City Not Immune from Electrical Cooperative's Antitrust Claims

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The City of Newkirk, Oklahoma was not shielded under the state action doctrine from a rural electrical cooperative's claims that the city engaged in unlawful tying and attempted monopolization, the U.S. Court of Appeals in Denver has decided. The challenged conduct was not a foreseeable result of state legislation authorizing anticompetitive conduct.

Dismissal of the cooperative's antitrust claims (2010-2 Trade Cases ¶77,138) was reversed, and the case was remanded for further proceedings on the allegations of unlawful tying and attempted monopolization of electricity services.

Thwarting Cooperative’s Ability to Compete

When a new jail was proposed outside the city limits in an area traditionally serviced by the complaining cooperative, the city annexed the area, allegedly thwarting the cooperative’s ability to operate there.

Then, the city—the only provider of sewage services in the area—allegedly refused to provide any sewage services to the new jail, unless the jail also bought the city's electricity. The operators of the jail went with the city's package deal over the cooperative's offer.

While the city cited a number of general enabling statutes conferring on the city the authority to do business, none authorized the kind of anticompetitive conduct alleged by the complaining cooperative, the court noted. Moreover, the Oklahoma legislature had expressed a clear preference for competition for electricity services in annexed areas.

Foreseeability

Oklahoma's Rural Electric Cooperative Act foreseeably sought to preserve competition after annexation by constraining municipalities from using their considerable regulatory powers to harm rival rural electricity providers.

In addition, Oklahoma's Electric Restructuring Act expressed an unmistakable policy preference for competition in the provision of electricity, according to the court.

The decision is Kay Electric Cooperative v. The City of Newkirk, Oklahoma, 2011-2 Trade Cases ¶77,550.