10. Joint Contracting

In D.09-09-047 and in other decisions and directions, the Commission has ordered the utilities to collaborate to further the implementation of a number of statewide Energy Efficiency programs. While the overarching directive to coordinate is clear, Joint Utilities argue that it is not apparent which specific activities the Commission is authorizing the utilities to engage in to further this directive. Joint IOUs request further Commission direction to address a legal issue regarding joint-utility cooperation posed by the antitrust laws that Joint IOUs contend could impede their ability to comply with these directions unless the Commission specifically grants the Joint IOUs state action immunity for such cooperation.

Specifically, Joint IOUs argue that agreements between competitors such as the utilities concerning core elements of the competitive process, including agreements on price and output, could be viewed as unlawful under the antitrust laws under certain circumstances,11 thus subjecting the ratepayers or shareholders to the significant costs of defending an antitrust lawsuit and the potential of treble damages if the lawsuit is successful. Joint IOUs therefore have concerns regarding coordinating their activities or otherwise working cooperatively in order to contract with third parties, absent direct and explicit Commission authorization to do so, as well as continued supervision by the Commission over such activities. To mitigate against these potential risks and to promote implementation of statewide energy efficiency programs, and consistent with the decision reached in D.10-06-009 (modifying D.09-12-024),12 Joint IOUs request that the Commission address the issue in this Petition and make certain explicit findings.

A State Action Doctrine defense to an antitrust action exists where: (a) the challenged conduct is a result of directions clearly articulated and affirmatively expressed as state policy; and (b) there is continued active supervision of the utilities' activities in this regard.13 Here, Joint IOUs ask the Commission to explicitly state, that implementation of the statewide energy efficiency programs as called for in D.09-09-047 represents a state policy goal and that the Commission intends the utilities to work collaboratively to achieve this goal.

In particular, Joint IOUs ask the Commission for a finding that explicitly authorizes the utilities to engage in certain specific activities which they feel will be necessary to collaboratively implement the energy efficiency statewide programs as ordered by the Commission. These activities include:

Finally, the Joint IOUs ask the Commission for an explicit finding that the Commission intends to actively supervise and is supervising the Joint IOUs in this regard. For instance D.10-04-029, Attachment 2 describes in detail Energy Division's ongoing oversight of the IOU process for planning IOU-managed studies and selection of contractors. Furthermore, Energy Division has been actively working and providing feedback to the utilities through statewide working groups for each of the twelve statewide programs. An example is Energy Division staff's regular monthly meetings with IOU staffs regarding the implementation of the Integrated Demand Side Management (IDSM) cost effectiveness project and the development of the integrated audit tool.

The Joint IOUs believe it is important for the Commission to make these explicit findings to mitigate the risk of potential allegations of antitrust violations resulting from their adherence to Commission-ordered collaboration, and ultimately, to further the effective implementation of the energy efficiency statewide programs.

Courts have articulated the State Action Doctrine to determine whether a state's legislative and regulatory actions remove certain private commercial conduct from scrutiny under the federal antitrust laws:

"Private party conduct is immune from antitrust liability only if the party claiming immunity shows that its conduct satisfies two requirements. First, it must be `clearly articulated and affirmatively expressed as state policy.' [California Retail Liquor Dealers Ass'n v. Midcal Aluminum, 445 U.S. 97, 105, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980)(Midcal)] (internal quotation marks omitted.) This may be satisfied if the conduct is a `foreseeable result' of the state's policy. Town of Hallie v. City of Eau Claire, 471 U.S. 34, 38-39, 42, 105 S.Ct. 1713, 1716-17, 1718, 85 L.Ed.2d 24 (1985). Second, the conduct must be `actively supervised by the State itself.' Midcal, 445 U.S. at 105, 100 S.Ct. at 943 (internal quotation marks omitted). This is satisfied only if `state officials have and exercise power to review particular anticompetitive acts of private parties and disapprove those that fail to accord with state policy.' (remaining citations omitted.)" Nugget Hydroelectric, Inc. v. Pacific Gas & Electric Co., 981 F.2d 429, 434 (9th Cir. 1992).

For the first prong of the test for state action immunity, it is sufficient for general state statutory or state constitutional authority to authorize a state agency, such as the Commission, to then specifically address the anticompetitive conduct.14 Article XII, section 6 of the California Constitution and numerous sections of the California Public Utilities Code (e.g., §§ 451, et seq.) clearly reflect such general authorization for state regulation of the rates of electric utilities. In addition, in Assembly Bill 32 (Stats. 2006, ch. 488),15 and Senate Bill 1368 (Stats. 2006, ch. 598),16 the Legislature has also made clear by statutory provisions the importance of the Commission's efforts to reduce greenhouse gas emissions.

We agree with Joint Utilities that we should provide a State Action Doctrine defense against potential allegations of antitrust violations resulting from their collaboration on the Commission-ordered energy efficiency efforts they have identified. Our energy efficiency program is a public interest program intended for the benefit of all of California. The Energy Action Plan places energy efficiency at the top of the loading order. The California Energy Efficiency Strategic Plan, adopted in D.08-09-040, makes clear that our energy efficiency program is intended as a part of a larger statewide policy effort to reduce greenhouse gases, as well as to promote cost-effective energy efficiency as a substitute for traditional energy procurement. We have specifically provided that the utilities should coordinate their activities or otherwise work cooperatively in order to contract with third parties. Coordination and collaboration among utilities and with our Energy Division is critical and required in order to ensure the full realization of the benefits of our program.

Our modifications concerning active state supervision, the second prong of the test for State Action immunity, require, among other things, that the IOUs make regular progress reports on the progress and status of the IOU activities in support of energy efficiency activities. In D.09-09-047, we have provided for multiple reports from the IOUs on a number of aspects of the adopted 2010-2012 energy efficiency portfolios, and Energy Division oversight of many areas of the portfolios.17 Additionally, we make clear that parties who actively participated in all phases of the underlying matter which led to D.09-09-047, shall also have access to any confidential reports and other appropriate documents pursuant to the confidentiality restrictions of Public Utilities Code Section 583 (for DRA) or the non-disclosure agreements provided in the Procurement Review Group process (for TURN). Thus, DRA and other parties will have access to confidential information regarding this process and can also monitor it.

In light of the requirements necessary to demonstrate immunity under the State Action Doctrine, we believe it is prudent to modify D.09-09-047 to clarify that the cooperative activities the Commission expects among the IOUs related to certain energy efficiency activities shall be deemed to be undertaken at the express direction and under the supervision of the Commission in furtherance of an expressly articulated state policy. We therefore modify D.09-09-047 as set forth below in the OPs.

11 The IOUs believe there are important pro-competitive reasons why joint negotiations about energy efficiency programs and contracts would be deemed lawful. While the absence of state action immunity does not mean that an antitrust violation has occurred, the significant legal risks that the IOUs would face without such immunity are too great.

12 Petition to Modify Decision (D.) 09-12-014, which approved SCE's request to co-fund and participate in a feasibility study to determine the technical feasibility and commercial reasonableness of an integrated gasification combined cycle ("IGCC") facility with carbon capture for use in enhanced oil recovery ("EOR") with sequestration. The facility is commonly referred to as Hydrogen Energy California ("HECA"). SCE is participating in the study with Hydrogen Energy International LLC ("HEI").

13 See D.10-06-009, at 8, citing Nugget Hydroelectric, Inc. v. Pacific Gas & Electric Co., 981 F.2d 429, 434 (9th Cir. 1992).

14 See, Trigen-Oklahoma City Energy Corp. v. Oklahoma Gas & Electric Co. (10th Cir. 2001) 244 F.3d 1220, 1226-1227 (State does not have to point to a specific, detailed legislative authorization for the challeged conduct. The State's Constitution or statute may merely manifest the State's intent to displace competition with regulation of electric utilities.)

15 See, Cal. Health and Safety Code §§ 38501(g) and 38592.

16 See, Cal. Pub. Util. Code §§ 8340 and 8341.

17 OP 8, OP 11, OP 12, OP 15, OP 20, OP 22, OP 24, OP 29, OP 33, OP 36, OP 39, OP 43, and OP 46 provide for utilities to provide reports or file Advice Letters to implement portions of D.09-09-047. OP 14, OP 27, OP 34, OP 39, OP 50 and OP 59 provide for Energy Division oversight of utility energy efficiency efforts.

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