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Schuylkill Energy Resources, Inc. v. Pennsylvania Power & Light Co.

May 5, 1997

SCHUYLKILL ENERGY RESOURCES, INC.,

APPELLANT

v.

PENNSYLVANIA POWER & LIGHT COMPANY



Appeal from the United States District Court for the Eastern District of Pennsylvania

(D.C. Civ. No. 95-civ-04885)

Before: STAPLETON and MANSMANN, Circuit Judges, and RESTANI, Judge, Court of International Trade. *fn*

MANSMANN, Circuit Judge.

Filed May 5, 1997

Argued February 6, 1997

OPINION OF THE COURT

Schuylkill Energy Resources, Inc., ("SER") filed this antitrust action against Pennsylvania Power & Light Co. ("PP&L") for allegedly monopolizing and attempting to monopolize the provision of electric energy to retail consumers within PP&L's service area and to wholesale resellers affiliated with PP&L. SER contends that PP&L impermissibly curtailed purchases of SER-generated electric energy and that SER was therefore unable to compete with PP&L in the provision of electric energy to consumers in the retail market and resellers in the wholesale market.

The district court granted PP&L's motion to dismiss SER's antitrust claims for failure to state a claim upon which relief can be granted and declined to exercise supplemental jurisdiction over SER's pendent state law claims. We must decide whether SER has adequately pled antitrust injury. We find that by agreement and by law, SER is PP&L's supplier, not PP&L's competitor, and that PP&L's generation curtailment policy does not create an injury of the type the antitrust laws were intended to prevent. We will affirm.

I.

Under the Federal Power Act, 16 U.S.C. Section(s) 791a et seq., any person who owns or operates facilities used to transmit or sell electric energy in interstate commerce is subject to the jurisdiction and regulatory power of the Federal Energy Regulatory Commission ("FERC"). 16 U.S.C. Section(s) 824. In 1978, Congress amended the Federal Power Act by passing the Public Utility Regulatory Practices Act of 1978 ("PURPA"). Congress passed PURPA to encourage the development of alternative energy sources in an effort to reduce United States' dependence on foreign oil. Congress believed that the development of alternative energy sources was impeded by the reluctance of traditional electric utilities to purchase energy from and sell energy to non-traditional facilities as well as by the substantial financial burdens imposed on non-traditional facilities by pervasive federal and state regulation. See FERC v. Mississippi, 456 U.S. 742, 750-51, 102 S.Ct. 2126, 2132-33 (1982) (citing legislative history of PURPA).

To further this goal, PURPA requires electric utilities to purchase electric energy produced by independent power producers operating so-called "qualifying cogeneration facilities." See 16 U.S.C. Section(s) 796(18)(B), 824a-3. Congress directed FERC to promulgate rules and regulations governing the terms of such purchases and sales, and state agencies such as the Pennsylvania Public Utility Commission ("PUC") are empowered to regulate the facilities and approve the contracts covered by PURPA. See 16 U.S.C. Section(s) 824a-3(f); 18 C.F.R. pt. 292. *fn1

II. *fn2

SER is an independent power producer that owns and operates an anthracite coal refuse-fired cogeneration plant in Shenandoah, Pennsylvania. The plant is a qualifying facility under PURPA, the Federal Power Act, and PUC regulations. See 16 U.S.C. Section(s) 796(18); 18 C.F.R. pt. 292; 52 Pa. Code Section(s) 57.31. *fn3

PP&L is an electric utility chiefly reliant on coal-burning and nuclear power sources. PP&L services Allentown, Pennsylvania, and surrounding areas. PP&L is regulated by the PUC. PP&L is a member of the Pennsylvania-New Jersey-Maryland Interconnection ("PJM"), a power pool maintained by an unincorporated association of approximately eight member electric utilities located in Pennsylvania, New Jersey, Maryland, Delaware and Washington, D.C. PJM member companies sell excess electric generation capacity to PJM, which is then sold to other PJM member companies or to other power pools.

Pursuant to the regulations promulgated by FERC under the authority of PURPA, PP&L is required to purchase electric energy from SER. *fn4 On October 17, 1986, SER and PP&L entered into a twenty-year Power Purchasing Agreement. Under the terms of the Agreement, "SER is required to sell exclusively to PP&L, and PP&L is required to purchase SER's entire net power output up to 79.5 megawatts at a price per kilowatt hour which is either fixed within the agreement or calculated as a percentage of PP&L's Energy-Only Avoided Cost." Amended Complaint, Para(s) 22. PP&L is permitted to purchase less than SER's total electric energy output "only when curtailed purchases are necessary for PP&L `to make repairs, changes, tests or inspections, or for reasons of an actual or potential System Emergency, Forced Outage, Force Majeure or PP&L System operating condition which necessitates such disconnections or curtailments . . . .' " Amended Complaint, Para(s) 31 (quoting Agreement, Art. 9, Para(s) E). PP&L may not curtail purchases of SER's electric output " `for reasons of economic dispatch.' " Amended Complaint, Para(s) 42 (quoting Agreement, Art. 9, Para(s) E).

The Agreement defines "system emergency" as "any condition on the PP&L System or PJM System which, in PP&L's opinion, may disrupt service to customers or endanger life or property." Amended Complaint, Para(s) 32 (quoting Agreement, Art. 1, Para(s) CC). According to SER, PP&L has improperly construed the term "system emergency" to include "minimum generation emergencies" and "minimum generation events" (collectively "MINGENS") identified by PJM. MINGENS occur when the aggregate power demand within the regions serviced by PJM is expected to fall below its normal or emergency minimum generation floor level and PJM cannot sell the pool's excess power to the other pools or reduce PJM member company purchases.

SER alleges that when MINGENS are issued by PJM, PP&L has a policy of reducing purchases of energy from independent power producers with high energy prices first and cutting purchases from PP&L-owned energy producers less severely. SER alleges that the majority of PP&L's declarations of system emergencies are disingenuous and are actually declared for reasons of "economic dispatch." In other words, when total electric power available for distribution by PJM exceeds aggregate customer demand, PP&L disproportionately curtails the purchase of electric energy generated by SER and other independent power producers.

SER complains that when PP&L curtails purchases of energy from SER (as it has on several occasions), SER is unable to satisfy its own parasitic load requirements and must purchase oil and electricity. SEC also alleges that PP&L's generation curtailments have caused it to lose revenues and to incur other incidental costs.

III.

In its Amended Complaint, SER alleges two separate federal antitrust violations by PP&L under Section 2 of the Sherman Act, 15 U.S.C. Section(s) 2. In Count I, SER alleges a claim of monopolization. In Count II, SER alleges a claim of attempt to monopolize. SER also alleges related state-law claims for intentional misrepresentation, negligent misrepresentation, breach of contract, and breach of duty of good faith and fair dealing.

On November 2, 1995, PP&L moved pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss the Amended Complaint in its entirety. In the alternative, PP&L sought to have the district court stay the federal proceeding and refer the case on primary jurisdiction grounds to the PUC for an administrative proceeding to determine the regulatory propriety of PP&L's generation curtailment policies. On January 23, 1996, the district court invoked the doctrine of primary jurisdiction, entered a stay order suspending all further proceedings ...


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