The opinion of the court was delivered by: Patel, Chief Judge.
On August 3, 1998, plaintiff Modesto Irrigation District, Inc.
("MID") filed this action alleging that defendants Pacific Gas &
Electric Company ("PG & E") and Dynergy Power Services, Inc.
("DESTEC") refused to deliver wholesale electric power to NM in
violation of federal and state antitrust laws and state tort
laws. In particular, MID alleged (1) violations of section I of
the Sherman Act, 15 U.S.C. § 1, and the Cartwright Act, Cal.Bus.
& Prof.Code §§ 16720 et seq., California's antitrust statute by
both PG & E and DESTEC; (2) tortious interference with contract
and with prospective business relationship against PG & E alone;
and, (3) breach of contract against DESTEC. The court dismissed
MID's federal and state antitrust claims on February 2, 1999, on
defendants' motion, but granted MID leave to amend its complaint.
See Modesto Irrigation Dist. v. Pacific Gas & Elec., Case No.
98-3009 MHP, slip op. at 12-13 (N.D.Cal., Feb. 2, 1999)
MID subsequently filed a first amended complaint ("FAC") on
March 4, 1999, adding to the factual allegations in its original
complaint and raising two additional causes of action: (1)
violations of section 2 of the Sherman Act, 15 U.S.C. § 2,
against PG & E and DESTEC, and (2) conspiracy to violate section
2 against PG & E and DESTEC. Again before the court is
defendants' motion to dismiss MID's federal and state antitrust
claims. Having considered the parties' arguments and submissions,
the court enters the following memorandum and order.
Plaintiff MID is an irrigation district, a public agency
created under the authority of the California Water Code, which
owns and operates facilities for the generation, transmission and
distribution of electric power. FAC, at ¶ 4. MID provides retail
electric service in Stanislaus, Tuolumne, San Joaquin and Contra
Costa counties, and wholesale electric service throughout the
western United States. Id. Defendant PG & E is an
investor-owned public utility engaged in the generation,
transmission and distribution of electricity in northern and
central California.*fn1 FAC, at ¶¶ 7, 10. PG & E sells and
delivers electric power to both retail and wholesale consumers
and separately sells transmission services to resellers of
electric power. Id. at ¶¶ 9-10. As the predominant wholesaler
and retailer of electric power in northern and central
California, PG & E dominates and controls facilities for the
transmission of electricity within its California service
territory. Id. at ¶ 10. According to MID, PG & E and MID are in
"actual and potential competition" to supply residential and
industrial consumers with electric power. Id. at ¶ 12. Finally,
DESTEC, a subsidiary of Dynergy Corporation of Houston, Texas, is
a wholesaler of electric power, which is also referred to as a
"power marketer." Id. at ¶¶ 6, 15.
The events at issue in this action concern the purchase and use
of a "substation" ("Praxair substation") originally owned by
Praxair, Inc. ("Praxair"), a large industrial consumer of
electricity located in Pittsburg, California, and a retail
customer of PG & E. FAC at ¶ 17. A "substation" is a facility
which receives electric power at high voltage and transforms the
power into lower, usable voltages. Id. at ¶ 16. MID alleges
that PG & E, as the sole supplier of retail electric power in the
geographic market of Pittsburg, possessed monopoly power and
could control prices or exclude competition from the Pittsburg
retail electric power market. Id. at ¶ 19. MID further alleges
that significant barriers allow PG & E to limit the access of
competitors such as MID to the retail electric power market in
the vicinity of Pittsburg. Id. at ¶ 20. Among these barriers
include PG & E's ownership or control of all the transmission
lines and services supplying wholesale and retail electric power
to Pittsburg and the impracticability of duplicating PG & E's
local transmission services because of cost and regulatory
barriers. Id. at ¶¶ 21-22. Finally, as a result of the
exclusion of MID from the retail electric power market in the
vicinity of Pittsburg, MID alleges that Praxair and other
residential and commercial consumers of retail electric power
have been deprived of the benefits of low-cost electric power.
Id. at ¶ 28.
Prior to the events at issue in this action, DESTEC entered
into a Control Area and Transmission Service Agreement ("CATSA")
with PG & E which allowed DESTEC to utilize PG & E's electric
transmission lines to deliver electric power to wholesale
customers of DESTEC. FAC, at ¶ 15. DESTEC intended to use PG &
E's transmission facilities to sell and deliver low-cost electric
power purchased in the Pacific Northwest to California
electricity consumers. Among other limitations, the CATSA
prohibits DESTEC from using PG & E's transmission facilities to
directly deliver electric power to end-user, or retail, customers
of PG & E. Id. In accordance with the requirements of the
Federal Power Act ("FPA"), 16 U.S.C. § 824d(c), and regulations
promulgated thereunder, 18 C.F.R. § 35.1, the CATSA was submitted
to the Federal Energy Regulatory Commission ("FERC") and became
effective on April 14, 1995. Def. Request for Judicial Notice
("RJN"), Exh. 1 [Pacific Gas & Elec. Co., 71 F.E.R.C. ¶ 61,045
(April 14, 1995)]. As a result of the CATSA, DESTEC and PG & E
direct competitors in the sale of wholesale electric power, but
were not competitors with respect to the retail sale of electric
power. FAC, at ¶ 15.
Because DESTEC was prohibited from selling electric power at
retail under the CATSA, it determined that it could service the
needs of retail power consumers and sell its low-cost electric
power only if two critical elements could be satisfied. First,
DESTEC would have to persuade a utility company permitted under
state and federal law to sell electricity to retail consumers to
purchase a substation. FAC, at ¶ 16. DESTEC could then supply its
low-cost electric power on a wholesale basis to the utility
company, which could then resell the electric power to retail
electricity consumers via the substation. Id. at ¶¶ 16-17.
Second, DESTEC would have to obtain PG & E's approval to allow
DESTEC to deliver wholesale electric power to the substation
under the terms of the CATSA. See id. at ¶ 23.
To put its plan into motion, DESTEC approached MID with a
proposal that MID buy the Praxair substation and supply retail
electric power consumers, such as Praxair and other residential
and commercial consumers in the Pittsburg area, with low-cost
DESTEC-supplied electric power via the Praxair substation. FAC,
at ¶ 17. On March 21, 1996, DESTEC entered into a written Power
Sales Agreement with MID, in which MID agreed to purchase the
Praxair substation and DESTEC agreed to deliver power to MID at
the substation. Id. At the same time, MID and the City of
Pittsburg ("Pittsburg") entered into a "Permission Agreement"
under which Pittsburg agreed to allow MID to provide retail
electric power to its residents and "to offer City residents an
alternative for obtaining electricity at more competitive
rates."*fn2 Id. MID and Praxair also entered into a "Equipment
Sales Agreement" for the purchase of the Praxair substation that
was expressly conditioned upon PG & E's approval of the
substation as a valid "output point" for DESTEC under the CATSA.
Id. at ¶ 18.
By letter dated January 30, 1996, DESTEC sought PG & E's
approval to provide the necessary transmission services needed to
allow DESTEC to deliver wholesale electric power to the Praxair
substation under the terms of the CATSA. FAC, at ¶¶ 23-24. MID
also sought to enter into an "interconnection agreement" with PG
& E setting forth the conditions under which PG & E would provide
transmission services to MID at the Praxair substation. Id. at
24. On February 26, 1996, PG & E denied DESTEC's request that PG
& E deliver power to the Praxair substation. Id. at ¶ 24. In
its opposition, MID also asserts that PG & E refused to grant
MID's request to enter into an interconnection agreement as well.
P's Opp. at 4. MID alleges that PG & E agreed to an identical
request for the provision of transmission service by DESTEC in
order to sell electric power wholesale to the Port of Oakland for
later resale to Port tenants at retail. FAC, at ¶ 24.
Thereafter, DESTEC and PG & E commenced proceedings in several
forums to resolve their dispute. DESTEC initiated an arbitration
proceeding under the terms of the CATSA to compel PG & E to
provide transmission service to the Praxair substation. FAC, at ¶
25. PG & E filed suit in federal district court seeking to enjoin
the arbitration, but no order issued. Id. PG & E also filed a
petition with FERC to disallow the Praxair scheme, which was
opposed by MID and DESTEC. See RJN, Exh. 3 [Petition for
Declaratory Order filed September 28, 1996]; RJN, Exhs. 4-6.
Prior to any resolution of these proceedings, DESTEC and PG & E
entered into a settlement of their dispute, which included an
amendment of the CATSA
which, in effect, prohibits DESTEC from supplying energy
transmitted through PG & E to "substations."*fn3 FAC, at ¶ 26.
MID alleges that in particular PG & E and DESTEC jointly agreed
that DESTEC would not supply wholesale electric power to MID via
the Praxair substation using PG & E's transmission services.
Id. To induce DESTEC to agree to the CATSA amendment, PG & E
agreed to "functionally assign" to DESTEC certain wholesale power
contracts permitting DESTEC to market its low-cost electric power
at much higher rates negotiated and contracted for by PG & E.
On November 1, 1996, PG & E subsequently submitted the proposed
amendment to the CATSA for approval and filing by FERC. FAC, at ¶
27; RJN, Exh. 9 [PG & E's Application for Approval of Second
Amendment to CATSA]. However, on December 12, 1996, PG & E and
DESTEC jointly requested that FERC suspend consideration of the
proposed amendment. Id.; RJN, Exh. 10 [Joint Req. of PG & E and
DESTEC]. Although FERC has taken no action on either the
application for approval or the subsequent request to suspend
consideration, MID asserts that PG & E and DESTEC have abided by
their agreement not to provide MID with electric power to the
Praxair substation at wholesale prices. Id. As a result, MID
alleges that as a result of the CATSA amendment PG & E has
thwarted both the Power Sales Agreement between MID and DESTEC
and the Equipment Sales Agreement between MID and Praxair. Id.
Similarly, although the Power Sales Agreement required that both
MID and DESTEC "use their respective good faith best efforts to
timely negotiate and obtain the agreements and the regulatory
approvals" necessary to implement the agreement, MID alleges that
DESTEC abrogated the Power Sales Agreement. Id. at ¶ 28. These
actions, taken together, frustrated its plans to sell electric
power to Praxair and to numerous commercial and residential
electricity consumers in Pittsburg. Id. at ¶¶ 27-28.
MID first alleges that DESTEC and PG & E engaged in a
"contract, combination and/or conspiracy" to unreasonably
restrain competition in the wholesale and retail sale of electric
power in PG & E's service area in northern and central California
in violation of section I of the Sherman Act. FAC, at ¶ 29.
According to MID, DESTEC and PG & E have entered into an
agreement under which DESTEC will not sell electric power at
wholesale for delivery to substations and will abandon its
arbitration proceeding against PG & E in exchange for the
assignment by PG & E of certain wholesale power contracts. Id.
at ¶¶ 29-30. MID also alleges two claims based on section 2 of
the Sherman Act: actual or attempted monopolization and
conspiracy to monopolize. In Count Two, MID alleges that PG & E
has attempted to monopolize and/or has monopolized the market for
the retail distribution of electric power to Praxair and
Pittsburg's electricity consumers. Id. at ¶ 36. Specifically,
MID alleges that PG & E has refused to permit its transmission
lines to be used by MID or DESTEC to supply wholesale electric
power to the Praxair substation by improperly invoking various
provisions of the CATSA agreement. Id. at ¶ 38. In doing so,
MID asserts that PG & E has unlawfully exercised its monopoly
power over its transmission lines. FAC at ¶ 40. In Count Three,
MID also asserts that PG & E and DESTEC engaged in a conspiracy
to monopolize the retail electric power market in the Pittsburg
area. Id. at ¶ 48.
A motion to dismiss for failure to state a claim will be denied
unless it appears that the plaintiff can prove no set of facts
which would entitle him or her to relief. Conley
v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80
(1957); Fidelity Financial Corp. v. Federal Home Loan Bank of
San Francisco, 792 F.2d 1432, 1435 (9th Cir. 1986), cert.
denied, 479 U.S. 1064, 107 S.Ct. 949, 93 L.Ed.2d 998 (1987). All
material allegations in the complaint will be taken as true and
construed in the light most favorable to the plaintiff. NL
Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986).
Although the court is generally confined to consideration of the
allegations in the pleadings, when the complaint is accompanied
by attached documents, such documents are deemed part of the
complaint and may be considered in evaluating the merits of a
Rule 12(b)(6) motion. Durning v. First Boston Corp.,
815 F.2d 1265, 1267 (9th Cir. 1987), cert. denied sub. nom., Wyoming
Community Dev. Auth. v. Durning, 484 U.S. 944, 108 S.Ct. 330, 98
L.Ed.2d 358 (1987).
In the Ninth Circuit, "antitrust pleadings need not contain
great factual specificity." Portland Retail Druggists Ass'n v.
Kaiser Found. Health Plan, 662 F.2d 641, 648 (9th Cir. 1981),
cert. denied, 469 U.S. 1229, 105 S.Ct. 1230, 84 L.Ed.2d 368
(1985). "There is no special rule requiring more factual
specificity in antitrust pleadings." Hunt-Wesson Foods, Inc. v.
Ragu Foods, Inc., 627 F.2d 919, 924 (9th Cir. 1980) (citing
Franchise Realty Interstate Corp. v. San Francisco Local Joint
Executive Bd. of Culinary Workers, 542 F.2d 1076, 1082 (9th Cir.
1976), cert. denied, 430 U.S. 940, 97 S.Ct. 1571, 51 L.Ed.2d
787 (1977)). However, as noted by many courts, the court need not
accept legal conclusions asserted in the complaint even if pled
as "facts" or conclusory allegations without more. JM Computer
Srvcs. Inc. v. Schlumberger Technologies, Inc., 1996 WL 241607,
*2 (N.D.Cal. May 3, 1996) (citing Papasan v. Allain,
478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986)).
I. Analytical Framework for the Sherman ...