Antitrust – State Action Immunity – Public Utilities – Santee Cooper – Supra-competitive Prices

Century Aluminum of South Carolina, Inc. v. South Carolina Public Service Authority (Lawyers Weekly No. 002-171-17, 20 pp.) (Richard Mark Gergel, J.) 2:17-cv-00274; D.S.C.

Holding: Where the defendant-electric utility has been granted a monopoly in a clear articulation of state policy, and where defendant is actively supervised by a state-appointed board of directors, defendant is entitled to state-action immunity from the plaintiff-customer’s antitrust claims.

The court grants defendant’s motion to dismiss.

Background

Defendant Santee Cooper was established by the General Assembly as a non-profit corporation to produce, transmit and sell electric power. Santee Cooper was granted a monopoly in portions of Horry, Georgetown and Berkeley Counties.

Plaintiff’s aluminum smelting facility is in Berkeley County within Santee Cooper’s service area. Plaintiff contends Santee Cooper charges supra-competitive prices.

Plaintiff wishes to buy power from other providers. Those providers would have to use Santee Cooper’s transmission lines. Plaintiff alleges Santee Cooper has unlawfully tied transmission services for non-Santee Cooper electric power to the purchase of electricity from Santee Cooper at supra-competitive rates.

Plaintiff filed this action alleging various antitrust claims. Santee Cooper asserts state-action immunity.

State-Action Immunity

In Parker v. Brown, 317 U.S. 341 (1943), the Supreme Court held California immune from federal antitrust laws, reasoning that states should be able to regulate in the public interest and that the political process is the place to challenge state action.

In California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97 (1980), the Court held that for state-action immunity to apply to private parties, two conditions had to be met: (1) the challenged restraint must be one clearly articulated and affirmatively expressed as state policy, and (2) the policy must be actively supervised by the state itself. The purpose of the second prong is to make sure private parties are not acting in their own interest rather than the state’s interest.

With regard to the first Midcal prong, the exact restrictions Santee Cooper imposes on plaintiff are not expressly authorized by statute. But to pass the clear articulation test, a state legislature need not expressly state in a statute that the legislature intends for the delegated action to have anticompetitive effects. Rather state-action immunity applies if the anticompetitive effect was the foreseeable result of what the state authorized.

Here, plaintiff merely complains that Santee Cooper prevents plaintiff from purchasing power from cheaper providers. That result must be a foreseeable result of giving Santee Cooper a monopoly over the area in which plaintiff is located.

Plaintiff also argues that it can buy power from out-of-state providers under statutory exemptions for self-furnished electricity. Therefore, the court must decide whether the exemption of self-furnished electricity refers only to a customer’s own generation capacity, or whether it includes electricity generated by a competing utility company and transmitted over Santee Cooper’s transmission lines.

The court concludes that the statute by its plain text exempts only customer self-generation, e.g. , backup generators, solar panels, or captive power plants. “Furnishing electricity only to himself or itself … when such electricity is not resold or used by others” was not meant to require Santee Cooper to make its transmission lines available for retail wheeling within Santee Cooper’s exclusive service area.

The only reasonable construction of the South Carolina law providing that Santee Cooper’s service area “must be exclusively served by” Santee Cooper is that it is South Carolina’s policy for Santee Cooper to have monopoly power in that service area. Santee Cooper’s monopoly power in its exclusive service area therefore is the clearly articulated and affirmatively expressed policy of South Carolina.

With regard to the second Midcal prong, a board of directors governs Santee Cooper’s business operations without supervision from any electorally accountable person or body.

As a public corporation or municipality, Santee Cooper requires active state supervision for antitrust immunity only if it is controlled by active market participants.

The complaint fails to allege that Santee Cooper is controlled by active market participants. Moreover, the statutes governing Santee Cooper’s board of directors prevent board members from having private interests in the electric utility marketplace. Board members’ compensation is set by senior elected state officials, not by marketplace actors, and board members have no equity interest in Santee Cooper.

Perhaps most importantly, Santee Cooper board members are subject to a statutory best interest test that requires them to balance Santee Cooper’s proprietary interests with the public’s interest in economic development and job retention.

As a matter of law, active market participants do not control Santee Cooper. The court therefore holds that Santee Cooper enjoys state-action immunity from antitrust claims.

Unfair Trade Practices

The South Carolina Unfair Trade Practices Act has a regulatory exemption. The SCUTPA does not apply to actions or transactions permitted under laws administered by any regulatory body or officer acting under statutory authority of South Carolina or the United States or actions or transactions permitted by any other South Carolina state law. This regulatory exemption bars plaintiff’s SCUTPA claims.

Dismissed.