CRAVEN, Circuit Judge:
This is an appeal from a decision of the district court holding certain practices of the Virginia Electric and Power Company (VEPCO) to be per se violations of Section I of the Sherman Act, 15 U.S.C. § 1, and also violations of Section 3 of the Clayton Act, 15 U.S.C. § 14. Two issues are presented to us either of which may be decisive of the appeal. One is whether the complained of practices by VEPCO are "state action" and therefore exempt from the purview of federal antitrust legislation. Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L. Ed. 315 (1943). The other is whether VEPCO sold only one product, electricity, so as to take the case out of the tiein doctrine of Fortner Enterprises, Inc. v. United States Steel Corporation, 394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969). We decide both issues in favor of VEPCO and reverse.
VEPCO is a state regulated utility supplying electricity to areas of Virginia also served by the plaintiff gas utility, Washington Gas Light Company. Prior to 1960, practically all residences served by VEPCO obtained electrical power
In 1963 VEPCO began the first in a series of all-electric house plans designed to make it more attractive for the builder to install electric appliances in their new homes to the exclusion of the competing utility — natural gas. Washington Gas Light Company complains that these programs violated the Sherman and Clayton Acts. The district court's findings reveal that the first plans offered URD installation free of charge if the builder went "all electric," or at a substantially reduced rate if he went all electric except for heating and provided his own trenching and backfilling.
The state legislature in 1966 by statutory amendment specifically required Virginia's utility regulatory body, the State Corporation Commission (SCC), to investigate the "promotional allowances and practices of public utilities and [to] * * * take such action as such investigation may indicate to be in the public interest."
The result of VEPCO's installation campaign was that significant inroads were made into areas previously dominated by the use of natural gas — home heating, water heating, and cooking.
The district court found the VEPCO plans per se violations of Section I of the Sherman Act as illegal "tying arrangements" and also violations of Section 3 of the Clayton Act as exclusive dealing arrangements without consideration of the Parker, supra, exemption. It is urged upon us that since the district court did not consider the application of Parker, neither should we. Desert Palace, Inc. v. Salisbury, 401 F.2d 320, 323-324 (7th Cir. 1968). We think the rigid application of such a rule of procedure is inappropriate where the record provides an adequate basis for consideration on the merits. As the Supreme Court stated in Hormel v. Helvering, 312 U.S. 552, 557, 61 S.Ct. 719, 721, 85 L.Ed. 1037 (1941):
317 U.S. at 350-352, 63 S.Ct. at 313-314.
To find shelter under Parker, the acts complained of must be the result of state action, either by state officials or by private individuals "under the active supervision" of the state, Allstate Insurance Company v. Lanier, 361 F.2d 870, 872 (4th Cir. 1966),
Asheville Tobacco Board of Trade, Inc. v. FTC, 263 F.2d 502, 509 (4th Cir. 1959).
If the exemption is to be applied to a regulated industry, such as a state utility, then it can extend only to those activities which fall under state supervision. See Wainwright v. National Dairy Products, Corp., 304 F.Supp. 567, 574-575 (N.D.Ga.1969). The regulatory agency must be a creature of the state and not one whose activities are governed by private agreement without any real state control. Sun Valley Disposal Co. v. Silver State Disposal Co., 420 F.2d 341, 342 (9th Cir. 1969); E. W. Wiggins Airways, Inc. v. Massachusetts Port Authority, 362 F.2d 52, 55 (1st Cir. 1966); Allstate Insurance Co. v. Lanier, supra.
The Virginia State Corporation Commission is without question a proper state agency to qualify under Parker. Section 155 of the Virginia State Constitution makes explicit provision for the SCC giving it the power, among other things, to prescribe utility rates and, subject to the authority of the state legislature, to regulate other non-specified corporate utility activities. Sections of the Virginia Code provide a detailed system of regulatory powers and procedures whereby administrative action may be taken and reviewed with respect to "rates, tolls, charges, schedules," etc.
"There is, at the outset of every tie-in case, including the familiar cases involving physical goods, the problem of determining whether two separate products are in fact involved." Fortner Enterprises v. United States Steel Corporation, 394 U.S. 495, 507, 89 S.Ct. 1252, 1260, 22 L.Ed.2d 495 (1969).
Alternatively, we rest our decision upon the very difficult determination of
It seems to us that VEPCO sold only one product — electricity. The delivery of that product has always been an ancillary and necessary part of the business of producing and selling electrical power. This was simply a new method of delivery but paid for in the old way, i. e., "free" to the customer. There was no separate market for the installation of underground wiring as there was a separate market for credit in Fortner. That there are not dual markets strongly suggests there are not separate products. See Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 614, 73 S.Ct. 872, 97 L.Ed. 1277 (1953).
Even in Fortner, four members of the Court thought that United States Steel was selling one product, namely prefabricated buildings, and that the provision of credit on a large scale to finance the purchase of land (not just the buildings) was simply an ancillary service in connection with making the sale. The dissenters noted that
394 U.S. at 525, 89 S.Ct. at 1270. (Emphasis added.)
Unlike United States Steel's inflated price of the tied product (prefabricated homes) VEPCO's rates for home heating and consumption of electricity, although higher than the rates for gas which would do the same job, were not arbitrarily inflated but had been approved by the Corporation Commission. There was nothing "artificial" about the price
Finally, the ultimate effect of the Fortner type monopoly was to sell the tied prefabricated homes at an artificial inflated price in a market where the same identical prefabricated houses of similar quality could have been obtained by the consumer at a cost $400 cheaper. Washington Gas' competing product is not identical or even necessarily of the same quality in the subjective sense. Some consumers may prefer electricity despite the greater heating efficiency of gas. Some may not want to be bothered with two monthly bills from two different companies and two problems of maintenance and repair of two different systems. Electricity is simply different from gas and may be subjectively preferred by a consumer despite its higher cost and the latter's greater efficiency. Whether such a preference, if it exists, is a permissible one in our economy can better be determined by the expertise of a regulatory agency than random application of antitrust laws.
In Gas Light Co. of Columbus v. Georgia Power Co., 313 F.Supp. 860, 869 (M.D.Ga.1970), Judge Elliott considered and discussed the decision below in this case:
With the greatest respect for the decision of the district judge, we nevertheless think that his ultimate finding of fact that there were two separate products was clearly erroneous and mistaken.
We suggest that the rationale and underlying purpose of both the Sherman and Clayton Acts is to prevent monopoly where it is not in the public interest. It has long since been established that both gas and electricity can best be produced and distributed (and the public benefited) by monopoly under state regulation. The problem here is not one of preventing monopoly as in Fortner, but of making lawful monopoly work best in the public interest. Doubtless, we think, SCC can do a better job than private piecemeal application of laws aimed against monopoly.
§ 56-236. Public utilities required to file, etc., schedules of rates and charges; rules and regulations. — Every public utility shall be required to file with the Commission and to keep open to public inspection schedules showing rates and charges, either for itself, or joint rates and charges between itself and any other public utility. Every public utility shall file with, and as a part of, such schedules, copies of all rules and regulations that in any manner affect the rates charged or to be charged. (Code 1919, § 4066; 1918, p. 674; 1924, p. 538; 1927, p. 123.)
§ 56-238. Suspension of proposed rates, etc.; investigation; fixing reasonable rates, etc. — The Commission, either upon complaint or on its own motion, may suspend the enforcement of any or all of the proposed rates, tolls, charges, rules or regulations, for a period not exceeding sixty days, during which time it shall investigate the reasonableness or justice of the proposed rates, tolls, charges, rules and regulations and thereupon fix and order substituted therefor such rates, tolls, charges, rules and regulations as shall be just and reasonable. * * * (Emphasis added) (Code 1919, § 4066; 1918, p. 674; 1924, p. 539; 1927, p. 123.)
§ 56-239. Appeal from action of Commission. — The public utility whose schedules shall have been so filed or the Commonwealth or other party in interest may appeal to the Supreme Court of Appeals from such decision or order as the Commission may finally enter. * * * (Code 1919, § 4066; 1918, p. 674; 1924, p. 539; 1927, p. 124.)
§ 56-247. Commission may change regulations, measurements, practices, services, or acts. — If upon investigation it shall be found that any regulation, measurement, practice, act or service of any public utility complained of is unjust, unreasonable, insufficient, preferential, unjustly discriminatory or otherwise in violation of law or if it be found that any service is inadequate or that any reasonable service cannot be obtained, the Commission may substitute therefor such other regulations, measurements, practices, service or acts and make such order respecting, and such changes in, such regulations, measurements, practices, service or acts as shall be just and reasonable.
The Commission shall investigate the promotional allowances and practices of public utilities and shall take such action as such investigation may indicate to be in the public interest. (Code 1919, § 4072; 1966, c. 552.)
The Supreme Court, 1968 Term, 83 Harv. L.Rev. 7, 244 (1969).