Duke Energy Carolinas, LLC v. NTE Carolinas II, LLC

1

DUKE ENERGY CAROLINAS, LLC, Plaintiff - Appellee, and DUKE ENERGY CORPORATION; DUKE ENERGY PROGRESS, LLC, Counter-Defendants - Appellees, v. NTE CAROLINAS II, LLC; NTE CAROLINAS II HOLDINGS, LLC; NTE ENERGY, LLC; NTE SOUTHEAST ELECTRIC COMPANY, LLC; NTE ENERGY SERVICES COMPANY, LLC; CASTILLO INVESTMENT HOLDINGS II, LLC, Defendants - Appellants.

AMERICAN ANTITRUST INSTITUTE, Amicus Supporting Appellants. CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA; NORTH CAROLINA CHAMBER LEGAL INSTITUTE; DR. BENJAMIN ZYCHER; GEOFFREY A. MANNE; PROFESSOR RICHARD A. EPSTEIN; PROFESSOR DONALD J. BOUDREAUX, Amici Supporting Appellees.

No. 22-2168

United States Court of Appeals, Fourth Circuit

November 26, 2024

3:19-cv-00515-KDB-DSC

ORDER

The court denies the petition for rehearing en banc.

A requested poll of the court failed to produce a majority of judges in regular active service and not disqualified who voted in favor of rehearing en banc. Judges Niemeyer, King Gregory, Agee, Wynn, Thacker, Harris, Rushing, Heytens Benjamin, and Berner voted to deny rehearing en banc. Judges Richardson and Quattlebaum voted to grant rehearing en banc. Chief Judge Diaz and Judge Wilkinson were disqualified.

Entered at the direction of Judge Niemeyer with the concurrence of Judge Thacker. For the Court NIEMEYER, Circuit Judge, in support of denying rehearing en banc:

Because this court's panel opinion, reported at 111 F.4th 337, concluded that numerous material facts were disputed and needed to be resolved before a court could determine Duke Energy Corporation's civil liability under § 2 of the Sherman Act for willfully maintaining monopoly power through anticompetitive conduct, en banc review now is not suitable. To draw legal conclusions from facts not yet established would be tentative and inefficient, amounting to a speculative use of judicial resources. My good colleague in dissent, however, does not even recognize that facts are disputed, nor does he acknowledge the critical ones presented by the plaintiff.

The facts asserted by NTE Carolinas, LLC, if proved, would show that Duke Energy engaged in a broad scheme of anticompetitive conduct that was designed to exclude NTE from the relevant market and thus to maintain its monopoly power, which, the district court concluded, was demonstrated by its 90% share of the market. The evidence that NTE presented showed that it cost Duke Energy 30% more to produce energy than it cost NTE and that Duke Energy recognized this fact. At an "all-hands" meeting, Duke Energy's wholesale power segment warned that Duke Energy's systems were "no longer competitive." As a result, NTE was increasingly able to persuade Duke Energy's wholesale customers to switch their source of energy from Duke Energy to NTE, with nine such customers leaving Duke Energy to purchase electricity generated by NTE at a new power plant. During the events at issue in this case, NTE began planning the construction of a second new plant, the Reidsville Energy Center, but to bring that plant online, NTE needed to attract the business of a large wholesale customer. To this end, NTE began targeting the City of Fayetteville, North Carolina, one of Duke Energy's largest customers. Indeed, Fayetteville had been a Duke Energy customer for more than 100 years, and Duke Energy received approximately $100 million in annual net revenue from it. Internally, Duke Energy recognized the looming problem posed by NTE's relative efficiency and stated that it "need[ed] the NTE train to stop." NTE has pointed to testimony and documents indicating that, in response to NTE's competition, Duke Energy focused its attention specifically on NTE's proposed construction of the Reidsville plant, with which NTE planned to compete for Fayetteville's business.

Because NTE was an independent power producer that generated power at its plants but did not own its own transmission lines, it was dependent on transmission networks owned by other energy companies, such as Duke Energy. To facilitate access to such transmission lines, the Federal Energy Regulatory Commission ("FERC") requires utilities to share their transmission networks with competitors. Accordingly, Duke Energy did dutifully enter into a contract with NTE to provide the proposed Reidsville plant with access to its transmission network, which would enable NTE to serve customers such as Fayetteville.

Nonetheless, as NTE showed, shortly after entering into that contract, Duke Energy undertook a course of conduct designed to frustrate or end it and thus undermine NTE's competitive effort, and it did so precisely because Duke Energy believed that it was at a "competitive disadvantage" in terms of efficiency that was "not going away soon." Duke Energy recognized that NTE was its "biggest threat" and that it needed to stop "the NTE train." And NTE has presented evidence of numerous specific acts that Duke Energy took to that end, presenting evidence of the following acts, among others:

• Duke Energy manufactured a breach of the transmission line agreement with NTE and then, based on that breach, terminated the agreement, causing numerous anticompetitive impacts to NTE's planned Reidsville plant. Prior to the termination of the agreement, a Duke Energy official cheered, "breach! breach! punt em!" And "punt em" they did, as the sham breach adversely affected NTE's place in FERC's "Open Access Same-Time Information System," which directly affected its ability to succeed with the proposed Reidsville plant. NTE petitioned FERC to review Duke Energy's unilateral termination of the Reidsville interconnection agreement, and FERC issued an opinion concluding that the termination was indeed unlawful. But Duke Energy's conduct nonetheless delayed NTE's project by almost a year.

• Duke Energy also approached Fayetteville to make it an offer that NTE could not match even with its greater efficiency. The multi-faceted offer amounted in the aggregate to a $325 million discount for Fayetteville, which was unprecedented and which, NTE alleged, would amount to Duke Energy providing energy at a price below its cost. Duke Energy itself acknowledged that it expected to lose $100 million on the arrangement, but it planned to recoup those losses later by raising rates on other customers. While Duke Energy contended that its discount was merely legitimate price competition and not predatory pricing, NTE's expert disagreed and concluded that the arrangement was predatory, creating a factual dispute.

• In addition, as part of its offer to Fayetteville, Duke Energy agreed to quadruple the price it paid Fayetteville to purchase excess energy from Fayetteville's old, inefficient Butler Warner Plant, even though that price was above the market rate. Duke Energy thus took a loss on such purchases to provide Fayetteville an additional benefit that NTE could not match.

• And when NTE submitted an application to the North Carolina Utilities Commission for a permit needed to construct the Reidsville plant, the type of application that rarely attracted outside involvement and was routinely granted, Duke Energy petitioned to intervene before the State Commission to assert falsely that NTE had breached the Reidsville interconnection agreement and to suggest that NTE would fail to meet its construction goals "apparently due to a lack of financing and insufficient wholesale customers to justify the need for [Reidsville]." At that time, however, Duke Energy knew that NTE had already won the business of some of Duke Energy's customers and was threatening to take one of its largest customers, Fayetteville, with its more efficient facilities.

NTE pointed to yet other actions by Duke Energy, as set forth in more detail in this court's panel opinion, and maintained that such conduct did not represent legitimate competition, but rather anticompetitive conduct.

While many of the facts that NTE advanced were undisputed, many were also disputed. If the disputed facts were to be proved at trial, it would become clear that what NTE proffered was not conduct that amounted to old-fashioned competition based on efficiency, better products, and better service. Rather, it was conduct expressly aimed at keeping NTE out of Duke Energy's market because NTE was concededly more costefficient - 30% more efficient, as Duke Energy recognized. When such conduct is carried out by an entity with monopoly power, it amounts to a violation of § 2 of the Sherman Act, 15 U.S.C. § 2.

To succeed on its § 2 claim, NTE would have to satisfy two essential elements: (1) that Duke "possess[ed] . . . monopoly power in the relevant market," United States v. Grinnell Corp., 384 U.S. 563, 570 (1966), and (2) that it willfully acquired or maintained that power through anticompetitive conduct, as opposed to "as a consequence of a superior product, business acumen, or historic accident," id. at 571.

The first element is not at issue here, as Duke Energy does not challenge the district court's conclusion that a reasonable jury could find that Duke Energy has or was likely to achieve monopoly power in a relevant market, given its "durably high market share," which stands "at or approaching 90%." Duke Energy Carolinas, LLC v. NTE Carolinas II, LLC, 608 F.Supp.3d 298, 315-17 (W.D. N.C. 2022). But the second element is at issue - whether Duke Energy maintained its power through anticompetitive conduct, i.e., conduct intended to "exclude rivals on some basis other than efficiency." Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 (1985) (quoting R. Bork, The Antitrust Paradox 138 (1978)).

Of course, a monopolist does not violate § 2 by offering a superior product, service, or lower prices, as such conduct is procompetitive and thus increases consumer welfare. Rather, a...