ML17266A459
| ML17266A459 | |
| Person / Time | |
|---|---|
| Site: | Saint Lucie  |
| Issue date: | 08/03/1979 |
| From: | Curtis C, Holden M, Sheldon G FEDERAL ENERGY REGULATORY COMMISSION |
| To: | |
| Shared Package | |
| ML17209B115 | List: |
| References | |
| ER-78-81, ER78-19, NUDOCS 8105290151 | |
| Download: ML17266A459 (73) | |
Text
UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION OPINION NO.
57 F1orida Power 6
Light Company Docket Nos..
E~"8"19 (Phase I) and ER78-81 OPXiNION AND ORDER REVEBSZNiG INITIALDECISION AND REJECTXNG TARIFF AVAILABILITY L~TATIONS AND NOTICE OF CANCELLATION Issued:
August 3, 1979
'C-A-7
UNITED STATES OF AMERICA "EDERAL ENERGY REGULATORY COMMXSSZON Florida Power S Light Comaany Docket Nos. ER78-l9 (Phase I) and ER78-8l OPXNXON NQ.
57 APPEAKLNCES H
A Poth, Jr., Robert'T. Hall XIZ, James K. Mitchell and F o L. Norton IV Rei 6 Priest for F on. a Power k Light Company William H. Chandler,, William C. Wise and Robert Weinber for Semzno e
E ectrxc Cooperative Robert: A..Jablon,Daniel J.
Gut%man and Sandra J. Strebel for e U~MMes Commxssxon of New Smyrna Beac, Fort Pierce Utilities Authority, Cities of'tarke and Homestead,. Florida Robert F.
Sha iro and Harve L. Reiter for the Staff of the Fe era Energy Regulatory Comnusszon
~4
WHOLESALE ELECTRIC SERVICE:
AVAILABILITY:
ANTITRUST UNITED STATES CP AMERICA PEDERAL ENERGY REGULATORY COMMISSION Before Commissioners:
Charles B. Curtis, Chairman; Georgiana
- Sheldon, and Matthew Holden, Jr.
Plorida Power a Light Company
)
Docket Nos.', ER78-19
)
(Phase I) and ER78-81 OPXNZON NO 57 OPINION AND ORDER REVERSING INXTIAL DECISXON AND REJECTXNG'ARXPP AVAIL'ABXLITY LIMITATIONS AND NOTICE OP CANCELLATZQN'Issued Auqust. 3, 1979)
Before.the Commission is. a consolidated proceed'ing to determine-whether certain limitations on-the availability of firm wholesale reauirements
- service, along with notices of cancell'ation of-such service: to specific: wholesale
. customers, are unjust,. unreasonable or unduly discriminatory, and particularly whether they are. anticompetitive in effect.
Nith one exception, we find that, the proposed limitations on requirements service availability have not been justified.
Accordingly,'e. reject these tariff provisions.
- Moreover, since: the notices of cancellation are founded upon one of these rejected limitations on availability, thev must likewise be rejected.
To set the stage for our discussion, we wish to state at the outset, our view that, where a utility possessing market power" in a relevant market seeks to amend a general tariff to impose conditions which foreclose supply options or increase the costs of. competitors, or which otherwise contribute ta the accuisition or.'aintenance of monopoly power, its appI.'ication for amendment must be rejected and found unjust and unreasonable'nder Sections 205 and 206 of the Federal Power Act - unless the utility can show th'at compelling public interests justify the service conditions.=
I Docket Hos.
ER78-19, et al. Moreover, even where overriding public policy objectives are shown to justify same restriction on wholesale
- service, such a utility must be called upon to demonstrate. that its or ogo sal is the Least an ticompe titive me thad of obtaining legitimate planning or other objectives.
On the basis of our analysis, of the record before us, we conclude that FP&L's proposed tariff restrictions would eliminate the only practical source of base-load power or energy to competing utilities within the markets dominated by the Company.
Furthermore, the proposed restrictions would appear to= create the: potential for additional, anti-competitive effects by inhibiting the formation of new distribution utilities within these markets.
FP&T has.,
failed to satisfactorily demonstrate countervailing public interests. that warrant approval of any of these proposals, except for the one which would provide separate partial
=reauirements service.
To the extent that legitimate pur-poses are sought to be attained by FP&T., there appear to be a number of alternative means of less anticompetitive effect for their accomplishment.
The Commission wishes to emphasize that we are not today holding that a utility with. market power is, oer se, precluded from amending a general tariff to impose condx,lions. which limi't service availability.
The Federal Power'Act accords
- a. utility the right to propose such Limitations and an opportunity to demonstrate that its proposed change in service is just and reasonable.
Zn-the instant case, we find:- only that FPEZ. has. failed to carry its
~ burden" of justification.
An initial comment. is also. in order concerning the applicability af antitrust laws and policies to aur pro-ceedings.
Prom its inception, this proceeding has focused on issues related to the justness and reasonableness of FPGL's rate proposals when evaluated in light of their alleged anticompetitive effects.
The allegations and evidence of staff and the intervenors together. with the associated responses of the Company have-coalesced into issues typi-cally examined. in the. context of a'onopolization case under. S'ection
- 2. of. the Sherman. Act.
The Commission acknow-ledges that it is-not.speci'fically responsible for enforcing the Sherman Act or. any other of this nation's antitrust laws.
And we wish to emphasize that in evaluating the anti-compe titive effects of. a progosed ra te change, and in making findings with. respect
- thereto, we do not make-findings that violatians.. of the: antitrust laws have accurred.
Xnstead, it 1'*. l
'*'n Federal ants,trust, laws and to reflect those golici'es in the conduct of aur responsibilities under the Federal Power Act. 1/
This; we have endeavored to do in the instant case.
'/
Zt is now beyond auestion that antitrust law and policies do relate to this Commission' responsibilities under the Federal Power Act.
- See, Gulf States Utilities Ca. v.
- FPC, 411 U.S.
747 (1973);
and FPC v.
Canwa Coraoratxon, 426 U.S.
271 (1976).
Docket Nos.
ER78-19, et al. While we believe our evaluation of the anticompetitive effects of the proposal is correct and supported by the record, we recognize that these anticompetitive effects may not. have been demonstrated with the rigor as would be demanded in proceedings where specific findings of violations of the antitrust laws are at issue with attendant. potential for the imposition of civil and criminal penalties.
- Lastly, we wish to note that the fairly elaborate account of PP&L's past conduct in its market place is not intended by this Commission to be a determination of factual disputes which may be the subject of litigation in other forums.
Rather we merely observe that the evidence in this record of that past. conduct casts a shadow over FP&L's claimed need to restrict service and, therefore, is of pro-bative value in determining whether the Company has satis-factorily.carried its burden of justification for the prooosed service limitations.
- The structural and conduct analyses required in an antitrust proceeding, and presented to us
- here, are of considerable-assistance in isolating demon-strated anticompetitive effect from unfocused allegations.
Zt is, important to examine the markets in which relevant electric services are. bought and sold and. then determine how the questioned rate provisions may affect the. competition, or potential competition, in these markets.
This opinion attempts to present; our interpretation of the facts, and Law
'long-. these Lines.
BACKGROUND The Procedural Bistor 'n, October 14, 1977, FP&L filed in Docket No.
ER78-19 proposed changes to its. firm who1esale electr ic tar iff, schedule SR-L, which wou1d bifurcate that schedule into a full requirements schedule SR-2 and a separate partial requirements schedule PR, and increase.
the rates for each of these services.
Under schedule SR-1 firm service has been generally available "in all.territory served by the Company."
PP&L now proposes to Limit the availability of firm wholesale services to those existing customers named in the two new schedules, which previously purchased under schedule SR-L..
Also, the-Company would limit service under schedule PR to existing customers which do, not own sufficient generating capacity to meet their peak load requirements.
Docket Nos.
ER78-19, eC al.
Xn a related action, FPGL fi3.ed in Docket Vo. ER78-81, on December 3., L977, a
no tice o f cancella tion of firm par tial requirements service to one of its SR-L customers, the City of Homestead, Florida, which has sufficient capacity to meet its. load.
- Instead, the Company would make who3.esa3.e sales to Homestead under, rate schedules in an interchange agree-ment between these two parties.
Under Sections 205 and 206 of the Federal Power Act, a utility must receive Commission approval to replace one service to a wholesale customer with another. service.
Commission jurisdiction over changes in
- rates, charges, classification or service necessarily en-compasses this situation.
The Commission must first find that this customer reclassification is, in the public', interest.,
- See, Penns Lvania Mater and Power Comaan v.
- FPC, 343 V.S. 414'22-424 (1952).
By order, of-December 30, L977, the Commission consoli-dated these dockets.,
suspended both the tariff availability restrictions and the Homestead cancellation for five months, and suspended the proposed rate changes for two months.
Phase I of these consolidated proceedings vas established, to, allov for separate.
hearing and decision on the. legality of: the tariff availability restrictions and the cancellation of the firm service to Homestead.
FoILoving a schedule of conferences, evidentiary sub-
- missions, hearings and briefs, Presiding Administrative Kav Judge Curtis Vlagner. issued. his Initial Decision on April 21, 1978.
He concluded that the proposed availability limita-tions for full and partial requirements services are just and reasonable, and approved the. cancellation of firm par-tial requirements service to Homestead.
Briefs on exceptions-to the Initial Decision vere filed on Hay 8', 1978, by the-Commission Staff, the Cooper-ative group of wholesaLe customers, 2/ and the municipal group of vholesale customers
( the Flor ida Cities). 3/
On May 12,
- 1978, FPSL fiLed its brief opposing" these except'ons.
Q2 The Cooperatives include Seminole Electric Cooperative, Clay Electric Cooperative, Lee County Electric. Cooperative, Okefenoke Ruial Electric Membership Corporation, and Suwannee: Valley Electric Cooperative 3/
=The Florida Cities include. Fort Pierce, New Smyrna. Beach, Homestead, and Starke.
Docket Hos.
ER78-19, et al. -
5 Ey order issued June 1, 1978, the Commission stated its int ation to issue a fin~1 decision in Phase I as soon as possible and urged PPGL to refrain, from implementing the tariff avai3,ability restrictions and cancellation of requirements service to Homestead, pending a final ru3.ing on these issues.
By Letter dated June 9, 1978, PPSL informed the Commission that, without waiving its legal rights, it would provide PR service to Homestead and also to the City of Ft. Pierce, Florida, pending final Commission action.
The Bate Chan e Proaosals Firm wholesa3.e service under PPa L schedule. SR-2, ale, on Oc tober 14,
- 1977, would be available to meet the tota1. capacity and energy require-ments of purchasing utilities over the indefinite future.
Xt. is comprised of a two-part demand and energy rate, based on FP&L,'s average system costs which includes the production costs of its nuclear, gas and oil-fired. generating plants.
Its predecessor',
schedule SR-L, was made available to all wholesale purchasers within PP&L,'s service territory.
However.,
the Company now proposes:.o limit full requirements service to six rural electric cooperatives.
which presently take this service..
A potential purchaser requesting full requirements service from PPSL in the future coul'd not anticipate receiving" this service and would =not receive the SR-2 rate. for any service it was able to arrange.
+4 Phile there wi1.3. be no abatement, of retail sales-to aew customers, PPSL has stated. that it is not willing to commit itse1.f to serve-any new wholesaLe customers but would be willing to discuss the-possibility when the situation arises.
5/
PPsL. wholesaLe. schedule PRg also filed on Cctober 14, 1977, is a modification of schedule SR-L designed to meet partial power and energy requirements.,
complementing the purchaser's owa generation or other firm power purchases.
Like schedule SR-2, it is composed of a two-gart demand and energy rate, based'n avera'ge system costs;
- however, the rate leve3.s're different and the demand component is stratified to reflect'iffering prices for peak and base/
intermediate demand.
Each tariff has two energy rate, bLocks, but the SR-2. Lower block is attained after purchase of Q4 PPaL brief opposing exceptions at LO.
+i' Zd.
Docket Nos.
ER78-3.9, et al. -
6 275 kwh per kN of billing demand, versus 400 kHh under schedule PR.
~".oreover, schedule PR requires the customer to specifv its "contract demand" on FPSL for succeeding
'2 month pe iods.
The customer 's monthly billing demand is never less-than 90% of its contract demand plus 75% of its maximum recorded peak demand.
Conversely, the demand charge for purchases above 110% of contract demand is higher and the customer may. not increase its contract demand for succeeding 12 month periods by more than 125% without the consent of FPSL.
The Company asserts that these design differences between schedules PR and SR-2 encourage partia3.
requirements customers to increase their 3.oad factors.
Partial requirements customers, including the Cities of Homestead and New Smyrna Beach, previously took service under schedule SR-1 which, as noted earlier, was available to al1 customers in FPGL's service territory.
With the filing
'of schedu3.e PR, however,.
FPt L proposes to limit this service to thr ee customers, the Keys Electric. Cooperative and the Cities of New Smyrna Beach and Starke.
Homestead which, like Fort, Pierce>
has sufficient generating capacity to meet. its load, wou3.d be excluded, from this. service., 6/
Although not directly at issue in this proceeding, it would aid the c3.arity of this decision, to describe the four interchange power and energy services which FP&L. and several utilities reciprocally provide under bilateral agreements.
The transactions under these agreements are voluntary and of relatively short duration.
Rates are determined at the time of sale, based on incremental instead of average system costs.
Emergency intercharge
- service, denominated Schedule A> provides the buyer with capacity and energy in the event of a forced
- outage, for a period lasting, no longer than 72 hours8.333333e-4 days <br />0.02 hours <br />1.190476e-4 weeks <br />2.7396e-5 months <br />.
For pricing
- purposes, Schedule A service is deemed to be provided by the seller's designated fossil-fired steam or combustion turbine generators and recovers. only out-of-pocket energy costs.
7/
6/
As will be discussed later, Fort Pierce began purchasing under schedule PR on March. 2&, 197&.
Homestead also continues to receive service by agreement of FP&L'.
- However, FPaL asserts that it will. terminate service to both, if the Commission approves its rate changes.
7'/
Under-certain circumstances, the buyer may alternatively return capacity and energy in kind within the current billing. per iod.
Docket Mos. ZR78-19, et al. Scheduled interchange
- service, Schedule 8, provides capacity and energy for periods of less than 12 months, when the buyer is short of capacity primarily due to forced or scheduled plant outages.
The buyer must meet the reserve reguirement associated with Schedule 8 service.
Delivery of Schedule 8 power and energy occurs when in the seller's discretion no impairment of fueL stocks or service to other customers would result.
Capacity and energy rates are based on the production costs of the seller's fossil-fired and combustion turbine generating units.
Economy interchange
- service, Schedule C, provides for non-f irm energy exchanges of shor t duration, pr iced to split the savings between the seller's incremental cost of generation and the buyer's decremental cost.
+8
- Finally, firm interchange
- power, Schedule D, provides capacity and energy for periods of 12 to 36 months.
Unlike firm service under Schedule SR<<2 and PR< this service is curtailable during. extreme cold, weather and emergency conditions, in which case the demand. charge may be adjusted.
Schedule D
service is apparently priced at the schedul'ed outage rate, Schedule B, for fossiL-fueled. and combustion turbine capacity and energy (Exhibit 29).
Nith intermittant usage Schedule D may be cheaper than the PR. rate; however, it apparently becomes more expensive than Schedule PR as" the customer' load factor increases (Tr. 254).
FP&Z, proposes to provide-
'irm service to Homestead and Fort. Pierce only under'Schedule D, and has offered them-240 NH of: Schedule D capacity through 1980.
The Initial Decision
'The basic issue of'.this proceeding as charact razed by the Presiding Judge is whether FP&Z can justify a reclassification of wholesale services based on the relationship of customer load to customer generating capacity.
Xn hearing this case, the Judge imposed the burden of proof on FP&L to demonstrate that its proposed tariff modifications and restrictions were just and reasonable.
He largely refrained from considering the evidence presented by Staff and the Florida Cities intended to demonstrate that the proposed restrictions
+8 The price of interchange.
energy is characteristically di termined by'P&L's. generating units-with high operating cos ts, no tby hase-loaded nuclear or natural gas-fired units.
Docket Nos.
ER78-19, et al. -
8 were oart of an anticompetitive pattern of activities by the Company; leading toward monopolization of the the retail power market.
The Presiding Judge concluded that FP&L's proposed restrictions on eligibility for wholesale services were justified on the basis of differences in cost of service.
Be agreed with the Company that the load patterns of customers with capacity eaual to their peak demands could be so eratic as to make FP&L system planning unduly difficult, warranting the complete exclusion of such customers from wholesale service at average-cost rates.
He decided that incrementally-priced, interchange
- services, described
- above, were acceptable alternatives for customers such as Homestead and Fort Pierce.
The Judge found that interchange power could be used to meet their base load reauirements "at a lower rate than under the partial reauirements schedule," Initial Decision at 14>
and suggested that these self-sufficient utilities could purchase bulk power from other sources because FP&L has agreed to wheel.
He deferred to civil courts the allegations of these two customers that FP&L had breached contractual obligations to serve them under schedule.
SR.
The Judge also found that the bifurcation of schedule SR-1 into separate SR-2 and PR schedules was just and reasonable.
- Moreover, he concluded that the Company could change the availability provision of its tariff to limit wholesale services to customers named in schedules SR-2 and PR.
This was based on his assessment of cer tain finane ial p operational and capacity planning problems asserted by FP&L and his determination that the two-year notice of termination provision in the schedules did not assure that the Company would recover all capacity costs.
The Judge dismissed the allegations that FP&L's proposals would have an anticompetitive effect, based on a Company representation that it had no interest in acauiring new retail franchises because of fuel problems.
Finally, he sought to mitigate concern that FP&L would strictly, construe its tariff limitations by reciting several of the Company's interpretations made-during the course of the proceedings, but not added to the proposed tariffs.
In sum, the Presiding Judge approved each of the Company's proposed changes to its wholesale tariff.
Based on this, he also'pproved the proposal that Homestead (and Fort Pierce) become ineligible for service under FP&L's average-priced wholesale rates and allowed to take firm intercharge service only.
Docket Nos.
ER78-19, et al. -
9 Positions of the Parties The position of the applicant, FP&L, has been summarized in the two proceeding sections of this opinion. It further states that public utility obligations under the Federal Power Act are limited.
- However, we are basically concerned here with the obligations undertaken by PP&L itself in its schedule SR-1 tariff, which ma'kes wholesaLe service generally available throughout the Company's service territory, in contrast to the proposed limitations on availability of schedules SR-2 and PR.
+9
- Finally, PP&Z denies that it has engaged in anticompetitive activities, states that Staff's and Florida Cities'llegations are largely irrelevant and questions their application of the antitrust laws.
Exceptions to the Initial'ecision raised by Florida Cities are prolix.
However, they may be simplified, briefly.
Plorida-Cities contend that the proposed tariff is an attempt to abandon service to the City of Homestead because Homestead is currently receiving full interchange service and under the terms cf the proposed rate schedule could no longer receive partial requirements service although it desires to do so. Cities claim that restrictions in the proposed'ull and partial requirements tariffs are tana-mount to refusals to deal in either total or partial requirements service.
PP&I's partial requirements tariff, they assert, is designed to limit'the sale of wholesaLe power.,
This is accomplished by restructuring the sale of partial requirements, service to only those systems which require such service to complement the insufficient genera-ting'apacity or firm. power purchases to meet their native loads and therefore does not. apply to systems which nominally have generation sufficient to meet. their loads regardless of the age or efficiency of such generation.
Both Homestead and'ort Pierce would be served only at interchange
- rates, creating a price squeeze.
9/
To the extent the Presiding Judge may suggest that schedule SR-L does not make wholesale service generally available because service contracts may still be required, Initial. Decision at 8, thi's is not reflected in the provision itself.
During cross examination FP&K's rate design witness acknowledged that utiLities within the Company's service territory, such as Fort Pierce, Jacksonvi11e and Orlando, were eligible for firm service under the terms cf Schedule Sp.-l.
~ee, indra at 30.
After all, the purpcse cd this pncceedinp has been tu Limit that provisign to certain named and existing customers.
- moreover, FP&T. has in the past filed unexecuted service "agreements" when customers have commenced service.
Docket Nos.
ZR78-19, et al.
lo Cities contend that FP&L is attempting to deny or make it more difficult for them to establish economic alternatives.
Apart from the tariff proposals at issue, this is accomplished by denying joint participation in new nuclear generation, opposing municipally supported legislation, and refusal, to file or establish a general rate for trans-mission.
They also state that FP&L has refused to support a general integrated power pool in Florida.
he Coogeratives assert in their'rief on exceptions that the Initial Decision ignored their position and relied excessively on FP&T testimony.
The Cooperatives, which through Seminole are planning base load generating units, will re!uire partial requirements.
service in the future instead of schedule SR-2 service.
Because they are
'not named-in the PR tariff they are not assured of this
- service, so that these limitations deny them the necessary supply flexibility to account for changing situations.
Staff alleges. several acts of monopolization by FP&L.,
Staf f states that FP&L has refused to sell wholesale power to the municipal, utilities, thereby constituting a'efusal to: deal proscribed by United States
- v. Otter Tail Power Co.,
1 "lo" Zn this regard, it points to an historic'psl policy not.to serve'unicipal systems at wholesale, an FP&L refusal to serve Fort Pierce under the SR-1 tariff, and the limitations on the. availability of the SR-2 and PR tariffs presently at issue.
Staff views FP&L's dominance. over transmission facilities and its corresponding refusals'o wheel as bottleneck monopolization proscribed. in United States
- v. Otter Tail Power co., suora.
staid cites examp1es or rpsL's refusing to wheel third oarty bulk power to the Cities of JacksonvilLe, Homestead, and Lake Ror th, and it asser ts that, while FP &L-has very recently announced in Docket No. ER77-175 a new policy to permit wheeling,. that policy is far too restrictive in terms of rates and. terms.
Staff sees another example of monopolization in FP&L's restrictions on access to its nuclear generating units.
Specifically, Staff asserts. that smaller utilities do not have the individual loads to justify a nuclear unit but, due to the economies of such units, utilities, may become uncompetitive.
without access.
Staff also alleges. that FP&L has unreasonably restricted'oordination, both in terms of economy exchanges and power goolinq.
Xt then contends that FP&L'-has established barriers to entry in the form of restrictions in its franchise agreements with municipalities, particularly the standard. thirty year term.
This is occurring, according to Staff, while FP&L maintains a policy of acquirinq municipal systems;
- however, FP&L has not accuired another utility in recent years.
The Staff concludes that FP&L's proposed tariff restrictions would further its monopoly power in the relevant markets, as def'ned by its economic witness.
~
q t
~, ~
~ v Docket Dos. ER78-19,-et al.
THE EXIST%ICE OF COMPETITION AND MONOPOZY POWER The Relevant Markets We begin our discussion of FP&X's tarirf proposals by defining the relevant markets, which provide a framework for determining the possible existence of monopoly'power, the opportunities for com-petition-and: the. required breadth of any remedial action
'e may order.,
The Staff economic witness identified two broadly-defined product markets as rele-vant to the investigation of the. anticompetitive effect of FP&Z 's proposed tariff restrictions.
This analysis was not challenge" by any party and reflects FP&Z 's own con-ceptuali"ation of~:its business.
10/
The retail market.
involves sales of',capacity and energy to ultimate consumers by vertically integrated utilities such as FP&Z, and by distribution utilities. The bulk power, market involves.
sales of wholesale. power and energy to retail, distributors (including-the captive retail distribution centers of vertically-integrated systems) by bulk power. producers and suppliers.
These product market definitions are amply supported bv the record;, andwe'adopt.
them in. our. analysis'.
The bulk power product. market. was further disaggregated by the Staff witness into five. submarkets essentially consisting of full reauirements'ower',
partial requirements and coordination
- services, component bulk services, sales at transmission vol-tages to ultimate-consumers.
and transmission services.
" In. so doing he attempted to demonstrate the inter-changeability of firm full reauirements power'ith "unbundled" bulk power services which may be purchased'rom several sources to meet. the reauirements of a retail distributor, in conjunction with generation owned. by that distributor.
I~
While. we d'o riot dispute the validity of this subdivision of the wholesale market, a more; practical. method of'nalyzing that market for purposes of this proceeding is to separate bulk power, transactions into discrete firm requirements and coordination submarkets-Essentially, this parallels the distinction between FP&Z 's. schedule SR-2 and.
PR firm services-on the. one hand and. its, interchange services on the other.
FP&Z,'s firm services are non-interruptible; priced on the basis of average system costs; designed to meet a
10/.
In. a 1976 presentation to, the Company's Senior Management
- Council, FP&Z,.'s. vice president for strategic planning sub-divided'he Company's activities into discrete bulk power and electric. service businesses (Exhibit GT-3, at 3).
Docket lfos. ER78-19, et al.
12 customer's
- base, intermediate and/or peak load requirements; and continuously available over the indefinite future.
Con-
- versely, interchange services are interruptible; incrementally priced on the basis of oil-fired generation costs; ancillary to bulk power supply and not practicable sources of base load power; and of limited duration.
Depending on the feasibility to the customer of self-generation or supplementary firm-power purchases, partial requirements service is reasonably inter-changeable with full requirements power to meet a retail load.
Such interchangeability is a requisite for grouping products in a common market.
- See, United States
- v. du Pont Co.,
351 U.S.
- 377, 393 (1956).
Of course, FP&L did not itself distinguish between these two firm services in its SR-1 schedule prior to this case.
However, interchange services cannot be used to sustain load requirements and may onLy be used to augment other primary sources of bulk supply.
In, particular, FP&Z's wholesale customers do not regard Schedule D firm power as interchangeable with SR or PR firm power and the Company describes them as different services.
FP&Z sells electric power and energy to most of the heavily populated areas along the eastern and lower western coasts of peninsular Florida and portions of centraL and north-central Florida.
Within or adjacent to this service territory are 22 smaller areas served by municipal and coop-erative utilities.
The Staff witness identified this composite
- area, comprised of some 35 Florida counties, as the relevant geographic market for both retail and. wholesale product markets.
This was primarily determined from information in FP&Z,'s 1975 annual report.
The service territories of larger bordering utilities 11/ were excluded from the retail geographic market because of the unavailability of wheeling service into the FP&L service territory and the existence of retail territorial allocation agreements with FP&Z which prohibit retail competition (Exhibit GT-6, at 8-9). 12/
This is not to say that competition does not exist xn the relevant retail market.
As we discuss later, there is significant competition,. primarily franchise and yardstick competition, 11/
Florida Power Corporation and Tampa Electric Company.
12/
These retail territorial agreements are not at issue in this proceeding and we express no opinion as to their merit.
They require approval by the Florida Public Service Commission and have been upheld. cn judicial review.
Stcrev v. nave, 217 Sc.
2d 304 (Fla. 1966),
c rt. den.,
399 0.6.
909 (1969).
Zn 1974 this autharrty was expressly given tc the Florida Commission.
- See, Florida Statutes Annotated 5366.04.
Docket Nos.
ER78-19, et al.
and FP&L itself has recognized that its neighboring ut:ilities are both customers and competitors (Exhibit GT-6, at 1).
Furthermore, even territorial allocation agreements are subject to modification under limited circumstances in pro-ceedings before the Florida Public Service Commission.
peoples Gas System v. Mason,
. 187'o. 2d 335 (Pla.
1966).
The whoLesale bulk power geographic market was similarly constrained because relatively few wholesale transactions are made across its boundaries.
This geographic limitation applies as well to the bulk power submarkets, particularly the firm reguirements submarket, described
~su ra, because'f wholesale territorial agreements and the absence of firm power transmission services.
Although there is a potential for competition in the wholesale market, actual competition has been inhibited by FP&T, as we discuss below.
We are not: required to remedy that situation now.
This opinion reflects our concern that wholesaLe monopoly power not be used to maintain or'nhance a utility's retail market position.
Monoool Power Monopoly power has, been defined"as the ability to control prices or excl'ude competition from a relevant market United States
- v. Aluminum Co. of 'America, 148 F.2d 416 (2d'., Car.. 1945)-..It may be readily apparent, in cases where prices have been controlled or competition demonstrably excluded;
- however, such showings are not essen-tial.
American Tobacco Co'. v. United States, 328 U.S.
78LP 81L (1946).
3
- Instea, the.characterxstxa test is based on a firm,'s share of the market, and a,predominant share warrant the inference of monopoly power.
United States v.
6 '
Otter Tarl Power Co.,
331 P.
Supp.
54 (0 ~ Minn. 1971), sff'd, 4
0 U.S.,
366
( 973),
an inference of monopoly power was based on a finding that the. defendant utility possessed a 75.68 share of the relevant-market.
We find that FP&T has monopoly power in these relevant markets, as determined by Dr. Taylor in unrebutted testimony;-
Based on 1976 data,.FP&I has been shown to possess a
76%
share of the retail market in terms of customers served.
Its closest rivals are the eight: municipal utilities located within FP&T.'s service territory which generate a'ortion of, their power. requirements.
14/ Collectively, these eight 13/
Monopoly power can be exercised as weLL through subtle efforts to prevent competition fvom developing.
United States
- v. Griffith Amuseme'nt Co.,
334 U.S.
100 (1948).
14/
The eight. utilities are Florida Public Utilities in Fernandino, Fort Pierce Utilities Authority, the City of Homestead, Jacksonville Electric Authority, City of Key West, lake Worth Utilities, the City of, New Smyrna Beach and the City of Star ke (Exhibit GT-5).
Docket Nos. Z378-19, et al.
systems have a
12% share of retail customers served (Exhi-bit GT-3).
In 1976 FPaL's share of total kilowatthours sold at retail was 75%,
compared to the collective 13% sold by the eight generating municipals.
15/
The statistical measurement of monopoly power adopted in United States
- v. Otter Tail Power Co.,
~au ra, waa the percentage of. towns serve at retail within the relevant market.
FPSL provides retail service to approximately 90%
of the communities in the relevant market with populations of over 1000 people (Tr. 1569).
~L6 The inference of FPGL's monopoly power in the retail market is strengthened by several additional considerations.
First, the existence of territorial allocations obviously provides a very effective barrier to new retail competition from existing utilities..
- Second, the substantial cost of acquiring utiLity property at the expiration of an existing supplier's franchise could be a barrier to competition for existing firms and new. entrants as well (Exhibit ST-8).
Third, the absence of wheeling services that. would allow a utility to provide retail service to a-noncontiguous area would stop any retail competition which overcame the first two barriers.
17/
In. sum, these high market entry barriers confirm the inference of monopoly power based on 15/
FPEL's share of the* relevant market has grown some-what between 1966, and 1976 from 73% to 76% of total retail customers and from 74% to 75% of. retail sales (Tr., L568).
16/
17/
Cf., Brown Shoe Co. v. United States, 370 U.S.
- 294, 337 (1962),
a case brought under 57 of the Clayton Act-where monopoly power was measured on the basis of cities in the relevant market with populations exceeding 10,000.
In Cit of Hishawaka v. American Electric Power Co.,
465 F. Supp.
- 1320, 1325 (N.D. Ind. 1979),
the court. found monopoly power where the defendant served at retail 89% of the municipalities in the relevant market..
Cf., Boston Edison Co., Docket Nos..
E-8187 and E-8700, Order Reversing xn Part and Affirming in Part Initial
- Decision, mimeo at 3
(December 7, 1976),
where the Commission dealt. with a transmission rate for retail service to a noncontiguous territory.
Docket Nos.
ER78-19, et al. PP&T 's market share.
Consumers Power Comaan, 6
NRC 892, 1013 (1977).
Moreover, entry barriers enhance the opportu-nities for exploitation of this power.
Although the record does not contain precise statistical indicia of PP&L's share of the wholesale power market, it is clear that the Company has monopoly power over bulk power transactions as welL.
PP&L's share of the retail market is a
suitable base on. which to assess its share of the wholesale
- market, because the bulk power which the Company produces to serve its own captive retail service territory must be included as part of the wholesale market.
United States
- v. Aluminum Co.
d I
~
0
~
~
1
~
h '*h added the Company's wholesale sales to municipal and cooperative utilities within the relevant market.. The only other supplier of wholesale requirements service within the relevant market is the Jacksonville ELectric Authority which supplies its own distribution system, plus the distribution utilities in Jacksonville Beach and Green Cove Springs.
Moreover, included in FP&l's bulk power resources are.
virtually all, of the nuclear generating capacity and sub-stantially all of the-gas-fired generation available within the relevant market,- each of which give the Company a signi-ficant. edge in the production of Low-cost power for base load requirements.
Three of the four operating nuclear plants in the State of Florida are solely owned by PP&L (Tr.. 588, 1625). 18/
Only New Smyrna Beach and the Cooperatives, acting through their generation and transmission subsidiary, have gained direct access to, nuclear. generation, through small ownership interests in Plorida Power Corporation's nuclear plant.
The Company does not dispute that its Long-term, noncurtailable supply of natural gas gives it an advantage over municipal generating systems; 19/
however, it asserts that it should be allowed to retain this bargained-for advantage for sales 'to existing customers (Tr. 205).
By comparison, municipal generating units are small-capacity, oil-fired steam or internal combustion machines
~18
- See, Port Pierce Utilities Authority v. NucLear Re ulatorv Commissxon, P.2d
, D.C. Car..Nos..
77-1923 and 77-2LOL (March 23, 1979).
/
P.2d, 5th Car.. Nos.
77-2911 and 77-2972 (March 20, L979).
4 4
~
I ~
~
4 Docket Nos.
ER78-19, et al.
which characteristically have high operating costs and are ill-suited to. provide baseload requirements.
20/
- Pinally, we note that PP&L owns 81% of; the transmission lines within the relevant. market with operating voltages of 69 kV or above..
The Jacksonville Electric Authority owns the next-largest
- share, 5% (Exhibit GT-5).. These are the facilities over which bulk power is transported. within the relevant market and PPaL's ownership share gives it
"'strategic dominance" over transmission.
United States v.
Otter Tail Power Co.,
~su ra, 331 P.
Supp. at 60.
As noted
- above, PPSL'id not undertake to define relevant markets and did not challenge the analysis of Staff's economic witness.
Instead, its economic policy witness challenged the basic relevance of structural analysis to regulated public utilities..
The. Company's. thesis is that regulation prevents:
'a utility haying monopoly power from controlling prices and excluding competition from the market, i.e.,
the-indicia of monopolization under. Section 2 of the Sherman Act. 21/
However, this is not really a rebuttal. to Staff's positron.
Instead, it simply confirms the role of the Commission in eliminating or modifying rate provisions, desi ned b
a utilit, which would otherwise facilitate price control or exclusion of competitors.
22/
Ne believe the idea that: regulated utilities. are immune-from'harges based on the exercise of monopoly power has. been thoroughly discre-dited by United States
- v. Otter Tail power Co.,
~su ra.
ACTIONS OP COMPETING UTILITIES WITHIN THE RELEVANT MARKETS Introduction Zn cases where the anticompetitive effects of wholesale rate schedules are at issue, we anti-cipate focusing primarily on structural analysis to measure the existence of monopoly power, and on the suspect rate provisions themselves to determine their effects. on the
~20 Plorida Cities brief on exceptions at 76-77.
See,'xhibits 28 (RES-C) and 41 (JW-1, at 3-4).
21/'PPSL brief opposing exceptions.'t 43.
22/
Clearly, regulation does not insulate electric utilities from operation of the antitrust laws.
Cantor v. Detroit Edison Co.,
426 U.S.
579 (l976); see,.
Consumers Power Commrssron precluded from considering antitrust law and policy.
Gulf States Utilities Co., Docket No ~
ER76-816, Order Approving Settlement Subject to Condition (October 20, 1978.).
Docket Nos. ZR78-19, et al.
17 enhancement or maintenance of monopoly power.
Iff for
- example, a rate provision would weaken a competitor or raise the entry barriers to a market where competi-tion can exist, that will likely be sufficient. evidence of anticompetitive effect to warrant its elimination or modification >>- absent a weightier showing that the provision serves some countervailing public interest.
City of Huntin bura v.
1974); Northern Natural. Gas Co. v.
- 953, 971 (D.C. Cir. 1968).
23 Unlike presentations in civil and criminal actions to enforce the antitrust laws, it is not necessary in our deliberations to have an extensive record on the past conduct of a utility towards its customers, or its intent in establishing or maintaining a restrictive rate provi-sion.
- See, Missouri 'Power-R Ki ht Cpm@an
, Opinion No.
31, mimeo at 9-10 (October 27, 1978).
24 Every rate case in which anticompetitive effects are alleged need not become a full-blown antitrust proceeding.
23/
~24 In rate change proceedings such as this one, heard under Section 205 of the. Pederal Power Act, the appli-cant bears the ultimate burden of nonpersuasion.
However, Staff and intervenors may be required to come forward with some evidence to focus. their allegations of anticompetitive effect, and to relate that. evidence to the targeted rate provi-sion.,
- See, Northern California Power A encv v.
1975).,
However, there may be situations in which the rate proponent may demonstrate the innocuity of a questioned provision because, for example, the utility has a general wheeling tariff.,
or undertaken other actions which weaken I..~1 Power Pool, Opinion No. 775, mimeo at 33 (september 10'976) i aff'd sub.
nom., ((unici alities of Groton, et al. v.
- PRRC, 967 P.2d 1296 (D.C.
Docket:los.
FR78-19, et al. - 18
- However, as noted
- sunra, at 2, conduct may he relevant to ouc assessment of the justification for and purpose of a service Limitation.
In the case before us a
full record has been compiled and we are further aided by a recent decision of the Court of Appeals for'he Fifth Circuit 25/ in" fully understanding the 4
anticompetitive effects of FP&L's rate proposals.
26/
- Moreover, the.documentary evidence of Staff and the Cities, largely obtained from Company files, is frequently incongruous with the testimony of Company witnesses.
27/
By and large the testimony of witnesses presented by Staff and the Cities is a
summary recapitulation of hundreds of pages of correspondence and internal company documents contained in over 200 exhibits.
This evidence has been of significant assistance=
in probing the effects of FP&Z's alleged need to restrict the availability of service under. schedules SR-2 and PR.
The Company's reaction to the voluminous evidence of the Cities and the Staff relating to anticompetitive
-conduct is essentially
- a. demurrer.,
FP&L asserts that this evidence is irrelevant to its proposed tariff modifications. and, that issues of anticompetitive conduct should he raised in other focums.
While we agree that the Commission has no authority to enforce the antitrust laws, this does not make the evidence, irrelevant to the formulation of remedies well. within our authority..
28/
25/
Gainesville Utilities Department, v. Florida Power 0.5.
0 99 H. Ct.
454 (1978)..
fhxs opinaon was issued after Judge Wagner wrote his Initial Deci-sion.
26/
This. evidence confirms our conclusion that FP&L has monopoly power. in the relevant markets.
Judge Wagner was also concerned by what. he characterized as "disturb-ing episodes of Florida Power
& Zight, Company's past conduct which raise serious, antitrust questions."
Initial Decision at 5.
- However, time constraints led-him to defer to the Commission or the Justice Department.
27/
- See, Gainesville Utilities Deaartment v. Florida Power Lrcht Co., sunra, 573 9.2d at 301,. note 14.
28/
Federal Power Commission v.
Conwav Cora.,
426 U.S.
271 (1976); Catv of Pittsbur v.
- FPC, 237 F.2d 74',
751 (D.C. Cir. 1956); Pacific Gas and Electric Co.,
FPC Project Nos.
1988 and
- 2735, mimeo at 10-13, order of April 1, 1976.
- 19 Docket Nos.
ER78-19, et al.
Yiholesale Market Division FP&L has been found to nave engaged xn a per se violation of the Sherman Act by conspiring with Florida Power Corporation to divide the Florida wholesale power market.
ln Uaines-ville Utilities Denartment V. Florida Power
& Ltcht
- Comnanv, 29 the Unrted States Court of Appeals for the Frfth Circuit reversed and remanded a district court
- judgment, based on a review of the evidence which "com-pelled" a finding that the two largest utilities in the State of Florida had conspired to avoid selling wholesale power to customers in each other's service territories.
30/
This case arose from efforts by the Gainesville, Florida., municipal utility system to end its costly operation in isolation by interconnecting with either FP&L or Florida Power Corp. 31/
The Court found that beginning in 1965 Gainesville' efforts to interconnect and coordinate its operations were met with a joint strategy to induce the municipal to interconnect with Florida Power Cora.,
on precondition that all three systems agree to a retail territorial allocation..
Correspondence sent to Gainesville and to the Federal Power Commission, regarding an interconnection applica-tion under Section 202(b) of the Federal Power Act, was routinely passed between FP&L and Florida Power Corp. with the understanding that concerted action was contemplated and invitee.
~32 29/
- Suora, note 24.
The record in this ca e contains a number of exhibits from that antitrust nroceeding.
30/
Gainesville Utilities De artment v. Florida Power vrlle and Florrda power Corp.
reached a settlement before the action was tried.
31/
See, Gainesville Utilities De artment v. Florida
~ower Coraoratxon, 40 FPC 1227 (1968), reversed, 425 F.2d 1196 (5th Cir. 1970), reversed, 402 U.S.
515 (1971).
32/
See also the consent decree in United States v.
Florida Power Cora.
and Tamaa Electric Co.
(1971 Trade Cases para.
71,
- 637, K.D.
F a. 1970).
20 Docket Hos.
ER78-3.9, et al.
The cour t was particularly impressed by the documen-tary evidence which demonstrated a "routine" course of conduct spanning two decades whereby each utility would refuse to sell power, to existinq wholesale customers of the other or to municipalities served at retail by the other which were attempting to establish new distribution utilities..
Qn remand, the case is once: again before the 'district court for precise determination of the effect of the wholesale. territorial allocation on Gainesville's difficulty in obtaining an interconnection, plus attendant damages.
Until the trial court enters its new judgment, we shall not know how FP&L is to be enjoined from engaging in anticompetitive conduct aqainst municipal utilities or directed to remedy the damage done.
Ac isition Efforts and'ranchise Comaetition The princxpal allegation leveled against FP&L's tariff limita-tions is that by restricting access to wholesale power the Company may thereby increase, its-dominance as a retail supplier.
The record; is. richly detailed with evidence of retail competition to serve entire communities between FP&L and existing municipal systems.
FP&t.'s first. attempt to acquire, the: Lake North util-ity is. documented in a 1'etter to FP&L employees from the Company's. Nest Palm Beach Division Manager, dated June 18,
- 1958, which sought "a list of your relatives and friends who live in Lake. Worth."
The District Manager proposed to send.
these. sympathetic members of the community infor-mation concerning a forthcoming el'ection on a proposed, 30-year lease of.'he. municipal system to FP&L, where a
successful. vote would, "a'ssist us in our negotiations. for other municipal systems" (Exhibit QT-34, at 64).
Liter-ature distributed to Lake Worth voters promised better service and an immediate rate reduction averaginq 20%, plus an aggregate reduction of $14.milli'on over the 30-year lease.
Although winning a simple majority vote, the elec-tion failed to attract the* requisite 608, voter participa-
'ion and'he proposition failed.
Efforts were renewed in 1968 through a: Lake Worth property owner;
- however, preliminary discussions were terminated without action.
FP&L offered to furnish firm power to the Hew Smyrna Beach municipal utility during the winter of 1958, provided the City Commission would'aqree not to order 'any additional generating equipment and enact an ordinance which would permit disposition of its electric utility on a majority
Docket Nos.
ER78-19, et al.
vote.
33/
FPSL then planned to negotiate a lease of the utility the following spring and submit it to the voters for approval (Exhibit GT-34).
An April 1959 report to Company management stated that the proposed acquisition "certainly provides some distinct advantages other than just taking over a municipally owned property."
The report noted the considerable possibilities of industrial and residential development in the area (Exhibit GT-34, at 73)
The Company's action in 1959 did not win it a lease of the New Smyrna Beach system (Exhibit GT-34, at 61);
- however, FPaL tried again in 1965, sending an inquiry to the City Commission which was virtually identical to the letter sent to Fort Pierce in Nay of that year (Exhibit GT-34, at 75). 34/
FP&L Executive Vice President R.
C.
Fullerton descrxEed the prospect of taking over the New Smyrna Beach municipal system to the chairman of another investor-owned utility as something the Company viewed "with natural enthusiasm" (Exhibit GT-34, at; 75).
Also in 1965, FP&L purchased from New Smyrna Beach all of,. its electric utility facilities in the City of Edgewater where it had previously provided retail service to onLy a portion of the community.
Intermittent negotiations occurred between FPfL and New Smyrna Beach in 1970 and 1973..
En 1974, the Company devised an internal plan for acquiring the municipal utility (Exhibit GT-34, at 32),
and sent senior manage-ment representatives to discuss an acquisition proposal with the city utility commission, estimating a rate reduction of more than
$ 600,000 under FpaL ownership.
Company management informed the utility,commissioners that FPkL could provide cheaper and more dependable service because of its greater power plant capacity and
~33 Characteristically, Florida municipal. charters require the approval of greater than simple majority of voters for. disposition of local uti1ities.
Similar terms were extracted from the City of Clewiston in 1965.
- See, the initial decision in Florida Power a Light Co.,
37 F.P.C.
- 560, 573, adoated, 37 FPC 544 (1967)P afFirmed snb nom.,
PsderaT power Commission v.
Florida Po~er
& Li ht Co.,
404 U.S.
453
$ 1972).
34/
Infra, at 22.
22 Docket Sos.
ER78-19, et al.
its diversity of fuels (Exhibit GT-34, at 34).
Another acquisition presentation was made to the utility commis-sion in 1975, at the City's request.
FPaL sought to acquire the Fort Pierce utility in 1965 when the subject was raised by a city commissioner at a meeting convened to discuss a possible interconnec-tion of the two systems (Exhibit GT-59).
The response of the Company's division manager mentioned the inter-connection only as an interim arrangement, concentrating instead on the sale or lease of the municipal utility.
FP&L stated that any lease-should be for a period of 30-years to coincide with the term of a standard electric franchise.
In return, the Company offered to immediately interconnect the systems, apply FP&L's lower retail rates and "lend its-full support toward attracting industry to the area."
Fort Pierce thereafter invited lease or sale proposals; however, negotiations stopped short of acqui-sition.
Acquisition was again raised by Fort Pierce officials in March of 1976..
The minutes of a meeting with FPSL senior management officials. record that the City felt that disposition of, its. utility system was necessitated by an inability to exploit the economies of scale in electri-city production:
Mr. Skinner (Fort Pierce's Chief Engineer]
said we think its very efficiently oper-ated.
We realize the big problem facing us is not the high cost of fuel. or the inefficiency of our. system, but the ineffi-ciency as compared with putting oil into a larger boiler and turbine.
That's where we'e getting caught short on the heat rate input to the boiler.
We have a problem competing with FPSL favorably today because it represents around 65% roughly of the cost of doing business, the cost for fuel oil.
(Exhibit GT-31.)
When Fort Pie'rce inquired at that same meeting about the purchase of 30 MH of base-Load firm power, the Company responded that it did not wish to sell firm power unless the purchaser could reciprocate with sales of firm power to the Company.
This would require Fort Pierce to main-tain generating capacity sufficient to meet its own load.
FPsL also discouraged purchase under the SR-1 schedule,
2 3 Docket Nos.
ER78-19, et al.
indicating that it was not really firm and "awfully expensive" (Exhibit GT-31, at 17).
The Company continued to develop an acquisition pro-
'posed throughout 1976
( Exhibit GT-34).
However, enthu-siasm was apparently dampened when Fort Pierce inter-vened in proceedings, before the Nuclear Regulatory Commission regarding PPSL's proposed South Dade nuclear
'generator.
PPaL proposed a sale or lease of the Homestead utility in 1976 when its president met with city offi-cials to-discuss Homestead's request for a retail. ter-ritorial agreement, an emergency interconnection and wholesale purchases (Exhibit GT-18, at 1).
Xn 1976 the Homestead City Council discussed the topic with FPaL; however, negotiations were apparently not continued.
The record indicates that acquisition of the Vero Beach utility was considered by FP&T. in 1957, 1958 and 1959. 35/
Thereafter, a serious effort to acquire the.
Vero Beach system was undertaken in. 1976 which culmi-nated in approval of the sale by the-City electorate and an application, to the Federal Power Commission under Section 203 of the Federal Power Act.
Xnternal management correspondence concerning implementation of the acquisition by FP&L suggests that Vero Beach would be viewed as a
bellwether by other municipals thinking of-entering or leaving the utility business:
The impact potential of the Vero Beach acquisition on the franchise election in Daytona Beach and other Municipal operations such as Pt-.
- Pierce, Ecmestead, etc.
makes rt rmgerative that we nct under achieve with our Vero Beach operation.
(Emphasis supplied.)
36/
After hearings in Docket No. E>>9574, the Vero-Beach acquisition was approved by an administrative law )udge on grounds, advocated by PPSI, that the municipal utility could no longer efficiently generate its own power recuire-ments and that PPaL would provide an economic source of retail supply for the citizens of Vero Beach.
This con-35/
Exhibits GT-34, at 74; GT-52; and GT-62.
36/
S taff Exhibit GT-34, at 1.
Docket, Nos. ER78-19, et al trasts with the finding by the Presiding Judge that Vero Beach was a "truly excellent" utility with outstanding growth potential.
- See, Florida Power
& Li ht Co.,
Docket No. E-9574, Initial Ruling and Order on Phases I and II (February 6,
1978).
- However, FP&L thereafter withdrew its application in early 1978 prior to the commencement of a final phase of the acquisition proceeding which was to consider the possible anticompetitive effects of the proposal.
In summary, the record documents 20 years'orth of franchise competition between FP&L and the municipal
'tilities located within its service territory.
At various times FP&L has promoted acquisition or willingly received municipal'roposals.
Roost, if not all, of those incidents= occurred when the municipal systems
.were arranging new bulk 'power supplies from the options of self-generation, wholesale purchase from FP&Lf and retail purchase.
from FP&L after franchise disposition.
The Company has not succeeded in many acquisitions,-
because the municipal candidates solved their supply problems by adding generation.
However, the record strongly indicates that self-generation is becoming less and less attractive to the point where FP&Ii.'s witness Gerber'as described small scale generation as an anachronism.
Since FP&L controls the remaining two options,
~37 we concLude that its wholesale monopoly power can only increase, and, thereafter, its retaiL power as well.
- See, Borough of Ellwood City v.
Penns lvania Power Co., -462 F.
Supp.
- 343, 1346 (W.D.
Pa 979).
The Presiding Judge expressly accepted the Company's representation that it was not interested in acquiring Homestead or. Fort Pierce because of capacity problems and operating difficulties.
Since we* find the premise of this, representation unconvincing,
~38 we would be remiss to wholeheartedly. accept its conclusion.
In any event, it does not overcome the weight of the evidence to the contrary.
~39 37/
As discussed infra, at 31, municipal purchase of entitlements zn large generating units constructed hy FP&L does not currently appear to be a, viable option.
38/
Infra at 34-37
'9/
I A3.'ternatively, it appears that the Florida Public Service Commission cou3d require FPsI, to provide retail service if the customers of a municipal utility voted to dis-band operations.
- See, Florida Statutes Annotated, 5366.03.
Docket Nos.
ER78-19, et al. Potential Losses of Franchises The Company appears well aware of the relatxonship between its wholesale sales to municipal utilities and its'bility to retain existing retail franchises.
In March of
- 1977, a market development presentation was made to ppaL management which stressed, inter alia, the need to maintain the integrity of the Company in relation to publicly. financed utilities (Exhibit GT-64). 40/
Between 1976 and 1985, for example, franchises covering retail sales to 41.8% of FP&L's customers are to expire (Exhibit GT-66).
In addition, FP&L serves another 93 communities at retail with no franchise agreement.
Franchise competition can be a
positive force to encourage better service and lower rates;
- thus, a utility should not be allowed to tilt the balance-by artificially making wholesale service unattractive to potential retail market entrants.
United States
- v. Otter Tail Power Co.,
- sunra, 331 P.
Supp. at 61.
The record contains evidence relating to three franchise aspirations, of which Daytona Beach is the most ful'y documented.
In 1975'r 1976, the City of Daytona Beach under-took a study of municipal distribution versus FP&L franchise renewal.,
In response, the Company mounted a-significant. effort. to inform City residents of the benefits of franchise renewal.
Of particular note are.
the Company's statements that each of the Florida municipal utilities had rates higher than FP&L (except for two with;.access to hydroelectric power) and that municipals charge-these higher rates because FP&L "can gain greater economies of scale in all facets of its opera-tion" (Exhibit ST-5, at 1 and 3).
FP&L won renewal 40/
In a 1975 paper on "Strategic Issues In Inter-utility Relations" prepared by Company witness
- Gardner, emphasis was placed,. inter alia, on franchise renewals and phase out oY ~hoTesale tariffs (Exhibit GT-30).
See also, Exhibit GT-49.
Docket Nos.
ER78-19, et al. - 26 of its franchise after a record high election expendi-ture (Exhibit GT-76).
Due to the contin'uing expirations of retail franchises, we conclude that vigorous franchise competition exists within the retail market which FP&L can influence through its wholesale sales policies.
The Company characterizes its efforts to renew franchises and acquire others as sales promotion and business preservation.
41/
- However, these actions may still run afoul of antitrust law and policy when undertaken by a possessor of monopoly power. Otter Tail Power Co. v. United States, 410 U.S.
366 (1973);
and 1
- 465 F. Supp.
320, 1329-32 (N.D. Ind. 1979).
FP&Z's Relationshi with Homestead Traditionally, FP&Z'. has demonstrated considerable reluctance to engage in firm power transactions with municipal utilities, even within its own service territory.
During the 1950's and 1960's this amounted to an unqualified refusal.
Rate schedule RC under which firm service was provided to cooperatives required that capacity and energy "not be resold or distributed by the Customer to any munici-pality or unincorporated community for resale" (Exhibit GT-51).
In an initial decision adopted by the FPC in Florida Power
& Z,i ht Co.,
37 FPC 544 (1967),
~42 Hearing Examiner Wenner recounted six separate instances over a oeriod of 13 years when the Clewiston municipal utility requested and was refused wholesale service by FP&Z.
43 In 1963, the Company's president informed the City of Winter Garden that FP&L-did not "supply 41/
FP&K, brief on exceptions at 45.
42/
Affirmed, Federal Power Commission v. Florida Power
& Light Co.,
404 U.S.
453 (1972).
43/
37 FPC at-572-73.
Docket '.los.
ER78 19I et al. 27-municipal systems firm wholesale power for distribution through a municipal distribution system" (Exhibit GT-aS).
44/
Homestead first requested firm wholesale service from FP&L in '67, to which the Company responded that it did not provide this service to municipalities and cid not wish to serve any.
wholesale power from FP&L was Homestead's alternative to the immediate installa-tion of new generation or disposition of its system (Exhibit GT-22).
Robert Fite, the Company's president, and F. E. Autrey, a vice president, stated that FP&L would not refuse to sell wholesale power, if that was the only arrangement negotiable;
- however, they.added that the City would not receive the rate at which firm sales were made to cooperatives and that a retail territorial allocation was a necessary precondition to any service.
FP&L emphasized the comparative oenefits of an emergency interchange agreement or., sale of the municipal system in lieu of wholesale purchases (Exhibit GT-18).
Homestead was unable to negotiate a firm wholesale contract and-instead made intermittent purchases from FP&L over the-ensuing five years at average prices that were considerably higher than those paid by FP&L's cooperative customers (Exhibit GT-29, at 33).
Tn, April of 1972, Homestead requested a more sophisticated.
interchange agreement with FP&L including the purchase of firm power to meet a portion of the City' load; however, FP&L negotiators responded that FP&L was only interested in an interchange where both parties had capacity to meet their own demands plus ample reserves (Exhibit GT-29, at 1-3).
- instead, Homestead and FP&L'ntered into new emergency service agreements whereby the. Company only agreed to supply emergency power needs "to the extent it has capacity available.
FP&L applied its then-existing rate schedule "NH," applicable to total requirements pur-chases by cooperative customers (Exhibit GT-29, at 4-11).
Homestead next requested power from FP&L in August.
of 1973, proposing a firm purchase of 12-16 NN from 197S through 1980.
The City stated that it intended to use 44/
See also, Gainesville Utilities Department v. Florida 9awet a I iei t co.,
- aaeta, 973 9.2d at 298.
- Docket, Ios. ER78-19, et al-this capacity for base load, purchase interchange energy to meet its intermediate load and use its own generation only for peak load capacity and reserve (Exhibit GT-29, at 12). 45/
The Company first decided to respond to Homestead's request with the so-called "Marshall Theory":
'Homestead was to be told that PP&E had no firm power to sell.
Company negotiators were advised to have load and re-serve estimates available to substantiate this response (Exhibit GT-29, at 14).
Immediately thereafter,
- however, the Company concluded that Homestead had been listed as a customer under all requirements schedule SR and was actually receiving firm power at committed intervals.
46/
PPST. then decided. that if Homestead requested a trans-mission interchange agreement as well as firm power, it would. empLoy Schedule D and use Schedule SR as the nego-tiated rate thereunde'r.
In October of 1973, Homestead submitted a compre-hensive request for an interchange agreement and simul-taneous purchase of firm power from PPaE. to serve the base-load portion of the City's requirements (Exhibit GT-29, at 24-28).
However,, Exhibit GT-29 (,at 29-31) reveals that the Company wanted to avoid any obligation to sell firm power to Homestead.
by withdrawing schedule SR from its existing wholesale customers, including Home-stead and replacing it with an. "Emergency Rate Schedule" telling, the City that it has no firm, power to sell.
45/
46/
The Company's chief representative at this meeting was its vice president, E.K,. Bivans, who later testified in this proceeding.
Copies of. Bivan's notes.(Exhibit GT-29, at 12) were sent to the Com-pany's president and other executives.
This discussion is recounted in the notes of Com-pany employee- "'rlMK"'apparently H.M. Klein, a nego-tiator. in dealings with Homestead),
Exhibit GT-29/
at 15 The notes bespeak a certain surprise in Learning. that Homestead was an SR customer:
"Rate SR offers firm power.
Apparently, the Company has heen hanaring their request for e.numher~f -years~
and is not in a goad position to refuse to continue offering firm base load power of 12 MN to 14 MW, which is consistent to [sic) their previous demands."
Docket Nos.
ER78-19, et al.
Alternatively, it considered offering Homestead a
Schedule D (firm interchange) rate lower than schedule SP in return for a signed contract stating that the City would install additional generation capable of carrying its electrical load.
The final paragraph of this internal memorandum seems an apt summarization of PP&Z '
reaction to Homestead' request for firm power:
It is our belief that if we refuse to sell the City of Homestead Firm Power they will immediately-request us to wheel from other municipalities.
If we encourage them to increase their generation where we can purchase power from.- them, we may offset the demand for wheeling as well as avoid a lan@-
term Firm Power commitment. (Exhibit GT-29't 31
)
PP&Z's hope to induce Homestead to con truct addi-tional generation for base load requirements in lieu of firm power purchase was not done without knowledge of the consequences for the City.
Xn December of 1973 >
PP&L's financial planning department prepared an analysis of PP&Z and the municipalities in or near its service area. entitled "Comparative Analysis of Municipal and Investor Owned Utilities and the Benefits to Their Customers" (Exhibit GT-34, at 42-44).
This study determined that, except. for Orlando and Jacksonville, municipal utilities. charged. higher retail rates than FP&L, because:
The size of most municipal units is limited by the size of the city.
This limit on size prevents the smaller. muni-cipal utilities from realizing many of.
the economies of scale available to large utilities.
This fact was clearly revealed in the -analysis.
The smaller utilities had less efficient heat rates and higher fuel and operating costs per KWH of power sold.
These higher costs appeared to be major contributing factors in the high cost of po~er to, their customers.
Negotiations on the Homestead interchange agreement continued and in December. of 1973 a final set of discus-sions occurred, from which FP&Z learned that the
Docket "los. ER78-19, et al.
"key" to this agreeement was FP&L's willingness to simultaneously supply service under both the interchange agreement and schedule SR after construction of neces-sary interconnection facilities by Homestead.
Engin-eering and billing problems were not considered serious by FP&L personnel.
- However, Company negotiators opposed a written commitment to serve'he City under Schedule SR after completion of the interconnection "because we [FP&L)-
already have a contract to serve them on SR and the agree-ment does not necessarily prohibit such an arrangement to continue" (Exhibit QT-29, at 39).
- Instead, FP&L's vice president, R.
G. Mulholland did send a letter to Homestead's City Manager, in January of 1974, after the interchange agreement was signed, stating the Company's understanding that it would provide Homestead with elec-tric cower for 36 months after completion of the City' new interconnection facilxtres at a rate not to exceed the Company's approved wholesale rate schedule in effect at that time (Exhibit GT-29, at 43).
Homestead' high-voltage interconnection facilities were completed in October of 1977.
Without advance notice to Homestead or any indication from the City that it no longer wanted average-priced firm power, FP&L filed.
the rate change application with this. Commission which proposes to terminate SR service-to Homestead.
Zn place of SR power, FP&L states it will sell Homestead incre-mentally-pr iced, cur tailable Schedule D power, which the Company admits is more expensive than schedule PR when used for base load.
'hus, Homestead has received wholesale service from FP&L since the 1950's, including firm requirements ser-vice under the SR-1 tariff since that tar iff first became effective.
From the time of agreement in 1973 to completion of the interconnection in October
- 1977, FP&L served Home-stead under the SR-1 tar,iff (Exhibit 29).
We find no evidence to support FP&L's contention that completion of: the interconnection somehow eliminated Homestead as an existing wholesale requirements customer.
Nor is it persuasive to assert that, the parties intended for Home-stead to be served at'an. incrementally-priced Schedule D rate instead of the average-cost schedule SR. 47/
47/
The record'ndicates that FP&L did not publish a.
rate level formula for Schedule D until February 10,
- 1978, when it:. made an offer of Schedule D capacity to Fort Pierce.
Docket 'Aos. ER78-19, et al. Indeed, knowing Homestead's desire for base-load firm power, the Company's representations as to the meaning of their interchange agreement in January of 1974 are quite to the contrary.
It would be difficult. to reach any other con-clusion, given the weight of this largely unrebutted evidence..
FP&I's Relationship with Fort Pierce The efforts of Fort Pierce to purchase farm power from FP&Z bear a marked similarity to those of Homestead.
In March of 1976, Fort Pierce approached the Company about purchasing firm power to meet the the City's base load requirements and using its own generators for peaking purposes.
Fort Pierce renewed its request in letters to FP&T. in April and December of 1976.
The December letter requested separate price quotations for base, inter-mediate-and peaking capacity.
The. City also informed FP&T that it immediately wished to begin purchasing "base capacity and energy on a year-round basis in amounts ranging from 25 MW to 30 MW," and requested a statement of the Company's terms and conditions.
Although FP&Z recognized its obligation to provide service under schedule SR-L, both in an internal memorandum and in a letter to Fort Pierce, the Company failed to respond with specific information on.
which Fort. Pierce could act.
After another letter to FP&L in April of-1977, the-parties met in July and Fort Pierce
,. was,. told that.
FP&E had no firm power-- to-sell.
~48 Fort Pierce maintained its position that. it was entitled to firm power under the SR-L tariff throughout the remainder of 1977.
On October 14, 1977',
FP &I,. filed changes to the tariff'hich limited its. availability to existing customers.
Thereafter, the Company offered Fort Pierce up to 240 MW of capacity through the end of 1980, but under the terms of:
interchange Schedule D, not schedule SR.
Gn March 24, 1978, during the cross examination of FP&Z 's rate design witness, Gloyd Williams, by counsel for Fort Pierce, Mr. Williams acknowledged that the City was eligible to purchase firm service under the SR-1 tariff.
The same day, FP&l. delivered a draft service agreement to the City and firm service began immediately.
- However, a dispute remains, concerning the duration of service and FP&X, has stated its intention to terminat service to Fort Pierce if we approve its proposed re-striction of firm service to named and existing customers 48'owever, in July of L976 FP&L's System PLanning Department prepared a market assessment of firm intercharge sales between 1977 and 1985 which pro-jected an "available supply from FPL" ranging between 1604 NW and 1995 leaf in 1977.
Th's report assessed the opportunities for sale of firm power to 10 different utilities in peninsular Florida, including Fort Pierce (Exhibit GT-7).
3 2 Docket Nos.
ER78-19, et al.
which do not have generating capacity sufficient to meet their peak loads.
Limitations on Alternative Sources of Caaacit Unre-butted Company. documents xn evidence indicate that it is FP&L's policy to retain full ownership of the nuclear generati'ng plants which it constructs.
The Company has stated that the full, capacity of these units is needed to serve its own customers, so sharing is not to be anti-cipated until FP&T reaches the optimum amount of, nuclear capacity foi its system (Exhibit 27).
- However, no party disputes that joint ownership of such facilities would provide municipal and cooperative utilities (as well as other utilities in the region) with access to FP&L's..
economies of scale (Exhibit GT-l, at 6).
FP&L is the sole owner of three operating nuclear plants having aggregate capacity of 2,188. MN.
FP&T. has agreed to-share a portion of St. Lucie No.
2 nuclear plant with neighboring systems including Homestead and New Smyrna Beach;
- however, FP&L documents in evidence indicate that this was done at the insistance of. the Justice Depart-ment. and that FP&L has not committed it'self to share the capacity of'ny future, unit (Exhibit GT-71, at 22). 49/
The'vailability of Transmission Services FP&T now offers four wheeling services.
which correspond to its interchange capacity and energy services.
~50 Wheeling may be provided for one-year periods, with service available at the sole discretion of FP&L when trans-mission capacity is *not otherwise required by the Company.
Transmission schedules TA, TB and TC correlate to inter-49/
Xn. 1973 FP&L considered cancelling St. Lucie No.
2 because of "escalating costs and Justice Depart-ment revie~ of our antitrust status" (Exhibit 20).
Then in 1976 the Company considered a shift to coal-fired plants for future base-load generation "to. eliminate the Atomic Energy Act. as a route to municipals'nvestment.
in generation"'Exhibit GT-l, at. 13).
See also, the decision of the Atomic Safety and Licensing Appeal Board, Nuclear Regulatory Commission, in Florida Power
& Li ht Co.,
Docket No. 50-389A'ALAS-420, July 12, 977),
regarding antitrust review proceedings on St.
Tucie-No. 2.
50/
A complete description of'hese four services is found in Exhibit 28 (REB-AX), a draft service agreement sent to the City of Fort Pierce on December 6,
1977.
The rate for these services is currently under adjud ication.
Docket Nos.
ER78-19, et al.
change schedules for emergency, scheduled and economy
'apacity "rd/or energy services. 5l/'f particular significance to this case is schedule TD, denominated "firm transmission service."
However, "firm" is a
misnomer because Schedule TD service may be reduced or interrupted at the Company '
discretion for per iods up to 30 days.
~52 In short, these four wheeling services only offer surplus transmission capacity on an as-available basis.
PPSL does not contend that any of these four wheeling services could be utilized to transmit alternative power supplies to utilities within the relevant markets from third parties eauivalent to those obtainable under schedules SR-2 or PR.
The Company states that an appropriate rate would have to be negotiated at the. time a potential wheeling customer arranged its alternative power supply.
~53 51/
~Su ea at 4-5.
~52 Section E of the draft agreement (Exhibit 28, RES-AX) provides:
In the event that. Pirm Transmission Service cannot be provided due to an unanticipated reduction or interruption of PPSL's transmission facilities supplying such service, or if such service is provided in an amount less than 80%
of the Contracted, Demand for Pirm Transmission Service as a result of unanticipated reduction or interruption of power delivered by the Commission to PPaL for the City's account pur-suant to Service Schedule D of the City-Commission Contract.,
and such reduction or interruption continues for a period of thirty (30) days, the Charge for Pirm Transmission Service will be adjusted as. follows:
In each succeeding'month, the higher of (a) the maximum KW delivered to PPSL in any one hour during that month, or (b) the maximum MH delivered to PPaL in any one hour during the preceding six months, will be substi tuted for the Contract Demand for Pirm Transmission Service for purposes of cal-culating the Charge for Pirm Transmisison Service.
Upon such reduced or interrupted service being restored to 80% or more of the Contract Demand for Firm Transmission
- Service, the Charge in each succeeding month shall be based upon the full Contracted Demand for Firm Transmission Service.
53/
PPSL brief opposing exceptions at 42.
Docket Nos.
ER78-19, et al. - 34 THE'EASONS GIVEN BY FPSL FOR ITS TARIFF LIMITATIONPROPOSALS FPaL would seek to justify its proposed limitations on full and partial requirements availability in'erms of operational constraints.
Specifically, it asserts that future power supply is too uncertain to allow unlimited access to its requirements service.
According to FP&L. customers which are self-sufficient in generating capacity could arbitrarily shift their load between service from FPSL and their own generation.
This would purportedly lead FP&L to maintain capacity in excess of its other, customers'eeds but with no assurance that such capacity would be fully utilized, thereby increasing rates to all customers.
The Company proposes to remedy this uncertainty by making these on-again/off-again customers ineligible for service under schedule.
PR.
Howeve'r, the difficuLty with this proposition is that it has virtually no record-support and is based on a
few conj ectural statements by Company witnesses.
In
- fact, FP&L's rate design witness prepared a model load duration curve in 1975 showing that customers with generating capacity less than peak demand and customers with capacity greater than peak demand would each purchase base-load requirements from the Company, under an SR schedule modified for parallel operation, and use their own capacity intermittently to meet intermediate, peak and reserve demands (Exhibit; GT-7L, at 33).
This is consistent with the repeated requests of Homestead and Fort Pierce for base-
=
load firm power. 54/
- Moreover, the natural inclination of these systems to buy base-load power would apparently be. reinforced by the design of FPaL's PR rate which is intended to promo te high load factor s. 55/
54/
55/
~Su ra at 27-31.
Aqain in their testimony, Plorida CxtLes state their intention to use schedule PR for base-load purposes and, use their own generation for peaking (Tr. 659).
Suora at 3-4.
Wile pp&L is discouraginc purchases
'oy self-sufficient municipals it has apparently adooted a marketing strategy which promotes high load factor usage as a means of improving its declining system Load factor (Exhibit GT-64).
Docket Nos.
ZR78-19, et al.
35 FP&L relies on oil, natural gas and uranium to fuel its generation.
It cites the 1973 oil embargo and resulting drastic oil price increases and the expiration of long-term oil supply contracts and replacement by three-year contracts to cast uncertainty upon its oil supply.
As for gas supplies, it references high levels of curtailment and the expiration of a major gas supply contract in 1979.
Concerning nuclear fuel, FP&L notes that it only has a two year inventory and that its long-term supply contract was cancelled by the seller in 1975.
FP&L may well fac fuel supply problems, as do other suppliers in the electric utility industry.
- However, they are not of a magnitude that would justify the proposals before us in this case.
It appears that FP&L continues to possess long-term fuel oil contracts and that it has entered into shorter-term oil contracts (3 years) with favorable cancellation provisions in order to gain greater flexibility in responding to price changes on the open market (Exhibits 22, at 3; 51, at 9)..FP&L's natural gas warranty contract with Amoco Production Company provides for daily deliveries of 200 MMcf through 1988, such deliveries being beyond the purview of the present curtailment plan of the transporter of this gas, Florida Gas Transmission Corporation (Exhibit 51, at 9; Tr. 431). 56/
Finally,- an affiLiate of FP&L is engaged in.uranium exploration (Tr. 454) and FP&L's existing nuclear units do not appear in danger of being. curtailed due to fuel shor tag e. 57/
56/
- See, Sebrin Utilities Commission v.
- FERC, F.2d 5th Cir. Nos.
77-2911 and 77-2972 (March 20, 1979).
~57 In 1978 FP&L and several other utilities won a judgment in federal district court against their nuclear fuel requirements
- supplier, Westinghouse Electric. Corporation.
Vir inia Electric
& Power Co. v. VTestin house Electric
~Car.,
Czv.
No. 75-0514-R (E.D. Va. October 27, 1978).
In an unreported opinion the court held that Nestinghouse was not excused for delivering nuclear fuel by reason various utzlxtzes.
See, Antitrust Trade Regulation
- Reporter, No. 887, at A-15 (November 2> 1978)-.
Docket Nos.
ER78-19, et al. Among the fuel-related problems which FP&T gives as a reason for limiting firm wholesale service is its inability to procure a coal supply contract.
- However, on cross examination, FP&L vice president l ardner acknowledged that the Company has no coal-fired generation and has no plans to construct any.
These points are confirmed by the testimony of FP&L's vice president in charge of fuel procurement which was presented to the Florida Public Service Commission in the spr ing of.1977
( Exhibit 22).
58/
On br ief, FP &L has argued that the inability to obtain a coal supply contract has impaired its ability to plan coal-fired generation.
- However, the only evidence in the record of FP&Z 's need for such a plant was its desire to avoid municipal access to nuclear generation, the base load alternative to coal, which could come from.antitrust review before the Nuclear Regulatory Commission.
~59 FP&T points to environmental regulations which make
, construction of coal-fired units difficult and make nuclear units almost impossible to build.
Zt also points to escalating costs, litigation and regulatory delays and requirements as additional factors stopping future nuclear unit construction,. or at least yielding a 12 year lead time which necessitates equal lead time for load forecasting.
Zt refers to its cancellation of the proposed South Dade nuclear units and the substantial delay in licensing and resulting increase in capital costs of its St.
Kbcie No.
2 nuclear unit.
As for existing generating units, FP&T states that its Turkey Point nuclear units have experienced steam generator leaks causing unscheduled outages in the past and requiring extensive scheduled outage in the future for repair, and that its combined cycle Putnam units, due to their novel design, have not been reliable.
- Finally, FP&L refers to its common stock selling below book value as evidence of financial difficulties which have limited its construction budget to internally generated cash.
~58 Exhibit 22 indicates that while coaL may weLL be. used in the future, economic, environmental and reliabili;ty problems make it largely irrelevant to FP&L's -current capacity planning.
~9/
Sunea at 32, n.
48.
Docket Nos.
ER78-3.9, et: al. Ne certainly cannot deny that these constraints do pose problems fox utilities such as FP&L, but the record fails to establish that FP&L is so hampered by regulatory recuirements and financial difficulties as to be incapabLe of expanding its generating capacity as needed in the future.
FP&L is, after a3.L, offering 240 MW of Schedule D
capacity to Homestead and. Fort Pierce, and the recent rate of increase in demand, by FP &Z,'
o ther customers canno t, be characterized as rapid.
FP&L has been greatly reducing its demand and load forecasts in recent years, with the actual rate of growth being relatively low averaging at most around four percent annually (Tr. 848).
To the extent that the record gives any indication of FP&Z's current financial condition, it reveals that. FP&L has experienced significant improvement in earnings and related market factors.
About the time FP&L filed this case, it was reporting lower, more 'manageable growth; greater internal generation of funds;. improved earnings and coverage ratios; and increased dividends (Exhibit GT-78).
Suffice it to sav that the record,,
comprised largely of company documents, is ambivalent on this issue.
FP&L would support the separation of full and partial requirements tariffs in-terms of, costs of service on the basis-of. different"load patterns.
~60 These separate full and par.tial requirements tariffs differ both in terms of, demand and energy charges..'P&Z
- contends, therefore, that. it has designed, different rates to reflect more precisely the different costs of serving these different customer groups.
EstabLishment of separate full and partial wholesale requirements rates is common pxactice.
We have in fact recognized the differences in the costs of serving full.and partial requirements customers,'-
not to mention different-types of partial requirements customers.
61/
Xn the present case>
FP&Z,'s proposal of separate full and partial requirements rates appears reasonable.
62/
~60 61/
62/
FP&Z asserts that its wholesale customers without any generating capacity have relatively stable and predictable load patterns which allows it to plan operations and design rates to recover costs of serving.
these full requirements customers.
Xt further con-tends that partial'equirements loads're Less stable but that the PR tariff alLegedly encourages such I
customers to stabilize theix purchases of power.
E.g.,
Boston Edison
- Comnanv, Opinion No. 809-A; Docket
%los.
E-7738 and E-I784, issued December 9,
1977 (mimeo at 20).
Of course, in Phase X of this docket we are not addressing the specif ic costs of service and rate designs of the SR-2 and PR tariffs.
Accordingly, our determination does not reflect on how these two rates wiLL actually function.
~
Docket Nos.
ER78-19, et al.
38 BALANCING THE PUBLIC INTEREST CONSIDERATIONS When the SR-2 and PR tariffs are viewed from a per-spective on the relationships between FP&L and other utilities within the relevant markets, the Presiding Judge's conclusion that the Company's proposal has "no discernible anticompetitive effect in and of it-self" is inadequate.
63/
With alternative sources of
'base-load wholesale capac'ity unavailable, FP&L's tariff restrictions would deny.to Homestead, Fort Pierce and other nominally self-sufficient'utilities within the relevant market the only remaining source of supply, schedule PR.. It would conclude, finally, the municipals efforts over ten years to obtain a source of economically-priced, base-load power. Municipals like Homestead and Fort Pierce would-become likelier to leave the utility business.
- Indeed, the citizenry might force these utilities to come to FP&L requesting takeover.
See, Cit of Mishawaka v.
American Electric Power Cc.,
- eucra, 465 F.
Supp. at 1929.
QF even Sreater rmpurtance tc the Ccmpany wculd be the assurance -that in future franchise renewal contests with potential retail market entrants, it could point to existing municipal utilities as characteristically expensive and unable to exploit scale-economies.
Homestead and Fort. Pierce would not be able to economically <<utilize higher-priced, lower-quality Schedule D service to meet their base-load requirements.
Such offers to.sell at impractical prices and terms have been construed as unlawful refusals to deal, when done to further monopoly power.
Eastman Kodak Co. v. Southern Photo Materials Co.,
273 U.S.
359 (1927).
~ 63/
We recognize and fully appreciate that the Initial Decision was written before.
FP&L agreed to continue to serve Homestead and Fort Pierce under its'R tariff""
pending the final outcome of this case.
We have not been burdened by the time constraints faced by the Presiding Judge.
Under the circumstances the Judge is to be commended for his efforts.
~
~
~
r I
Docket Nos.
ER78-19, et al.
39 The restriction of wholesale service to named and existing customers is an even greater threat to potential franchise competition.
The record indicates that FP&L gener ally plans to minimize sales of average-priced wholesale power to municipals and cooperatives (Exhibit ST-17).
After reviewing the record of PP&L's efforts to renew-the Daytona Beach frachise, it does not appear likely that the Company would offer a potential distribution utility an average-cost rate.
The signal to potential retail dis-tributors in areas presently served by PP&L at retail and over, which FP&L has wholesale. monopoly power is quite clear..
Cf., Cit or Mishaeaka v. Ameiican Electric power Co.,
~su ra..
FP&L's offer to discuss the feasxbxlxty of service to new customers under. specific contract rates does not reassure us. 64/
The balancing of competition against other public interest considerations, required. by Cit of Huntin bur v.
FPC, ~65'ecomes relatively simple once thxs case xs 64/
65/
As Staff notes in its-brief on exceptions, at 9, the Presiding Judge erred in finding that PP&L had committed to. serve new systems in PP&L's service territory.
498 Fe2d 778: (D.C. Cir. 1974).
Docket Nos.
ER78-19, et: al;40-stripped to its essential elements.,
The proposed restric-tive provisions are anticompetitive, we find no counter-vailing reasons, for their implementation, and they are to be deleted.
The Company has not demonstrated that it should be allowed to change the general availability provision of schedule SR-1 which makes wholesale service available to all municipal and cooperative customers in FPRL's, service territory. 66/
Proposed terminations of firm, average-cost service to Homestead and Fort Pierce are based on these restrictive provisions, so the proposed cancellations are rejected.
The Homestead cancellation.
would also violate the understanding of the parties that this customer would continue to purchase schedule SR after the-completion of their inter-connection.
FPaL shall continue to serve Homestead and Fort
- Pierce, under schedulle PR.,
However, the proposal to bi-furcate schedule SR-1 into separate rates for total require-ments and. partial reauirements service is soundly based with no discernible anticompetitive effect and we approve it.
In spite of the anticompetitive conduct recounted
- above, we wish to stress that there may be acceptable service limitations with diminished anticompetitive effects which ameloriate some legitimate operational problems faced by FP&L.
- Indeed, the intervenors recognize that. the Company should be allowed to fashion reasonable terms and conditions to wholesale service.
- However, FPRL has not provided. us with any middle ground, much less a showing that it. has selected a tariff limitation that is the Least anticompetitive means of solving any such operational problem.
- Finally, we note that FPSL has'matters pending before us in over 30 dockets, most involving interchange transmission service filings in which antitrust allegations have been made.
66/
- Schedule, SR-1 provides:
AVAILABLE:
Zn all territory served by the Company.
APPLICATION:
To electric service; supplied to a
municipal electric utilityor'o a cooperative non-profit membership corporation organized under the provisions of the Rural Electric Cooperative law for their own use for resale.
Docket 3os.
ER78-19, et al. We see little need in those cases for the kind of elaborate presentation made in this'one.
It would be helpful to the Commission for the parties to pinpoint the competitive pro-blems and defenses relating to the filings in each of the se cases.
The Commission orders:
(A)
The Initial Decision issued in these consolidated proceedings on April 21, 1978, is hereby reversed.
(B)
All limitations on -the availability of whole-
,sale requirements
- service, as proposed by FP5L< except for the limitation of full reauirement service under the SR-2 tariff to utiLities with no generating capacity, are hereby rej,ected.
(C)
FP&Z is directed to revise its proposed SR-2 and PR tariffs to conform to this order within 60 days.,
Until revised tariffs are accepted by the Commission, the availability provisions of the otherwise superseded SR-1 tariff shall remain in effect.
(D)
The notices of cancellation of recgxirements service to Homestead and Fort Pierce are hereby rejected.
(E)
Exceptions not granted are denied.
By the Commission.
( S'EAL)
Lois D. Cashell, Acting Secretary.
ATTA,CHNENT 3 PEtVtVSYLVAtVIAPUC V WEST PEiViV POWER CO.
ment of S87,174,000.
We will therefore designed to produce annual revenues of permit the company to file tariffs 5384,597,000.
FEDER~l aVERGr REGULA? ORr COMMlsssoiv Re Florida Power and Light Company Opinion iVo. 57, Docket iVos. ER78-l9 (Phase
- 1) and ER78-8l August 3, l979 O
Pti4ION and oiCkr rcocrsing initialdhcision and rcjckling lariff aoailabi(i'imitations and no(ikc of cancellation.
Monopoly and competition, 21 Electric company Tariff amend-ments.
[F.E.R.C.) Where a public utilitypossess-ng market power in a relevant market seeks o amend a general tariff to impose condi--
ions which foreclose supply options or in-rease the costs of competitors, or which thcrwisc contribute to the acquisition or aintenance of monopoly power, its applica-ion for amendment must be rejected and ound unjust and unreasonable under $ $ 205 nd 206 of thc Federal Power Act, unless the tility can show that compelling public in-erests justify the service conditions.
[1) p.
1onopoly and competition, g
21 Electric company Restrictions.
[F.E.R.C.) Even where overriding public olicy objectives are shown to justify some triction on wholesale
- service, a public tility must be called upon to demonstrate at its proposal to place limitations on the ailability of firm wholesale requirements rvice is the least anticompetitive method of taining legitimate planning or other objec-ves. [2) p. 3 14.
lonopoly and competition,
$ 22 Im-munity Public utihties.
[F.E.R.C.] The idea that a
regulated 31 public utility is immune from charges based on thc exercise of monopoly power has been thoroughly discredited.
[3) p. 323.
Monopoly and competition, 21 Competition Anticompetitive rates.
[F.E.R.C.] Where a rate provision would weaken a competitor or raise the entry bar-riers to a market where competitioii~c ld ex-ist, that will likely be sufficient evidei~cc oi anticompetitive effect to warrant its elimina-tion or modiiication, absent a
weightier showing that the provision serves some countervailing public interest.
[4) p. 325.
Monopoly and competition, g 21 Com-mission power Antitrust laws.
[F.E.R.C.]
While the Federal Energy Regulatory Commission had no authority to enforce the antitrust laws, that did not make the evidence irrelevant to the formulation of remedies well within its authority. [5) p. 326.
Monopoly and competition,
]1 21 Electric corn pany Franchise renewal.
[F.E.R.C.]
Where a power. company characterized its efForts to renew franchises and acquire others as sales promotion and business preservation, those actions could still run afoul ol'ntitrust law and policy 3
32 PUR 4th
'81052'90151 i,
to amend a general tariffto impose con-ditions which foreclose supply options or increase the costs of competitors, or which otherwise contribute to the ac-quisition or maintenance of monopoly
- power, its application for amendment must be rejected, and found unjust and unreasonable under
$ $ 205 and 206 of the Federal Power Act unless the utility can show that compelling public interests justify the service conditions.
Moreover, even where overriding public policy objectives are shown to justify some restriction on wholesale
- service, such a utility must be called upon to d'emonstrate that its proposal is the least anticompetitive method of obtaining legitimate planning or other objectives.
On the basis of our analysis of the record before us, we conclude that
'P8t L's proposed tariff restrictions would eliminate the only practical source of base-load power or energy to com-peting utilities within the markets dominated by the company.
Further-
- more, the proposed restrictions would appear to create the potential for ad-ditional anticompctitive effects by in-hibiting the formation of new distribu-tion utilities within these markets.
Florida Power and Light Company has failed to satisfactorily demonstrate countervailing public interests that war-rant approval of any of these proposals, except for the one which would provide separate partial requirements service. To the extent that legitimate purposes are sought to be attained by FP8cL, there appear to be a number of alternative means of less anticompetitive effect for their accomplishment.
The commission wishes to emphasize that we are not to-day holding that a utility with market power is, per se, precluded from amending a general tarilI'to impose con-14 when undertaken by a possessor of monopoly power. [6) p.
331.'efore Charles B. Curtis, chairman, and Georgiana Sheldon and matthew Holden, Jr., commissioners.
APPEARANGEs:
Harry A.
Poth, Jr.,
Robert T. Hall III,James K. ivfitchcll, and Floyd L. Norton IV (Reid 8c Priest) for Florida Power and Light Company; William H. Chandler, William C. Wise, and Robert Weinberg for Seminole Electric Cooperative; Robert A. Jablon, Daniel J.
- Guttman, and Sandra J.
Strebel for the Utilitics Commission of New Smyrna Beach, Fort Pierce Utilities Authority, cities of Starke and Homestead, Florida; Robert F. Shapiro and Harvey L. Reiter for the staff of the Federal Energy Regulatory Commission.
By thc CoMMtsstoN: Before the com-mission is a consolidated proceeding to determine whether certain limitations on the availability offirmwholesale require-mctg'",.crvice, along with notices of canicellation of such service to speciTic wholesale customers, are
- unjust, un-reasonable, or unduly discriminatory, and particularly whether they are an-ticompetitive in effect. With one excep-tion, we find that the proposed limita-tions on requirements service availability have not been justiTied. Accordingly, we reject these tariff provisions.
iVforeover, since the notices of cancellation arc founded upon one of these rejected limitations on availability, they must likewise be rejected.
[1, 2] To set the stage for our discus-sion, we wish to state at the outset our view that, where a utility possessing market power in a relevant market seeks 32 PUR 4th 3
FEDERAL ENERGY REGULATORY COivfivfISSION
RE FLORIDA POWER &, LIGHT CO.
ditions which limit service availability.
The Federal Power Act accords a utility the right to propose such limitations and an opportunity to demonstrate that "its proposed change in service is just and reasonable.
In the instant case, we find only that FP8cL has failed to carry its burden ofjustification.
An initial comment is also in order concerning the applicability of antitrust laws and policies to our proceedings.
From its inception, this proceeding has focused on issues related to the justness and reasonableness of FP8cL's rate proposals when evaluated in light of their alleged anticompetitive effects. The al-legations and evidence ofstaff an the in-tervenors together with the associated responses of the company have coalesced into issues typically examined in the con-text of a monopolization case under g 2 of the Sherman Act. The commission acknowledges that it is not speciTically responsible for enforcing the Sherman Act or any other of this nation's antitrust laws. And we wish to emphasize that in evaluating the anticompetitive effects of a proposed rate change and in making lindings with respect thereto, we do not make lindings that violations of the an-titrust laws have occurred. Instead, it is our obligation to evaluate the public policies expressed in federal antitrust laws and to reflect those policies in the conduct of our responsibilities under the Federal Power Act.! This we
'have endeavored to do in the instant case.
While we believe our evaluation of the anticompctitive effects of the proposal is correct and supported by the record, we recognize that these anticompetitive ef-fects may not have been demonstrated with the rigor as would be demanded in proceedings where specific findings of violations of the antitrust laws are at is-sue with attendant potential for'the im-position of civil and criminal penalties.
Lastly, we wish to note that the fairly elaborate account of FP8cL's past con-duct in its marketplace is not intended by this commission to be a determination of factual disputes which may be the sub-ject of litigation in other forums. Rather we 'tnerely observe that the evidence in this record of that past conduct casts a
shadow over FP&L's claimed need to restrict service
- and, therefore, is. of probative value in determining whether the company has satisfactorily carried its burden of justiTication for the proposed
'ervice limitations. The structural and conduct analyses required in an antitrust proceeding, and presented to us here, are of considerable assistance in isolating demonstrated anticompetitive effect from unfocused allegations. It is important to examine the markets in which relevant electric services are bought and sold and then determine how the questioned rate provisions may affect the competition, or potential competition, in these markets.
This opinion attempts to present our in-terpretation of the facts and law along these lines.
Background
Thc Procrdural History. On October 14, 1977, FP8cL filed in Docket No. ER78-19 proposed changes to its firm
'It is nowbeyondquestion thatantitrust lawand.
(1973) 411 US 747, 98 PUR3d 262, 36 L Ed 2d policies do relate to this comtnission's respon-635, 93 S Ct 1870; and Federal Power Commission
'bilities under the Federal Power Act. See, Gulf v Conway Corp. (1976) 426 US 271, 14 PUR4th tates Utilities Co. v Federal Power Commission 331, 48 L Ed 2d 626, 96 S Ct 1999.
315 32 PUR 4th
FEDERAL ENERGY REG wholesale electric tariff, Schedule SR-1, which would bifurcate that schedule into a full requirements Schedule SR-2 and a separate partial requirements Schedule PR, and increase the rates for each of these services. Under Schedule SR-1 firm service has been generally available "in all territory served by the company."
Florida Power and Light Company now proposes to limit the availability of firm wholesale services to those existing customers named in the two new schedules, which'reviously purchased under Schedule SR-1. Also, the company would limit service under Schedule PR to existing customers which do not own suAicient generating capacity to meet their 'peak-load requirements.
In a related
- action, FP8tL filed in Docket No. ER78-81,.on December 1,
1977, a notice of cancellation of firmpar-tial requirements service to one of its SR-1 customers, the city of Homestead, Florida, which has suAicient capacity to meet its load.
- Instead, the company would make wholesale sales to Homestead under rate schedules in an interchange agreement between these two parties. Under $ $ 205 and 206 of the Federal Power Act, a utilitymust receive commission approval to replace one ser-vice to a
wholesale customer with another service. Commission jurisdiction over changes in rates, charges, classifica-tion, or service necessarily encompasses this situation. The commission must first find that this customer reclassiTication is in the public interest.
See, Pennsylvania Water 8c Power Co.
v Federal Power Commission (1952) 343 US 414, 422-ULATORY COMttIISSION 424,94 PUR NS1,96 LEd 1042,72SC(
843.
By order of December 30, 1977, the commission consolidated these dockets, suspended both the tariff availability restrictions and the Homestead cancella-tion for five months, and suspended the proposed rate changes for two months.
Phase I of these consolidated proceedings was established to allow for separate hearing and decision on the legality of the tariff availability restric-tions and the cancellation of the firm ser-vice to Homestead.
Following a schedule of conl'erences, evidentiary submissions,
- hearings, and
- briefs, Presiding Administrative Law Judge Curtis Wagtler issued his initial decision on April21, 1978. He concluded that the proposed availability limitations for full and partial requirements services are just and re'asonable, and approved the cancellation of lirm partial require-ments service to Homestead.
Briefs on exceptions to the initial deci-sion were filed on May 8, 1978, by the commission staff, the cooperative group of wholesale customers,s.
and the municipal group of wholesale customers (the Florida cities).s On May 12, 1978, FP8tL filed its brief opposing these ex-ceptions.
By order issued June 1, 1978, the com-mission stated its'ntention to issue a
final decision in Phase I as soon as possi-ble and urged FP&L to refrain from implementing the tariff availability restrictions and cancellation of require-ments service to Homestead, pending a final ruling on these issues.
By letter
'IIte cooperatives include Seminole Electric Valley Electric Cooperative.
Cooperative, Clay Electric Cooperative, Lee
'Tile.. Florida cities include Fort Piercc, iVew County Electric Cooperative, Okcfenoke Rural Smyrna Beach, Homestead, and Starke.
Electric Membership Corporation, and Suwannee 32 PUR 4th 316
RE FLORIDA POWER & LIGHT CO.
dated June 9, 1978, FP8cL informed the commission
- that, without waiving its legal rights, it would provide PR service to Homestead and also to the city of Fort
- Pierce, Florida, pending final commis-sion action.
Thc Rale Change ProPosals.
Firm wholesale service under FP8c L Schedule SR-2, filed on October 14, 1977, would be available to meet the total capacity and energy requirements of purchasing utilities over the indefinite future. It is comprised of a two-part demand and energy
- rate, based on FP8cL's average system costs which includes the produc-tion costs of its nuclear, gas, and oil-fired generating plants.
Its predecessor, Schedule SR-1, was made available to all wholesale purchasers within FP8c L's ser-vice territory. However, the company now proposes to limit full requirements service to six rural electric cooperatives which presently take this service.
A potential purchaser requesting full re-quirements service from FP8cL in the future could not anticipate receiving this service and would not receive the SR-2 rate for any service it was able to ar-range.'hile there willbe no abatement of retail sales to new customers, FP8cL has stated that it is not willingto commit itself'o serve any new wholesale customers but would be willing to dis-cuss the possibility when the situation arises.'lorida Power and Light Company wholesale Schedule PR, also filed on Oc-tober 14,
- 1977, is a
modification of Schedule SR-1 designed to meet partial power and energy requirements, com-plementing the purchaser's own genera-tion or other firm power purchases.
Like Schedule SR-2, it is composed of a two-part demand-and energy rate based on average system costs; however, the rate levels are different and the demand com-ponent is stratified to reflect differing prices for peak and base/intermediate demand. Each tariffhas two energy rate blocks, but the SR-2 lower block is at-tained after purchase of 275 kwh per kw of billing demand, versus 400 kwh under Schedule PR.
Moreover, Schedule PR requires the customer to specify its "contract demand" on FP8cL for suc-ceeding 12-month periods.
The customer's monthly billing demand is never less than 90 per cent of its contract demand plus 75 per cent of its maximum recorded peak demand.
Conversely, the demand charge for purchases above 110 per cent of contract demand is higher and the customer may not increase its contract demand for succeeding 12-month periods by.more than 125 per cent without the consent of FP8cL. The com-pany asserts that these design differences between Schedules PR and SR-2 en-courage partial requirements customers to increase their load factors.
Partial requirements customers, in-cluding the cities of Homestead and iVew Smyrna
- Beach, previously took service under Schedule SR-1
- which, as noted earlier, was available to all customers in FP8cL's service territory. With the filing of Schedule PR,
- however, FP8c'L proposes to limit this service to three customers, the Keys Electric Cooperative and the cities of New Smyrna Beach and Starke.
Homestead which like Fort Pierce, has suHicient generating capacity
'Florida Powt:rand Light Company bri~foppos-
'Id.
ng excoptions at p. l0.
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FEDERAL ENERGY REGULATORY COMMISSION t
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' si ail'o meet its load, would be excluded from this service.'-
Although not directly at issue in this proceeding, it would aid the clarity of this decision to describe the four in-terchange power and energy services which FP8cL and several utilities reciprocally provide under bilateral agreements.
The transactions under these agreements are voluntary and of relatively short duration.
Rates are determined at the time of sale, based on incremental instead of average system costs.
Emergency interchange
- service, denominated Schedule A, provides the buyer with capacity and energy in the event "of a forced outage, for a period lasting no longer than seventy-two hours.
For pricing purposes, Schedule A service is deemed to be provided by the seller' designated fossil-fired steam or combus-tion turbine generators and recovers only out-of-pocket energy costs.'cheduled interchange
- service, Schedule B,
provides capacity and energy for periods of less than twelve months, when the buyer is short of capacity primarily due to forced or scheduled plant outages.
The buyer must meet the reserve re-quirement associated wiih Schedule B
service.
Delivery of Schedule B power and energy occurs when in the seller' discretion no impairment of fuel stocks or service to other customers would result.
Capacity and energy rates are based on the production costs of the sell-er's fossil-fired and combustion turbine generating units. Economy interchange sAs will be discussed later, Fort Piercc began purchasing under Schedule PR on March 2S, 197S.
Homestead also continues to receive service by agreement of FP&.L. However, FP& L asserts that it willterminate service to both, ifthc commission approves its rate changes.
'Under certain circumstances, the buyer may 32 PUR 4th 3
service, Schedule C, provides for nonfirm energy exchanges of short
- duration, priced to split the savings between the seller's incremental cost of generation and the buyer's decremental cost.< Final-ly, firm interchange power, Schedule D, provides capacity and energy for periods of twelve to thirty-six months.
Unlike firm service under Schedules SR-2 and PR, this service is curtailable during ex-treme cold weather and emergency con-ditions, in which case the demand charge may be adjusted.
Schedule D service is apparently priced at the scheduled out-age rate, Schedule B, for fossil fueled and combustion turbine capacity and energy (Exh 29).
With intermittent usage Schedule D may bc cheaper than the PR rate;
- however, it apparently becomes more expensive than Schedule PR as the customer's load factor increases.
Florida Power and Light Company proposes to provide lirm service to Homestead and Fort Pierce only under Schedule D, and has offered them 240 mw of Schedule D capacity through'1980.
7hc Initial Decision. The basic issue of this proceeding as characterized by the presiding judge is whether FP8cL can justify a reclassification of'wholesale ser-vices based on the relationship of customer 'load to customer generating capacity. In hearing this case, the judge imposed the burden of proof on FP8t L to demonstrate that its proposed tariff.
modifications and restrictions were just and reasonable.
He largely refrained from considering the evidence presented alternatively return capacity and energy in kind within the current billing period.
'The price of interchange energy is characteristically determined by FP&.L's generating units with high operating costs, not by base loaded nuclear or natural gas-fired units.
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RE FLORIDA POWER 8c LIGHT CO by staffand the Florida cities intended to on his assessment of certain financial, demonstrate that the proposed restric-operational, and capacity planning tions were part ofan anticompetitive pat-problems
- asserted by FP&L and his tern of activities by the company, leading determination that the two-year notice of toward. monopolization of the retail termination provision in the schedules power market.
did not assure that the company would The presiding judge concluded that recover all capacity costs.
FP& L's proposed rest'rictions on The judge dismissed the allegations eligibility for wholesale services 'were that FP&L's proposals would have an justified on the basis of differences in cost anticompetitive effect, based on a com-of service. He agreed with the company pany representation that it had no in-'hat the load patterns of customers with terest in acquiring new retail franchises capacity equal to their peak demands because of fuel problems.
Finally, he could be so erratic as to make FP&L sought to mitigate concern that FP&L system planning unduly difficult, war-would strictly construe its tariff limita-ranting the complete exclusion of such tions by reciting several ofthe company's customers from wholesale service at interpretations made during the 'course average cost rates.
He decided that in-of the proceedings, but not added to the crementally priced interchange services, proposed tariffs.
described above, were acceptable alter-In sum, thc presiding judge approved natives for customers such as Homestead each of the company's proposed changes and Fort Pierce. Thejudge found that in-to its wholesale tariff. Based on this, he terchange power could be used to meet also approved the proposal that their base-load requirements "at a lower'homestead (and Fort Pierce) become in-rate than under the partial requirements eligible for service under FP& L's average schedule," initial decision at p. 14, and priced wholesale rates and allowed to suggested that these self-sufficient take firm interchange service only.
utilities could purchase bulk power from Positions of fhc Parties. The position of other sources because FP&L has agreed the applicant, FP&L, has been sum-to wheel. He deferred to civil courts the marized in the two preceding sections of allegations of these two customers that this opinion. It further states that public FP&L had breached contractual obliga-utility obligations under the Federal tions to serve them under Schedule SR.
Power Act are limited. However, we are The judge also found that the bifurca-basically concerned here with thc obliga-tion of Schedule SR-1 into separate SR-2 tions undertaken by FP&L itself in its and P R schedules was jus t and Schedule SR-1 tariff, which makes reasonable.
Moreover, he concluded that wholesale service generally available the company could change the throughout the company's service ter-availability provision of its tariffto limit ritory, in contrast to the proposed limita-wholesale services to customers named in tions on availability of Schedules SR-2 Schedules SR-2 and PR. This was based and PR.v,.Finally, FP8cL denies that it
'To the extent the presiding judge may sugges!
may still be required, initial decision at p. 8, this is (hat Schedule SR-l does nor make wholesale ser-not reflected in the provision itself. During cross-vice generally available because service contracts examination FP&L's rate design witness 319 32 PUR4<h
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has engaged in anticompetitive activities, states that staff's and Florida cities'l-legations are largely irrelevant, and questions their application of the an-titrust laws.
Exceptions to the initial decision raised by Florida cities are prolix.
However, they may be simplified, briefly.
Florida cities contend that the proposed tariff'is an attempt to abandon service to the city ol'Homestead because Homestead is currently receiving full in-terchange service and under the terms of the proposed rate schedule could no longer f'eceive partial requirements ser-vice although it desires,to do so. Cities claim that restrictions in the proposed full and partial requirements tariffs are tantamount to refusals to deal in either total or partial requirements service.
Florida Power and Light Company's partial requirements tariff, they assert, is designed to limit the sale of wholesale power. This is accomplished by restruc-turing the sale of partial requirements service to only those systems which re-quire such service to complement the in-sufficien generating capacity or firm power purchases to meet their native loads and therefore does not apply to systems which nominally have genera-tion sufficient to meet their loads regardless of the age or efficiency of such generation.
Both Homestead and Fort Pierce would be served only at in-terchange rates, creating a price squeeze.
Cities contend that FP8cL is at-tempting to deny or make it more dif-ficult for them to establish economic alternatives.
Apart from the tariff proposals at issue, this is accomplished by denying joint participation in new nuclear generation, opposing municipal-ly supported legislation, and refusal to file or establish a general rate for trans-mission. They also state that FP&.L has refused to support a general integrated power pool in Florida.
The cooperatives assert in their brief on exceptions that the initial decision ig-nored their position and relied excessive-ly on FP&,L testimony.
The cooperatives, which through Seminole are planning base-load generating units, will require partial requirements service in the future instead of Schedule SR-2 service.
Because they are not named in the PR tariffthey are not assured of this
- service, so that these limitations deny them the necessary supply flexibilityto account for changing situations.
Staff alleges several acts of monopolization by FP8cL. Staff states that FP&L has refused to sell wholesale power to the municipal utilities, thereby constituting a refusal to deal proscribed by United States v Otter Tail Power Co.
(DC Minn 1971) 90 PUR3d 419, 331 F, Supp 54, affd (1973) 410 US 366, 97 PUR3d 209, 35 L Ed 2d 359, 93 S Ct 1022.
1n this regard, it points to an historic FP&. L policy not to serve municipal systems at wholesale, an FP&,L refusal to serve Fort Pierce under the SR-1 tariff, and the limitations on the availability of the SR-2 and PR tariffs presently at issue.
Staff views FP&L's dominance over transmission facilities r~
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acknowledged that utilities within the company's that provision to certain named and existing service territory, such as Fort Pierce, Jacksonville, customers.
Moreover, FP&L has in the past iilcd and Orlando, werc eligible for firm service under unexecuted service "agreements" when customers the terms of Schedule SR-L See, infra, p.'334. After have commenced service.
all, the purpose of this proceeding has been to limit 32 PUR 4th 320
~ a-tt 2
V
p<'t~
'faqpqAI and its corresponding refusals to wheel as bottleneck monopolization proscribed in United States v Otter Tail Power Co.,
supra.
Staff cites examples of FP&L's refusing to wheel third party bulk power to the cities ofJacksonville, Homestead, and Lake Worth, and it asserts
- that, while FP&L has very recently an-nounced in Docket No. ER77-175 a new policy to permit wheeling, that policy is far too restrictive in terms of rates and terms.
Staff sees another example of monopolization in FP&L's restrictions on access to its nuclear generating units.
Specifically, staff asserts that smaller utilities do not have the individual loads to justify a nuclear unit but, due to the economies of such units, utilities may becom'e uncompetitive without access.
Staff also alleges that FP&L has un-reasonably restricted coordination, both in terms of economy exchanges and power pooling.
It then contends that FP&L has established barriers to entry in the form of restrictions in its franchise agreements with municipalities, par-ticularly the standard 30-year term. This is occurring, according to staff, while FP&L maintains a policy of acquiring municipal systems; however, FP&L has not acquired another utility in recent years. The staff concludes that FP&L's proposed tariffrestrictions would further its monopoly power in the relevant
- markets, as defined by its economic witness.
Thc Exisfcncc of ComPcft'fion rInd Monopoly Potvcr Thc Rclcvanf Markets. We begin our dis-cussion of FP&L's tariff proposals by defining the relevant
- markets, which provide a framework for determining the possible existence ol'onopoly power, the opportunities for competition, and the required breadth. of any remedial ac-tion we may order. The staff economic witness identifie two broadly defined product markets as relevant to the in-vestigation of the anticompetitive effect of FP&L's proposed tariff restrictions.
This analysis was not challenged by any party and reflects FP&L's own concep-tualization of its business.'o. The retail market involves sales of capacity and energy to ultimate consumers by ver-tically integrated utilities such as FP&L and by distribution utilities. The bulk power market involves sales of wholesale power and energy to retail distributors (including the captive retail distribution centers of vertically integrated systems) by bulk power producers and suppliers.
These product market delinitions are amply supported by the record, and we adopt them in our analysis.
The bulk power product market was further disaggregated by the staff witness into five submarkets essentially con-sisting of full requirements power, par-tial requirements and coodination ser-vices, component bulk services, sales at transmission voltages to ultimate con-sumers, and transmission services. In so doing he attempted to demonstrate the interchangeability of firm full require-ments power with "unbundled" bulk power services which may be purchased from several sources to meet the require-ments of a retail distributor, in conjunc-l~
tion with generation owned by that dis-tributor.
RE FLORIDA POWER &, LIGHT CO.
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ei "In a 1976 presentation to the company's senior tivities into discrete bulk power and electric service
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strateiiic planniniI subdivided the company's ac-321 32 PUR 4th
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While we do not dispute the validity of this subdivision of the wholesale market, a more practical method of analyzing that market for purposes of this proceeding is to separate bulk power transactions into discrete firm require-ments and coordination submarkets.
Es-sentially, this parallels the distinction between FPBcL's Schedule SR-2 and PR firm services on the one hand and its in-terchange services on the other. Florida Power and Light Company's firm ser-vices are noninterruptible; priced on the basis ofaverage system costs; designed to meet a customer's
- base, intermediate, and/or peak-load requirements; and
'continuously available over the indefinite future. Conversely, interchange services are interruptible; incrementally priced on the basis of oil-fired generation costs; ancillary to bulk power supply and not practicable sources of base-load power; and of limited duration. Depending on the feasibility to the customer of self-generation or supplementary firm power purchases, partial requirements service is reasonably interchangeable with full requirements power to meet a retail load.
Such interchangeability is a requisite for grouping products in a common market.
- See, United States v du Pont Bc Co.
(1956) 351 US
- 377, 393.
Of course, FPBcL did not itself distinguish between these two firm services in its SR-1 schedule i'o this case. However, in-t ange services cannot be used to sus-tain load requirements and may only be used to augment other primary sources of bulk supply. In particular, FP8cL's wholesale customers do not regard Schedule D firm power as in-terchangeable with SR or PR firm power and the company describes them as dif-ferent services.
Florida Power and Light Company sells electric power and energy to most of the heavily populated areas along the eastern and lower western coasts of peninsular Florida and portions of central and north-central Florida.
Within or adjacent to this-.service ter-ritory are 22 smaller areas served by municipal and cooperative utilities. The staff witness identified this composite area, comprised of some 35 Florida coun-
- ties, as the relevant geographic market for both retail and wholesale product markets. This was primarily determined from information in FP8cL's 1975 annual report. The service territories of larger bordering utilities" were excluded from
.the. retail geographic market because of the unavailability of wheeling service into the FP8tL service territory and the existence of retail.territorial allocation agreements with FP8cL which prohibit retail competition.ta This is not to say that competition does not exist in the relevant retail market.
As we discuss
- later, there is significant competition, primarily franchise and yardstick com-'etition, and FP8cL itself has recognized that its neighboring utilities are both customers and competitors.
Further-
- more, even territorial allocation agree-ments are subject to modification. under limited circumstances in proceedings before the Florida Public Service Com-
"Florida Power Corporation and Tampa upheld onjudicial review, Storey v Mayo (Fla Sup Electric Company.
1968) 77 PUR3d 411, 217 So 2d 304, cert den tsThese retail territorial agreements are not at is-(1969) 395 US 909. ln 1974 this authority was ex-sueinthisproce<<dingandwccxpressnoopinionas pressly given to the Florida commission.
- See, to their merit. They require approval by the Florida Statutes Annotated tj 366.04.
Florida Public Scrvicc Commission and have been 32 PUR 4th 322 mi (F
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mission.
Peoples Gas System v Mason (Fla App 1966) 187 So 2d 335.
The wholesale bulk power geographic market was similarly constrained because relatively few wholesale transac-tions are made across its boundaries.
This geographic limitation applies as well to the bulk power submarkets, par-ticularly the firm requirements sub-
- market, described,
- supra, because of wholesale territorial agreements and the absence of firm power transmission ser-vices. Although there is a potential for competition in the wholesale market, ac-tual competition has been inhibited by FP&L, as we discuss below. We are not required to remedy that situation now.
This opinion reflects our concern that wholesale monopoly power not be used to maintain or enhance a utility's retail market position.
[3] Monopoly Potorr. ivfonopoly power has been defined as the ability to control prices or exclude competition from a relevant market.
United States
. v Aluminum Co. of America (CA2d 1945) 148 F2d 416. It may be readily apparent in cases where prices have been con-trolled or competition demons;rably ex-cluded; however, such showings are not essential.
American Tobacco Co.
v United States (1946) 328 US 781, 811."
- Instead, the characteristic test is based on a firm's share of the market, and a
predominant share warrants the in-ference of monopoly power.
United States v Grinnell Corp. (1966) 384 US 563, 571. In United States v Otter Tail Power Co. (DC!vlinn 1971) 90 PUR3d 419,.331 F Supp 54, affd (1973) 410 US 366, 97 PUR3d 209, 35 L Ed 2d 359, 93 S Ct 1022, an inference of monopoly power was based on a finding that the defen-dant utility possessed a 75.6 pcr cent share of'he relevant market.
We find that FP8cL has monopoly power in these relevant markets, as determined by Dr.
Taylor in unrebutted testimony.
Based on 1976 data, FP8cL has been shown to possess a 76 per cent share of the retail market in terms of customers served.
Its closest rivals are the eight municipal utilities located within FPBcL's service territory which generate a portion of their power requirements."
Collectively, these eight systems have a 12 per cent share of retail customers served.
In 1976 FP&,L's share of total kil'owatt-hours sold at retail was 75 per cent, compared to thc collective 13 per cent sold by the eight generating municipals.'s.
The statistical measurement of monopoly power adopted in United States v Otter Tail Power Co., supra, was the percentage of towns served at retail within the relevant market.
Florida Power and Light Company provides retail service to approximately 90 per cent of the communities in the relevant uhfonopoly power can be exercised as well city of Key West, Lake Worth Utilities, the city o(
through subtle. efforts to prevent competition from ifew Smyrna Beach, and the city of Starke.
developing. United States v Grioith Amusement "Florida Power and Light Company's sharc of Co. (1948) 334 US l00.
the relevant market has grown somewhat between "The eight utilities are Florida Public Utilities l966 and l976 from 73 pcr cent to 76 per cent of in Fernandino, Fort Pierce Utilities Authority, the total retail customers and from 74 per cent to 75 city of Homestead,Jacksonville Electric Authority, per cent of retail sales.
323 32 PUR 4th r '.
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>>r market with populations of over 1,000 people."
The inference of FP&L's monopoly power in the retail market is strengthened by several additional con-siderations.
First, the existence of ter-ritorial allocations obviously provides a very effective barrier to new retail com-petition from existing utilities. Second, the substantial cost of acquiring utility property at the expiration of an existing supplier's franchise could be a barrier to competition for existing firms and new entrants as well. Third, the absence of wheeling services that would allow a utility to provide retail service to a non-contiguous area would stop any retail competition which overcame the first two barriers." In sum, these high market entry barriers confirm the inference of monopoly power based on FP&L's.
market share. Re Consumers Power Co.
(1977) 6 NRC 892, 1013.
iVloreover, entry barriers enhance the opportunities for exploitation of this power.
Although the record does not contain precise statistical indicia of FP& L's share of the wholesale power market, it is clear that the company has monopoly power oyer bulk power transactions as well. Florida Power and Light Com-pany's share of the retail market is a suitable base on which to assess its share of the wholesale
- market, because the bulk power which the company produces to serve its own captive retail service ter-
"Cf., Brown Shoe Co. v United States (1962) 370 US 294, 337, a case brought under
$ 7 of the Clayton Act where monopoly power was measured on the basis of cities in the relevant market with populations exceeding 10,000.
In City of Mishawaka v American Electric Power Co. (DC Ind 1979) 465 F Supp 1320, 1325, the coun found monopoly power where the defendant served at retail 89 pcr cent of the municipalities in the rele-vant market.
32.PUR 4th 324 ritory must be included as part of the wholesale market.
United States v
Aluminum Co. of America,
- supra, 148 F2d at p. 424. Thus, FP&L possesses at least a 75 per cent share of the wholesale
- market, to which must be added the company's wholesale sales to municipal and cooperative utilities within the rele-vant market. The only other supplier of wholesale requirements service within the relevant market is the Jacksonville Electric Authority which supplies its own distribution system, plus the dis-tribution utilities in Jacksonville Beach and Green Cove Springs.
ivforeover, included in FP&L's bulk power resources are virtually all of the nuclear generating capacity and sub-stantially all of the gas-fired generation available within the relevant, market, each ofwhich give the company a signift-cant edge in the production of low cost power for base-load requirements. Three of the four operating nuclear plants in the state of Florida are solely owned by FP&L.ts. Only New Smyrna Beach and the cooperatives, acting through their generation and transmission subsidiary, have gained direct access to nuclear generation, through small ownership'in-terests in Florida Power Corporation's nuclear plant. The company does not dispute that its long-term, noncur-tailable supply of natural gas gives it an advantage over municipal generating systemsts;
- however, it asserts that it "Cf., Re Boston Edison Co. (1976) Docket Yos.
E-8187 and F 8700, where thc commission dealt with a transmission rate for retail service to a non-comiguous territory.
"Sce, Fort Pierce Utilities Authority v United States (1979) US App DC,606 F2d 986.
"See generally, Sebring Utilities Commission v
Federal Energy Regulatory Commission (CASth 1979) 591'2d 1003.
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148
<es at esale the cipal rele-er of ithin vi!le
'its dis-each bulk the sub-tion
- ket, nift.-
cost ree s in by and heir
- ary, lear in-n's not ur-an ing it os.
ealt on-ted nv 5th simply confirms the role of the commis-sion in eliminating or modifying rate provisions, dcsigncd by a
utility, which would otherwise facilitate price control or exclusion of competitors." We believe the idea that regulated utilities are im-mune from charges based on the exercise of monopoly power has been thoroughly discredited by United States v Otter Tail Power Co., supra.
should be allowed to retain this bargained for advantage for sales to ex-isting customers.
By comparison, municipal generating units are small capacity, oil-fired steam or internal com-bustion machines which characteristical-ly have high operating costs and are ill-suited to provide base-load re-quirements.'inally, we 'note that FP8cL owns 81 pet cent of the transmission lines within the relevant market with operating voltages of 69 kv or above. The Jackson-ville Electric Authority owns the next largest share, 5 per cent. These are the facilities over which bulk power is trans-ported within the relevant market and FP8t L's ownership share gives it "strategic dominance" over transmis-sion. United States v Otter Tail Power Co., supra, 90 PUR3d 419, 331 F Supp at
- p. 60.
As noted above, FP8tL did not under-take to define relevant markets and did not challenge the analysis ol'taff's economic witness. Instead, its economic policy witness challenged the basic relevance of structural analysis to regulated public utilities. The company's thesis is that regulation prevents a utility having monopoly power from controlling prices and excluding competition from the market; i.e.,
the indicia of monopolization under 2 of the Sherman Act.s'owever', this is not real-ly a rebuttal to staff's position. Instead, it t'In rate change proceedings such as this one, heard under
$ 205 of the Federal Power Act, the applicant bears the ultimate burden of nonpersua-sion. However, staff and intervenors may be re-quired to come forward with some evidence to focus their allegations ofanticompetitive effect, and to relate that evidence to the targeted rate provi-sion.
- See, Northern California Power Agency v Federal Power Commission (1975) 168 US App DC 288, 9 PUR4th 472, 514 F2d 184.
~Florida cities'rief on exceptions at pp. 76, 77.
"Florida 'Power and Light Company brief op-posing exceptions at p. 43.
"Cearly, regulation does not insulate electric utilities from op~ration of the antitrust laws'. Can-tor v Detroit Edison Co. (1976) 428 US 579, 15 PUR4th 401, 49 L Ed 2d 1141, 96 S Ct 3110; Re Consumers Power Co., supra, 6 NRC at pp. 1011, 1012. Nor is this commission precluded from con-sidering antitrust law and policy. Re Gulf States Utilities Co. (1978) Docket tVo. ER76-816.
325 32 PUR4th Actions of Compctt'nlr, Utilities Within thc Rclcoant ttrfarkcts l
[4] Introduction. In cases where the an-ticompetitive effects of wholesale rate schedules are at
- issue, we anticipate focusing primarily 'on structural analysis to measure the existence of monopoly power, and on thc suspect rate provisions themselves to determine their effects on the enhancement or maintenance of monopoly power. If, for example, a rate provision would weaken a competitor or raise the entry batricrs to a
market where competition can exist, that will likely be sufficient evidence of an-ticompetitive effect to warrant its elimination or modification absent a
weightier showing that the provision serves some countervailing public in-terest.
City of Huntingburg v Federal Power Commission (1974) US App DC,498 F2d 778; Northern Nat. Gas Co. v Federal Power Commission (1968) 130 US App DC 220, 76 PUR3d 321, 399 F2d 953, 971."
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FEDERAL ENERGY REGULATORY COlvlMISSION g C f
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rt
~t Unlike presentations in civil and criminal actions to enforce the antitrust laws, it is not necessary in our delibera-tions to have an extensive record on the past conduct of a utility towards its customers or its intent in establishing or maintaining-a restrictive rate provision.
- See, Re Missouri Power & Light Co.
(1978) FERC,26'UR4th
- 365, Opinion No.
31.2.'. Every rate case in which anticompetitive effects are alleged need not become a full-blown antitrust proceeding.
However, as noted, supra, p. 314, con-duct may be relevant to our assessment of the justification for and purpose of a service limitation. In the case before us a fullrecord has been compiled and we are further aided by a recent decision of the court of appeals for the lifth circuit". in fully understanding the anticompetitive effects of FP &L's rate proposals.'4 iVIoreover, the documentary evidence of staff and cities, largely obtained from company liles, is frequently incongruous with the testimony of company wit-nesses.s'y and large the testimony of witnesses presented by staff and the cities is a summary recapitulation of hundreds of pages ofcorrespondence and internal company documents contained in over 200 exhibits. This evidence has been of significant assistance in probing the effects of FP&L's alleged need to restrict the availability of service under Schedules SR-2 and PR.
[5] The company's reaction to the voluminous evidence of the cities and the staff relating to anticompetitive conduct is essentially a demurrer. Florida Power and Light Company asserts that this evidence is irrelevant to its proposed tariffmodifications and that issues of an-ticompetitive conduct should be raised in other forums. While we agree that the commission has no authority'to enforce the antitrust laws, this does not make the evidence irrelevant to the formulation of remedies well within our authority."
Wholesale Market Division. Florida Power and Light Company has been found to have engaged in'a per se viola-tion of the Sherman Act by conspiring with Florida Power Corporation to divide the Florida wholesale power market. In Gainesville Utilities Dept. v Florida Power & Light Co.,ss the United States court ol'appeals for the fifthcircuit reversed and remanded a district court
- judgment, based on a
review of the e
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I "How<<ver, there may b>> situations in which the rate proponent may demonstrate the innocuity lsicl ol'a questioned provision because, for exam-ple, th>> utility has a g<<neral wheeling tariff, or un-denaken other actions which weaken or eliminate its monopoly power. See, Re Yew England Potver Pool (1976) FPC,Opinion Yo. 775, affd sub nom. Municipality of Groton v Federal Energy Regulatory Commission (1978) US App DC,
587 F2d 1296.
"Gainesville Utilities Dept. v Florida Power &
Light Co. (CASth 1978) 573 F2d 292, cert dcn (1978) US,99 S Ct 454. This opinion was is-sued after Judge Wagner wrote his initial decision.
"This evidence conlirrns our conclusion that relevant erned by pisodes of 3
tj I ~u FP&L has monopoly power in thc markets. Judge Wagner was also conc what he charact<<rized as "disturbing e
~t su~)ps'2 PUR 4(}1 Florida Power and Light Company's past conduct which raise serious antitrust questions."
Initial decision at p. 5. However, time constraints led him to defer to the commission'or the Justice Depart-ment.
"See, Gaincsville Utilities Dept.
v Fforida Power & Light Co., supra, 573 F2d at p. 301, foot-note 14.
"Federal Power Commission v Conway Corp.
(1976) 426 US 271, 14 PUR4[h 331, 48 L Ed 2d 626, 96 S Ct 1999; City of Pittsburgh v Federal Power Commission (1956) US App DC,237 F2d 741, 751; Rc Pacilic Gas & E. Co. (1976) FPC Project iVos. 1988 and 2735.
r'Supra, footnote 24. The record in this case con-tains a number of exhibits from that antitrust proceeding.
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RE FLORIDA POWER Bc LIGHT CO evidence which "compelled" a finding that the two largest utilities in the state of Florida had cohspired to avoid selling wholesale power to customers in each other's service territories.'his case arose from efforts by the Gainesville,
- Florida, municipal utility system to end its costly operation in isolation by interconnecting with either FPBtL or Florida Power Corporation.'!
The court found that beginning in 1965, Gainesville's efforts to interconnect and coordinate its operations were met with a joint strategy.to induce the municipal to interconnect with Florida Power Cor-poration, on precondition that all three systems agree to a retail territorial al-location.
Correspondence sent to Gainesville and to the Federal Power Commission, regarding an interconnec-tion application under
$ 202(b) of the Federal Power Act, was routinely passed between FPBcL and Florida Power Cor-poration',
with the understanding that concerted action was contemplated and invited.">>.
The court was particularly impressed by the documentary evidence which demonstrated a "routine" course of con-duct spanning two decades whereby each utilitywould refuse to sell power to existing wholesale customers of the other or to municipalities served at retail. by the other which were attempting to es-tablish new distribution utilities. On re-mand, the case is once again before the district court for precise determination of the effect of the wholesale territorial al-location on Gainesville's difficultyin ob-tai'ning an interconnection, plus atten-dant damages.
Until the trial court enters its new judgment, we shall not know how FPBcL is'to be enjoined from engaging in anticompetitive conduct against municipal utilities or directed to remedy the damage done.
rlcquisilion Efforts and Franchise Compclt'-
lion. The principal allegation leveled against FPBtL's tariff limitations is that by restricting access to wholesale power the company may thereby increase its dominance as' retail supplier.
The record is richly detailed with evidence of retail competition to serve entire com-munities between FP&.L and existing municipal systems.
Florida Power and Light Company's first attempt to acquire the Lake Worth utilityis documented in a letter to FPBt L employees from thc company's West Palm Beach division manager, dated Junc 18, 1958, which sought "a list of your relatives and friends who live in Lake Worth."'he district manager proposed to send these sympathetic members of the community information concerning a forthcoming election on a proposed 30-year lease of the municipal system to FPBtL, where a successful vote would "assist us in our negotiations for:,
other municipal systems."
Literature distributed to Lake Worth voters promised better service and an im-'ediate rate reduction averaging 20 per cent, plus an aggregate reduction of $ 14 million over the 30-year lease. Although winning a simple majority vote, the elec-tion failed to attract the requisite 60 per i Gainesville Utilities Dept. v Florida Power 8t ion iso. 550, reversed (CASth 1970) 84 PUR3d Light Co.,
- supra, 573 F2d at pp.
- 299, 303.
478, 425 F2d 1196, reversed (1971) 402 US 515, 90 Gainesville and Florida Power Corporation PUR3d 163, 29 L Ed'2d 74, 91 S Ct 1592.
reached a settletnent before the action was tried.
ttSee also the consent decree in United States v
~
~
"See, Gainesville Utilities Dept. v Florida Power Florida Power Corp. (1971 Trade Cases par 71, Corp. (1968) 40 FPC 1227, 79 PUR3d 269, Opin-637, MD Fla 1970).
327 32 PUR 4th
FEDERAL ENERGY REG cent voter participation and the proposi-tion failed. Efforts were renewed in 1968 through a L'ake Worth property owner;
- however, preliminary discussions were terminated without action.
Florida Power and Light Company of-fered to,furnish, firm power to.the New Smyrna Beach municipal utility during the winter of 1958, provided the city commission would agree not to order any additional generating equipment and enact an ordinance which would permit disposition of its electric utilityon a ma-jority vote.ss Florida Power and Light then planned to negotiate a lease of the utilitythe following spring and submit it to the Voters for approval.
An April, 1959, report to company management stated that the proposed acquisition "certainly provides some distinct advan-tages other than just taking over a
municipally owned property."
The report noted the considerable pos-sibilities of industrial and residential development in the area.
The company's action in 1959 did not win it a lease of the New Smyrna Beach system;
- however, FP8cL tried again in 1965, sending an inquiry to the. city com-mission which was virtually identical to the letter sent to Fort Pierce in May of that year.>'lorida Power and Light Company Executive Vice President R.
C. Fullerton described the prospect of taking over the New Smyrna Beach municipal system to the chairman of another investor-owned utility as something the company viewed "with natural enthusiasm."
Also in
- 1965, ULATORY COMMISSION FPBcL purchased from New Smyrna Beach all of its electric utilityfacilities in the city of Edgewater where it had previously provided retail service to only a portion of the community.
Intermittent negotiations occurred
- between FP&L and New Smyrna Beach in 1970 and 1973. In 1974, the company devised an internal plan for acquiring the municipal utility, and sent senior management representatives to discuss an acquisition proposal with'the city utility commission, estimating a
rate reduction of more than S600,000 under FP8cL ownership.
Company manage-ment informed the utilitycommissioners that FP8tL could provide cheaper and more dependable service because of its greater power plant capacity and its diversity of fuels. Another acquisition presentation was made to. the utility commission in 1975, at the city's request.
Florida Power and Light Company sought to acquire the Fort Pierce utility in 1965, when the subject was raised by a city commissioner at a meeting convened to discuss a possible interconnection of the two systems.
The response of the company's division manager mentioned the interconnection only as an interim arrangement, concentrating instead on the sale or lease of the municipal utility.
Florida Power and Light Company stated that any lease should be for a period of thirty years to coincide with the term of a standard electric franchise. In
- return, the company offered to im-mediately interconnect the systems, ap-ply FP8cL's lower retail rates, and "lend gts du th<
ho ac<
Pgc gIll:
ma felt wa/
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sell coul pow quir cap; FPK the 1
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$ $Charac<eris<ically, Florida municipal char<crs 573, adopted (1967) 37 FPC 544, 68 PUR3d 249, require the approval of greater than simple ma-Opinion No. 517, afd sub nom. Federal Power jori<y of voters for disposition of local u<ili<ics.
Commission v Florida Power & Light Co. (1972)
Similar terms were extracted from the city of 404 US 453, 92 PUR3d 149, 30 L Ed 2d 600, 92 S Qewis<on in 1965. See, the initial decision in Re C< 637.
Florida Pow~r & Ligh< Co. (1967) 37 FPC 560.
"l%a, this page.
32 PUR 4<?I 328 acqt How dam g gl
$ $E 9
RE FLORIDA POWER & LIGHT CO.
its full support toward attracting in- 'Regulatory Commission regarding dustry to the area."
Fort Pierce FP&.L's proposed South Dade nuclear thereafter invited lease or sale proposals; generator.
- however, negotiations stopped short of~
Florida Power and Light Company acquisition.
proposed a
sale or lease of the Acquisition was again raised by Fort Homestead utility in
- 1976, when its Pierce. oAicials in ivfarch of 1976. The president met with city oAicials to dis-minutes of a meeting with FP&L senior cuss Homestead's request for a retail ter-management oAicials record that the city ritorial agreement, an emergency inter-felt that disposition of its utility system connection, and wholesale purchases.
In was necessitated by an inability to ex-
- 1976, the Homestead city council dis-ploit the economies of scale in electricity cussed the topic with FP&L; however, production:
negotiations were apparently not con-
"'vfr. Skinner (Fort Pierce's chief tinued.
engineerl said we think its very efficient-The record indicates that acquisition ly operated.
We realize the big problem of the Vero Beach utilitywas considered facing us is not thehighcostoffuel o'r the by FP&L in 1957,
- 1958, and 1959.ss.
ineAiciency of our system, but the inef-Thereafter, a serious effort to acquire the ficiency as compared with putting oil Vero Beach system was undertaken in into a larger boiler and turbine. That's 1976 which culminated in approval of where we'e getting caught short on the the sale by the city electorate and an ap-heat rate input to the boiler. EVe have a plication to the Federal Power Commis-problem competing with FP& L sion under
$ 203 of the Federal Power favorably today because it represents Act. Internal managemen't cor-around 65 per cent roughly of the cost of respondence concerning implementation doing business, the cost for fuel oil."
of the acquisition by FP&L suggests that
'hen Fort Pierce inquired at that Vero Beach would be viewed as a bell-same meeting about the purchase of'30 wether by other municipals thinking of mw of base-load firm power, the corn-entering or leaving the utility business:
pany responded that it did not wish to "The impact potential of the Vero sell firm power unless the purchaser Beach acquisition on the franchise clcc-could reciprocate with sales of firm tion in Daytona Beach and other power to the company. This would re-municipal operations such as Fort quire Fort Pierce to maintain generating
- Piercc, Homcstcad, etc.,
makes it capacity sufficient to meet its own load.
imperative that we not underachieve FP&L also discouraged purchase under with our Vero Beach operation."
the SR-1 schedule, indicating that it was (Emphasis supplied.)"
not really firm and "awfullyexpensive."
After hearings in Docket iVo. E-9574, Thc company continued to develop an the Vero Beach acquisition was ap-acquisition proposed throughout 1976.
proved by an administrative law judge
- However, enthusiasm was apparently on grounds, advocated by FP& L, that dampened when Fort Pierce intervened the municipal utilitycould no longer cf-in proceedings before the Nuclear ficiently generate its own power rcquire-
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>>Staff Exh GT-34, at l.
329 32 PUR 4th
FEDERAL ENERGY REGULATORY COMMISSION ments and that FP8tL would provide an economic source of retail supply for the citizens of Vero Beach. This contrasts with the finding by the presiding judge that Vero Beach was a "truly excellent" utility with outstanding growth poten-tia). See, Re Florida Power 8t Light Co.
{1978) Docket No.
E-9574.
- However, FP8tL thereafter withdrew its applica-tion in early 1978 prior to the commence-ment of a final phase of the acquisition proceeding which was to consider the
'possible anticompetitive effects of the proposal.
.In summary, the record documents twenty years'orth of franchise com-petition between FP8c L and the municipal utilities located within its ser-vice territory. At various times FP8cL has promoted acquisition or willingly received municipal proposals.
Most,.if not all, of those incidents occurred when the municipal systems were arranging new bulk power supplies from the op-tions of self-generation, wholesale purchase from
- FP8cL, and retail purchase from FP8tL after franchise dis-position.
The company has not suc-ceeded in many acquisitions, because the-municipal candidates solved their supply problems by adding generation.
However, the record strongly indicates that self-generation is becoming less and less attractive to the point where FP8cL's witness Gerber has described small scale generation as anachronism.
Since FP8tL controls the remaining two options,ss we conclude that its wholesale monopoly power can only increase, and, thereafter, its retail power as well. See, Borough of Ellwood City v Pennsylvania Power Co.
(DC Pa 1979) 462 F Supp 1343, 1346.
The 'presiding judge expressly ac-cepted the company's representation that it was not interested in acquiring
'omestead or Fort Pierce because of capacity problems and operating dif-ficulties. Since we find the premise of this representation unconvincing,>s we would be remiss to wholeheartedly accept its conclusion.
In any
- event, it does not overcome the weight of the evidence to the contrary."
Pofcnfial Losses of Franchises. The corn-
~
pany appears well aware of the relationship between its wholesale sales to municipal utilities and its ability to re-tain existing retail franchises. In March of 1977, a market development presenta-tion was made to FP8tL management which stressed, inter alia, the need to maintain the integrity of the company in relation to publicly financed utilities.'a Between 1976 and 1985, for example, franchises covering retail sales to 41,8 per cent of FP&L's customers a'e to ex-
. In addition, FP8cL serves another communities at retail with no chisel agreement.
Franchise competi-can be a positive force to encourage er service and lower rates;
- thus, a
ity should not be allowed to tilt the nce by artificially making. wholesale ice unattractive to potential retail k.
'cial'f1~
.'p.v'..
W)gy, v'-4 v
s'As discussed, iaIra, p. 334, municipal purchase municipal utilityvoted to disband operations. Scc, of ensirlements in large generating units con-Florida Sutures Annotated,
$ 366.03.
siruaed by FP8:Ldoes not currentlyappeartobe
'oln a
1975 paper on "Strategic Issues in a viable option.
Interurility Relations" prepared by company s'Infra, at pp. 336-338.
witness Gardner, emphasis was placed, inter alia, "Alternatively, ir appears that ihc Florida on franchise renewals and phaseout of wholesale Public Scrvicc Commission could require FPBcL to tariffs.
provide retail service il the customers of a 32 PUR 4th 330 pire 93 fran tion
'L bett util bala serv
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4 RE FLORIDA POWER 8t LIGHT CO.
market entrants.
United'States v Otter Tail Power Co., supra, 90 PUR3d 419, 331 F Supp at p. 61. The record contains evidence relating to three franchise ex-pirations, of which Daytona Beach is the most fully documented.
In 1975 or 1976, the city of Daytona Beach undertook a study of municipal distribution 'ersus FP8t L franchise renewal.
In response, the company
-mounted a signiTicant effort to inform city residents of the benefits of franchise renewal. Of particular note are the com-pany's'tatements that each of the Florida municipal utilities had rates higher than FP&L (except for two with access to hydroelectric power) and that municipals charge these higher rates because FP8tL "can gain greater economies of scale in all facets of its operation."
Florida Power and Light Company won renewal of its franchise after a record high election expenditure.
Due to the continuing expirations of retail franchises, we conclude that vigorous franchise competition exists within the retail market which FP8cL can influence through its wholesale sales policies.
[6] The company characterizes its ef-forts to renew franchises and acquire others as sales promotion and business preservation.".
- However, these actions
'may still run afoul of antitrust law and policy when undertaken by a possessor of monopoly power. Otter Tail Power Co. v United States (1973) 4'l0 US 366, 97 PUR3d 209, 35 L Ed 2d 359, 93 S Ct 1022; and City ol'vfishawaka v
American Electric Power Co. (DC Ind 1979) 465-F Supp 1320, 1329-1332.
Florida Pocvcr and Light.Company's Relationship tuilh Homcslcad.
Traditional-ly, FP8t L has demonstrated considerable reluctance to engage in lirmpower trans-actions with municipal utilities, even within its own service territory. During the 1950's and 1960's this amounted to an unqualified refusal.
Rate Schedule RC under which 'firm service was provided to cooperatives required that capacity and energy "not be resold or distributed by the customer to any municipality or unincorporated com-munity for resale." In an initial decision adopted by the FPC in Re Florida Power
&, Light Co. (1967) 37 FPC
- 544, 68 PUR3d 249, Opinion No. 517,%hearing examiner Wenner recounted six separate instances over a period of thirteen years when the Clewiston municipal utilityre-quested and was refused wholesale ser-vice by FP&L."In 1963, the company's president informed the city of Winter Garden that FP8tL did not "supply municipal systems firm wholesale power for distribution through a municipal dis-tribution system.'"'"
Homestead first requested firm wholesale service from FP8cL in 1967; to which the company responded that it did not provide this service to municipalities and did not wish to serve any. Wholesale power from FP8cL was Homestead's alternative to the immediate installation of new generation or disposition of its system.
Robert
- Fite, the company's president, and F. E. Autrey, a vice presi-
"Florida Power and Ught Company briefon ex-ceptions at p. 45.
'tAfiirmed, Federal Power Cotnrnission v
lorida Power & Light Co. (1972) 404 US 453, 92 PUR3d 149, 30 L Ed 2d 600, 92 S Ct 637.
331 32 PUR 4th "37 FPC at pp. 572, 573, 68 PUR3d 249, Opin-ion iVo. 517.
"See, also. Gainesville Utilities Dept. v Florida Power & Light Co., svpra, 573 F2d at p. 298.
FEDERAL ENERGY REGULATORY COivlMISSION dent, stated that FP&L would not refuse to sell wholesale power, if that was the only arrangement negotiable;
- however, they added that the city would not receive the rate at which firm sales were made to cooperatives and that a retail territorial allocation was a
necessary precondition to any service.
Florida Power and Light Company emphasized the comparative benefits of an emergency interchange 'greement or sale of the municipal system in lieu of wholesale purchases.
Homestead was unable to negotiate a lirtnwholesale con-tract and instead made intermittent purchases from FP&L over the ensuing five years at average prices that were considerably higher than those paid by FP&L's cooperative customers.
In Aprilof 1972, Homestead requested a more sophisticated interchange agree-ment with FP&L including the purchase of f)rm power to meet a portion of the cityoad; however, FP&L negotiators responded that FP&L was only in-terested in an interchange where both parties had capacity to meet their own demands plus ample reserves.
- Instead, Homestead'and FP&L entered into new emer'gency service agreements whereby the company only agreed to supply emergency power needs "to the extent it has capacity available...."
Florida Power and Light Company applied its then existing rate Schedule "WH," ap-plicable to total requirements purchases by cooperative customers.
Homestead next requested power from FP&L in August of 1973, proposing a
firm purchase of 12-16 mw from 1975 through 1980. The city stated that it in-
- tended to use this capacity for base load, purchase interchange energy to meet its intermediate
- load, and use its own generation only for peak-load capacity and reserve.'s The company first decided to respond to Homestead's request with the so-called "Marshall Theory": Homestead was to be told that FP&L had no firm power to sell. Company negotiators were advised to have load and reserve es-timates available to substantiate this response.
Immediately thereafter,
- however, the company concluded that Homestead had been listed as a
customer under all requirements Schedule SR and was actually receiving firm power at committed intervals."
Florida Power and Light then decided that ifHomestead requested a transmis-sion interchange agreement as well as firm power, it would employ Schedule D and use Schedule SR as the negotiated rate thereunder; In October of 1973, Homestead sub-mitted a comprehensive request for an interchange agreement and simultaneous purchase of firm power from FP&L to serve the base-load por-tion of the city's requirements. However, Exh GT-29 reveals that the company wanted to avoid any obligation to sell firm power to Homestead by ~ithdraw-
"The company's chief representative at this The notes bespeak a certain surprise in learning meeting was its vice president, E L. Bivans, who that Homestead was an SR customer: "Rate SR later testiTied in this proceeding.
Copies of Bivan's offers firm power. Apparently, the company has notes were sent to thc company's president and been honoring their request for a number ofyears, other executives.
and is nor in a good position to refuse to continue "This discussion is recounted in the notes of ofFering firm base load power of l2 mw to l4 mw, company employee "WMK"(apparently W. M.
which is consistent to lsicl their previous Mein, a negotiator in dealings with Homestead).
demands."
32 PUR4(}i 332 4
RE FLORIDA POWER &. LIGHT CO.
ing Schedul'e SR from its existing economies of scale available to large wholesale customers, including utilities. This fact was clearly revealed in Homestead, and replacing it with an the analysis.
The smaller utilities had "emergency rate schedule" telling the less efficient. heat rates and higher fuel city that it has no firm power to sell.
and operating costs per kwh of power Alternatively, it considered offering sold. These higher costs appeared to be Homestead a
Schedule D
(firm in-major contributing factors in the high terchange) rate lower than Schedule SR cost of power to their customers."
in return for a signed contract stating iVegotiations on the Homestead in-that the city would install additional terchange agreement continued and in generation capable of carrying its December of 1973 a final set of discus-electrical load. The final paragraph of sions
- occurred, from which
- FP8cL this internal memorandum seems an apt learned that the "key" to this agreement summarization of FP8cL's reaction to was FP&,L's willingness to Homestead's request for firm power:
simultaneously supply service under "It is our beliefthat ifwe refuse tosell both the interchange agreement and the city, of Homestead firm power they Schedule SR after construction of neces-will immediately request us to wheel sary interconnection facilities by from other municipalities.
If we en-Homestead.
Engineering and billing courage them to increase their genera-problems were not considered serious by tion where we can purchase power from FP8cL personnel.
- However, company
- them, we may offset the demand for negotiators opposed a written commit-wheeling as well as avoid a long-term ment toservethecityunderScheduleSR firm power commitment."
after completion of the interconnection Florida Power and Light Company's "because'e
[FP8cLj already have a
hope to induce Homestead to construct contract to serve them on SR and the additional generation for base-load re-agreement does not necessarily prohibit quirements in lieu of firm power such an arrangement to continue."
purchase was not done without
- Instead, FP&.L's vice president, R. G.
knowledge of the consequences for the ivIulholland, did send a letter to city. In December of
- 1973, FP8c L's Homestead's city manager, inJanuary of financial planning department prepared
- 1974, after the interchange agreement an analysis of FP8c L's and the was signed, stating the company's. un-municipalities ip or near its service area derstanding that it would provide entitled "Comparative Analysis, of Homestead with electric power for Municipal and Investor-owned Utilities thirty-six months after completion of the and the Benefits to Their Customers."
city's new interconnection facilities at a This study determined that, except for rate not to exceed the company's ap-Orlando and Jacksonville, municipal proved wholesale rate schedule in effect utilities charged higher retail rates than at that time.
FP8cL, because:
Homestead's high voltage intercon-
"The size of most municipal units is nection facilities were completed in Oc-'imited by the size of the city. This limit tober of 1977. Without advance notice to on size prevents the smaller municipal Homestead or any indication from the tilities from realizing many of.the city that it no longer wanted average 333 32 PUR4>>h
al I FEDERAL ENERGY REGULATORY COlvIMISSION priced firm power, FP&L filed the rate change application with this commission which proposes to terminate SR service to Homestead.
In place of SR power, FP&,L states it will sell Homestead in-crementally priced, curtailable Schedule D power, which the company admits is more expensive than Schedule PR when used for base load.
- Thus, Homestead has received wholesale service from FP8cL since the 1950's, including firm requirements ser-vice under the SR-1 tariffsince that tariff first became effective. From the time of agreement in 1973 to completion of'the'nterconnection in October, 1977, FP8tL served Homestead under the SR-1 tariff.
,We find no evidence to support FP& L's contention that completion of the inter-connection somehow eliminated Homestead as an existing wholesale re-quirements customer.
iNor is it per-suasive to assert that the parties intended for Homestead to be served at an in-crementally priced Schedule D rate in-stead of the average cost Schedule SR."
Indeed, knowing Homestead's desire for base-load firm power, the company's representations as to the meaning of their interchange agreemcnt in January of 1974 are quite to thc contrary.
It would be difficultto reach any other con-clusion, given the weight of this largely unrebutted evidence.
Florida Power and Lighl Company's Relationship mifh Forf Piercc'.'The efforts of Fort Pierce to purchase 1irm power from FP8tL bear a marked similarity to those of Homestead. In March of 1976, Fort Pierce approached thc company about purchasing firm power to meet the city' base-load requirements and using its own generators for peaking purposes.
Fort Pierce renewed its request in letters to FP&,L in April and December of 1976.
The December letter requested separate price quotations for base, intermediate, and peaking capacity. The city also in-formed FP8CL that it immediately wished to begin purchasing "base i
capacity and energy on a year-round basis in amounts ranging from 25 mw to 30 mw,". and requested a statement of the company's terms and conditions.
Although FP&L recognized its obliga-tion to provide service under Schedule SR-1, both in an internal memorandum and in a'letter to Fort Pierce, the com-pany failed to respond with speciTic in-formation on which Fort Pierce could.
act. After another letter to FP8tL in Aprilof 1977, the parties met inJuly and Fort Pierce was told that FP8cL had no firm power to sell.'ort Pierce maintained its position that-it was entitled to firm power under the SR-1 tariffthroughout the remainder of 1977. On October 14, 1977, FP8cL filed changes to thy tariff w'hich limited its availability to existing customers.
Thereafter, the company offered Fort Pierce up to 240 mw of capacity through the end of 1980, but under the terms of interchange Schedule D, not Schc'dule SR.
On March 24, 1978, during the cross-
"Th>> record indicates that FP&L did not firm intercharge sales between 1977 and 1985 publish a rate level formula for Schedule D until which projected an "available supply from FPL" February 10,
- 1978, when it tnade an offer of rangingbctween 1,G04mw and 1,995mwin 1977.
Schedule D capacity to Fon Piercc.
This rcport assessed the opponunities for sale of "However, inJuly of197G, FP&L'ssystem plan-firm power to ten different utilities in peninsular ning department prcparcd a market assessment of Florida, including Fon Pierce.
32 PUR 4th 334 F
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RE FLORIDA POWER 8c LIGHT CO.
r~
4 examination ol'P8cL's rate design witness, Lloyd Williams, by counsel for Fort Pierce, Mr. Williams acknowledged that the city was eligible to purchase firm service under the SR-I tariff. The same
- day, FP&,L delivered a draft service
~
agreement to the city and firm service began immediately. However, a dispute remains concerning the duration of ser-vice and FP8cL has stated its intention to terminate service to Fort Pierce ifwe ap-prove its proposed restriction offirm ser-vice to named and" existing customers which do not have generating capacity suflicient to meet their peak loads.
Limitations on Allcrnativc Sources of Capacity.
Unrebutted company docu-rnents in evidence indicate that it is FP8tL's policy to retain I'ullownership of the nuclear generating plants'which it constructs. The company has stated that the full capacity of these units is needed to serve its own customers, so sharing is not to be anticipated until FP8t L reaches the optimum amount of nuclear capacity for its system.
- However, no party dis-putes that joint ownership of such facilities would provide municipal and cooperative utilities (as well as other utilities in the region) with access to FP8tL's economies of scale.
Florida Power and Light Company is the sole owner of three operating nuclear plants haying aggregate capacity of 2,188 mw. Florida Power and Light Company has agreed to share a portion ofSt. Lucie No. 2 nuclear plant with neighboring sysiems including Homestead and New Smyrna Beach;
- however, FP8tL docu-ments in evidence indicate that this was done at the insistence of the Justice Department and that FP8cL has not committed itself to share the capacity of any future unit."..
?hc Availability of Transmission Scrvr'ccs.
Florida Power and Light Company now offers four wheeling services which cor-respond to its interchange capacity and energy services.'o Wheeling may be provided for one-year periods, with ser-vice available at the sole discretion of FP&L when transmission capacity is not otherwise required by the company.
Transmission Schedules TA, TB, and TC correlate to interchange schedules for emergency, scheduled and economy capacity, and/or energy services.'!
Of particular significance to this case is Schedule TD, denominated "firm trans-mission service." However, "firm" is a misnomer because Schedule TD service may be reduced or interrupted at the company's discretion for periods up to thirty days.ss.
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< r "In 1973 FP8cL considered canceling St. Lucie 1977. The rate for these services is currently under ifo. 2 because of "escalating costs and Justice adjudication.
Department revJew of our antitrust status." Then "Supra, at pp. 316, 317.
in 1976, the company considered a shift to coal-
"Section E of the draft agreement provides:
fired plants for future base-load generation "to "Inthecvent thatlirmtransmissionservicecan-eliminate the Atomic Energy Act as a route to not be provided due to an unanticipated reduction municipals'nvestmcnt in generation."
See also, or interruption of FP&,L's transmission facilities the decision of the Atomic Safety and Licensing supplying such
- service, or if such service is Appeal Board, Nuclear Regulatory Commission, providedinanamount less than 80percentofthe in Re Florida Power 8r Light Co. (1977) Docket contracted demand for firm transmission service as No.
50-389A, regarding antitrust review a result of unanticipated reduction or interruption proceedings on St. Lucie No. 2.
of power delivered by the commission to FpscL for t
'oA complete description of these four services is the city's account pursuant to service Schedule D found in Exh 28 (REB-AX), a draft service agree-of the city-commission contract
~ and such reduc-rncnt sent to the city of Fort Pierce on December 6, tion or interruption continues lor a period of thirty 335 32 PUR 4th
r T
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FEDERAL ENERGY REGULATORY COMrrvIISSION In short, these four. wheeling services only offer surplus transmission capacity on an as-available basis. Florida Power
~ - and Light.Company does not contend that any of these four wheeling services could be utilized to transmit alternative power supplies to utilities within the relevant markets from third parties equivalent to those obtainable under Schedules SR-2 or PR. The company states that an appropriate rate would have to be negotiated at the time a poten-tial wheeling customer arranged its alter-native power supply.'s 7hc Reasons Giucn by FPG'L for Its 7arifj"Linrifafion Proposals Florida Power and Light Company would seek to justify its proposed limita-tions on full and partial requirements availability in terms of operational con-straints.
SpeciTrcally, it asserts that future power supply is too uncertain to allow unlimited access to its require-ments service..
According to FP&L, cu tomers which are self-sufficient in generating capacity could arbitrarily shift their load between service from FP8tL and their own generation. This would purportedly lead FP8cL to maintain capacity in excess of its other customers'eeds but with no assurance that such capacity would be fullyutilized, thereby increasing rates to all customers. The company proposes to
-remedy this uncertainty by making these-on-again/off-again customers ineligible for service under Schedule PR.
- However, the difficulty with this proposition is that it has virtually no record support and is based on a few conjectural statements by company witnesses.
In fact, FP8cL's rate design witness prepared a model load duration curve in 1975 showing that customers with generating capacity less than peak demand
'and customers with capacity greater than peak demand would each purchase base-load requirements from the
- company, under an SR schedule modified for parallel operation, and use their own capacity intermittently to meet intermediate,
- peak, and reserve de-mands.
This is consistent with the repeated requests of Homestead and Fort Pierce for base-load firm power."
Ivloreover, the natural inclination of these systems'to buy base-load power would apparently be reinforced by the.'esign of FP8tL's RP rate which is in-tended to promote high load'factors."
Florida Power and Light Company relives on oil, natural gas, and uranium to fuel its generation.
It cites the 1973 oil embargo and resulting drastic oil price ir.
or tl..
Ul re tl:
tr, F:,
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pr pr lo hc ca gr cl P(
th df su of ex days, the charge for firm transmission service will be adjusted as follows: In each succeeding month, the higher of (a) rhe maximum rnw delivered ro FP&.L in any one hour during that month, or (b) the maximum mw delivered ro FP&L in any one hour during the preceding six months, willbe sub-srirured for the contract demand for lirm rransmis-sion service for purposes of calculating the charge for firm transmission service. Upon such reduced or inrerrupred service being restored ro 80 peccenr or mor>> of the conrracr demand for firm rransmis-sion service, the charge in each succeeding month shall be based upon the full conrracred demand for 32 PUR 4rll 3
firm transmission service."
>>Florida Power and Light Company brief op-posing exceptions at p. 42.
~'Supra, ar pp. 331-334. Again in their testimony, Florida cities state their inrenrion to use Schedule PR for base-load purposes and use their own generation for peaking.
i'Supra, ar pp. 315, 316. While FpfkL is dis-couraging purchases by self-suflicienr municipals it has apparently-adopted a
markering siraiegy which promorcs high load factor usage as a means of improving irs declining sysrem load factor.
36 cu En juc nui Ele Co Cir co
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a ie RE FLORIDA POPOVER & LIGHT CO.
r increases and the expiration oflong-term oil supply contracts and replacement by three-year contracts to cast uncertainty upon its oil supply. As for gas supplies, it references high levels of curtailment and the expiration of a major gas supply con-tract in 1979. Concerning nuclear. fuel, FP8tL notes that it only has a two-year inventory and that its long-term supply contract was canceled by the seller in 1975.
Florida Power and Light Company may well face fuel supply problems, as do other suppliers in the electric utility industry.
- However, they are not of a magnitude that would justify the proposals before us in this case. It ap-pears that FP8(L continues to possess long-term fuel oil contracts.and that it has entered into shorter term oil con-tracts (three years) with favorable cancellation provisions in order to gain greater flexibilityin responding to price changes on the open market.
Florida Power and Light Company's natural gas warranty contract with Amoco Produc-tion Company provides for daily deliveries of 200 lvfi>Icf through
- 1988, such deliveries being beyond the purview of the present curtailment plan of the transporter of this
- gas, Florida Gas Transmission Corporation.'s. Finally, an affiliate of FP&L is engaged in uranium exploration and FP8t L's existing nuclear units do not appear in danger of being curtailed due to fuel shortage.s7 Among the fuel-related problems which FP8cL gives as a
reason lor limittng firm wholesale service is its in-ability to procure a coal supply contract.
However, on cross-examination, FP8tL Vice President Gardner acknowledged that the company has no coal-fired generation and has no plans to construct any. These points are confirmed by the testimony of FP8(L's vice president in charge of fuel procurement which was presented to the Florida Public Service Commission in the spring of 1977.s5 On brief, FP8(L has argued that the inability to obtain a coal s)spply contract has im-paired its ability to plan coal-fired generation.
However, the only evidence in the record of FP8cL's need for such a plant was its desire to avoid municipal access to nuclear generation, the base-load alternative to coal, which could come from antitrust review before the Nuclear Regulatory Commission."
Florida Power and Light points to en-vironmental regulations which make construction of coal-fired units diAicult and make nuclear units almost impossi-ble to build. It also points to escalating
- costs, litigation, and regulatory delays and requirements as additional factors stopping future nuclear unit construc-tion, or at least yielding a 12-year lead time which necessitates equal lead time for load forecasting.
It refers to its cancellation of the proposed South Dade nuclear units and the substantial delay Vi :., set delivering nuclear fuel by reason of force rnajeurc provisions in its contract with the various utilities.
See, Antitrust Trade Reguhtion Reporter, iV. 887, at A-15 (iVovember 2, I978).
"Exhibit 22 indicates that while coal may well be used in (he future, economic, environmental, and reliability problems make it largely irrelevant to FP8(L's curren( capacity planning.
"Supra, at p. 334, footno(e 48.
32 FUR 4th "See, Sebring Utilities Commission v federal Energy Rcguhtory Commission (CA5(h l979) 591 F2d 1003.
1'In l978 FP&L and several other utilities won a judgment in federal district court against their nuclear fuel requirements supplier, Westinghouse Electric Corporation, Virginia Electric 8( Power Co. v Westinghouse Electric Corp. (DC Va l978)
Civ. iVo. 75-05l4-R. In an unreported opinion the court held that Westinghouse was not excused for 337 I
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FEDERAL ENERGY REGULATORY COMMISSION in licensing and resulting increase in capital costs of its St. Lucie No. 2 nuclear unit. As for existing generating
- units, FP&L states that its Turkey Point nuclear units have experienced steam generator leaks causing..unscheduled outagcs in the past and requiring exten-sive scheduled outage in the I'uture for repair, and that its combined cycle Put-nam units, due to their novel design, have not been reliable. Finally, FP&L refers to its common stock selling below book value as evidence of Iinancial dif-ficulties which have limited its construc-tion budget to internally generated cash.
We certainly cannot deny that these constraints do pose problems for utilities such as FP&L, but the record fails to es-tablish that FP&L is so hampered by regulatory requirements and financial diflicultics as to. be incapable of ex-panding its generating capacity as needed in the future. Florida Power and Light Company is, after all, offering 240 mw of Schedule D capacity to Homestead and Fort Pierce, and the re-cent rate oF increase in demand by FP&L's other customers cannot be characterized as rapid.
Florida Power and Light Company has been greatly reducing its demand and load forecasts in recent years, with the actual rate of growth being relatively low averaging at most around 4 per cent annually. To the extent that the record gives any indica-tion of FP&L's current Iinancial condi-tion, it reveals that FP&L has ex-perienced signiTicant improvement in earnings and related market factors.
About the time FP&L filed this case, it was reporting lower, more manageable growth; greater internal generation of funds; improved earnings and coverage ratios; and increased dividends. Suflice it to say that the record, comprised largely of company documents, is ambivalent on this issue.
Florida Power and Light Company would support the separation of full and partial requirements tariffs in terms of costs of service on the basis of different load patterns.'o These separate full and partial requirements tariffs differ both in terms of demand and energy charges.
Florida Power and Light Company con-tends, therefore, that it has designed dif-ferent rates to reflect more precisely the different costs of serving these different customer groups.
Establishment of separate full and partial wholesale re-
,quirements rates is common practice.
We have in fact recognized the dif-ferences in the costs of serving full and partial requirements customers, not to mention different types of partial re-quirements customers.s'n the present
- case, FP&L's proposal of separate full and partial requirements rates appears reasonable.sz Balancing fhc Public.
Infcrrsf Considcrafions When the SR-2 and PR tariffs are
'4Florida Power and Light Company ass~rts that to stabilize their purchases of power.
its wholesale customers without any generating "E.g., Re Boston Edison Co. (1977) FERC capacity have relatively stable and predictable load
,23 PUR4th 416, Opinion No. 809-A.
panerns which allows it ro plan operations and "Ofcourse, in Phase l of this docket we are not design rates to recover costs ofserving these full re-addressing the specific costs of service and rate quirements customers.
h furzher con(ends
<hat designs of the SR-2 and PR tariffs. Accordingly, panial requirements loads are less stable but that ow determinadon does not reflect on how these the PR tarilf allegedly encourages such customers two rates will actually function.
32 PUR 4th 338
RE FLORIDA POWER 8t LIGHT CO.
viewed from a perspective on the relationships between FP8cL and other utilities within the relevant markets, the presiding judge', conclusion that the company's proposal has "no discernible anticompetitive effect in and of itself" is inadequate.". With alternative sources of base-load wholesale capacity un-available, FP8c L's tariff restrictions would'deny to Homestead, Fort Pierce, and other nominally self-sufficient utilities within the relevant market the only remaining source of supply, Schedule PR. It would conclude, finally, the mumcipals efforts over ten years to obtain a source of economically priced, base-load power.
ivIunicipals like Homestead and Fort Pierce would become likelier to leave the utility business.
- Indeed, the citizenry might force these utilities to come to FP8cL re-questing takeover.
- See, City of tvfishawaka v American Electric Power Co., supra, 465 F Supp at p. 1329. Of even greater importance to the company would be the assurance that in future franchise renewal contests with potential retail market entrants, it could point to existing municipal utilities as characteristically expensive and unable to exploit scale economies.
Homestead and Fort Pierce would not be able to economically utilize higher priced, lower quality Schedule D service to meet their base-load requirements.
Such offers to sell at impractical prices and terms have. been construed as unlaw-'ul refusals to deal, when done to further monopoly power. Eastman Kodak Co. v Southern.
Photo Materials Co.
(1927) 273 US 359.
The restriction of'holesale service to named'and existing customers is an even greater threat to potential franchise com-petition.
The record indicates that FP8tL generally plans to minimize sales of average priced wholesale power to municipals and cooperatives.
After reviewing the record of FP8c L's efforts to renew the Daytona Beach franchise, it does not appear likely that the company would offer a
potential distribution utilityan average cost rate. The signal to potential retail distributors in areas presently served by FP8tL at retail and over which FP8t L has wholesale monopoly power is quite clear. Cf., City of iVlishawaka v American Electric Power Co.,
supra.
Florida Power and Light Company's offer to
~ discuss the feasibility ofservice to new customers under specific contract rates does not reassure us.s'he balancing of competition against other public interest considerations, re-quired by City of Huntingburg v Federal Power Commission,s! becomes relatively simple once this case is stripped to its es-sential elements.
The proposed restric-tive provisions are.ahticompetitive, ye find no countervailing reasons for their implementation, and they are to be deleted.
The company has not demonstrated that it should be allowed to change the general availability provi-sion of Schedule SR-1 which makes
'>Wc recognize and fullyappreciate that the ini-efforts.
tial decision was wrinen before FP&L agreed to
~'As staff notes in its brfef on exceptions, the continue to serve Homestead and Fort Pierce un-presiding judge erred in finding that FP&L had der its PR tariffpending the linal outcome of this commined to serve new systems in FP&L's service case. We have not been burdened by the time con-territory.
traints faced by thc presiding, judge. Under the
~'(1974) US App DC,498 F2d 778.
rcumstanccs the judge is to be commended for his 339 32 FUR 4(lt
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