Antitrust and electric utility regulation

• Author: Herbert Dym,Robert M. Sussman
• Date: 01 March 1983
• Published date: 01 March 1983
• DOI: 10.1177/0003603X8302800103
• Subject Matter: Article

The Antitrust Bulletin/Spring 1983 69

Antitrust and electric utility regulation

BY HERBERT DYM and ROBERT M. SUSSMAN*

Introduction

Over the years, few industries have been as pervasively regulated

as the electric utility industry. For decades, the existence

of

this

regulation apparently gave rise to a belief that the antitrust laws

had little relevance to the utility industry. Treble damage litigation

between electric utilities was virtually unknown, and the Justice

Department and Federal Trade Commission focused their en-

forcement activities on other industries.

Recently, however, the antitrust laws have had an increasingly

important impact on electric utilities. In growing numbers, utility

systems have resorted to antitrust litigation as a means

of

settling

disputes. Moreover, both antitrust enforcement agencies and

regulatory bodies have increasingly relied on antitrust principles

to evaluate the legality

of

autility's behavior.

The growing relevance

of

the antitrust laws to electric utilities

stems from four interrelated developments. First, court decisions

have rejected the concept that utilities are immune from antitrust

Partners, Covington &Burling, Washington, D.C.

AUTHORS' NOTE: The authors have represented Florida Power &Light

Company, an investor-owned electric utility, in connection with some

of

the matters discussed in this article.

©1983 by Federal Legal Publications, Inc.

70 The antitrust bulletin

scrutiny because

of

their regulated status. These decisions have

created incentives for antitrust litigation which did not exist in an

earlier era. Second, it has been increasingly recognized that state

and federal regulatory requirements, while extensive, do not

control all phases

of

utility operations and that utilities make

many decisions that may have a competitive impact. Third,

because of the energy crisis and the rise of alternative fuel sources

such as nuclear energy, the joint construction

of

generating

facilities and other cooperative arrangements have become more

common among utilities. Utility systems that have been unable to

negotiate such arrangements successfully have increasingly turned

to the antitrust laws as a means of redressing their grievances.

Finally, as a result of court decisions and new legislation, govern-

ment agencies have relied increasingly on antitrust principles in

regulatory decision making. For example, both the Federal

Energy Regulatory Commission (FERC) and the Nuclear Regula-

tory Commission (NRC) have used antitrust analysis as an impor-

tant

basis for licensing and ratemaking determinations.

This article examines the application of the antitrust laws to

the electric utility industry.

Part

Isummarizes the nature

of

the

industry and the regulatory framework in which it operates.

Part

II reviews the principal judicial decisions which address the

relationship between regulation and antitrust liability and dis-

cusses the expanding role

of

antitrust analysis in regulatory

decision making.

I.

Nature

of

the electric utility industry and the role

of

state

and federal regulation

A.

Structure

of

the utility industry

It

has been generally accepted that the generation and trans-

mission

of

electric power are subject to substantial economies

of

scale. Accordingly, much

of

the electricity in this country is

generated and transmitted by large investor-owned utilities with

sizable capital resources and the ability to construct

and

operate