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From Antitrust Law Daily, October 29, 2015

Claims that utility’s pricing plans penalize solar energy customers, exclude competition proceed

By Linda O’Brien, J.D., LL.M.

An installer of distributed solar energy systems plausibly alleged that an electricity utility’s new pricing plans that imposed penalties on customers who generated their own electricity using distributed solar energy systems had the effect of restricting competition, the federal district court in Phoenix, Arizona has decided (SolarCity Corporation v. Salt River Project Agricultural Improvement and Power District, October 27, 2015, Rayes, D.).

SolarCity Corporation, one of the largest installers of distributed solar energy systems, engages in the design, manufacture, installation, and sale or lease of solar energy systems to residential and commercial customers. The Salt River Project Agricultural Improvement and Power District (SRP) is one of the nation’s largest power utilities and provides electricity and water to most of the metropolitan Phoenix area.

For many years, SRP made substantial investments in solar power and provided incentives to customers to encourage the installation of distributed solar systems. In 2011, as distributed solar systems increased in popularity, SRP developed its “Community Solar” program where customers purchase solar-generated electricity. In 2014, SRP introduced new pricing plans, Standard Electric Price Plans (SEPPs), under which customers who chose to obtain some of their own power from solar energy systems paid an additional charge while customers who purchased their electricity from SRP retained the normal rate structure. The new rate plans had the effect of eliminating future distributed solar installations.

In March 2015, SolarCity filed suit against SRP, asserting claims for monopolization, attempted monopolization, unreasonable restraint of trade in violation of Sections 1 and 2 of the Sherman Act, the Clayton Act, and Arizona Uniform State Antitrust Act. Specifically, SolarCity alleged that the new pricing plans, which imposed substantial penalties on customers who generate their own electricity using distributed solar energy systems, exclude competition and unlawfully maintain the utility’s monopoly over the retail sale of electricity in the metropolitan Phoenix area. SRP moved to dismiss the complaint.

Monopoly claims. The court determined that SolarCity plausibly alleged SRP had monopoly power, decided to change the market, the decision was motivated by a desire to restrict competition, and the decision had the effect of limiting competition. It was undisputed that SRP had monopoly power in the market for the provision of electric power. SolarCity alleged that SRP reversed its long time course of investing in solar power that generated customer goodwill and benefited SRP in the short term in order to exclude long term competition by preventing customers from installing solar energy systems. The plaintiff’s express allegation that SRP was willing to forsake short term profits to achieve an anticompetitive end was sufficient to show anticompetitive conduct by an alleged monopolist, the court noted.

Antitrust damages. However, SRP was immune from SolarCity’s antitrust damages claims under the Local Government Antitrust Act (LGAA), the court found. The LGAA provides absolute immunity for any local government, defined as “a school district, sanitary district, or any other special function governmental unit established by state law.” SRP is a political subdivision of the state, created by state law and the state constitution, which fell within the protection of the LGAA as a special function governmental unit established under state law, the court determined.

Restraint of trade. Furthermore, the plaintiff failed to adequately plead an illegal agreement to restrain trade. SolarCity contended that the SEPPs were agreements as they formed a critical part of SRP’s express contracts with customers and restrained trade by punishing customers for dealing with SRP’s competitors. The court disagreed, noting that unlawful vertical restraint agreements require at least two participants and SolarCity did not allege that customers agreed to restrain trade by raising rates. SRP unilaterally set price terms that had the alleged anticompetitive effect and there could be no liability under Section 1 of the Sherman Act absent an agreement. SolarCity also failed to plausibly allege an agreement to exclusively deal since allegations that SRP charged customers who used distributed solar systems a higher rate was not an agreement to exclusively deal.

SolarCity also failed to adequately allege a tying arrangement that separate markets existed for grid access and retail electricity, according to the court. The grid was simply SRP’s infrastructure necessary to deliver electricity to customers. It was not plausible that a separate demand existed for grid access since customers needed to purchase both retail electric power and grid access from SRP to have access to power at all times. Customers, including customers who self-generated a portion of their electricity using solar energy systems, could not “plug in” to the grid and generate power. Grid access and retail electricity were not distinguishable “in the eyes of” customers so there was little use or demand for grid access alone. Therefore, the claims based on an illegal agreement and tying arrangement failed, the court concluded.

The case is No. 2:15-cv-00374-DLR.

Attorneys: John F. Cove, Jr. (Boies Schiller & Flexner LLP) and Keith Beauchamp (Coppersmith Brockelman PLC) for SolarCity Corp. Christopher E. Babbitt (Wilmer Cutler Pickering Hale & Dorr LLP) and Jason M. Porter (Steptoe & Johnson LLP) for Salt River Project Agricultural Improvement and Power District.

Companies: SolarCity Corporation

MainStory: TopStory Antitrust ArizonaNews

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