Text

Forwards Proprietary Portion of Amend 34 to ABWR Ssar. Proprietary Portion Withheld
	ML17310B522
Person / Time
Site:	05200001
Issue date:	03/31/1994
From:	Quirk J; GENERAL ELECTRIC CO.
To:	Borchardt R; NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM), Office of Nuclear Reactor Regulation
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ML17310B523	List: ML17310B522;
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	MFN-034-94, MFN-34-94, NUDOCS 9404130156
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UNITED STATES OF AMERICA BEFORE THE NUCLEAR REGULATORY COMMISSION In the Matter of ARIZONA PUBLIC SERVICE CO-Palo Verde Nuclear Generating

Station, Units 1, 2,

and 3

Operating Licenses NPF-41, NPF-51 and NPF-74

)

Docket Nos.

STN 50-528

)

STN 50-529

)

STN 50-530

)

Transfer of Control of

)

Ownership of License;

)

Antitrust Issues

)

PETIT10N FOR LEAVE TO INTERVENE AND COMMENTS OF SOUTHWESTERN PUBLIC SERVICE COMPANY ON PROPOSED TRANSFER OF CONTROL AND ANTITRUST ISSUES I.

INTRODUCTION AND

SUMMARY

Southwestern'Public Service Company

("Southwestern"

)

submits this pleading in response to the Nuclear Regulatory Commission's

("NRC" or "Commission" ) notice, published in the Federal Register on March 14,

1994, seeking (1) comments on the proposed transfer of control of El Paso Electric 'Company's

("EPEC"-) interests in the Palo Verde Nuclear Generating Station to Central and Southwest Corporation

("CSW") and (2)

"comments or information relating to antitrust issues believed to be raised by this transfer recpxest."

59 Fed. Reg.'1813.

Southwestern is vitally affected by the competitive consequences

=of the proposed transfer of control.

The combina-tion of CSW and EPEC, including the combination of their nuclear plants and transmission facilities, and the transfers of power, including nuclear power, between and among EPEC and the operating

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companies of CSW, will significantly hamper Southwestern in competing with CSW and EPEC.

As discussed in detail below, the merger and transfer of control will maintain and exacerbate a

situation inconsistent with the antitrust 'laws regarding competi-tion throughout the Southwest and for sales to'exico.

Because CSW and EPEC are hundreds of miles from each other, they plan to implement their merger by transferring power and energy, including Palo Verde power and energy, across South-western's low-cost transmis'sion system.

Zn so doing, CSW and EPEC will tie up all available transmission capacity so that others, particularly Southwestern, can no longer compete with them.

At the same time, following their merger, CSW and EPEC will largely surround Southwestern and control all of the viable transmission paths for the sale of Southwestern's bulk power in the Southwest.

CSW and EPEC also will control virtually all of the transmission paths between the U.S.

and Mexico.

Southwestern is an actual and potential competitor to CSW and EPEC for sales throughout the Southwest and to Mexico.

But, CSW and EPEC's enhanced control over transmission and substantial market power following the merger, as well as their ability to exercise it, as they have done in the past, will preclude Southwestern's competi-tion.

The Atomic Energy Act ("Act") directs the Commission to investigate the competitive aspects of its licensing actions, including obtaining the advice of the Attorney General regarding antitrust issues, and to remedy "a situation inconsistent with

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the antitrust laws."

At this stage, CSW and EPEC have not even submitted to the Commission the antitrust information required by the NRC's regulations regarding transfers of licenses.

The Commission therefore should dismiss or hold in abeyance the application, pending the receipt of that information.

Further, the Commission should forward the transfer application, and any supplemental antitrust information it receives, to the Attorney General for her advice, as required by the Act.

The Commission should take no further action pending receipt and publication of that advice.

In no event should the Commission approve the transfer based on the bare submission currently before it, as the applica-tion requests.

As the Commission recognizes, the Federal Energy Regulatory Commission

("FERC") also is investigating the proposed acquisition.

Two applications are pending at the FERC.

In the first, filed in November

1993, CSW and EPEC have asked the FERC to compel Southwestern to provide firm transmission capacity to them for the indefinite future so that they can integrate their distant systems.

1/

Because this will tie up Southwestern'"s transmission capacity and obstruct Southwestern's ability to

compete, 19 parties, including the Public Utilities Commission of

Texas, the New Mexico Attorney General, and customers of CSW,

EPEC, and Southwestern, have protested or otherwise raised concerns with the application.

CSW and EPEC also have sought the Commission's approval of their merger, through an application 1/

See Appendix V to EPEC's Application to this Commission.

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filed in January, 1994. 2/

Twenty-nine parties, again includ-ing numerous, regulatory authorities, state attorneys

general, and customers of CSW, EPEC and Southwestern, have intervened in that I

proceeding,,raising a host of issues including the anticompeti-tive,lessening of competition the merger would produce.

The Commission should take no final action until, at a

minimum, the FERC investigation is complete.

At that time, the Commission may utilize the FERC's findings, if appropriate, as h

supplemented by its own findings, to address the antitrust issues under the Act.

Importantly, the Commission may not abdicate its own independent antitrust responsibilities under the Act; it must take its own appropriate remedial action regarding the transfer of control.

Therefore, following receipt and publication of the Attorney General's advice and any findings of the FERC, the NRC should solicit further comments regarding the license transfer and adopt any necessary conditions, consistent with the NRC's antitrust responsibilities.

In their effort to stampede the transfer application through the Commission, CSW and EPEC have submitted to the NRC their application and related evidentiary submissions to the FERC.

See Application at III-ll,n. 22.

In light of this, Southwestern is submitting to the Commission its response to the FERC application, in relevant part.

Specifically, Southwestern is submitting its preliminary evidentiary affidavits, submitted to the FERC in opposition to CSW/EPEC's application, which 'detail 2/

See Appendix IV to EPEC's Application to this Commission.

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the significant and substantial issues in dispute regarding the

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competitive situation.

Southwestern reserves the right to supplement its submission to the

NRC, as the FERC proceedings progress and after they are completed.

Southwestern requests the Commission to impose remedial antitrust conditions, if the transfer of control is approved, which will ensure'its ability to compete on fair and equal terms with EPEC and CSW after the merger.

The requested conditions are set forth in Section V, infra.

These remedies are the minimum I

necessary to fix the present'nticompetitive situation and the situation which will prevail following the merger.

The persons designated pursuant to 10 C.F.R. 5 2.708(e) to receive service of pleadings,

orders, and other documents in connection with this proceeding on Gerald J. Diller Vice President, Rates and Regulation Southwestern Public Service Company P.O.

Box 1261 Amarillo, TX 79170 behalf of Southwestern are:

Alan J.

Statman Wright

& Talisman, P. C.

1200 G Street, N.W.

Suite 600 Washington, D.C.

20005 II.

SOUTHWESTERN' INTEREST IN THE PROCEEDING.

Section 189(a) of the Act provides that the Commission "shall admit" as a party to a proceeding "any person whose

'I interest may be affected by the proceeding."

Act, 5 189(a),

42 U. S.C.

5 2239 (a).

Section 189 (a) expressly applies to proceed-ings regarding an "application to transfer control."

Id.

" The Commission's regulations further provide that "[a]ny person whose interest may be affected by a proceeding and who desires to 4

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7 participate as a party shall file a written petition for leave to intervene. "

10 C. F. R.

$ 2. 714 (a) (1).

Southwestern clearly has an interest in this proceeding justifying its intervention and full participation.

Southwestern is interconnected with both EPEC and two of CSW's operating companies, and the merger, as proposed, is predicated on CSW and EPEC integrating their operations across Southwestern's transmis-sion system.

There will be a substantial effect on Southwestern of any order in this proceeding since CSW and EPEC's power and

energy, including Palo Verde power, will be flowing across Southwestern's system if the merger and transfer of control are

approved, as proposed.

See 10 C.F.R. 5 2.714(d) (1) (iii).

Moreover, the merger and transfer of control will enhance the market power of CSW and EPEC and their abilities to control Southwestern's off-system sales.

CSW and EPEC will largely surround Southwestern and control the outlets for its power.

Southwestern's evidence regarding the. competitive situa-tion is crucial to,the Commission's developing a, sound record and exercising its antitrust responsibilities under the Act*.

See 10 C.F.R. 5'.714 (d) (1) (i).

Southwestern competes extensively with CSW and EPEC for J

sales to wholesale customers in the Southwest and Mexico.

With its low-cost, largely coal-based generation, Southwestern is the region' most significant competitive force.

Thirty-two percent of Southwestern's sales are to wholesale customers, many beyond the borders of its traditional service area.

(See attached

affidavit of David T. Hudson, at 2.)

Without conditions, the merger and transfer of control would severely restrict South-western's access to markets in which it can compete, warranting Southwestern's intervention to protect i;ts interests.

See 10 C.F.R. 5 2.714 (d) (1) (ii).

ZZI. THE ACT REQUIRES THE COMMISSION TO OBTAIN ANTITRUST ADVICE PROM THE ATTORNEY GENERAL REGARDING ANY LICENSE TRANSPER AND TO REMEDY "A SITUATION INCONSISTENT WITH THE ANTITRUST LAWS."

The Act Requires The Commission To Obtain The Attorney General's Advice Regarding Antitrust Issues.

Section

.1 of the Act declares that "the development,

use, and control of atomic energy shall be directed so as to strengthen free competition in private enterprise."

Act, V

5 1(b),

42 U.S.C.

5 2011(b)

Zn furtherance of this goal, section 105 of the Act provides that the Commission "shall promptly transmit to the Attorney General a copy of an license a

lication," so that the Attorney General can "render such advice to the Commission as he determines to be appropriate in regard to the [antitrust] finding to be made" by the Commission I

under section 105.

Act, 5 105 (c) (1),

42 U. S. C.

5 2135 (c) (1)

/

(emphasi;s added)

The Commission must give "due consideration" to the Attorney General's advice and any other evidence provided to it, and "make a finding as to whether the activities under the license would create or maintain a situation inconsistent with the antitrust laws."

Actg

$105 (c) (5) g 42 U

S

~ C 5 2135 (c) (5)

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Under the terms of the Act, the ~onl exception to the foregoing procedures is in the case of an application "for a

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license to operate a...

production facility'or which a con-struction permit was issued,"

since, in that case, the Applicant would have already undergone an antitrust examination by the Commission.

Act, 5 105(c) (2),

42 U.S.C.

5 2135(c) (2).

In that

event, the Commission proceeds with its antitrust review only if "the Commission determines such review is advisable on the ground that significant changes in the licensee's activities or proposed activities have occurred subsequent to the previous -review by the Attorney General and the Commission... in connection with the construction permit for the facility." Id.

This single exception under the Act, however, is inap-plicable here.

CSW was not part of any previous antitrust examinations regarding the Palo Verde plants.

Only EPEC has undergone such review.

As a transferee of control of the Palo Verde facilities, CSW stands in the same position as would an added'o-owner of a facility, under which circumstances the Commission has plainly stated that, "[w]ithout exalting form over substance, it is clear that these applications are within the I

scope of the phrase

'any license application'or antitrust review purposes within the meaning of 5 105(c) (1)."

Detroit Edison Co.

(Enrico Fermi Atomic Power Plant, Unit No. 2),

7 NRC

583, 588 (1978)'.

To construe the statute otherwise would per-mit a utility with no antitrust problems to undergo an antitrust review and obtain an unconditioned construction permit, and then sell an ownership interest to another monopo-lizing utility.

Such an unequal treatment of applicants, insulatin from relicensin antitrust review those who came

in later b wa of amendments would subvert, the Con ressional intent and ur ose Id.

(emphasis added).

See also U.S.

NRC, Procedures for Meeting NRC Antitrust Responsibilities (NUREG-0970)

(1985) at 5, Section 2.2. 6 (noting anticompetitiveness of restrictions which "limit customers from selling surplus power other than to the applicant" ).

The merger and transfer of control produce a monopso-nistic situation that is inconsistent with the antitrust laws.

Professor Kalt conducted a preliminary analysis of the buyers of firm capacity that are realistically available to Southwestern before and after the merger.

Professor Kalt concludes that the buyers'arket for Southwestern's capacity is currently concen-

trated, and would become markedly more concentrated if CSW's acquisition of EPEC goes forward.

CSW will control virtually all available transmission outlets for Southwe'stern's surplus

power, and prevent sales by Southwestern to the markets where its 1

competition might affect CSW.

As a result of this market power and control over Southwestern's market access, CSW and EPEC will have the ability.and incentive to act as brokers, buying capacity from Southwestern at monopsonistically depressed prices and re-selling it to utilities that have unsatisfied demands.

As shown by Professor Kalt and Mr. Hudson, Southwestern has only three realistic transmission outlets for its off-system sales of capacity -- the Artesia tie to EPEC, markets to the east t,

through the CSW system, and markets in ERCOT.

After the merger, CSW will control all of these outlets.

16/

Employing the tech-16/

Southwestern's few remaining interconnections with other utility systems are fully committed or otherwise unavailable.

Southwestern's 200 MW "Blackwater tie" to Public Service Company of New Mexico (PNM) will be fully committed with a 200 MW sale to PNM from 1995-2011.

The 200 MW Artesia tie includes 66 MW owned by Texas-New Mexico Power Company (TNP),

which is fully committed with a 66 MW firm capacity sale from Southwestern to TNP extending through 2001.

Finally, although Southwestern has a lower-voltage 115 kV line connecting with West Plains Energy of Kansas, that line must frequently be (continued...)

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niques commonly used by the U.S. Department of Justice and the Federal Trade Commission to determine whether a proposed merger would lea'd to a substantial lessening of competition in violation of Section 7 of the Clayton Act, Professor Kalt shows that combining these transmission outlets under CSW's control will substantially increase buyer concentration.

See Kalt Affidavit at 38. 17/

The competition analysis presented by CSW and EPEC ignores entirely this resulting increase in monopsony power.

EPEC already takes advantage of its control of trans-mission and resulting buyer market power in connection with Southwestern's existing 50-75 MW capacity sale to EPEC, which supports EPEC's sale to the Mexican state electric utility, Comision Federal de Electricidad (CFE).

See Kalt Affidavit at 10-11 and Ridings Affidavit at 4-5.

Southwestern sought to,sell capacity directly to CFE, but EPEC denied Southwestern's request for transmission.

Instead, Southwestern was forced to sell capacity to EPEC, while EPEC resells it to CFE at a markup that is well above typical wheeling costs.

Similarly, CSW enjoys a distinct advantage over South-western in competing for prospective customers in the Electric Reliability Council of Texas (ERCOT), where two of CSW's operat-ing companies are located.

See Kalt Affidavit at 30-32, Hudson 16/(...continued) left open for operational

reasons, making its use for firm capacity sales impracticable.

See Hudson Affidavit at 11-13.

17/

The HHZ' in the relevant buyer market would increase more than 1800 points to 4949.

Id.

Affidavit at 16-17. If Southwestern wishes to sell capacity to a customer in ERCOT, it must obtain transmission over multiple CSW utilities and over other ERCOT utilities, paying separate, "pancaked" transmission tariffs which aggregate to a level that prevents a competitive sale by Southwestern.

CSW, however, can utilize the transmission systems of its subsidiary companies without incurring such "pancaked" costs and thereby capture the

-market.

CSW further can exercise this advantage by purchasing excess capacity from Southwestern, which CSW could then broker in ERCOT, while Southwestern is excluded from making direct sales as a result of CSW's anticompetitive "pancaked" rates.

That CSW and EPEC already can control and limit sales by Southwestern in these ways makes their proposed combination and enhancements of their market power all the more disturbing.

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The dramatic increase z.n market power described in Professor Kalt's preliminary analysis clearly is a situation that is inconsistent with the antitrust laws which this Commission must consider and remedy.

The monopsonistic "bottling-up" of Southwestern as an effective, low-cost competitor of CSW is a

direct effect of the merger, of which the license transfer is an integral part.

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Egregiously, CSW anticompetitively excludes Southwestern's sales in ERGOT while at the same time demanding that South-western provide transmission service for CSW's ERCOT power, including nuclear

power, so that CSW and EPEC can integrate their systems.

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D.

CSW's Acquisition Of EPEC Will Consolidate its Control Of Virtually All Transmission Paths From The U.S.

To Mexico.

There are six electric transmission gateways to Mexico outside of California. 19/

See Kalt Affidavit at 44-45.

Af-ter the merger, CSW will control all of them.'espite this monopolization of transmission to Mexico, CSW and EPEC do not propose to provide any transmission access to Mexico in connec-tion with the merger.

They would prefer to sell their own power, including power from Palo Verde, at above-market prices in this relevant market, without competition from Southwestern or any other U.S. electric utility.

Applicants'ompetition witness falsely asserts that the foreclosure of ac'cess to Mexico is not a matter for concern because there will be little opportunity for sales to Mexico in the future.

He contends that CFE plans to add its own generating capacity such that it will have no need for U.S. power.

Exh.

APP-92 at 40.

However, Southwestern's and others'bility to sell to Mexico should be determined by the market, not by Applicants'peculation about CFE's plans and CSW and EPEC's combining of control over gateways to Mexico.

Xf CSW and EPEC truly believed that the Mexican market was unattractive, they I

would have no objection to Southwestern's competition.

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Professor Kalt's analysis of the Mexican market on behalf of Southwestern indicates that CFE will continue to be 19/

The transmission outlets to Mexico located in California serve a distant Mexican.market.

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interested in competitively priced firm bulk power from the U.S.

for the foreseeable future.

His analysis, based on CFE's own demand projections, shows that, even with the addition of new CFE generation, strong growth in Mexico will require continued imports of power from the U.S.

His analysis further shows that, based on CSW's own fuel cost projections, CFE should prefer to purchase power and energy from U. S. sellers with economical fuel mixes, like Southwestern, because it is likely to be cheaper than CFE's new gas-fired generation.

See Kalt Affidavit at 46-51.

Moreover, Applicants'wn statements and behavior contradict their competition witness'pinion.

In 1993, CSW

'I opened an office in Mexico City to promote its involvement in bulk power exports to CFE, as noted in CSW's 1993 Annual Re-

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port. 20/

Moreover, CSW stressed the'.export potential to Mex-ico in its presentations to EPEC's creditors, stating that the merger "[p]rovides access to rapidly growing Mexican market;"

"[a]llows participation in Mexico's distribution system;"

and

"[e]nhances opportunities for sales to Mexico."

See Attach-ment 1.

In fact, CSW plans to construct a new 200-300 MW HVDC tie from its ERGOT facilities to CFE to facilitate future cross-border transactions.

See Exh. APP-1 at 15. 21/

20/

Attachment 1 to this Petition includes relevant excerpts from CSW's 1993 Annual Report.

21/

Southwestern has in the past been unable to market power to Mexico over CSW's ERCOT transmission.

See Ridings Affidavit at 2, 4.

Under Applicants'roposal, Southwestern also would be denied access to the future line.

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Applicants'ompetition witness also erroneously contends'that CSW and EPEC's transmission

-paths to Mexico do not compete.

He speculates that the internal Mexico transmission between the Norte region (where EPEC connects) and the Noreste region (where CSW connects) is too weak to carry power across

Mexico, and will remain so, such that these regions do not R

comprise a single market.

Exh. APP-92 at 40-41.

However, Applicants are wrong.

CFE plans to upgrade its internal trans-mission in the next several

years, substantially increasing power flows between the Norte and Noreste regions and demonstrating that the areas accessible to both CSW and EPEC do comprise a

single market.

See Kalt Affidavit at 51-52.

Absent the merger, Southwestern,

EPEC, and others could compete with CSW for sales to Mexico.

Indeed, without the merger, EPEC would have an incen-tive to upgrade its own ties to Mexico, to ship its and others'ower.

In fact, it recently did just that.

See El Paso Electric Co'.

Issuance of Presidential Permit and Amendment Of Electrici-t Ex ort Authorization, 57 Fed.

Reg.

19)117 (1992).

The merger obliterates EPEC's incentives to permit others to sell power.to Mexico.

Indeed, to make sure there is no competition, CSW and EPEC propose that their "open" access transmission tariffs E

expressly exclude access to Mexico. 22/

1 The effects of anticompetitive conduct on exporters are specifically cognizable under the U.S. antitrust laws.

See 22/

Applicants 'also misportray the existing competition between them for sales to Mexico.

CSW and EPEC recently competed directly for sales to Juarez.

See Ridings Affidavit at 4-5.

See also Continental Ore Co. v. Union Carbide

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Zenith Radio Cor

. v. Hazeltine Research Inc.,

395 U.S.

100, 113-.133 (1969).

Carbon Cor.,

370 U.S.

690, 695, 702-08. (1962); United States v.

Itoh

& Co.,

1982-83 Tr. Cas.

(CCH) 5 65, 010 (W.D. Wash 1982);

Foreign Trade Antitrust Improvements Act, 15 U.S.C.

5 6a (provid-ing explicitly for jurisdiction over conduct that "has a direct, substantial, and reasonably foreseeable effect on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States" ).

Furthermore, the North America Free Trade Agreement

("NAFTA"), with its objectives to reduce "distortions to trade" and to "promote conditions of fair competition" in trade between the U ~ S

~ and Mexico g NAFTAg Artie1e 1 02, 5 1, underscores that the national energy policy to promote competitive.forces in bulk power markets applies with full force to cross-border trade.

In light of the commitments undertaken by the U.S., 'and the recipro-cal commitment of Mexico to liberalize its electric power mar-

kets, the Commission ought not to put CSW in a position to dictate the terms of access by U.S. power to Mexico, and deny other U.S. exporters any benefit from that liberalization.

The 7

Commission must remedy the anticompetitive situation, and not allow CSW and EPEC to sell their power, including nuclear power, to Mexico, while excluding competitors from the market.

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V.

THE COMMISSION SHOULD ENSURE THAT ITS OWN CONDITIONS, ALONG WITH ANY CONDITIONS IMPOSED BY OTHER AGENCIES, REMEDY THE ANTZCOMPETITIVE SITUATION.

The broad antitrust inquiry which the Commission must undertake pursuant to Section 105 (c) of the Act is paralleled by broad authority to remedy potentially anticompetitive situations that may arise from or be exacerbated by the requested license transfer.

Section 105(c) (6) provides that where the Commission finds a situation inconsistent with the antitrust laws, it has the authority "to issue a license with such conditions as it deems appropriate."

The Licensing Board has elaborated upon the scope of this remedial authority:

The Commission has wide discretion in fash-ioning 'appropriate'icense conditions

'where necessary to rectify anticompetitive situations.'[N]o type of license condition

-- be it a requirement for wheeling, coordi-nation, unit power access, or sale of an interest in the plant itself -- is necessari-ly foreclosed as a possible form of relief.'nd the license condition need not be con-fined in its application to activities under the license.

Alabama Power Co.

Jose h M. Farle Nuclear Plant Units 1 and 2

13 NRC 1027, 1099 (1981)(footnotes omitted).

As shown above, the transfer of control over EPEC's Palo Verde interests, and the proposed and potential changes in the use of Palo Verde generation, will create, contribute to, and exacerbate a number of anticompetitive situations, including unreasonably blocking Southwestern from access to the Artesia tie, increasing CSW and EPEC's monopsony control relative to Southwestern, and monopolizing transmission to Mexico.

Despite the suggestion of Applicants'ompetition

witness, these anticompetitive situations are not mitigated by EPEC's offer to provide "open" transmission access on its system.

EPEC's proposed transmission tariff does not mitigate the market power of-the entire post-merger

company, and even as to EPEC, the tariff still allows EPEC substantial discretion to block competi-tion.

EPEC's tariff specifically excludes transmission service to a."foreign country", i.e., to Mexico.

See Exh. APP-6 at 11.

As previously shown, notwithstanding the tariff, CSW and EPEC plan to occupy the EPEC-Southwestern interconnection with coordi-nation trades and to block competitive firm.sales by Southwest-em.

Moreover, CSW and EPEC seek to preserve their post-merger

'market power by maintaining barriers to sales by others into ERCOT. 'o effectively mitigate that market power, the terms and conditions of access by others to ERCOT markets should be no different from the conditions CSW imposes on itself when it

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transmits its subsidiaries'ower arid energy for sale into ERCOT.

Accordingly, the Commission should impose the following conditions, which are the minimum necessary to remedy these anticompetitive situations:

1.

The Commission should require CSW and EPEC to provide firm transmission access through the Artesia tie and EPEC's system for at least 80 MW (corresponding to the difference between CSW's planned maximum firm use of the Artesia tie and its full capacity) at a transmission rate based on the average embedded cost of the CSW transmission system.

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2.

To counterbalance CSW's increased monopsony power over Southwestern, CSW should be required to provide open access transmission on all of its utilities'ystems, including those in ERCOT, with a single-system tariff and a single rate based on the average embedded cost of the CSW transmis-sion system.

3.

To prevent the anticompetitive abuse of EPEC and CSW's monopoly control over the transmission gateways to Mexico, the open transmission access should specifically include access to Mexico.

4.

The Commission should order such further conditions as it finds necessary to remedy the anticompetitive situations.

VI.

CONCLUSION For the foregoing reasons, Southwestern requests that the Commission (1) grant Southwestern leave to intervene; (2) either dismiss the Application or hold it in abeyance pending the submission of the antitrust information required by 10 C.F.R. 5 50.33a; (3) promptly transmit the Application and any subsequent submission of antitrust information to the Attorney General for her advice; (4) take no final action on the application until the

FERC has completed its review and then, to 'the extent necessary, convene an antitrust hearing; and (5) impose the remedial condi-tions discussed above.

Res ully s 4

Alan J.

St a

Barry S.

pect r Paul M. Flynn WRIGHT

&. TALISMANS P.C.

1200 G Street, N.W.

Suite 600 Washington, D.C.

20005 (202) 393-1200 r overt~ 1077-017. 179

ATTACHMENT 1 Excerpts Prom Centr'al

& Southwest Corporation's 1993 Annual Report and Slide Presentation (6 pages)

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The electric <<tility industry faces a restructuring result-ingfrom competition that will cause dramatic changes in the way it does business I.n this new competition, some utilities uill uin, and some will lose.

Central and South West Corporation

j sl

Expanding our core etIHty btcsIocsa CSW is committed to expanding its ekctric urilitybusiness through scntegic-acquisirions. In 1993 it acquired cwo small utiliries and made subsnnrial progress toward adding H Paso Hcccric Company to the system.

CSW's Southwestern Hcccric Power Company subsidiary completed its pur-chase ofBosrier Hcccric Membership Corponrion PREMCO), which was a4acenc co SWEPCO's southern division in Louisiana. BREMCO served

~ custon>>ca, who saw their coat

&releccricity dedine from 9.7 cents co SWEPCO's pcice of6.7 cents per kIIO-watt-hour.

Public Service Company ofOklahonn, acxather CSW subsidiary, acquired 8>>

Chelsea Municipal huthority, adding K5 The most important acquisirion ever undcrnkcn by CSW is its pending merger with El Paso Electric. CSW announced che merger in Ma 1993 Thc total tnnsacrion value is expected to be about $22 billion.Oftha't, appceximacdy

$770 million is expected to be paid in the form ofCSW common stock. The bahnce would be ncw securiries issued by El Paso Ekctric aa pare ofits bank-ruptcy ceolganizacion or cash.

In December 1993 the US. bankrupccy court overseeing che H Phso Hccccic case confirmed the uciTity's pLm ofceor-ganization, which incorIxaratcs che merger agcccment with CSW. The pro-posed acquisirion now must be appcevcd by scarc and kdcpll ccguhtorl agencies.

By adding H Paso Ekcccic, CSW willbe able co improve ics systemwide cfficicn-cics. Ic also willexpand ics connections with elecmcity nlalkcts in chc western United Scares and with Mexico. which is a scnccgically iulpornnt niarkct for both CSW'>> ucilitics and ics fuucci>>Naally

'chtcd non-utility activirics. CSW rcnlains interested in other strategic acquiaitionc ot utilitics.

EqaaaxIIag otirIo>>sty businesses CSW has been carefully diversifying

'nto funcrionaliy rehccd non-uality busu>>sacs ance the mid-1980s and now has a portfolio ofacrivirics chat build on ics cote markets and skills.

Tnnsok, Incan inuasnte nacunl gas transmission company, serves all &ur CSW ekctric utilitysubsidiaries, CSW Energy, Incand ocher customers. Since 1990 ic has more than doubled its pipdine system co approximatdy 6,400 miks and its annual gas throughput to 490 billion cubic Ice>>. The second-hcgcsc natural gas processor in Okhlioma, Transok owns and opentes eight gas pcoceasing phntL Transok pceduced 355 million gaHoas ofnacunl gai liquids in 1993, coctipaccd co 125 milliongains in 199G CSW Energy, fnc, develops. opentes, manages and acquires non-urility power pcejectL ht che end of 1993, it had one cogeneration facility in opcnrion in Cali&rnia and three expected to begin opencing in 1994, one in Florida and cwo in Coionda CSW Enecgv owns approximately halfofeach ofthose pro-jects, which collecrively willprovide ncariy 500 megawatts of ekcmc power.

CSW is acrively pursuing a serie of nc>>'entures in tcchnoiogks chat are dicccth lehted to the corpoiarion's expcrrise and cole nlaikccL ln 1994 CSW hopes to receive appceval flem che Secimcies and Exchange Conlmlasloil fof a ncw cekcommunicaciona subsidiary. CSW is sponsoring a protect to insnll fibcr~c tckcemmunications as a test in one of us unhty service areas. The purpose oc this prujecc is to improve eneqp'ffi-cinxy &rour urilitycustomers. with any excess cckcommunicarions capacity avaihbk co third palrics. Other vcnnucs nny include rencwabk~crgy and cllvl conn lcnnl tcchnologlcs.

PIratilaig Saandal lo}IIatives One ofCSW s fundamencal scnccgl is co examule che financial dement:

the corponrion in seueh ofways cha coukl produce a profit or reduce its c<

Financial iniriatives pcoduced incteas, benefit in 1993.

In 1985 CSW bccune the firicuriiiq establish a captive finance company, CSV/ Ccedit, lnc. CSW Cnxlitpulch the accounts receivable from both affiliate companies and non-affiliac>>

uriTirieL Because ofdifferences in th>>

6nancial structuces and cost of mon<

bec<<ma uriiiries and finance compar this pncrice can lower cosa &rutilic

and it can cesult in a pcofit &rCS Credit. In 1993 CSW Ccedit added a new urilicydient its hrgcscwhi doubled the base ofits busic>>sa, CSW aiao continued cefinancing its debt to take adnatage oflower inte:

ntcs. During 1993, the CSW system companies refinanced $708 million debc to achier annual interest aavinI of$ 17 million. with a nct pcesenc va.

savings of$68 million. These tnnsa>>

tiona >>educed CSW's embedded cost debt from 8.3 pcteenc at chc end of 1992 to 7.8 percent at the end of 19 In 1993 CSW expanded a cost-effec source ofcapital by modifying its dividend reindictment phn. The n>>

phn, named PowerShace'", was ope to all CSW ernpioyees and cecicees ai to its urilitycustomers and>>xher lesid ofthe &urstates whcce CSW subsidia opentc. PowcrShate parricipants wi11 be abk to reinvest all or any porrion their dividends in CSW common stock. Baaed on thc eaq>>lienee ofsim phns. CSW expects that I percent co percent ofits customers willparcicip gmseng significant amounts of~

equity.

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Because the &denl Energy Pohcy Act of 1992 gave coaqanies Be CSW Enexgy much wider latitude in the types ofpower projects that they can pursue, we see this uxut as a long-term 1xxvestxxlent with QgG16cant growth potentxaL Other non-utility activities that we are investigating involve new'echnologies related to our customers or our areas ofexpertise, such as 6bcr-optic tele-communications, renewable and other energy technologies, and environmen-tal services.

" The opening ofour ofBce in Mexico City represents a signi6cant milestone in developing the long-term potential for our non-utility activities. It comes as a,result ofour long history ofcooperative activities with Mexico's Comision Fedenl de Electzicidad.

We have been doing business with Mexico since 1916. Today, the potential &ra moxe attensive involveznent has never been greater. Under president Carlos Salixus de Gortazi, the Mexican economy has been npidly improving. Mexico

" is now one ofthe 6Lstest growing economies in the wodd, with projected growth in electricity usc ofmoxe than 55 percent a year. 'Hm country is a@ected to add 17,000 megawatts ofcapacity by the year 2000.

'The passage ofthe North hmezican Free Tnde hgzeement, which we actively supported, should help to make it possible &rAmerican 6ans to be Btr more active in the Mexican electric power market. Wc see the opportunity to help plan and build power plants and cogenention facilities, to expand our tnnsmission ties and to provide bulk power sales and backup power to industry and the govenunent. Moxeover, &e trade with Mexico should help the economy ofSouth Texas, whexe our Central Power and Light subsidiary opentes.

Our Mexican initiatives are not'esigned &rany dnmatic short-term bene6ts.

They willmcguire persistence and patience, as Mexican economic policies and the tnde relationship between our two countries evolve, Challenges are gzeat in &reign markets; many international companies axe competing 6cxcely &r these growth opportunities. But over the long tean, our historic zehLtionship with Mexico and our geognphic location willpxove to bc amos'ur greatest assets. We intend to make thc most ofit, &rthe bene6t ofour current axeas of opention, the economy ofMexico and our shazelmhlexs and customers.

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)Ream ln 1993 CSW continued its Mexico initiative that began in 1992. The Corporation's goal is to participate in providing the country's funue e}ectzicity needs. Mexico is projecting growth in electricity retlulzeme!lls ofmote than ~96 per year over the next decade. Tbe geographical location ofthe CSW System o6az opportunities to provide bulk power sales to Mexica ln addiion, the Corporation intends to participate in the development oftransmission &ciliies, independent power projects and cogenetation in Mexico Raxnt changes in Mexican statutes and regulations now permit participation in such ventures. The opening ofan once in Mexico City aQows CSW greater access to ivy Mexican industrial and governmetual o8icials, permiting the Coqxstaion to mote readily evaluate opponunities as they become available. The passage ofthe North hmerican Free Trade hgteement in 1993 should enlsance the potential &rthe Corporaion to become &rmote active in.the Mexican decaic power market.

OhcrhQBdhee To meet its strategic goals the Corporauon willcontinue to search &rpossible electric uiTiies to acrpire and wiB coninue evaluaing oplxxtunicies to pursue fimctionally related non-utility businesses.

'The Cotporaion is, kr example, exploring opportunities in tdecacnmunications, energy. the <<nvitosunent, and other teclmologieL Furthermore, the Corporation has broken ground for the most comptehensive tenewable energy pajecc in the Soudtwest, encompassing pbotovoltaics, wind tutbuses, rooftop solar panels, and innovative sola&ish Siding engism.

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MERGER OF CENTRALAND SOUTH WEST CORPORATION AND EL PASO ELECTRIC COINPANY

STRATEGIC YALUES OF EL PASO MERGER

~ Consistent with CSMPs Strategic Plan

~ Deslmble existing customer base and service territory with excellent

.Qrovrth opportunities

~ Provides access to rapidly growing Mexican Market

~ Enhances opportunities for sales to Mexico

~ Provides transmission access to Western U.S. Bulk Power Markets

~ Enhances opportunity for additional acquisitions opportunities o Allows participation in Mexico's distribution system

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ML17310B522

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SUMMARY

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