Unlawful tying arrangements are a frequent point of contention between electric cooperatives and municipalities. On January 17, 2012, the U.S. Supreme Court let stand a decision that permits an unlawful tying/monopolization claim to go forward against the City of Newkirk, Oklahoma.
The underlying facts are as follows: Newkirk and Kay Electric Cooperative are both electric providers in Oklahoma. Newkirk typically provides electric service to customers within its city limits, and Kay, a nearby utility, normally serves customers outside the city limits. After it was announced that a new jail was being built outside the city limits of Newkirk, Kay offered to provide electricity. Newkirk, however, later annexed the area around the jail into the city limits and made its own offer. Even though Kay offered a far more competitive rate for electricity than Newkirk, the jail chose Newkirk. The reasoning for that choice, as explained by the Tenth Circuit Court of Appeals, was that the jail found itself “stuck between a rock and a pile of sewage.” More specifically, Newkirk, as the only provider of sewage services in the area, refused to provide the jail with any sewage services unless the jail agreed to purchase electricity from Newkirk.
The Tenth Circuit concluded that the facts, as alleged, showed an unlawful tying arrangement and attempted monopolization by Newkirk in violation of the Sherman Act. The Court explained that “[w]hen a city acts as a market participant it generally has to play by the same rules as everyone. It can’t abuse its monopoly power or conspire to suppress competition.” The only exception to that general rule is when the city’s parent state has clearly authorized the city “to upend normal competition.” But the Court reasoned that Newkirk failed to show that Oklahoma provided any such authorization. “Put simply, at the end of the day a municipality shares the state’s ‘immunity’ [from federal antitrust claims] . . . only when it is implementing anticompetitive policies authorized by the state.”
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