Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.


United States District Court, Central District of Illinois, Springfield Division

October 30, 1987


The opinion of the court was delivered by: Mills, District Judge:


Is the Illinois Electric Supplier Act unconstitutional?

Does the power service agreement thereunder violate the Sherman Antitrust Act?

No — to both inquiries.

This action is before the Court on Rural Electric Convenience Cooperative's motion for summary judgment and Central Illinois Public Service Company's motion to dismiss under Fed.R.Civ.P. 56 & 12(b)(6) respectively. The pertinent facts are not disputed, and these motions are consolidated for purposes of ruling.


Central Illinois Public Service Company (CIPS) is a public utility regulated by the Illinois Commerce Commission (ICC). Rural Electric Convenience Cooperative (RECC) is an unregulated, not-for-profit corporation engaged in the retail distribution of electrical power to its members.*fn1 Plaintiffs are member-owners and customers of RECC.

In 1969, CIPS and RECC, pursuant to the Illinois Electric Supplier Act, Ill.Rev. Stat. ch. 111 2/3, ¶ 406, entered into an agreement which divided up service areas. In compliance with the act, the ICC reviewed and approved the contract. RECC now exclusively services the area where Plaintiffs live at electric rates higher than those charged by CIPS.*fn2 Because of the contract, CIPS refuses to service RECC customers. Due to that refusal, Plaintiffs not only seek damages and an injunction against the retailers invalidating the contract under §§ 1 and 2 of the Sherman Act but also a declaration that the Electric Supplier Act is unconstitutional as violative of the Supremacy Clause.


Undoubtedly, the horizontal market allocation in which the suppliers have engaged is a per se violation of applicable federal antitrust laws. See Gainesville Utilities Dept. v. Florida Power & Light Co., 573 F.2d 292, 299 (5th Cir.), cert. denied, 439 U.S. 966, 99 S.Ct. 454, 58 L.Ed.2d 424 (1978). The ultimate issue then is whether the Sherman Act applies to the service area agreement between RECC and CIPS. Defendants assert that the agreement is immune from antitrust scrutiny under the state action doctrine enunciated by the Supreme Court in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943).*fn3 Plaintiffs contend otherwise.

In Parker, a California raisin producer challenged the state's Agricultural Prorate Act under which a cartel of private raisin producers was created to stabilize prices and prevent economic waste. The Court, relying on principles of federalism and state sovereignty "refused to construe the Sherman Act as applying to the anti-competitive conduct of a State acting through its legislature. . . . Rather, it ruled that the Sherman Act was intended to prohibit private restraints on trade, and it refused to infer an intent to `nullify a state's control over its officers and agents' in activities directed by the legislature." Town of Hallie v. City of Eau Claire, 471 U.S. 34, 38, 105 S.Ct. 1713, 1716, 85 L.Ed.2d 24 (1985). Thus, the state action doctrine arose as an exception to antitrust law.*fn4

In City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 410, 413, 98 S.Ct. 1123, 1135, 1136, 55 L.Ed.2d 364 (1978), a suit involving a municipally run electric utility system, the Court enunciated what has become known as the two-prong test of the state action doctrine. Thereafter, in California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980), the Court applied the Lafayette test to a case where the state action exemption was claimed by a private party. In Midcal, the plaintiff challenged California's resale price maintenance and price posting statutes for the wholesale wine trade. The Court, quoting from Lafayette, stated that for the state action doctrine to apply, the challenged restraint (1) must be one clearly articulated and affirmatively expressed as state policy, and (2) must be actively supervised by the state. Id. at 105, 100 S.Ct. at 943.

In LaSalle Nat'l Bank of Chicago v. DuPage County, 777 F.2d 377 (7th Cir. 1985), cert. denied, ___ U.S. ___, 106 S.Ct. 2892, 90 L.Ed.2d 979 (1986), the Seventh Circuit stated of the test's first prong: "[T]he state need not specifically authorize conduct with anti-competitive effects. . . . It is sufficient that anti-competitive effects are a foreseeable consequence of engaging in the authorized activity." Id. at 381. Although LaSalle involved suit against a local government, its principles with respect to the first prong of the test are fully applicable here. Cf. Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U.S. 48, 56, 105 S.Ct. 1721, 1726, 85 L.Ed.2d 36 (1984) (extending Parker rationale to suits against private parties).

A. State Policy

In the instant case, the challenged restraint is the Illinois Electric Supplier Act. The legislature expressly declared its purpose as follows:

    The General Assembly declares it to be in the
  public interest that, in order to avoid
  duplication of facilities and to minimize
  disputes between electric suppliers which may
  result in inconvenience and diminished efficiency
  in electrical service to the public, any 2 or
  more electric suppliers may contract, subject to
  the approval of the Illinois Commerce Commission,
  as to the respective areas in which each supplier
  is to provide service.

Ill.Rev.Stat. ch. 111 2/3, ¶ 402 (1985). To further this intent, the legislature stated: "Any 2 or more electric suppliers may contract together defining and delineating, as between themselves, one or more service areas in which each such contracting supplier shall be entitled to furnish service. Such contracts are subject to the approval of the Commission." Id. ¶ 406.

The above sections sufficiently illustrate a "clearly articulated and affirmatively expressed" state policy to displace competition. But the legislature did not stop there. In ¶ 407 of the Act, the legislature prohibited, except under certain enumerated conditions, electric suppliers from making extensions of existing lines or constructing new lines for the purpose of serving new customers not yet covered by an area allocating agreement as set out in ¶ 406. Further, ¶ 408 provides for a hearing before the Illinois Commerce Commission between competing suppliers in which the Commission is to choose one, and only one, supplier to service a particular area.

One can hardly envision a statutory scheme which more clearly articulates and affirmatively expresses a state policy to displace competition. Electric utilities are generally acknowledged as a natural monopoly. Affiliated Capital Corp. v. City of Houston, 735 F.2d 1555, 1563 (5th Cir. 1984). What the Illinois legislature did in the Electric Supplier Act was to codify this notion. To require more of the General Assembly, this Court would have to hold that the "legislature must expressly state in a statute or its legislative history that it intends for the delegated action to have anti-competitive effects. This contention embodies an unrealistic view of how legislatures work and of how statutes are written." Town of Hallie, 471 U.S. at 43, 105 S.Ct. at 1719.

Thus, the Court finds that the challenged restraint is a clearly articulated and affirmatively expressed state policy to displace competition and therefore satisfies the first prong of the Lafayette-Midcal test.

B. Active Supervision

As mentioned, the second prong of the Lafayette-Midcal test for state action doctrine immunity requires the state's active supervision of the affirmatively expressed state policy. In certain situations, however, this prong need not be satisfied for the state action doctrine to apply. In Town of Hallie, four unincorporated townships brought suit against the City of Eau Claire contending that the city violated the Sherman Act by acquiring a monopoly over the provision of sewage treatment services and by tying the provision of such services to the provision of sewage collection and transportation services. The Supreme Court held that "the active state supervision requirement should not be imposed in cases in which the actor is a municipality." Id. 471 U.S. at 46, 105 S.Ct. at 1720. The Court so held for the following reasons:

    [T]he requirement of active state supervision
  serves essentially an evidentiary function: it is
  one way of insuring that the actor is engaging in
  the challenged conduct pursuant to state policy.
  In Midcal, we stated that the active state
  supervision requirement was necessary to prevent a
  State from circumventing the Sherman Act's
  proscriptions "by casting . . . a gauzy cloak of
  state involvement over what is essentially a
  private price-fixing arrangement." 445 U.S. at 106
  [100 S.Ct. at 943]. Where a private party is
  engaging in the anticompetitive activity, there is
  a real danger that he is acting to further his own
  interests, rather than the governmental interests
  of the State. Where the actor is a municipality,
  there is little or no danger that it is involved in
  a private price-fixing arrangement. The
  only real danger is that it will seek to further
  purely parochial public interests at the expense of
  more overriding state goals. This danger is
  minimal, however, because of the requirement that
  the municipality act pursuant to a clearly
  articulated state policy.

Id. at 46-47, 105 S.Ct. at 1720-1721.

Similarly, the instant case involves a not-for-profit utility owned by Plaintiffs. This is not a private, for-profit venture which is seeking to further its own interests. Like the situation involving a municipality, absolutely no danger of a private price-fixing agreement exists. The cooperative merely sets rates according to the cost of the energy plus debt service and operating expenses actually incurred. Further, through credits paid to a capital account, each patron is refunded amounts paid "in excess of operating costs and expenses." Rural Electric Convenience Cooperative By-Laws, art. VII, § 2.*fn5 Thus, lack of a profit motive coupled with the fact that the cooperative is owned by the very people challenging its unregulated existence, leads to the conclusion that the cooperative does not run afoul of the Sherman Act.

Judge Higginbotham, of the Fifth Circuit, has stated:

    In our economic system, private business
  enterprises are presumed to respond predominantly, if not
  exclusively, to the profit motive. By contrast, the
  concept of "profit" per se is alien to the purposes of a unit of
  government. Consequently, the clash of interests
  necessitating an antitrust law — the private
  desire to reap extra-normal profits versus the
  public interest in free competition — will not
  appear in its traditional form when the accused
  antitrust conspirator is a governmental entity.

  Affiliated Capital Corp. v. City of Houston, 735 F.2d 1555, 1571-72 (5th Cir. 1984) (Higginbotham, J., concurring specially), cert. denied, 474 U.S. 1058, 106 S.Ct. 788, 88 L.Ed.2d 766 (1986). The same argument could be made by simply substituting "not-for-profit electric utility" for "unit of government" and "governmental entity."

In support of this view, the Court of Appeals for the District of Columbia Circuit has stated that, although not-for-profit electric cooperatives enjoy a free hand in rate making,

  by their structural nature, the cooperatives are
  effectively self-regulating. They are completely
  owned and controlled by their consumer-members,
  and only consumers can become members. They are
  non-profit. Each member has a single vote in the
  affairs of the cooperative, and service is
  essentially limited to members. No officer
  receives a salary for his services and officers
  and directors are prohibited from engaging in any
  transactions with the cooperative from which they
  can earn any profit.

Salt River Project Agricultural Improvement & Power Dist. v. Federal Power Comm'n, 391 F.2d 470, 473 (D.C. Cir. 1968) (footnote omitted), cert. denied, 393 U.S. 857, 89 S.Ct. 104, 21 L.Ed.2d 126 (1968).*fn6 This view fully supports the extension of the Town of Hallie rationale to cover electric cooperatives. Where there is no danger of private price fixing agreements (and thus no transgression of the Sherman Act), there is no need for active state supervision.

Further support is found in Interface Group, Inc. v. Massachusetts Port Auth., 816 F.2d 9 (1st Cir. 1987). There, the Massachusetts Port Authority (Massport) was created by the Massachusetts legislature to operate Logan Airport. In holding Massport immune from antitrust scrutiny, the First Circuit determined that Massport "resembles a municipal corporation." Therefore, it needed only to show that it acted pursuant to clearly articulated state policy and not that it was actively supervised by the state under the Supreme Court's decision in Town of Hallie. The Court based its decision, in part, on findings by the Supreme Judicial Court of Massachusetts that Massport was "in no sense a private or business corporation" and "[o]nly the public is to be benefited" by its existence. Id. at 13; see also Interface Group, Inc. v. Massachusetts Port Auth., 631 F. Supp. 483 (D.Mass. 1986) (quoting Opinion of the Justices, 334 Mass. 721, 734, 136 N.E.2d 223 (1956)).

The not-for-profit electric cooperative in the case at bar is likewise analogous to a municipality for antitrust purposes. As the Supreme Court stated in Town of Hallie, "there is little or no danger that it is involved in a private price fixing agreement." Town of Hallie, 471 U.S. at 47, 105 S.Ct. at 1720. This statement would seem to have even more applicability where, as here, the consumers to be protected against such private agreements are the owners of the corporation involved. To say that state supervision is necessary in this situation is to say that the member-owners need the state to tell them not to make a private price fixing agreement against themselves. Such a holding would do violence to reason and common sense.


Clearly, the impetus for Plaintiffs' suit against RECC is the relatively high electric rates its member-owners must pay. Just as clear, however, is the fact that these high rates are not the result of price fixing — the evil against which the Sherman Act protects. It is not the Court's nor the Sherman Act's concern if the cooperative's prices are relatively high. Keeping prices down is a problem to be solved by the member-owners as best they can at board meetings and the like or through the legislature, not in litigation.

Thus, the Court determines that, having passed the first prong of the Lafayette-Midcal test, RECC and CIPS are entitled to exemption from the federal antitrust laws under the state action doctrine.

Finding no transgression of the Sherman Act (and therefore none of the supremacy clause), the Court finds no merit in Plaintiffs' argument that the Electric Supplier Act is unconstitutional.

Ergo, for the reasons given above, Defendant Central Illinois Public Service Company's motion to dismiss is ALLOWED and Defendant Rural Electric Convenience Cooperative's motion for summary judgment is also ALLOWED. Consequently, Plaintiffs' motion to certify as a class is DENIED as moot.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.