar customers by up to 65 percent and non-solar customers’ rates by only 3.9 percent.

The solar customer plaintiffs filed a class action against SRP. Among other claims, their complaint asserted claims for monopolization and attempted monopolization in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2, alleging that SRP’s new price plan was designed to eliminate competition in the retail electricity market by making solar energy systems economically unviable and leaving customers with no other option but to purchase electricity from SRP.

SRP filed a motion to dismiss. The district court granted SRP’s motion and dismissed the plaintiffs’ complaint, which the Ninth Circuit reversed in part and affirmed in part.

First, Ellis reverses the district court’s dismissal of the plaintiffs’ Sherman Act claims on the ground that the complaint failed to adequately allege antirust injury, i.e., injury flowing from a violation of the antitrust laws.  In support of this conclusion, the district court found that SRP’s price plan encouraged competition by allowing solar energy system vendors into the market and could not have caused the plaintiffs’ injuries because they would have been harmed anyway from using solar energy systems, which are uneconomical independent of SRP’s price plan. The Ninth Circuit rejected these findings as inconsistent with the district court’s other findings that the plaintiffs adequately alleged exclusionary conduct by SRP designed to deter competition from solar energy systems, penalize solar energy investments to strengthen SRP’s monopoly, and force customers to exclusively purchase electricity from SRP by making installation uneconomical.  Thus, by the district court’s own logic, solar systems were uneconomical, at least in part, due to SRP’s price plan. Because they alleged SRP’s price plan unlawfully reduced solar-energy competition in the retail energy market and they were forced to pay higher electricity rates under such plan, the plaintiffs adequately alleged antitrust injury.

Second, Ellis affirms the district’s court’s rejection of SRP’s state-action immunity defense from federal antitrust liability under Parker v. Brown, 317 U.S. 341 (1943).  Under the Parker doctrine, a local government is immune from federal antitrust laws when it undertakes its allegedly anticompetitive conduct pursuant to a clearly articulated and affirmatively expressed state policy to displace competition.  The Ninth Circuit found state-action immunity inapplicable to SRP because Arizona’s statutes governing the retail electricity market express a general policy favoring competition, a point conceded by SRP.

Despite its concession, SRP argued it was entitled to state-action immunity because the displacement of competition in retail electricity markets is a natural consequence of its statutory authority to set “just and reasonable” rates and rate-setting is inherently anticompetitive.  The Ninth Circuit rejected this argument, relying on the U.S. Supreme Court’s holding in FTC v. Phoebe Putney Health Sys., Inc., 568 U.S. 216, 224 (2013), that “state-law authority to act is insufficient to establish state-action immunity; [a local government entity] must also show that it has been delegated authority to act or regulate anticompetitively.” SRP could not show Arizona delegated such authority to it because the statute it relied upon specified that the most effective manner of establishing “just and reasonable” electricity rates is for prices to be established in a competitive market, not set anticompetitively by public utilities such as SRP.

Third, Ellis affirms the district court’s conclusion that the Local Government Antitrust Act (“LGAA”), 15 U.S.C. §§ 34-36, applies to SRP. The LGAA precludes the recovery of antitrust money damages from any “local government or official or employee thereof acting in an official capacity.” Because it was established by Arizona law as an agricultural improvement district and is a political subdivision of the state, SRP is a “local government” exempt from treble antitrust damages under the LGAA.  Although they could not recover money damages, the plaintiffs could pursue their declaratory and injunctive relief claims against SRP, which are not barred by the LGAA.

Persons and entities seeking advice regarding these, or other antitrust matters, should contact Wright, L’Estrange & Ergastolo’s Antitrust & Unfair Competition practice group.

Wright, L’Estrange & Ergastolo legal alerts are not intended as legal advice. Additional facts or future developments may affect any laws, subjects, or information shared. Seek the advice of an attorney before acting or relying upon any information in this legal alert.