No one should characterize President Donald Trump as a full-fledged supporter of free markets. His tariffs and America First industrial policy foreclose that possibility.
Yet Trump’s solicitor general recently filed a brief at the US Supreme Court backing free-market concepts. The document could help justices decide whether to take a case from North Carolina.
The dispute arose from competition between Charlotte-based Duke Energy and Florida-based NTE. Both companies sought a long-term contract with the City of Fayetteville.
NTE “broke into the region” in 2014, Solicitor General John Sauer explained in his Dec. 1 brief. The company’s Kings Mountain natural-gas facility operated more efficiently than Duke power plants. It “could generate cleaner energy at a far cheaper rate.”
Duke lost nine customers to its competitor. Then NTE announced plans in 2016 to open a plant in Reidsville. Federal rules required Duke to make its transmission lines available to NTE, and the companies reached a $60 million deal to build necessary connections.
Three more Duke customers flipped to NTE. But the upstart competitor could make its new plant viable only by attracting a “sizable ‘anchor’ client,” Sauer explained. NTE looked toward Fayetteville, which had a 20-year contract with Duke. The city could bail out after 12 years if it gave notice by 2020.
Losing Fayetteville’s business represented the largest “customer risk” for Duke, the solicitor general explained. “The City had been a customer for more than 100 years, had generated massive demand for electricity, and had contributed $100 million in annual net revenue.”
Taking Fayetteville’s business would help NTE “bring the Reidsville plant online, gain a real foothold in the region, and jeopardize even more of [Duke’s] business,” Sauer added.
With system costs 25-30% higher than its competitor, Duke “could not expect to retain Fayetteville’s business through ‘superior efficiency.’” The established company relied instead on “exploiting existing leverage, rather than improving its service,” Sauer wrote. Duke offered a short-term discount while making NTE “appear to be an unreliable power supplier.”
Federal courts have wrestled with the question of whether Duke’s campaign involved illegal anticompetitive behavior.
A trial judge said no. The court granted Duke summary judgment in NTE’s lawsuit. Yet a unanimous 4th US Circuit Court of Appeals panel reversed that ruling. Appellate judges agreed that NTE could proceed with its complaint.
Duke petitioned the US Supreme Court to intervene. The high court asked for the solicitor general’s input.
“This appeal arises out of a campaign by an established monopolist to stop a more efficient rival from disturbing its long-dominant hold over a regional energy market,” Sauer’s brief argued. Appellate judges “concluded that this exclusionary campaign did not involve competition ‘on the merits,’ because petitioner could not compete with respondent on the basis of efficiency. And the court found that this campaign produced the very harms the federal antitrust laws are designed to prevent — ‘reduced consumer choice, higher prices in the long term, and market foreclosure.’”
The 4th Circuit “properly held” that Duke should not win on summary judgment, Sauer wrote. The case “does not warrant further review.” Nor is it a “suitable vehicle” to address broader federal antitrust law issues.
Sauer labeled Duke the “beneficiary of a government grant more than a century ago.” The company “has controlled the wholesale-power market in the Carolinas for generations.”
Keeping Fayetteville’s business remained a high priority for Duke. “By dissuading such customers from switching to a potential competitor, an entrenched monopolist can prevent new entrants from gaining a foothold in the region — without creating a better product, producing a better service, or implementing a general price cut,” Sauer wrote.
Duke “intended to deter Fayetteville from switching to a new supplier,” Sauer wrote.
“Petitioner succeeded — and respondent presented sufficient evidence for a jury to conclude that petitioner did so through means ‘other than efficiency,’” the brief continued. “All told, without ever competing with respondent on the merits (i.e., offering a better service), petitioner was able to prevent respondent from operating its superior facility.”
Courts should examine Duke’s entire campaign to keep its Fayetteville contract, Sauer concluded.
“When a monopolist engages in a coordinated campaign to squelch competition, no circuit holds that each discrete aspect of the defendant’s conduct must be analyzed in isolation,” the solicitor general argued. “Instead, courts uniformly agree, consistent with this [Supreme] Court’s precedent, that a holistic analysis is appropriate in circumstances like these.”
It’s unclear whether the US Supreme Court will take the case. Much clearer is the Trump administration’s support for market forces and antagonism toward anticompetitive business practices, at least in this dispute.
Mitch Kokai is senior political analyst for the John Locke Foundation.