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Century Aluminum of South Carolina Inc. v. South Carolina Public Service Authority

United States District Court, D. South Carolina, Charleston Division

October 4, 2017

Century Aluminum of South Carolina, Inc., Plaintiff,
v.
South Carolina Public Service Authority, Defendant.

          ORDER AND OPINION

          RICHARD MARK GERGE, UNITED STATES DISTRICT COURT JUDGE.

         This matter is before the Court on Defendant South Carolina Public Service Authority's ("Santee Cooper") motion to dismiss the complaint. The motion has been fully briefed and, on September 1, 2017, the Court heard oral argument on the motion. After full consideration of the parties' briefs and oral arguments, the Court grants the motion to dismiss for the reasons set forth below.

         I. Background

         In 1934, the South Carolina General Assembly established Santee Cooper as a non-profit corporation "to manufacture, produce, generate, transmit, distribute, and sell water power, steam electric power, hydroelectric power, or mechanical power within and without the State of South Carolina." S.C. Code § 58-31-30(A)(8). Santee Cooper sells electricity directly to customers and wholesale to South Carolina's twenty retail electric cooperatives through the Central Electric Power Cooperative ("Central"). See Santee Cooper, 2016 Annual Report 14, 17 (2016), https://www.santeecooper.com/About-Santee-Cooper/Communications/2016AnnualReport.aspx. A twelve-person board of directors governs Santee Cooper. Each director is appointed for a term of seven years by the Governor, with the advice and consent of the Senate. S.C. Code § 58-31-20. Santee Cooper distributes any excess revenue from its operations to the general funds of the South Carolina treasury. S.C. Code § 58-31-110. Otherwise, Santee Cooper is financially independent of the state. (Dkt. No. 1 ¶¶ 29-30.) Its budget and the rates it charges customers are not subject to the approval of any state agency. (Id.)

         In 1974, the General Assembly established a service area for Santee Cooper comprised of portions of Horry County, Georgetown County, and Berkeley County. S.C. Code § 58-31-330. In 1979, an aluminum smelting facility, now owned by Plaintiff Century Aluminum of South Carolina ("Century"), opened in Mount Holly, South Carolina, which is in Berkeley County and within Santee Cooper's service area. (Dkt. No. 1 ¶¶ 1, 18, 32.) An electrolytic process is used to smelt aluminum and electricity is the most costly input for aluminum production. (See Id. ¶¶ 1, 34.) Then, in 1984, the General Assembly granted the Santee Cooper a monopoly in its service territory, mandating that Santee Cooper's service area "must be exclusively served by the Public Service Authority" (with certain exceptions). S.C. Code § 58-31-430. The rates Santee Cooper charges in its service area are exempt from the oversight of the South Carolina Public Service Commission, which regulates rates charged by investor-owned South Carolina electricity providers. (Dkt. No. 1 ¶ 31.) Additionally, Santee Cooper owns the electricity transmission lines in its service area. (Id. ¶ 2.) Other electricity providers cannot provide electricity to customers in the Santee Cooper service area without use of Santee Cooper's transmission lines. (Id. ¶ 4.)

         Century alleges Santee Cooper leverages its statutory monopoly to force Century to purchase 25% of its electricity from Santee Cooper at supra-competitive prices, even though many third-party suppliers are able and willing to supply that electricity at a lower cost. (Id. ¶¶ 37, 52, 64.) Century also alleges Santee Cooper's transmission lines have existing, unreserved import capacity adequate for Century to purchase all of its electricity from third-party providers without additional construction of transmission lines and without disruption of electric service to other customers. (Id. ¶¶ 5, 10.) According to Century, the supra-competitive prices Santee Cooper forces Century to pay are the highest electricity costs for any aluminum smelter in the United States, forcing Century to cut production at the Mount Holly facility by 50% and threatening the facility's complete closure. (See Id. ¶¶ 6, 7, 9.)

         On January 27, 2017, Century filed the present suit, asserting various antitrust claims against Santee Cooper. (Dkt. No. 1.) Century alleges Santee Cooper has unlawfully tied transmission services for non-Santee Cooper electric power to the purchase of electricity from Santee Cooper at supra-competitive rates, in violation of Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act. See 15 U.S.C. §1, 2, 14. Century alleges Santee Cooper illegally uses its transmission grid as an essential facility to maintain monopoly power in violation of Section 2 of the Sherman Act. Century also alleges Santee Cooper's conduct violates the South Carolina Unfair Trade Practices Act and the South Carolina Antitrust Act ("SCUPTA").

         On March 14, 2017, Santee Cooper moved to dismiss the complaint, arguing that it is immune from antitrust claims under the state-action immunity doctrine. (Dkt. No. 11.) Santee Cooper also argues that sale of electricity to end-users and the transmission of electricity to end-users are not distinct antitrust markets in South Carolina, foreclosing any claim of illegal tying, and that the South Carolina Unfair Trade Practice Act does not apply to public entities. Century responded on April 11, 2017 and the Court heard oral argument on the motion on September 1, 2017.

         II. Legal Standard

         Rule 12(b)(6) of the Federal Rules of Civil Procedure permits the dismissal of an action if the complaint fails "to state a claim upon which relief can be granted." Such a motion tests the legal sufficiency of the complaint and "does not resolve contests surrounding the facts, the merits of the claim, or the applicability of defenses. . . . Our inquiry then is limited to whether the allegations constitute 'a short and plain statement of the claim showing that the pleader is entitled to relief.'" Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) (quotation marks and citation omitted). In a Rule 12(b)(6) motion, the Court is obligated to "assume the truth of all facts alleged in the complaint and the existence of any fact that can be proved, consistent with the complaint's allegations." E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000). However, while the Court must accept the facts in a light most favorable to the non-moving party, it "need not accept as true unwarranted inferences, unreasonable conclusions, or arguments." Id.

         To survive a motion to dismiss, the complaint must state "enough facts to state a claim to relief that is plausible on its face." Bell Ail. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Although the requirement of plausibility does not impose a probability requirement at this stage, the complaint must show more than a "sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint has "facial plausibility" where the pleading "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.

         III. Discussion

         A. Federal Antitrust Claims

         Section 1 of the Sherman Act prohibits agreements in restraint of trade. It has two elements. First, a Section 1 violation is an agreement or concerted action by multiple parties. A single party cannot violate Section 1 through unilateral action. Second, the restraint of trade must be illegal. Not all agreements in restraint of trade are illegal. Courts distinguish between legal and illegal restraints of trade using the "Rule of Reason." Standard Oil Co. v. United States, 221 U.S. 1, 58 (1911). Illegal restraints are those that are "unreasonably restrictive of competitive conditions."

         Section 2 prohibits unilateral anticompetitive conduct. It does not prohibit monopolies, but rather prohibits achieving or maintaining a monopoly through wrongful conduct. Attempted achievement or maintenance of a monopoly through wrongful conduct is also prohibited if done with a specific intent to monopolize and there is a dangerous probability of success. The elements of a Section 2 claim are (1) possession of monopoly power in the relevant market and (2) willful acquisition or maintenance of that power as distinguished from growth or development because of superior product, business acumen, or historical accident (i.e., through wrongful conduct). See United States v. Grinnel Corp., 384 U.S. 563, 570-71 (1966). The relevant market is the scope of products and services included in the market (typically, products and services that are market substitutes) and the geographic area in which competition occurs. Monopoly power is the power to control prices or exclude competition in the relevant market.

         Century alleges two types of antitrust claims: tying and essential facilities. A tying arrangement is "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different product." N. Pac. Ry Co., 356 U.S. at 5-6. A tying claim requires at least two separate products. Jefferson Par. Hosp. Dist. No. 2 v. Hyde,466 U.S. 2, 20-21 (1984), abrogated on other grounds by Illinois Tool Works Inc. v. Indep. Ink, Inc.,547 U.S. 28 (2006). Tying arrangements are forbidden by Section 3 of the Clayton Act, and they may violate Section 1 or Section 2 of the Sherman Act. 15 U.S.C. § 14. The elements of a tying claim are (1) two separate products or services, (2) the sale of one product (the tying product) is conditioned on the purchase of the other (the tied product), (3) the seller has sufficient market power to restrain trade in the tied product, and (4) a not insubstantial amount of interstate commerce is affected. Fortner Enters., Inc. v. U.S. Steel Corp., 394 U.S. 495, 498-99 (1969). The tying alleged here is transmission service or "wheeling" and electric service. "Wheeling" refers to transfer of electric power through transmission and distribution lines from one utility's service area to another. Century alleges ...


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