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Why Special Contract Discounts are Good For Electric Competition

Fortnightly Magazine - May 15 1997

that defense, if a customer is offered a special deal by a competitor, a company, dealing in good faith, can meet that competitor's terms to retain that customer even if the same terms were not offered to its other customers. %n17%n This defense is specifically written into the text of the Robinson-Patman Act. %n18%n

Despite the hue and cry raised against special contract discounts, opponents have yet to muster proof that such discounts injure customers. t

Paul F. Hanzlik is a partner at Hopkins & Sutter, where he specializes in representing electric utilities with respect to demonstrating the prudence of management conduct, emerging competitive issues and certification of new energy facilities. David B. Goroff is a partner at Hopkins & Sutter, where he specializes in antitrust law with a particular focus on deregulated industries.

1William G. Shepherd, "Anti-Competitive Impacts of Secret Strategic Pricing in the Electricity Industry," PUBLIC UTILITIES FORTNIGHTLY, Feb. 15, 1997, p. 24.

2See Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477, 489 (1977).

3Conn.Gen.Stat. §16-19hh (1994).

435-A M.R.S §3195 (1995).

5Massachusetts Ann. Laws, Ch. 164, §94 (1996).

6See, e.g., In re Homer Electric Association Inc., 101 PUR4th 14 (Docket No. U-88-25, Alaska PUC, Feb. 28, 1989); In re Southern California Edison Co., 150 PUR4th 271 (Decision 94-03-075, Cal.PUC, Mar. 16, 1994); In re Competitive Opportunities Available to Customers of Electric and Gas Service, 145 PUR4th 267 (Case 93-M-0229, N.Y.PSC, June 30, 1993).

7See, e.g., In re Pacific Gas & Electric Co., 39 CPUC 2d 540 (Decision 91-04-060, Cal. PUC, Apr. 24, 1991) (rejecting a special contract discount where a utility could not demonstrate that other ratepayers would not be adversely affected).

8See, e.g., In re Southern California Edison Co., 53 CPUC 2d 663 (Decision 94-03-075, Cal. PUC, Mar. 16, 1994) (The Commission found that "[t]he agreement provides a significant benefit to other Edison customers by retaining Edison's largest single-site customer, who will make a positive contribution to Edison's fixed costs.")

9See, e.g., In re Alabama Power Co., 168 PUR4th 513 (Informal Docket No. U-3672, Alabama P.S.C., Apr. 1, 1996).

10United States v. Grinnell Corp., 384 U.S. 563, 571 (1966).

11See, e.g., Bayou Bottling, Inc. v. Dr. Pepper Co. 543 F.Supp. 1255, 1266 (W.D.La.1982) ("Even a monopolist is allowed to meet competition by promoting its own product"), aff'd, 725 F.2d 300 (5th Cir.), cert. denied, 469 U.S. 833 (1984); Northeastern Tel. Co. v. AT&T, 651 F.2d 76, 93 (2d Cir. 1981) ("Even monopolists must be allowed to do as well as they can with their business."), cert. denied, 455 U.S. 943 (1982); Superturf, Inc. v. Monsanto Co., 660 F.2d 1275, 1280 (8th Cir. 1981) ([A monopolist] "may ... aggressively compete in the marketplace").

12See, e.g., Olympia Equip. Leasing v. Western Union Telegraph 797 F.2d 370, 375 (7th Cir.1986) ("Today it is clear that a firm with lawful monopoly power has no general duty to help its competitors, whether by holding a price umbrella over their heads or by otherwise pulling its competitive punches."), cert. denied, 480 U.S. 934 (1987); Foremost Pro Color, Inc. v. Eastman Kodak Co. 703 F.2d 534,