Appeal from the United States District Court for the Central District of Illinois, Peoria Division, No. 84-1048, Michael M. Mihm, Judge.
Bauer, Chief Circuit Judge, Posner, Circuit Judge, and Fairchild, Senior Circuit Judge. Posner, Circuit Judge, concurring and dissenting.
FAIRCHILD, Senior Circuit Judge.
This appeal involves a treble damage action on behalf of Illinois consumers of natural gas. These consumers buy from distributors, who buy from defendant Panhandle, an interstate pipeline company. It is alleged that Panhandle violated the antitrust laws and overcharged the distributors. Under public utility regulation, one component of the price the distributors charge the consumers is the cost of gas to the distributors. It is claimed that Panhandle's overcharge is thus passed on to the consumers; because they are only indirect purchasers from defendant, they can claim injury in a treble damage action only if their purchases are within an exception to the rule of Illinois Brick Co. v. Illinois, 431 U.S. 720, 52 L. Ed. 2d 707, 97 S. Ct. 2061 (1977).
Plaintiff argues, in substance, that the public utility regulation creates a sufficiently close approximation of a pre-existing cost-plus contract for a fixed quantity so as to fulfill that exception. 431 U.S. at 736. The district court agreed and denied Panhandle's motion to dismiss. Permission for this appeal was obtained pursuant to 28 U.S.C. § 1292(b). We reverse.
Plaintiff is the state of Illinois. It is both a direct and indirect purchaser of natural gas from Panhandle, but the State's claims as to direct purchases are not before us. The state also sues as parens patriae on behalf of natural persons residing in Illinois*fn1 who are indirect purchasers from Panhandle, and also brings a class action on behalf of all indirect purchasers from Panhandle.
The complaint did not spell out a claim that these indirect purchasers fall within an exception to Illinois Brick. Plaintiff alleged only that it had been injured in its business and property. Facts illuminating the claim of an exception to Illinois Brick have, however, been brought before the district court. There has been no argument that the pleading was deficient, that the claim of exception was waived, or that the issue cannot be decided on the present record.
Central Illinois Light Company (CILCO) is one of the distributors of Panhandle gas (along with smaller quantities of gas of other producers). There are distributors other than CILCO, and their customers are among the consumers represented by the State in this action. The parties have concentrated their discussion, however, on the CILCO facts, and appear to accept them as representative.
CILCO's monthly bills to its customers contain three components: (1) an amount per customer not dependent on the amount of gas used; (2) an amount per therm of gas used, calculated to recover a share of fixed expenses and provide a profit margin; and (3) a gas charge factor. Through a process of estimate in advance and retrospective adjustment,*fn2 the gas charge factor approximates the actual cost of gas, but without perfect accuracy at any one time. As plaintiff looks at it, component (3) represents the "cost" and components (1) and (2) the "plus" in analogizing to the cost-plus exception in Illinois Brick. The arrangement has no element which corresponds to the agreed quantity element of that exception.
For the purpose of discussion, it is convenient to separate CILCO's customers into two groups:
(a) Sixteen Large Industrial Customers
These customers are able to switch to alternate fuel. In 1983, CILCO was threatened with the loss of these customers because of the high cost of gas. A loss of up to 20 % of its sales was expected. CILCO responded by obtaining permission from the regulators to reduce its profit margin and thus its price for gas for a four-month period. Although in form there was no reduction in component (3), and component (3) included the unlawful overcharge if there was any, the reduction in the profit portion of component (2), and consequently in the total price, made it unreal to say that the full amount of any overcharge was passed on. Thus there was necessarily an injury to CILCO if some part of the cost resulted from an unlawful overcharge. Hence, it is especially clear as to these customers that there is no Illinois Brick exception. The relationship between CILCO and these industrial customers did not approach a cost-plus contract for a fixed quantity. Moreover, if the industrial customer were permitted to press a claim on a pass-on theory, it could not claim that it suffered the entire injury. Apportionment between the direct and indirect purchaser would be required, precisely the process rejected by the Illinois Brick Court. 431 U.S. at 746.
(b) Residential and Other Smaller Quantity Consumers
These consumers, like the large industrial customers, have no obligation to purchase any particular quantity of gas. Their demand is elastic to some degree, and a high price (including an unlawful overcharge, if any) will reduce CILCO's sales and profits. Consumers of this type can to some extent use alternative ...