Tec Cogeneration Inc. v. Florida Power & Light Company

This is an appeal from the denial of a motion for summary judgment by the district court.1 Two questions are presented: first, whether a public utility is immune from antitrust liability under the state-action doctrine of Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), for its allegedly anti-competitive conduct concerning a cogenerator2 in the areas of wheeling,3 rates, and interconnection; and second, whether lobbying of a county legislative body by the utility is protected from antitrust liability under the Noerr/ Pennington doctrine. Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961); United Mine Workers of America v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965). The district court found that the utility was not entitled to immunity from antitrust sanctions for its actions. We disagree. The denial by the district court of the utility's motion for summary judgment is reversed.4

Shortly after Congress enacted the Public Utility Regulatory Policies Act of 1978 (PURPA),5 Metropolitan Dade County, Florida (Dade) began to consider a cogeneration facility as part of its Miami Downtown Government Center (Center), then in the planning stages. At the time, Appellees (Cogenerators)6 were engaged in the business of developing cogeneration projects nationwide. They also supplied turbines and related services for use in cogeneration projects. The Cogenerators encouraged Dade to construct such a facility using their equipment and services.

Appellant Florida Power & Light Company (FPL)7 is an investor-owned public electric utility engaged in three functions: generation, transmission, and distribution and sale of electric energy.8 It services southern and eastern Florida, including most of Dade. FPL is regulated by the Florida Public Service Commission (PSC).9 It owns and controls ninety percent of the total electrical generating capacity in its service area and the electrical grid with which Center can interconnect. FPL has monopoly power within its service area both as to the purchase of wholesale power and the sale of retail power.

In 1981, Dade issued requests to bid on the Center cogeneration facility. Cogenerators' proposal was selected and in late 1983, Dade and the Cogenerators entered into contracts providing for the construction and operation of a twenty-seven megawatt cogeneration facility at Center and for the supply of cogeneration equipment for the project. The Cogenerators agreed to operate Center for Dade for sixteen years. The Cogenerators also contracted to supply electrical and thermal power to Dade.10 Dade and the Cogenerators were to share in the profits, if any, from operating the Center; the Cogenerators were to absorb the losses.11 The final contract allowed for excess power, if any, from Center, to be dispensed to Dade facilities outside Center, such as to the Jackson Memorial Hospital/Civic Center complex (Hospital).12 Practically speaking, excess power could be dispensed only one of two ways, either via a wheeling arrangement with FPL or by constructing a separate transmission line. A separate line would require the approval of the local legislative body, i.e., the Dade County Board of Commissioners (Commission). With these parameters in place, construction of the cogeneration facility commenced in mid-1984 and the facility became fully operational at the end of 1986.13

Center, armed with the capability to produce twenty-seven megawatts of electrical power, actually needed only ten megawatts with which to operate. With seventeen surplus megawatts of generating capacity, Center quickly proved to be unprofitable. By then, however, the die was cast; the project was in place.14 Fingers began to point as the Cogenerators and Dade each blamed the other for a projection miscalculation of this magnitude.15

To reduce their losses, the Cogenerators sought a logical use for the excess power. Under rules promulgated by the PSC, two options were immediately available: (1) the Cogenerators could either sell the surplus electricity to FPL at a rate equal to FPL's avoided cost;16 or (2) the Cogenerators could force FPL to transmit or wheel the excess power to another Florida utility, who in turn would purchase it at its own avoided cost rate.

At avoided cost rates, it appeared that the Cogenerators could not break even with either option. FPL alleges that the Cogenerators deliberately ignored their two legitimate options and pursued a third, allegedly illegitimate, alternative in order to obtain higher prices for their power: the Cogenerators approached FPL to wheel their surplus power to other Dade facilities outside Center, most notably, to Hospital, two miles northwest. Believing that the Cogenerators' request violated the PSC's self-service wheeling rules,17 FPL declined to wheel.

Rebuffed by FPL, the Cogenerators then turned to the best efforts clause in its contract with Dade. They directed Dade, in effect, to petition the PSC for an order compelling FPL to wheel power from Center to other Dade facilities, including Hospital.

After an eleven-month administrative proceeding, the PSC denied Dade's petition. The PSC found that Dade could not comply with the PSC's self-service wheeling rules because Dade did not actually own the generating equipment that produced the power to be wheeled; did not generate the power to be wheeled; and was contractually bound to purchase the electricity from the Cogenerators.18 Hence, the PSC found, by definition, that Dade could not "serve oneself." Petition of Metropolitan Dade County for Expedited Consideration of Request for Provision of Self-Service Transmission, Order No. 17510, Docket No. 860786-EI, 87 FPSC 5:32, 35-37 (May 5, 1987).19

After the PSC wheeling disallowance, the Cogenerators played their fourth and final card: what can't be sent indirectly, send directly. They approached Dade with a proposal to construct a separate transmission line from Center to Hospital. A separate line would reduce surplus electricity without being dependent upon wheeling by FPL at avoided cost rates. A joint submission was made by the Cogenerators and Dade to Commission for its approval. The Cogenerators lobbied Commission for approval; FPL lobbied against. The Commission voted five-toone against the construction of the separate transmission line.

Within weeks, the Cogenerators filed this suit.

The Cogenerators contend they suffered losses at Center due to FPL's anti-competitive conduct in three areas: (1) by FPL's refusal to wheel, when FPL allegedly prevented Cogenerators from providing service to Hospital; (2) by FPL's manipulation of its rate structure (when FPL allegedly offered lower rates to customers considering cogeneration; paid cogenerators too little for their excess power; and proposed higher rates for backup power sold to cogenerators); and (3) by FPL's interference with interconnection (when FPL allegedly imposed unreasonable terms in the interconnection agreement governing the manner in which Center is physically connected to FPL's system).20

After discovery, FPL filed a motion for summary judgment. The district court heard oral argument in 1989 and 1993. In 1994, the district court denied summary judgment.

This appeal follows.

Application of the state-action and Noerr/ Pennington immunity doctrines is a question of law. See F.T.C. v. Hospital Bd. of Directors of Lee County, 38 F.3d 1184, 1187 (11th Cir.1994). As the question of immunity is strictly one of law, this court makes a de novo determination of whether the district court erred in denying summary judgment. Bolt v. Halifax Hosp. Medical Center, 980 F.2d 1381, 1384 (11th Cir.1993).

FPL's motion for summary judgment relies principally on two immunity doctrines: the state action immunity doctrine and the Noerr/ Pennington immunity doctrine. The district court denied summary judgment under both.

We review each of these findings de novo.

The Supreme Court first articulated the state-action immunity doctrine in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). In Parker, the Court grappled with the applicability of the Sherman Act to a California agricultural statutory program intended to restrict competition among private producers of raisins in order to stabilize prices and prevent economic waste. Relying on principles of federalism and state sovereignty, the Court refused to find that the Sherman Act was "intended to restrain state action or official action directed by a state" and determined that "[t]here is no suggestion of a purpose to restrain state action in the Act's legislative history." Id. at 351, 63 S.Ct. at 313. The Court held, therefore, that federal antitrust laws were not intended to reach state-regulated anticompetitive activities. Id. at 350-52, 63 S.Ct. at 313-14; City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 370, 111 S.Ct. 1344, 1348, 113 L.Ed.2d 382 (1991).21

Thirty-seven years later, in California Retail Liquor Dealers Ass'n. v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980), a unanimous Court established a two-pronged test to determine when private party anticompetitive conduct is entitled to state action immunity from antitrust liability: (1) the conduct had to be performed pursuant to a clearly articulated policy of the state to displace competition with regulation; and (2) the conduct had to be closely supervised by the state. Id. at 105, 100 S.Ct. at 943; see also F.T.C. v. Ticor Title Ins. Co., 504 U.S. 621, 112 S.Ct. 2169, 119 L.Ed.2d 410 (1992).22 These two prongs are addressed below.

1. Clearly Articulated Policy of the State.

The Court set out the first element of state action immunity in Southern Motor Carriers Rate Conference, Inc. v. U.S., 471 U.S. 48, 105 S.Ct. 1721, 85 L.Ed.2d 36 (1985). There, the Court determined that a private party acting pursuant to an anticompetitive regulatory program need not "point to a specific, detailed legislative authorization" for its challenged conduct. Id. at 57, 105 S.Ct. at 1726. As long as the State as sovereign clearly intends to displace competition in a particular field with a regulatory structure, the first prong of the Midcal test is satisfied. Id. at 64, 105 S.Ct. at 1730.

In this case, the district court found that Florida has two statutory policies regarding power generation and transmission: a policy favoring monopoly power in Florida electric utilities, and a policy of encouraging development of Florida cogeneration facilities, complemented by the implementation of PSC regulatory guidelines. Fla.Stat. § 366.051 (1991). The district court found that these statutes set out clearly articulated policies regarding utilities and cogenerators. Accordingly, the district court found that FPL had satisfied the first prong of the Midcal test, except as to its Strategic Energy Business Study or SEBS. See supra n. 13.

We agree with the district court that Florida has an obvious and clearly articulated policy to displace competition with regulation in the area of power generation and transmission and that FPL's conduct has been performed pursuant to that policy. The Florida legislature gave the PSC broad authority to regulate FPL. See Ch. 366, Fla.Stat. Further, the relationship between Florida utilities and cogenerators has been subject to pervasive state regulation through statute and regulatory rules. Fla.Stat. § 366.05(1), .04(1), (5), .06(1), .051 (1994); Fla.Admin.Code R. 25-17.080-.091 (1988). A myriad of agency proceedings have transpired.23 The field has not been left to the parties' unfettered business discretion. In addition, the Florida Supreme Court has been active in its role of judicial review. See C.F. Industries, Inc. v. Nichols, 536 So.2d 234 (Fla.1988) (standby rates for qualifying facilities); PW Ventures, Inc. v. Nichols, 533 So.2d 281 (Fla.1988) (third-party sales by qualifying facilities); Storey v. Mayo, 217 So.2d 304, 307 (Fla.1968), cert. denied, 395 U.S. 909, 89 S.Ct. 1751, 23 L.Ed.2d 222 (1969) ("The powers of the Commission over ... privately-owned utilities [are] omnipotent within the confines of the statute and the limits of organic law.").

We disagree, however, with the district court's exclusion of SEBS from its finding. It is clear that Florida intended to displace competition in the utility industry with a regulatory structure, Southern Motor Carriers, 471 U.S. at 64, 105 S.Ct. at 1730, and FPL's internal SEBS study has no relevance to the issue of Florida's clearly articulated policy of regulation. Contrary to the district court's ruling, we conclude that the first prong of the state action defense is satisfied here, without qualification, that is, including SEBS.24

2. Conduct Actively Supervised by the State.

This second prong of the state action defense applies when the challenged conduct is by a private party rather than a government official. Ticor, 504 U.S. at 630, 112 S.Ct. at 2175. Active state involvement is the second precondition for antitrust immunity; the conduct by the private party has to be closely supervised by the state. Midcal, 445 U.S. at 105-06, 100 S.Ct. at 943-44. The active supervision requirement is designed to ensure that the state has "ultimate control" over the private party's conduct, with the power to review and disapprove, if necessary, particular anticompetitive acts that may offend state policy. Patrick v. Burget, 486 U.S. 94, 101, 108 S.Ct. 1658, 1663, 100 L.Ed.2d 83 (1988).

The district court considered FPL's conduct in three areas alleged to be anticompetitive by the Cogenerators: (1) FPL's refusal to wheel; (2) its use of rates; and (3) its alleged interference with interconnection. It determined that for FPL to meet the second prong of the state action defense, Florida, through the PSC, must have "actively supervised, substantially reviewed, or independently exercised judgment and control" over FPL's "overall anti-competitive campaign."

In each of the three areas, the district court found that, while the PSC had the power to review FPL's conduct, it was not given the opportunity to exercise its power to review FPL's conduct. Therefore, the district court determined that the PSC's regulatory authority (in application or as applied) did not satisfy the second prong of the state action immunity standard.

As we conclude that the PSC did in fact exercise active supervision over FPL, we do not discuss these areas separately, as the same rationale applies to each.

3. The Active Supervision in this Case.

In 1987, the PSC denied Dade's petition to allow the Cogenerators to wheel power to Hospital because they could not satisfy the PSC self-service wheeling rules. In re: Petition of Metropolitan Date County, Order No. 17510 (1987).25

The district court notes that FPL stands behind this PSC ruling as conclusive evidence of active state supervision. The district court finds this reliance misplaced. It focuses instead on the circumstances leading up to the PSC hearing: FPL's acts that have their genesis in the embryonic stages of Center when FPL participated in the early negotiations of the Cogenerator-Dade agreement. That is, under an estoppel-like analysis, the district court found that, when FPL ostensibly gave its blessing to the contract (with full knowledge that it contemplated: (1) the wheeling of excess power by FPL to other Dade locations; (2) the conveyance of power to other Dade facilities through a direct transmission line; or (3) the sale of excess power to FPL at avoided cost rates), it can't be heard to complain now. The district court's determination is based, not on whether the PSC had the power to actively supervise and review FPL's conduct, but on whether it was ever given the opportunity to exercise its power to supervise and review (and possibly disapprove), these early acts of FPL.26

That is not the issue. The issue is this: Has the State of Florida, through its state regulatory agency, the PSC, actively supervised FPL in the areas of wheeling, rates and interconnection? The answer is clearly yes, as to each. The fact that FPL didn't complain about wheeling or rates or interconnection when it first reviewed the Center contract is not material as to whether or not the PSC had the power to actively supervise FPL. That power is insulated. FPL's failure to object does not take away from the PSC its opportunity to exercise the power of active supervision. Failure by the parties to commence an action or proceeding (at the time when the district court apparently thought they should have objected), does not constitute the nullification of the PSC's power to act.

The PSC exercises its powers only when called upon to do so. No call was made. For example, the decisions of this circuit govern or control a plethora of legal issues--but if a particular issue is never brought before us--it doesn't mean we don't have control. We don't have opportunity--but we still have control. We still have active supervision.

The record is clear--the doors to the PSC were open to all with standing to complain. Being met with a complaint, the PSC had the full power to actively supervise. Whether or not the State, through the PSC, exercises its control sua sponte is not material, unless, of course, there is an apparent devious design to abdicate or obstruct control, and that is not the case here. The record shows that, when the PSC was called upon, they acted. We, the judiciary, do not have to take a walk with the PSC members to see if they visit FPL's offices every morning.

In sum, Florida has clearly articulated policies regarding the relationship between FPL and the Cogenerators. In addition, the record is clear that the PSC actively supervised all aspects of FPL's alleged anti-competitive conduct. We conclude, therefore, that both prongs of the state action immunity doctrine are satisfied here and FPL's conduct is immune from antitrust liability in each of the three areas of wheeling, rates and interconnection.

C. The Noerr/ Pennington Doctrine of Immunity

Noerr/ Pennington follows naturally from the state action doctrine. While the state action doctrine protects private actions authorized by the state, the Noerr/ Pennington doctrine protects private efforts to influence government officials in creating or implementing legislation that has anticompetitive effects. This so-called political action doctrine protects First Amendment rights to assemble and petition government. It springs less from the traditional power of the sovereign than from the rights of individuals to petition the sovereign.27

In Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961), and United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965), the Supreme Court held that concerted efforts to restrain or monopolize trade by petitioning government officials are protected from antitrust liability under the Sherman Act. California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972).28 The litigation in Noerr grew out of an "economic life or death" struggle between railroads and the trucking industry for the lucrative long-distance hauling of heavy freight. Noerr, 365 U.S. at 129, 81 S.Ct. at 525. The truckers alleged that the railroads were behind a publicity campaign designed to procure legislation that would hurt the trucking industry. Id. The Noerr Court found that attempts by the railroads to secure the passage and enforcement of anticompetitive laws cannot form the basis for antitrust liability regardless of any injury to truckers:

It is inevitable, whenever an attempt is made to influence legislation by a campaign of publicity, that an incidental effect of that campaign may be the infliction of some direct injury upon the interests of the party against whom the campaign is directed.... To hold that the knowing infliction of such injury renders the campaign itself illegal would thus be tantamount to outlawing all such campaigns.

The Supreme Court gave two reasons for its decision. First, to the extent that state government has the power to restrain trade, a contrary holding would be in direct conflict with the state action doctrine. Id. at 137 and n. 17, 81 S.Ct. at 529 and n. 17. Second, allowing such conduct to establish Sherman Act liability might substantially impair First Amendment rights to assemble and to petition the government. Id. at 137-38, 81 S.Ct. at 529-30.

When the Supreme Court decided Pennington four years later, it expanded Noerr to include efforts to petition the executive branch and broadened the scope of protected behavior. 381 U.S. at 669, 85 S.Ct. at 1593. The Noerr doctrine, said the Pennington Court, "shields from the Sherman Act a concerted effort to influence public officials regardless of intent or purpose." Id. at 670, 85 S.Ct. at 1593 (emphasis added). Furthermore, the Court held that "[j]oint efforts to influence public officials do not violate the antitrust laws even though intended to eliminate competition. Such conduct is not illegal, either standing alone or as part of a broader scheme itself violative of the Sherman Act." Id. (emphasis added). This immunity doctrine extends to the lobbying of local legislators. City of Columbia, 499 U.S. at 379-84, 111 S.Ct. at 1353-56. "[T]hat a private party's political motives are selfish is irrelevant: 'Noerr shields from the Sherman Act a concerted effort to influence public officials regardless of intent or purpose.' " Id. at 380, 111 S.Ct. at 1354, quoting Pennington, 381 U.S. at 670, 85 S.Ct. at 1593.30

In Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 108 S.Ct. 1931, 100 L.Ed.2d 497 (1988), the Supreme Court began to differentiate between degrees of antitrust immunity for acts of petitioning the government.31 It noted that the scope of the protection depends upon the source, context, and nature of the anticompetitive restraint at issue. Id. at 499, 108 S.Ct. at 1936. Absolute immunity from antitrust liability results where the restraint upon trade or monopolization is the result of valid governmental action as opposed to private action. Id. Further, where, independent of any government action, the anticompetitive restraint results directly from private action, the restraint cannot form the basis for antitrust liability if it is "incidental" to a valid effort to influence governmental action. Id.

The Court found that Allied's efforts were not immune from liability because they were essentially commercial in nature and their political aspects were secondary.32 It stated that "[w]hat distinguishes this case from Noerr and its progeny is that the context and nature of petitioner's activity make it the type of commercial activity that has traditionally had its validity determined by the antitrust laws themselves." Id. at 505, 108 S.Ct. at 1939.

Citing Allied Tube, Todorov v. DCH Healthcare Authority, 921 F.2d 1438 (11th Cir.1991) and Hill Aircraft & Leasing Corp. v. Fulton County, 561 F.Supp. 667 (N.D.Ga.1982), aff'd, 729 F.2d 1467 (11th Cir.1984), the district court in this case found that when FPL lobbied the Commission to vote against construction of the Center-to-Hospital transmission line, its conduct fell within the so-called commercial exception to Noerr because FPL didn't want to lose Hospital as a valued customer. The district court reasoned that FPL's legislative lobbying was not for political reasons but for economic reasons; it violated state policies as it was in direct contravention to Florida's policies promoting cogeneration; it was aimed at a commercial purchasing decision by Dade; and it was not a political or "policy" decision but a commercial or pecuniary one. The district court also found that FPL's participation in the negotiation of the Cogenerator-Dade contract was not protected by Noerr immunity.33