Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Natural gas monopolization claim fails for lack of market power, (Apr 14, 2016)

By Greg Hammond, J.D.

Allegations that the leading utility provider in northern California attempted to monopolize the deregulated retail natural gas market in a competitor’s service area were insufficient, according to the federal district court in San Francisco. In granting the utility provider’s motion to dismiss, the court concluded that the competitor failed to satisfactorily plead that the utility provider possessed market power (United Energy Trading, LLC v. Pacific Gas & Electric Co., April 13, 2016, Seeborg, R.).

Pacific Gas & Electric Co. (PG&E) has allegedly been the regulated monopoly utility in California since 1905, providing both electricity and natural gas to end-users. After the California legislature sought to partially deregulate the state’s natural gas utility industry, it created a pilot program giving consumers the opportunity to purchase gas from PG&E or certain private providers known as Core Transportation Agents (CTAs). United Energy Trading, LLC, a natural gas supplier, is a qualified CTA operating in PG&E’s service area. Under its Core Gas Aggregation Services agreement with PG&E, United Energy purchases natural gas on the open market and then sells it to end-users, using PG&E’s distribution system. PG&E also acts as United Energy’s billing and collections agent.

United Energy alleged, however, that PG&E and certain employees engaged in unlawful billing, collection, and payment schemes that misappropriate funds; defrauded United Energy; and unfairly competed for natural gas customers. Consequently, United Energy brought claims for: attempted monopolization of the deregulated retail natural gas market; violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), in which certain PG&E employees are participating in schemes that defraud United Energy and its customers; and conversion. After the court previously dismissed the RICO and Sherman Act claims, United Energy filed an amended complaint, which PG&E now seeks to dismiss.

Attempted monopolization. Although United Energy alleged that PG&E’s share of the market was 70-90 percent, the court concluded that United Energy did not sufficiently plead that PG&E possessed market power. In particular, the court found that United Energy failed to: (1) explain adequately whether the regulatory requirements bar rivals from entering the market, or whether rivals lack capacity to challenge PG&E’s prices; (2) counter allegations that undermine its claim, such as the “ample supply of natural gas” available to competitors and PG&E’s inability to set its own prices; and (3) allege that the schemes are perpetrated against the entire CTA industry. The complaint consequently offered no basis to question whether rival CTAs correspondingly lack the capacity to challenge PG&E’s prices.

The court also noted that United Energy failed to adequately allege: that PG&E had the specific intent to control prices or destroy competition; anticompetitive conduct or a dangerous probability of achieving monopoly power; or antitrust injury. The motion to dismiss was therefore granted with regard to the attempted monopolization claim.

RICO. United Energy’s RICO claim, however, was adequately pleaded, the court concluded. The claim, which seeks to hold PG&E vicariously liable for the racketeering activities allegedly committed by three of its employees, sufficiently alleged that the employer was distinct from the enterprise; that PG&E benefitted from its employees’ RICO violation; and that the employees’ acts were committed within the course and scope of their employment.

The court first noted its prior order, which found that the distinctness requirement was met. Second, allegations that PG&E’s “Payment Withholding Scheme” reduces PG&E’s monetary liability of its customers, that United Energy customers likely revert to PG&E as a consequence of the “Reversal Scheme,” and that the schemes permit PG&E to charge consumers higher prices were sufficient to demonstrate PG&E benefits from the putative RICO violations. Lastly, allegations that the PG&E employees proceeded with the three schemes while working in PG&E’s offices and using PG&E’s systems, and that the individuals were motivated to commit the racketeering activities for the purpose of benefitting PG&E financially through increased profit and market share, thereby benefitting themselves as the employees responsible, demonstrated that the employees’ acts were committed within the course and scope of their employment.

The case is No. 15-cv-02383-RS.

Attorneys: Charles Lagrange Coleman, III (Holland & Knight LLP) for United Energy Trading, LLC. Arnold Barba (Lim, Ruger & Kim, LLP) and Dennis S. Ellis (Paul Hastings LLP) for Pacific Gas & Electric Co.

Companies: United Energy Trading, LLC; Pacific Gas & Electric Co.

Cases: Antitrust CaliforniaNews