ML19261B380

Advises of Discovery Status & Forwards Opinion of Us District Court in Related Antitrust Trial in Which Two Tx Intrastate Utils Sued Two Other Tx Intrastate Utils,Alleging Antitrust Conspiracy

ML19261B380
Person / Time
Site:	Comanche Peak, South Texas
Issue date:	02/02/1979
From:	Blume M, Lessy R NRC OFFICE OF THE EXECUTIVE LEGAL DIRECTOR (OELD)
To:	Glaser M, Mark Miller, Wolfe S AFFILIATION NOT ASSIGNED, Atomic Safety and Licensing Board Panel
References
NUDOCS 7902210057
Download: ML19261B380 (2)

Text

{{#Wiki_filter:, r m POL h6 b, UNITED STATES 3 'e ' '4 NUCLEAR nEGULATORY COMMisslON f 1 WASHING T ON, 0. C. 20555 e g. '%*..../ February 2,1979 Marshall E. Miller, Esq. Sheldon J. Wolfe, Esq. Chairman, Atomic Safety and _ Atomic Safety and Licensing Licensing Board Panel Board Panel U.S. fluclear Regulatory Commission U.S. fluclear Regulatory Commission Washington, D.C. 20555 Washington, D.C. 20555 Michael L. Glaser, Esq. 115017th Street, fi W. Washington, D.C. 20036 Re: Houston Lighting & Power Co., et al. . South Texas Units 1 and 2,flRC Docket Nos. 50-498A and 50-499A Texas Utilities Generating Co., Comanche Peak Steam Electric Staticn, Units 1 & 2, flRC Docket tios. 50-445A and 50-446A Gentlemen: During the month of January,1979, the fiRC Staff served its first set of interrogatories and requests for production of documents upon Houston Lighting & Power Co. as well as the operating company subsidiaries of Texas Utilities Co. Staff expects to schedule depositions following analysis of applicants' documents and answers to these interrogatories, although some depositiens may be noticed prior to any receipt of the requested informatien. On October 6,1978 the Staff advised the Board that an antitrust trial had commenced before the United States District Court for the Northern District of Texas, Dallas Division on October 3,1978. That proceeding was also discussed briefly during the prehearing conferences held on December 5,1978. The Staff is now in receipt of a Memorandum Opinion in that proceeding dated January 30, 1979. Final judgment will not be - THIS DOCUMENT CONTAINS POOR QUAUTY PAGES %v 790221005.7 e -e m

- e 2_ entered for approximately thirty days thereafter. That opinion is attach-ed to this report for the information and use of this Board. The Staff has also provided a copy of the opinion to all other parties. Respectfully sabnitted, eA 4. 's Roy P. Lessy, Jr. Counsel for f1RC Staff /;/. y.,m,.h.)W.:.../ww Michael B. Blume Counsel for f1RC Staff G Attachment 4 t e s 6 e q,..* ..+,e-. . = = - - = g

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FCR TFI.:;CRTHEF.N DISTRICT CF TE:Q.pstoy p qpey, y f. gg DY Nw/ p%...:sy-- DALLAS DIVIS!CII VEST TEXAS UTILITIES CC:9 ETY ) M;D CENTRAL PO*.T.2 AND LIGHT ) CC::PMIY ) ) VS. ) NO. CA3-76-0633-F ) TEXAS ELECTRIC SERVICE ) COMPMiY A:D HCUSTCN LIGHTING ) AND POWER COMPA:."I ) 0RDER I have :oday entered an order in the for= cf a =e 0:andu= opinion which disposes of the issues in this case. I will defer entry of final jud;;=en: for approxi=acely thirty days. During :ha: ci=a I will en:ertain =c:icns :o corre:: or supple- =en: che opinion and findings. as I reali:e tha: I have written ex:ensively en this case and :he a::crneys =ay wish :s cc ent before en:ry of judg=en:. It is so CRDERED. ~ i ;ei.AR aIAil5 515.IA.GI nLGF 0Akows k s' y/ DATE s y

7 .4 . = - - 7 ...a...-. ~.r .<Q. q.; o N FILED $a.d IN tai UNIT:n STans DIsnICT CC';RT FOR THE NCRTHER:i OIS""RICT OF TIZAS JAtl 301973 DALI.AS :IVISICN JCSEPH 'F ACYI WN C.IR:< BY !/ < k'EST TEXAS UTILITIES CC:GANY ) C'N/ '~ Mi] CENTRAL PCL7.R aid LICHT ) CCMPANY ) ) VS. ) NO. CA3-76-0633-F ) TIXAS ELEC RIC SERVICI ) CCMPANY AND HCUSTCN LIG"dTING ) & PCL7.R CCMPMIY ) MEMORAN::UM OPI'i!0N This case involves the interconnec:ed g: cup of elec::ic utilities co=panies serving the vas: =ajori:7 of the elec::ic 1 consu=ers in the State of Texas. Plain:iffs, vo in::astate Texas elec::ic utility ec=paniez unich are par: of a holding ec=pany that also owns o:her in:ersca:e elec::1: u:i".1:y ce=panies, have sued under i 1 of the Sher =an Anti::us: Ac:, 15 U.S.C. I 1. two other Texas in::aset:e elec:ric utili:ies with who= plain:iffs are in:erectnec:ed clai=ing that the defendan s conspired to restric: their trans=1ssica of electric pcus: to intrascate ec=erce. This cc=spiracy allegedly prevented plaintiffs f:c= exchanging power wi:h their intersca:e holding ec=pany counterpar:s through the use of defendants' trans=issica lines, a: an esti=ated loss to the holding ec=pany of 2.2 billien dollars over :he nex: twenty years. Plaintiffs seek an injunc:icn per=anen:ly restraining this alleged conspiracy, restraining any enforce =en: of any writ:en or oral contrac:ual provision p;chibiting :he flow of electic energy in inters: ate conne:ce, and restraining defendan:s fic= discennec:ing : heir sys:e=s f:c= the plain:iffs' sys:e=s. Defendants have asserted a nu=ber of c'efenses, including: (1) 'the intrastate =eched of opera:1cn is specifically per..1:ted by Federal Power Ac: 16 U.S.C. $ 82a(b); (2) defendan:s had no antico=pecietve in:ent: (3) any accions by defendan s had no an: ice =peci:ive effec: upon the plaintiffs (4) defendancs' were reasonsable (5) defendan:s ac:ed independen:17 and not in conspiracy. Defend n:s also ques:icn plaintiffs'

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=ocive for filing this sui: in a effor: to under=ine the credibility of the testi=eny presented by the plaintiffs. Defendants introduced evidence suggesting that plaintiffs filed this suit to ensure the interstate exchange of power between the =e=bers of plaintiffs' holding cc=pany. This exchange of power is required by federal law which per=its -utility holding ce=pany. enly if they are in:egrated syste=s. The SEC, charged with enforcing this provis'.on, had per=1tted the holding cc=pany to cperate wi:hout con:inuous interstate flow of power until 1974, when various =unicipal power ec=panies filed a sui: with :he SEC challenging :he holding ce=pany status of plain:iffs' holding ce=pany. Defendants note tha: this proceeding is only ene of a nu=ber of p;cceedings instituted by the plaintiffs c: which involve si=ilar issues. These procuedings include: FPC Docket #E-9558--CS'4's request to FPC to order =aintenance of inters:ste opera:icas with ERCOT; PUC Docket #14--Recuest by Defendants and others :o PUC :o have ?UC order reestablishnen of pre-May 4, 1976 = ode of opera:ica; U.S. Distric: Cour:, L'estern Distrie: Texas, Austin Division--Suite filed by C?Lik'IU objecting :o PUC interi= ords: under Docket <J14 rees:ablishing in:er-cennections in Texas as they were before May 4, 1976; SEC Docket #3-4951--Oklahc=a cities filed =ccien wi h SEC requesting Sr,C review CS'4 holding cc=pany sta: s ; NRC Docket Nos. 50-498-A and 50-499-A--C?L request to NRC to cenduct anti::ns hearing as par: of construe:ics per=1: proceedings before 5RC involving South Texas Nuclear Project; TPC (TERC) Docke: Nos. E-9393 and E-9578--CS'4's reques: fc joint hearings wi:h PUC, and proceeding :o data =ine if TPL engages in. interstate cc==erce. The Court held a seven week ncn-jury ::ial c =encing Cetober 7, 1978. The Cour: renders the following =e=orandu= decision, supple =en:ed with addi:icnal findings con:ained in an appendix.

• HI PA2T!IS All of the par:ies to this proceeding are elec: ic u:ili:ies engaged in the generation, ::ans=issica, distribu: ion and sale of elec:ric energy. Nene of :he parties' facili:ies used in the generatien. ::scs=ission, distribution or sale

y ,...a. L .:*=~~--.... of electic energy are located outside the State of Texas. PLAIMTIFFS West Texas Utili:ies Co=pany (LTJ) and Central Power & Light (CFL) are wholly owned subsidiaries of Central and South West Corportion (CSW), a registered public utility holding co=pany under the provisions of the Public Utili:y Holding Co=p'.ny Act of 1935. 15 U.S.C. 579 et seq. Csw also owns all of the capi:21 stock of Public Se:vice Co=pany of Oklaho=a (750) and Southwestern Elec:ric Pcwer Co. (Sk'Z?CO), electric utilities operating in the Sta:es of Cklahc=a, Arkansas, Louisiana and portions of East Texas. kTJ provides electric service to cus::cers of central West Texas, an area including 167 cc mi:ies, far:s, ranahes, and 18 electric cooperatives loca:ed in 53 counties. The ci ies of Abilene and San Angelo are the largest =e:ropolitan centers served by L U, and :he ec=pany serves a total popula:ica of approx 1.cately 520,000. In 1977 LTJ owned and operated 10 electric generating plants having a :ccal net generating capability of 1,0% = egawa s. That year the LTJ systa= experienced a peak lead of 758 =egawat:s for a reserve of 269 =egawatts (see appendix C for a map of the k U service area). CFL provides elec:ric service :o cus:c=ers in the Rio Crande Valley and the Gulf Coas: regions of Texas, in an area that includes 212 c - mi:ies and adjacen: and rural areas, seven rural elsc:ric coopera:ives and two =icipal electric systa=s, in 45 coimties. The cities of Corpus Christi, Laredo and Vic:oria are the larges: =e:ropoli:an senters served by CPL and the co=pany serves a c:21 pcpula:icn of 1,200,000. In 1977 CFL cuned and operatad nine.lec:ric genera:ing plants having a =c:al ne: genera *'~ apability of 3,044 =egawat:s. That year the CPL syt a. experienced a peak load of 2,3 3 =egawatts for a reserve of 7 1 = egawa::s (see appendJ t 3 for =ap of the C7L service area,. kTJ has historically opera:ed its systa= as :vo divisiens, with the " Northern Division" being inter:cnnec:ed with P50 operating in the State of Oklahc=a and the " Southern Division"

r s.._ interconnected vi:h TESCO and other =enbers of the Texas Interconnected Syste=s (TIS) and the Elec:ric Reliability Council oi Texas.(ERCOT) The TIS is a voluntary =e=hership organi:ation crwsisting of the =ajor bulk electric pcwer suppliers in Texas, including 2. DPL, TESCO. TPL, HLP, TU, CPL, Austin, CPS 3, LC3A T'# A.and kTJ. The pri=ary purpose of TIS is :o insure n d u= reliable electric se: rice through coordination of planning of operaciens. ERCCT was crea:ed in July, 1970 and is one of nir.a regional elec =fc reliabili:7 councils fc:=ing the Na:icnal Electric Reliability Council ("NERC"). (See Appendix D) The northern division of kTJ, through 1:s in:ercenr.ec:icn with Pso, operated in electric synchronis: wi:h 750 and other===bers of the southvis: pcuer pool (Sk~2P). The :Vo divisicus were designed so as :o per=i: occasional inee: change of power, in part to pe:..1: CSW to sacisfy the provisiens of the 1935 Holding Cc=pany Ac:. DLTE'TDAN s Texas Elec=ic Se: rice Co. (TESCO) is a wholly cuned subsidiary of Texas Utili:ies ("TU"), a holding ce=pany W ich also evns all of the capital secek of Taxas Pcver & Ligh: ("TPL") and 99.6". of the capi:21 s ock of Dallas Pover & Light ("0PL"). TESCO p cvides electric service in Narth Central and West Texas, including the Ci:ies of Tor: Wc::h, Wichi:a Falls, Midland, Odessa, Arling;cn, Grand Prairie and 68 other incorpora:ed =unicipalities, vi:h a total popula:1cn of approxi=ately 4,000,000. TPL, not a party :o this sui:, provides electric service in portions of 51 counties 1. North Cen::a1 and East Texas, including the Ci:ies of Irving, Wace, Tyler, Mesqui:e, Richardsen, Kileen, Te=ple, Sher =an, "ennison, Paris, Lufkin, 3:cunvcod and 249 other incorporated =unicipal2.:1es. :PL provides elec:ric service pri=arily in Dallas Coun:y. TESCO, T7L and DPL are separate corpora:e enti:les vi:h their own officers and boards of direc: ors. (See appendix 3 for e =sp of the "'ESCO, TFL snd OPL serrice terri:orics, and

r .y --:. w. Appendix C for a sore accura:e depiction.) Houston Lighting and Power (ELP) is a wholly ownid subsidiary of Housten Industries, Inc. and serves an area of approxt=ately 5,000 square =iles in the Texas Gulf ~ Coast region in which it is located Houston, Galveston and 152 s= aller ci ies and towns. In 1977, the peak load fur the HLP systa= vas 8,645 =egawat:s, with a total net generating capacity of 10,170 =egawatts for a reserve of 1,525 =egawat:s. (See Appendix 3 for a =ap of the HLP service territory). ELEC'.ICITY Electrici:y is consu=ed the instant 1: is produced, and elec:ric generators are designed to respond instantaneously to changes on de=aud. For exa=ple, each ti=e an elec: ic applicance is turned ca, de=and for elec:ricity increases; and, conversely, every ti=a an elac ric appliance is t=:ned off, de=and decreases. Each =inu:e increase or decrease in de=and requires the generators producing the electricity to produce more or less electricity as required. Once electricity is produced, the producar loses all effective control over 1:, since electrici:7 oves by the forces of physics over wires cen= acted f::= the generator to its point of const.-ption following the path of lease resis-tance and in total disregard for who evns the pa th or who produced the electricity. Electrici:7 is unique as a cr--adi:7 because it cannot be seen, branded, :: aced, ace.=rala:ed, stored or confined and is consu=ed the instant 1: is produced. Electric utility ce=panies are also unique in that they =us: be ready to =est de= ands for services continuously, although electricity cannot be stored or inventoried. To provide this service, electric utili:ies =us: =ain:ain reserve generating capacity in :he for= of both installed capaci:7 and spinning reserse. While this reserve can be =ain:ained by each individual ce=pany, the electric u:111:ies in the Uni:ed States have developed in erconnec: ions between each other in order to

r ~ ~ a a..= -- assure greater reliabili:y in the esse of sudden e:ergencies, to per=1: the reduction of the cocal a= cunt of ins:alled reserves a=eng the interconnec:ed ce=panies, and to per=it the exchange of electric power between ince:cennected or adjacent utilities. Electric interconnecticas be:veen non-affilia:ed-ce=panies is an accepted industry vide practice, but requires careful study and evaluation before they are installed. latercennections between non-affilia:ed electric utilities give added assurance to both syste=s that an adequate, efficient, and reliable source of elec:ric power will exist, particularly in ti=es of electrical e=e:gency. When two or = ore elec:ric genera: ors are electrically connected wi:h each other, the laws of science require each generator to spin at exactly the same speed or f:equency. Generators so connected are said to be operating in synchronis= or in parallel with each other. This is : ue whoever owns the generators and whether the generators are located adjacan: to each other or are physically separated by several hundred miles. An i=por: ant characteristic of elec: ici:7 is =an cannot force electric:7 to follow any specific pa:h withou: disconnecting all undesired paths fre= the generators thus, when intercennections are clcsed, elec::1 cal disturbances in ene generator or c:ans lssion line ipstan=aneously i= pac: upon all intercennected genera:crs. Also, the cnly effec:ive assurance thac power will not flew across Texas sta:e lines, if Texas ce=panies wish to preserve : heir incras:a:e status, is to either have no interconnecticas with any utili:ies that opera:e in in:erstate elec::ical ::ans=issiens (which would include severing ties wi:h Texas elec:ric utilities tha: ::ans=1: or receive pewer ac: css sta:e lines) or =ake eura that any peines of interconnec:icn between intrasca:e Texas electric utili:ies and intersta:e elec:ric utilities re=ain open, preven:ing power flev be:veen the two sysca=s. Various types of elec:rie energy exchanges =sy be agreed by intercornec:ed utili:1es. These exchanges include:

e (1) "Econonv" enerer: Elec:rie energy which one u:ility sells to another utility at a cos: less than the receiving utility can generate its own electrici:y; (2) "Enereenev Enerry": Electric energy which cue utility receives frc= another when the receiving utility is unable to provide its evn systes needs due to aa unforeseeable failure of equip =en:, or " outage" on 1:s sys:e=; and', (3) " Wheeled Enerrv"- Electric energy which one utility trans=1ts to another u:ili:7 (or to itself) over de trans=ission lines of a third, in:er: ediate utili:7 which charges a fee for such se: vices. INTERCCNNEC IONS BE'"JEE'T *RE PAATIES Interconnections between electric utilities in Texas began as early as 1923 wi h intereennections between ESCO and WTU. These evo ce=panies, along wi:h !?L and D7L, la:er for=ed the North Texas Interconnected Syste: (NTIS). An e=argency intercennec:1cn between HL? and Culf States Utilities (GSU) was first made in 1928 (the Huff _an tie), but this interconnection did not operate closed as a catter of nor=al opera:1cn until World War II, at which ti=e HLP began operating continuously interconnected with C?L, LCRA, City of Austin, and the C?S3 to help eleviate capaci:7 shortages brought on by the war. This acticn lead :o de for=atien cf the Se 2 Texas Intercennec:ed Systes (S IS). While defendan s were indirectly intercennec:ed vid each other in the 1940's, there was little, if any, coordina:icn bat.reen the sys:e=s and STIS and NIIS un:11 the 1950's. On or about August 26, 1935, solely because of the passage of the Federal Power Act, and solely to 4Wid becc=ing subjec: to F?C jurisdic:1on, 'a'IU opened i:s in:ercennec:icns vid PSO. 30th TESCO and WTU then believed that cperatien in intersta:e ce=nerce in a =c.ner which would subject the: :s the consequences of FPC jurisdic:ica was not in the best interest of their custoners. *here is no evidence in the record to suggest that TESCO and EL? reached any agree =en: or were even interconnec:ed in 1935, or tha: DPL, T?L and

e a I de TISCO reached any agree =ent when TISCO =ade 1:s dete=inacien to avoid interstate ec=erce. CSCO's deter =ina:ica in 1935 was its unila:eral effor: to serve 1:s cus c=ers in the : s: advantageous =anner. Interconnections were reestablished between TISCO and WTU pursuanc to a writ:en agree =ent which, as a= ended frc= time to ti=e, was continued in effee: un:il cancelled on May 11, 1976. This agree =ent required both 'aT.* and *ISCO cc give prior notice in the event either wished :o ec =ence operatien in interstate ec=erce so as te pe=i: de other to choose the type of operation in which 1: desired to engage; that is, in intrascate or in:ars:ste ec=erce. In 1962. ELP and ?L buil: a direct tie to cennec: their systems as ths nex: =ajor step in de evolu:ica cuard inter-dependence and cooperacion. Soon dereaf:er UnS and TUS were =elded into che Texas intercennec:ed sys:e=s (U S) in 1967. At the ti=a US was fe=ed, all of i:s =e bers operated and wished to cen:inue operating on anin::asta:e basis. (See Appendix I) In 1970 IRCOT was fo=ed, censis: irs of the =e=bers of TIS as well as various =unicipalities and : ural elec:ric cooperatives; aldough the names "IRC0!' and "US" are so=eti=es used in:erchangeably, the two grcups do have functional differences. U S censis:s of only :he bulk power systa=s whereas IRCCT includes all of the =e=bers of US and s=all :.unicipal and RIA cooperatives. IRCCT reports to NIRC, while TIS coordinates bulk power sysca=s. Me=bership in IRCOT is available :o any elec:ric utili:y which owns, controls, or operates an electric pcwer sys:e= in Texas, and IRCCT prc=otes reliable cperaticas of power syste=s ;n Texas by providing a =eans to c .nica:e and cocrdina:e d e planning and operacion of its =e=bers. TIS is operacional17 coordinated wi:h all of the genera:crz in TIS operating in synchronis: wi:h each other so tha: if there is a loss of any individual genera:cr, all of the other generators in U S respond aute=acically to ce=pensate for the loss. Historically, all =c=bers'of U S and IRCCT

a -....e<<aw....:a-. While =aintaining interconnec:icns a=cng thc=selves, have not, except in ti=es of energency, =aintained inter:ennections with electric utilities operating outside of the State of Texas. The =ain:enance of interconnections' a=ong WJ, CPI., TESCO and HI.P and other systa=s in Texas was mutually beneficial and per=itted the interconnected par:iss to reduce the tow.. a=ount of installed reserves and to exchange elec::ic power in ti=as of sudden e=ergencies. These intercennecticas also assured a greater degree of elec::1c reliability for all participating ce=panies. The interconnecting electric systa=s ce=prising TIS and ERCCT ara large enough to take advantage of all ecenc=ies of scale and a: the sa=a ti=e ret too large to be un=anageable. The larger an in:ercennec:ed syste= beco=es, the greater the opportuni:7 fer cascading blzekout and other operating difficul:' es. The interconnection agree =ents between WJ and "'ISCO preserved the right of syste= self -deter =inatien; tha: is, the right to decide whether :o operate in inters: ate ce==arce subject to the ecusequences of FPC jurisdiction or to cperate in intrastate ce=erce subject only to state and local regulatory authority. The interec=nec:1ca agree =en: betssen '.CU and TISCO did no: require either par:7 to con:inue to operate in intrasta:e ec=erce, :o =aintain in:er:.c=ec:ic=s

• with each other er any T!S or ERCCT ne=ber, and was cancellable at any ti=a by either par:7 for any reason wi:hout penal:7 It also did not rest:1c: either WJ or TISCO f c= providing electric serrice anywhere.

It has been the ce=cn understanding a=eng he' =e bers of TIS and ERCCT that each individual sys:e= =e=ber believed i: to be in the bes interes: of 1:s custe=ars to operate solely in Texas. It was also ce=caly understood a=cng the =e=bers of TIS and ERCCT that if a syste= chose to engage in intersta:e co=arce, it would give prior notice :s all other =e=bers in order to per=i: each other sys:e= the righ: to choose whether to operate solely in Texas or to operate in

interstate ce=nerce as it deter =ined was in the best interes: 8 of the custc=ers. The coordination in !!S and IRCOT has resulted in perhart the most reliable and lowes: cos: electric power in the nation. The president of plaintiff ce=pany CPL, R. W. Hardy, believes ERCCT and TIS hr.,ebeen and are codels of efficiency and reliability. I?"lPASTA~E OPE?ATICN Since August 6, 1935, when Title 2 of the Federal Pewer Act beca=e effective, any electric utility which e ns or operates facilities used for the :rans=ission of electric energy in intersta e ce==erce has been subject :o the regulaccry powers of the Federal Power Cc=nissicn ("??C"), new the yederal Energy Regula: cry Cc issien ("7IRC") (as used hereinaf ter TPC shall Laclude "FIRC"), se: for:h in Ti:le 2 of the Federal Power Act, 16 U.S.C. $$ 824 to 82SC. Generally these regulatory pcwers include the pcwer to order an elec:rie utility to in:ercennec: wi:h another elec:ric utili:7 under' certain cirec=s:ances (16 U.S.C. $824A); the power to oversee the disposition of certain u:ili y. assets (15 U.S.C. $3:43); the power to regulate the issuance of an electric u:ili:y securities (16 U.S.C. $824C); and the pewer to regula:e rates for the trans=issien and sale of elec:ric energy a: wholesale in interstate ce== eras (16 U.S.C. I 8:43.) The record indica:es tha: the defendants began censul:ing with each other regarding : heir intras: ace operaciens in the 1960's. These consul:atiens were necessi:a:ed by a variety of fac: ors. First, ELP and TESCO's affilia:e TPL built a direct interconnec:1en in 1962. Secend, the standards of jurisdiction under the Federal Power Act changed drastically during the 1960's so that defendants beca=e concerned with jurisdiction even though they had no facili ies crossing state lines. Third, these concerns were confirned when the FPC edvised the defendants in the 1960's that : hey were in fact subject to the TPC jurisdicticn under the Federal Power Acc. The TPC's effort to esser: jurisdic: ion was f.111 owed

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?.r by its continuing effor: through :he early 1970's to prc=cce the interconnec:1cn of TIS with the Sou:h West Fever Pool (SWPP), which is the group of utili:ies operating to the north and east of TIS.

The only =eans to ensure freedom fr== federal regula:ica and the adverse elec: ical, ecenc=ic, opera:1cnal and ad=inis-trative consequences flowing therefrem is no: to operate interconnected vi:h any facility used for the trans=ission or sale of electricity in in:ers ate c =nerce. As a result of the events listad above, HLP and TISCO have, fres :i=a to ti=e, consulted with each other to deter =ine whe:her there were points of in:erconnec:1on which presented the poten:ial for the intersca:e flew of elec::ici:y. Defendants were par:icularly concerned for many years with the poin:s of interconnectics between WTU and i:s affilia:e PSC because of the very peculiar nature of the interconnection. Mr. Hardy, tihe curren: chief executive officer of CFL and previously the president of WTU, :sstified that these interconnecticus were designed to give C5W the ability :o transfer power between 1:s subsidiaries in order :o qualify under an exe=ptien under the Public Utili:7 Holding Co=pany Act.- Defendan:s had in fact expressed concern over :hese in:ercennecticas through the years but were reassured by CSk' tha: 1: desired to operate its evo Texas subsidiaries on an intrastate basis and that the operacional split of i:s subsidiaries presen:ed no threat to its holding ec=pany status. There were installed over the years at stra:egic loca: ions between the northern and southern dirisiens of kTJ various devices to prevent interstate flev of elec::ici:7 under cirec: stances which would render TISCO jurisdic:icnal, and to prctect against synchronous operatien of TISCO vi:h WTU's northarn division, PS3 and othar =e=hers'of 5k'??. There was never any dispu:e between WTO and TISCO as 'to the object of avoiding synchronous operacien. So=e disputes did develop with respec: :o the use of incerlocks as opposed to power flov relays in order to =4ke certain tha: :he TPC could not order synchreneus inte connections of TISCO vi:h

Sk'PP, but these differences were always resolved to the =utual satisfac: ion of the par:1es. In order to insure the validi:7 of the securities issued by TESCO and others, the interlock devices which were owned by TESCO were inspected and tested periodically through the years. These inspections and tests did not interfere with the operations of k'1'U even though :he testing of the interlock device did result in an annual flicker of cer: sin loads on kW 's northern division. It would take the annual testing of the interlocks for 240 years for any loads en k'IU's northern division, however, to be interrupted for a total of one minate. It has been t*s ec=nen understanding and agree =ent a=ong all the electric utili:ies and TIS that if cne of the =e=bers of the !!S decided :o ec=ence interstate operations, it would provide prior notice to :he other===bers so that esch could independently decide whether to exercise 1:s unilateral right to disconnec: and re=ain in an in::astate mode. This understanding was, for exa=ple, reflected in the k'IU-TESCO con :act which was subject to i==ediate cancella:icn by telephonic notice. Plain:iff gave no notice prior to their cc=ence=ent of interstate operation on May 4,1976 because they feared defendants wculd exercise thei: righ: :o disconnect. Each defendan: has indica:ed tha: 1: will engage in an interstate code of opera:icn when there is shown to be advantage to the cust==ars of the defendan:s that ou weighs the advantages of the present intrasta:e systa= of operation. There is considerable es.dence of each defendant's past and present efforts to evaluate the benefi:s and costs of an interstate mode of opera:icn. In fae:, one of plaintiffa' i own witnesses, Mr. Aray, was retained by TESCO and i:s affiliates in 1966 to study in:ercennec:icn wi:h 5%7?, and l l he concluded that TESCO and all the o:her me-bers of !$ would be bet:e off by opera:ing on an in::astate basis. In con::ast to plaintiffs' asser:1on that the defendants have acted unreasonably in operating intrastate, Mr. Arey testified i

e .__?..____..... that it would not have been unreasenable for defendants to continue intras:a:e operatiens based on the resul:s of his study. The wisdom of TESCO's de:er=ination to avoid synchronous interstate opera:1ons is illustrated repeatedly by the failure of all atte= pts by the Texas co=panies :o operate in synchronism with the vast electrical sys:en ou: side Texas. Synchronous opera: ion of the Texas utilities and interstate utilities during 1942 to 1945 resul:ed in nc=arous systes outages both in Texas and in other s:a:es. So=a of these outages occurred because of trouble as far away as Alabama, Tennessee and Mississippi. Synchronous operations of the Texas utili:1es in inters:ste cc==erca during 1942 to 1945 was ensatisfac:ory and was tolera:ed only because of the e=argencias of World War II. In 1957, ELP and GSU tested whether their systa=s could operate in synchronis=. The resul:ing elec::: cal disrurbances were so severe that the cast had to be abandoned. In 1968, the TPC encouraged HLP, T?L and CSU to tes: snychronous operations through :he GSU-ELP Huff..an tie. The 1963 tes: also proved totally unacceptable and was abandoned. From August 23, 1976 :o January 22, 1977, plain:iffs attempted to operats in synchronis: vi h :he SWPP. 5cch operations resul:ed in serious reliabili:7 proble:s and at least nine systes separations, two of which occurred because of generation difficul:1es in Mexico. Hbreover, C5W has publically acknowledged in a prospectus filed wi:h the SEC that the TIS, including k":U and C/L, canno opera:e in synchronism with PSO and SWEPCO and other =e: bars of SW7? Withou: cri:ical operating pr:ble=s. TESCO and ELP have s:ated : hat while they believe tha: intrastate operation is in their best interes: and in che best interest of their custa=ers, if it appeared advan:ageous to co=nence synchronous operatien with SWPP, : hey would be a=ong the firs: to cader:ake tha: mode of operation. Un:il auch ti=e as there is advantage to : heir cus:o=ers from interstate operacion, dafendants prefer :o avoid the cos: of

e z_ regula:icn which would inevi: ably resul: f:c= interstate operation. This preference can hardly be regarded as unreasenabl's since defendants obviously received no benefits f:c any such regulation. Indeed, plaintiffs' econo =ic exper: ad=itted that it was in defendants' own best interest to avoid FIRC regulations. Events Lesding to Filine of Plaintiffs' Co=elaint Both plaintiffs, kTJ and CPL, told the Depart =ent of Justice in 1973 that they did not want to intercennec: with SkTP because the in:erconnecticn would degrade the reliabili:7 of TIS. Moreover, plaintiffs have ad=i::ed that in::astate operation was in their best interest until 1974 Plain:iffs' change in a::itude in 1974 coincides wsth the date of the filing of the ec= plain: against plaintiffs' paren: holding ec=pany, C3~J, in the Securites and Exchange Co cission (SIC). Five cenths after kTJ and CPL advised the Depart =en: of Justice that they did not wish to interconnect with PSC and other =e=bers of SWPP and af:er advising the Depar==ent of Justice of : heir centinued desire to 11=1: their business to the State of Texas and intras: ate ec==erce, a ec= plaint was filed with the SIC alleging ha: CSW was no a single in:egra:ed electric u:ility sys:e= wi hin :he =eaning of the 1935 Act. In response to this petition, CSW hired Power Technologies. Inc. (P"'I) to perfor= a study concerning al:ernate =cdes of integra:ing the holding ce=pany. In the su==er of 1974, hr. S.D. Phillips, Jr., chair =an of the board of CSW, invited TJ to participate la the study. Mr. Phillips infor=ed TJ tha: the study would include =edes of operatics which integrated the CSW cc=panies wi:h synchrenous operation vi:h the S*"?P. At such meeting the chief executive officer of CS'J old the chief execu:ive officer of TU tha: if he did nc: cooperate in proceeding vi:h synchreneus operation between IRCCT and SWPP, CSW would force such = ode of operation upon IRCOT co=panies, including TISCO and h*LP, agains: their will. TU declined to participa:e in the study cc =issioned by CSW because the CSW s:udy was li=1:ed to e.ta=ining hew bes:

e to integrate the CTJ cc=panies for the purpose of ce= plying vi:h the 1935 act and would no: include exa=ina:ica of whether ERCOT should be connec:ed wi:h SWPP. The preliminary results of the PTI study were presented to the CSW board of directors at a masting on October 15, 1975. At that =eecing, CWS, on the advice of its counsel, adopted a, policy to integrace 1:s affairs by causing its four subsidiaries to operate in synchrcnis= while a: the same ti=e main:aining all interconnec: ions vi:h non-affi7 4:ed co=panies, including TESCO and E.P. At the ti=e such decision was =ade by CSW, no reliability s:udies had been condue:ed. the econc=ic study was not cceplete, and no effort was made to evaluate the i= pac: of synchroncus opera:ica on other ce=panies in SWPP or TIS /ERCOT. Folleving ec=pletion of the P ! report, i: was personally delivered by CSW to TJ. Again, CSW advised I"J that TJ vould either cooperate in the i=ple=entacien of anychrenous opera:ica vich SWPP, or it would be forced upon l'J against i:s will. At no 1=e did WJ or CPL or their paren:, CSW, approach TESCO or ELP on the basis of conducting studies to deteH-e the best mode of operation for electric utility systa=s in Texas or elsewhere; but en the ec=::ary, centf~ ously insis:ed that synchreneus operation vould be i=stitu:ed whether it was in their best in:erest or not. In late'Dece=ber, 1975, CSW's chair =an of the board delivered a copy of the PTI repor: to the president of E.P. inviting HLP's cooperation in the i_ple=enta:icn by CSV of a Mode 4 operation, but sca:ed that CSV was ec==1::ed to an interstate =ede of operation and CSW would force m.P's cooperation if HLP's cooperation was no: voltatarily forthec=ing. On Dece=ber 31, 1975 CSW filed the PT! report vi:h the SEC and advised the SEC that 1: was cc==1::ed to pro-ceeding with the integration of its four subsidiaries by seving together the electric systa=s ce=prising IRCOT and S*4? P. CSV advised the SIC that Mode 4, the preferred =ede of operation, would per=i: :he CSW ce=panies to u:111:e the transmission sys:e= of other =e=ber ce=panies of ERCCT, ~.... a.

which, in turn, would integrace the four CSW cenpanies in a =anner required by the 1935 act. CSW fur:her advised the SEC on Dece=ber 31, 1975, that if defendants did not cooperate in such an interconnec:icn, other options for securing the necessary cooperation would be considered. This representa:ica was censistent with the other threats =ade by C5W assinst the defendants prict to such stay. Prior to Dece=ber 31, 1975, the plaintiffs never advocated nor did they desire to operate in interstata ec=erce in synchrcnism with SVPP. Prior to the attack on C5W's holding ec=pany status, neither 'CU nor CFL at:e:pted to or desired to under:ake synchronous operations with PSO or other =e=bers of the SWPP. For 40 years prior to Dece=ber 31, 1975, WTU, CFL and C5W believed that the nature of their operations, including, the maintenance by WTU of i:s northern division electrically isolated from the sou:hern divisica, was in their bes: interest and is the best interest of their custo=ars. On January 30, 1976, the SEC ordered that an evidenciary hearing ~ ~ be held to consider-a=ong other things, whether the elec:ric utili:y facilities of the subsidiaries of CSW were capable of being econc=ically operated as a single integra:ed and coordinated systes wi:his the =eaning of the 1935 Act. TU and HLP intervened is :he SEC proceeding announced by the January 30, 1976 notice, and a pretrial hearing was scheduled for May 12, 1976. TESCO advised the SEC tha: :he =ede of opera:ica proposed by Csv would radically alter the = ode of operatien of TU and the other =e=hers of TIS and would pose a threat to reliabill:y of service and would impose unreasenable and unecenc=ic burdens upon TU and TIS custe=ers and invas ors. Such a change in =ede of opera:icn veuld result in an unjus:ifiable risk to such custc=ers and investors. TESCO further advised the SEC that 1: appeared tha: C5W's p;cycsal was being =ade carely as a sche =a by C5W to save 1:s holding ec=pany. CSV e= barked on a secret and clandestine =aneuver on May 4, 1976 to save 1:s holding ce=pany sca:us by u:ilizing the facilities of the defendants against their will. At a M M N gy-h AM'FM __g.

i 1 ~~ secrec '=eeting of CS*J executiver and accerneys in the la::er part of April, 1976, C*JS's vice presiden: and chief engineer me=oralized a legal plan to save CS'J's holding co=pany and confir=ed the lack of any other =ctivacion for the action subsequently taken en May 4, 1976. In the darkness of nigh: on May 4,1976, '.Cu perfor=ed a =idnight wiring of electrical ci-1:s charged with 69,000 volts of elec::icity between WJ and 730, a procedure which placed WJ, and therefore all =e=bers of TIS and ERCCT, in interstate cc==arca. At trial WJ atte=pted to justify the establish =en: of this new radial line as par: of its plan to i=ple=ent Mode 4 operati:n. In fac:, plaintiffs' own witnesses testified tha: the existence of :his radial line was not in any way conte =pla:ed nor a necessary part of any plan to i=ple=ent Mode 4 and although sc=e of plaintiffs' witnesses stated that the radial line was necessary in order to insure reliable elec::1c service to the ec=:==1:ies in Oklahc=a, I find that the evidence is to the con :ary and that the midnight viring was done withcut any legi:i= ate busi=ess purpose. By ins:alling the radial line, of:en referred to as the "midnigh: wiring", WJ =aliciously and willfully violated its icng standing agree =en: with TISCO by failing to notify TESCO of the cc:=:ence=en: of interstate operati:n and for the purpose of requiring TESCO and IC.? :s operate in snychroniss with S'aTP. This is also evidenced by the fae: that this suit was filed on May 3, 1976, along wi h an applicatien for a ta=porary restraining order, in an a::e:pt to force the defendants in:o interstate operatiens withou: the defendants' voluntary consent. At the ti=a of the midnigh: wiring, defendants had evaluated the ?T: report. Upcn being notified of the =idnigh: viring, TESCO concluded independently that it was done in furtherance of a plan to force the synchrencus in:erconnection of ERCOT and S'.7P agains: their will and in fur:herance of the threats earlie: =ade. ISCO had concluded that :he i=ple=entation of Mode 4 would downgrade its reliabili:y and would cos: a significan: a=ount of =eney with no correspending 1 - :-r -.; -

benefits to it or its custo=ars. Based upon T"SCO's prior evaluation of the =ede of operation which was in 1:s best interest and the best interes: of it; custo=ers, the threats =ade, the purpose of :he PT: study, and its knowledge wi:h respec: to the acverse effects of in:ercennected operation gained over a long period of ti=e, it had no reasonable alternative other than :o disconnect frc= the plain:iff and fro = other electric utilities if i: were going to be in a postion of exercising its own choice as to the best made of opera:icn in the fu:ure. IC.? had also reached the sa=e conclusica, although independent of TISCO. Both defendants had to ac: quickly after tha =idnight wiring of May 4, 1976 occurred if they were :o preserve their intrastate =ede of operation. The longer the defendants rs=ain interconnec:ed with *wTJ, with the plaintiffs, and other utilities which were connected in in:ersta:e ec= erce, the = ore likely 1: would be that the F?C would assert jurisdiction over the ce=panies. In severing connection with plaintiffs on Maf 4, 1976, defendants ac:ed independan:ly and defensively in pursuing the only action that would allow the= to preserve their ability to decide for the=selves the =anner in which they would condue: their operacions. The purpose of the ac:icas of kTJ and PSO cn May 4,1976 was to force TISCO and EL? into intersta:e ec=arce and subjec: TESCO and IC.? to federal regulation against their will. The =c:ive behind the ac:icos of kTJ and PSO en May 4,1976 was :o preserve CSW's corporate structure and C5W's status as a regula:ed holding ce=pany under the 1935 act. Any econc=ic benefic reali:ed by kTJ as a resul: of the establish =ent of the radial feed into Oklah==a on May 4,1976 was =ini=al at bes:. and was not a justificati n in itself for establishing the radial tie. 1"rE CCURT'S DECIS!CN The Court has spent the las: eigh: weeks reviewing be:h tne record in this case, which is over 3,500 pages of testi=cny and about 1,000 exhibits, the cour:'s notes and recollec:1:ns, and the law that applies to this case, and I think I have a la a -emy g, I Sh L*.bh

pretty fair understanding of what this case is all abou:. Plaintiffs have advanced a nu=ber of theories of recovery, and there is a lo: of evidence, so frc= tha: standpoint it is a co= plicated case, but I think =any of the key ques: ions in this case are st= ply questions of law. This case, as it.has been presented over the past two and one-h,alf years, really boils down to a single, preli=inary. question of lau, that is, whether or not 1: is a violacion of $ 1 of the Sher =an Act for an electric u:ili:7 to exercise the freedo of choice provided by Congress in S 201(b) cf the Federal Pcwer Act (16 U.S.C. $ 824(b)) and decide to I confine its facilities and operations solely within a single j Plain:1ffs have =ade =uch of the argn=ent that this state. f is a group boycott, that they are not talking about just one electric utili:7 deciding to opera:e intrasca:e ce==erce, f but a group of u:ili ies, and the defendants' concerted i action =eans that interstate utilities cannot connect to the=, specifically that the plaintiffs cannot connect to the defendants and re=ain in interstate co==erce. In this contax: I do not parceive a difference between one utili:7 deciding to operata intrascace, or a group of utilities, independently or even in concert, decid'ng to operate incrascace. Congress =ust have been aware of the unique characteris:ict of the electric utili:7 industry at the ti=a ft adopted the Federal Fever Ac:, and =us: have been aware that the operation of a tocally intras: ace electric utiliry systa= could have potential anci: rust considers: ions. Congress gave the electric u:ilities a choice: intrastate operation or interstate operation. If taking advantage of the intrastate option violates the Sher =an Act, then the provision of the Federal Power Ac: becc=es =eaningless. Congress can rewrite the Federal Power Act and eli=ina:e that provision; I cannot. Therefore, I do not think that the actions of :he defendants viola:e the Sher =an Ace, $ 1. I want to e=phasi=e one factor which I took into account in evaluating the credibili:y of the vi:nesses, which I =us: do in this case as the criar of fact. I =en:ioned tha: this 19

case turns primarily en questions of law, but I cerainly recognize tha: there are significant factual issues in this case, particularly the ces:i=cny concerning the alleged econo =ic savings and increased reliabili:7 to CS'J if Mode 4 is imple=ented. I think 1: is a fair state =ent of :he law that when a court considers an antitrust case, the focus of the ceurt!s inquiries should be upon the ac:icns of :he defendants, not the plainctifs. Stated another way, for purposes of deter =ining whether or no: the defendants have violated the Sher =an Act, the =otive of the plaintiffs in bringing the 1,ui is irrelevan: to a deter =ina:ica of the plaintiffs' clai=. There has been a lot of testi==ny in this case cencerning CS*J and the plaintiffs' bad =ocives in bringing this case, and I think thae I should =ake clear that I have not considered that testi==ny in =aking =y deter =ination on the ceri:s. On the other hand, I do think that that tesci=cny can be relevant to =y evaluatics of the credibility of the witnesses, par:icularly - -- when that testi=ony is essencial ;:o plaintiffs' factual support for the Sher =an Act clai=s, such as the casci=cny regarding ec=peci:ica and the alleged savings to the plaintiffs fro = Mode 4 operacion. In the sa=e regard, I think I =ust carefully consider testi=cny that was given in docu=ents that were prepared af:er the SIC challenged CS*J's holding co=pany status and af:er the P.ay 4, 1976 wiring in:o Oklahc=a. Certainly the plain:iffs' alleged =ctive in bringing this case =erely to in:egrace CS'J's holding ce=pany and avoid divestiture is noc conclusive in =y evaluatica of the credibill:7 of certain witnesses, but I think : hat the defendants have a= ply de= ens::ated in this record, as I have fcund earlier in this opinien, that the plaintiffs had :his =ocive available to the=, and used 1:, other :han the =ctives plaintiffs have advanced, for filing this lawsuit, and, = ore particularly, for develeping testi=cny that would support the alleged Sherman Act violations. Grous Bevesets Ccncer:ed refusals to deal, or "grtup boyco::s", are .._+a. .n n

per se illegal under the Sher =an Antitru : Law. Fashion Originators Guild of A= erica. Inc. vs. FTC, 312 U.S. 457 (1941). The principle of the group boyco:: cases is tha ~ where business =en concert their actions :o deprive others of access to merchandise which the lat:er wish to sell to the public, we need not inquire into the ecenc=ic =otivatica underlying their condue:, because exclusien of traders frc= the carketi by =eans of cc=hination or conspiracy is so inconsistent with the free =arket principles e= bodied in the Sher =an Act that we will not consider any alleged justification. United States vs. General Motors. 384 U.S. 127, 146 (1946). Group boycotts are not saved by allega:icns that they are reasenable in specific circu= stances nor by failure to show that they " fixed" or regula:ed prices, parceled out or li=1:ed produccica, or brough: about a deterioration in quality". Klor's v. Broadwav-Male Steres,, 359 U.S. 207, 212 (1959) cuoting, Fast-ion Orizin.aters, at 466-463. It is of no ccusequence under the Sher =an Act that each party ac:ad in its own lawful interest and i: is unnecessary to find an explicit agree =en: to find the Sher =an Act conspiracy. United States v. General Motors, 384 U.S. 127 (1966). It is the intent to eli=inate ec=petitica that de:e==ines the illegality of a joint refusal to deal. The cour: =ust exa=ine the purpose and inten: of :he alleged conspira ors, not to deter =ine whether or not the defendas:s engaged in a refusal to deal to achieve purpor ed beneficial resul:s brought about through :hs eli=ination of ec=peci:icn, bu: rather to discover whether or not the purpose and intent was antice=pe:itive. For exa=ple, in Kiefer-Stewart Co. vs. Joseeh E. Searra= & Sons, 340 U.S. 211 (1951) the cour: stated, quo:ing frc= t'nited States v. Socenv Vact.= Co. "Under the Sher =an Ac: a ec=hinatien for=ed for the purpose and with the effec: of raising, depressing, fixing, pegging, or stabili=ing the prices of a ec==edi:y in interstate or foreign ec==erce is illegal per se." 71

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and Eastern 3estes Lu=5er Desfers Associatien v. United Sestes 234 U.S. 600, 606 (1914) the Cour: sta:ed: "...it appears that :he defendan: associations have for their object, a=cng other things, the adoption of ways and =eans to protect such trade and to prevent the wholesale dealers fres intruding .therein." Other group boycott cases also indicate tha: the Cour: cust consider whether or not the alleged group boycott had the requisite antico=petive purpose. Associated Press v. United States, 325 U.S. 1 (1945) (holding tha: a bylaw was " plainly designed in the interest of prevencing ec=petitien."); Radiant Burners Inc. vs. Peoples Gas, Ligh: & Ccke Co., 364 U.S. 656 (1961); Uni:ed States vs. General Mocers Corp., 384 U.S. 127 (1966); Binderup vs. Pathe Exchange, 263 U.S. 291 (1923) ("the alleged purpose and direct effect of the ce=bina: ion and censpiracy were to put an end to these contracts... and restrict... the liberty of a trader to engage in ~ business." at 312). The plaintiffs need not shew specific in:ent on the par: of the defendants to restrain trade; in an antitrust case, 1: is unlikely that there will be an express agreement in violation of the antitrust laws, and therefore cire==stancial evidence assu=es a heigh:ened i=portance that may sustain a finding of a conspiracy. Coughlin v. Caci:o1 Ce=ent Co., 571 7.2d 290 (5th Cir. 1973); In Re Yarn Processine Paten: Validit-r Litiratien, 541 T.2d 1127 (5th Cir. 1976). The Fif:h Circuit has recognized three :ypes of group boycot:s that are per se violaciens of the antitrust laws; (1) horizontal ce=bina: ions a=eng traders at ene level of distribution, whose purpose is to exclude direc: cc=peci:crs from the =arke:. (for exc=ple, Eastern States Retail Lu=5er); (2) vertical ec=binations a=eng ::aders at differen: =arketing levels, designed to exclude fr = the =arke: direc: ce:pe:1: ors of some =e=bers of the c:=bination (for exa=ple, Klers v. Broadvav.' dale Steres. Inc.) and (3) cc=binacions designed to influence coercively the trade practices of boycot: .a.- ~'

victics rather thmi to eli=inate them as competi: ors (for exa=ple, Fashion Originators). E.A. McQuade Tours, Inc. vs. Consolidated Air Tour Manufacturing Co., 467 7.2d 178 (5th Cir 1972). "In all of these cases, the touchstene of per se illegality has been the purpose and effect of the arrangenent in questien. Where exclusionary or coercive conduct has been present, the arrange =en:s have been viewed as ' naked' restraints of trade' and have fallen victim to the per se rule. On the other hand, where these ele =ents have been missing, the per se rule has not been applied to collec:1ve refusals to deal. McCuade at 186-7. Where exclusienary or coercive conduct is not present, the court should apply the rule of reason test to deter =ine whether there is a viola: ion of the Sher =an Ac:. Hatlev v. A=erican Cuarter Horse Associatien, 552 F.2d 646 (5th Cir. 1977). I must exercise extreme caution in applytng a per se label to condue: that allegedly violates the antitrust laws. "To outlaw certain types of business conduct merely by attaching the ' group boycott' and 'per se' labels obvieusly invites the chance tha: cer:ain types of reasonable types of reasonable concerted ac:ivi:7 will be prescribed". Worthes Bank & Trust v. National Bank A=ericard, Inc., 485 F.2d 119 (Sth Cir. 1973). While 1: is true tha: the Supre e Court has outlawed group boycot:s as per se illegal,"a multitude of lower courts have cantinued :o evaluate alleged boycotts under a ' rule of raason' analysis ra:her than by . the per se doc ine e= ployed by the Supre=e Cour: in the afort=entioned cases. As one ce=nentator has observed, 'the law in Washington, however, is qui:e different fro = the law in the rest of the coun: 7.', Woolley,Is A Boyec::.A Per Se Violation of the Anti: rust Laws, 27 Rutgers Law Review 773 (1974)", Cullu= Electrie & Mechanical Inc. vs. Mechanical Contracters Association ef Seuch Carolina, 436 F.Supp. 418 (D.C. S. C.1976), and the Fif:h Circui: closely scrutinizes group boyect: allega:icns. See E.A. McCuade Iours Inc. vs. Consolidated Air Tour Mfg. Co., 467 F.2d 173 (5th CL:. 1972): Su1=ever v. Coca Cola Co., 515 F.2d 835 9,.,,

• 7**

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p (5th Cir.1975); Haclev v. A=erican Quar:er Horse Associetien, 552 F.2d 646 (5th Cir.1977); Coughlin v. Ca :i:o1 Ce en: CA, 571 F.2d 290 (5th Cir. 1975); Pender v. Hu-cins Fish Co., Inc., 570 F.2d 1209 (5th Cir. 1978). As I read the=, then, there are three types of group boycott cases recognized by the Fif:h Circuit, and a require =ent that the alleged boycott have an anticc=petive purpose, with exclusionary or coercive condue:; I dcn't think :his case fits any of those descriptions. First, there has been a=ple testi=cny in the record (for instance, the testi==ny of Hardy and Price) that there is no direc: ce=peci:ics between CFL and either IC ? or TESCO, and no direc ec=petitics between TISCO and HLP with k*IU, except de=ini=us co=pe:1:1cn in cer:ain areas duly certified to II3CO and L'IU. So this case dcas not fi: within the firs: two McCuada categories of group boyect:s that involve direct ce= peti:icn. Second, the key to the third category of group boycott cases cited in McQuade was the "ccercion practiced indirectly on a rival =echod of ec= peti:icn..." ac 187. In Fashion Originators, cited by McQuade as an exa=ple of this "-d category, a group of ga:=en: =anufact'..rers refused cc seil original designs :o s: ores that scocked ecpies of these designs made by other =anufac:urers, and thus there was a conspiracy to elri=ina:e the copiers frc= the =arket.

Here, except in cer:ain =ul:1 ply cer:ified areas I =en:icned earlier, there is no direc: ce=peci: ion be:veen plaintiffs and defendants. Defendan s can't conspire :o deprive plain:iffs of a =arket they do no share and, under the Public U:ili:7 Co=nission of Texas' (PUC's) certifica:ica procedure, they cannot share since utill:1es are certified for cnly certain areas. I will diseass this competi:iva aspect cf the case in more de: ail later in this opinion.

Third. I =ust exa=ine the purpcse of :hr alieged boyco::. ELP and TISCO's purpose in re=aining in intrasta:e ec==erce vea to avoid F7C jurisdic:icn. The second purpase was to serve the best interests of their cus:o=ars by providing O N. * *& %, _ ,_,y,we,ema=*%*7"g".**"-* me

reliable, econc=ical power. On this record af:cr hearing all the testi=cny, I do not find tha: the purpose was in any way antico=petitive or coercive because plain:iffs do not =eet their burden of showing any co= peti:ive or coercive intent. If I fc2 to find a Sher =an Act violation in this case, I must also find a contract, co=bination, agreenen: or conspiracy in restraint of trade. As I understand the pleadings and the evidence, the plaintiffs are clai=ing tha: over a period of some 40 plus years, at least since the adoption of the Federal Power Ac: in 1935, the defendants have been engaged in a co=hinaticn and censpiracy, the essence of which is recorced in cer*.ain contracts between the defendants, :o restrict the flow of power in the defendant ec=panies to intrastate co==erce. To anayl:e this allegation properly, i: is i=portant to understand that unila:eral refusals to deal, withou: = ore and "in the absence of any purpose to create or =aintain a =enopoly", are lawful under the Sher =an Ac:. United States

v. coltate, 250 U.S. 300 (1919); United S:stes v. Park, Davis & Co., 362 U.S. 29 (1960). A =anufacturer has a right to selec: its custo=ers and to refuse to sell its goods to anyone for reasons sufficient to 1:self, and "(i)nherent in this right is the opportunity to shew unilateral as opposed to conspiratorial.condue: at trial." Coughlin v. Capitol ceuent Co., 571 F.2d 290 (5th Cir. 1978).

I recogni:e, as did the Fifth Circui: in Coughlin, in footnote 22, tha: the so-called Colgate Doctrine has been carefully circu= scribed by the Supre=a court. The doc:rine does not apply :o a case where there is an agreerent between the seller and a purchaser to =aintain resale prices, Uni:ed _ States v. Bausch & Lo=e Cotical Co., 321 U.S. 707 (1944), and United States v. Parke. Davis & Co., 362 U.S. 29 (1960), and a producer secures adherence to prices by =eans which i go beyond his =are declination to sell :o a custo=ar who will not observe thic announced policy. S,ee,Parke. Davi2, .end "eech.,ut. "However, the pose w'olgate decisions of :he t ~- - - - - ...,n.,.

J l Suptc=e Court do not in any way lLait a =anufacturcr's right to at a=pt to disprove the exis:ence of cencer:cd setien." Coughlin at 301, footnote 22. I do not think that the plain:iffs have proved concerted action in this case. They have established that both ELP and TESCO want to re=ain in incrascace cc==erce and tha: they both wish to do so to avoid FPC regula: ions. Plaintiffs also established tha: TESCO and EL? took =easures, such as flying the Red River (as Mr. Robinson testified), or checking the power flow relays and poin:s of interconnectics, to protect against inadvertent inters:a:e flows of electrici:7 I think the evidence, however, shows that each of the ce=pand.es, including the plaintiff co=panies, who, interestingly enough, did not object to this incrastate arrange =en: and apparently wanted to participate in that type of operacion un:il around 1974-75, decided that for ene reason or another, the in::as: ate method of operation which would avoid F7C jurisdiction was the method of operation that each wan:ed to pursue. Plaintiff co=panies apparen:ly did this because they.saw high i==ediate costs of interconnecting inters: ace rather than re=aining intrastate (see ?x 19) although plaintiffs apparently =ade no long range study, as they now have, to deter =ine -J2e long range econc=le costs and savings of interstata vs. in::astate operations. The evidence also shcus that each of the ec=panies, including plain:iffs and defendan:s, have always had :he opportuni:7 for withdrawing fro: :he intras: ace =ethod of opera: ion in connecting in:ers ata. None had elec:ed to do so until May 4, 1976 (except in the war years, and other unusual situations), and there was a=ple evidence thac the only objection defendan:s had :o plaintiffs' wi:hdrawal fro: intrastate opera: ions and connec:1on to in:erstate opera:icn on May 4, was tha: the defendant vere not.per=i::ed to cake their e.n independen: decision about whether or not to join the plaintiffs in cha: decision; the decision was fore:d upon the=, For a period of ti=e on that day defendants were involuntarily drawn in:o interstate cperazion because of the =idnight wiring. - - ~ ~ r.... n w - ~

I think one of the =ost da= aging pieces of evidence to plaintiffs' conspiracy theory is the fae: that when, on May 4, the defendants were involuntarily placed in intersta:e co=erce, they each disconnec:ed f:c= all other u:111:ies, not just WIU and C?L in order to isolate their syste=s because they were not sure whe der or not :hese other u:ili:les, who had not participated in the =idnigh: wiring, would remain in interstate cc==arce. If there was an agree =en:, co=bination or conspiracy by defendants a eng themselves to re=ein in in :astate ce=arce, it cer:ainly would r.o: have been necessary to disconnec: fro = everyone and isola:e thei syste=s. TESCO clearly did not know whether HL? would re=ain in interstate co=erce; and HI.? did not knew whe:her TESCO would re=ain in interstate co=erce eider. Even though up to May 4,1976, each defendan: though the other defendant was co=1::ed to intras:ste opera:icn, there was clearly not a fir = understanding or a join: conspiracy to that effect or the disconnec: ions would have been u=necessary, as between the defendan:s. A lot of contracts have been introduced in this case, and the plaintiffs clai= da: these contrac:s evidence the agree =ent by the defendants to rs=ain in intrastata co=arce. 4 So=a of the cont: sets have clear indications of inten: ion that the parties will re=ain in in :astate co=arce; other have clauses which indicate that the con : acts are cancellable on cer:ain notice if the parties wish to enter intersca:e ce=erce. The plaintiffs were par:ies to so=e of dese contracts and never co=plained about the=, perceiving de= to be in their cwn best interest for nearly forty years before suddenly objecting to their character. Justice Brandeis ence observed tha: all con:: acts were ret.lly restraints of ::ade and thus viola:ed the Sher =an Act, if the Act were carried to illogical extre=es. These contracts do res: ict the flow of electricity to in::ss:a:e coc=erce, but I do not find that they force the plaintiffs to re=ain in in::astate ec=arce. Plaintiffs hava the ch'- ce of abiding by the contrac:s and re=sining 'in in::as:a:e .27 ~

.~. co==arce, or deciding to go in:o inters:a:e ce==arce and cancelling the contrac:s. I think 1: is significan: that different contrac:s were negotiated between the different parties wi:h different provisions relating to the intrastate flow of elec:rici:y over the years. Here I think is a si:uatics that is covered by the Supre=e Court's ruling in Colga:e: None of the defendants are doing any:hing = ore, and have done nothing : re, than decline to sell to any utility, not just plaintiffs, who are engagad in in:erstate elec:rical operatiens, or to connect with that type of utility. No one has forced the plaintiffs to re=ain in intrastate ce==arca;,they are free to leave that code of operation whenever they choose to do so. And each of the defendants is free :o do so, also. The cen:rac:s do not 11=1: that freedc=; they =erely =ake clear to the parties to the contract that the exchange of electricity provided for in the contract is prs =ised on the intrastate character of that electricity. The cent act provisions only preserve each party's right to operate on an intrascate basis. See 16 U.S.C. $ 824(b). An effort to avoid FPC regula:ica is "not unlawful, is indeed not d--a:al--not even if it fails." Hartford Else:ric Lich Co. v. TPC,131 F.2d 953, 960 (2d Cir. 1942). See also Connecticut Light & Power Co. v. TPC, 324 U.S. 515, 518-19 (1925), and en re=and, Connecticue Fever & Licht Co., 6 F.P.C.104,110 (1947). Co=cetttien The Sherman Act requires that the Court find, when evaluating this case under the rule of reason, anticc=pe:1:ive effect, and when looking at this case as a group boycoc: or one of the other per se theories, I =us: Icok to see if there was an antice=pe:i:ive purpose. In addi:icn, the Court =us: look at the ec=pe:i:ive i= pac: of the alleged Sher =an Act violatio s to deter =ine the secte of the requested injunctive relief. Zenith Radio Corm. v. Haceltine Resear:h, 395 U.S. 100 (1969). To deter =ine an agree =ent or ec:'s entice =petitive purpose or its i= pact on ce=petitive condi:icas, the cour: no ...m.mm.. -p =

.a =ust have a thorough understanding of the ec= petition between plaintiffs and defendants, including the gecgraphic and produce =arket in which they cc=pete. Northwest Power Products, Inc. v. 0= ark Industries. 576 F.2d 83 (5th Cir. 1973); Dougherty v. Continental 011 Co., 579 F.2d 954 (5th Cir. 1978). Although decided in a sligh:ly different context, the cases. decided under 5 7 of :he Clay:cn Act are helpful in identifying the types of ce=petitive in:erests which are protected by the antitrust laws. In United States v. General Dvnz=ies Coro., 415 U.S. 486 (1974) the Supreme Court affir=ed the Distrie: Court's decision that the scenc=ic reality c2 the coal indust =y at the cri:ical ti=a was such thac Uni:ed Electric Coal Co. was not in a position to ce=pete vi:h anyone because 1:s reserves were li= iced and were also totally ec==1::ed to long ter contracts with u:ilities. In addition, in United States v. Marine Bancoreoratien. Inc., 413 U.S. 602 (1974) the Supra =e Court held thac NEC (a Sea::la bank) was not a ec=petitor of 'wiB (a Spokane bank) because NBC did no =arket goods and services in the Spokane bank's arer~of cperation. The cour: held that the " relevant geographical =arkat" was the areas in which the relevan produe: was, in fact, =arketed by the elleged ce=peci:or. "The proper question to be asked. .is not whe:her the parties. do business or even where they ce=pete, but where, within the area of ce=pe:i:1ve overlap, the effect of the =erger en co= peti:icn will be direc: and i==edia:e. (citations o=itted) This depends upon the ' geographic struc:ura of the supplier-custc=ar rela:icas'..." United States vs. Philadalchia Natienal Bank, 374 U.S. 321 (1963). Where two depart =ent stores sold entirely different types of =erchandise and only 2%-5; of the merchandise was sold by those scores, the two stores were not co=pe:itors, and to hold :ha: they were "cc= peti: ors" would be to ignore the reali:ies of the situation. Evans vs. S.S. Kreste Co., 544 F. 2d 1184 (1976). The definition of =arke: under i 1 of the Sher =an Ac: is different fro = t!.e definiti:n under i 2. Celu=bia Metal g.%e-we e ..P. V a.dT4"t".- 1 mW *

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Etc. vs. Katser Ale =inu= & Che=ical Co., 579 F.2d 20 (3rd Cir. 1978). "The $ 2 =arket definitica icoks to be existence of co=peci: ors as evidence of countervailing power which would preclude =onopoli:stion. See:ica 1, in con :ast, is concerned with patterns of co=peci: ion as a =eans of judging whether a restraint of ::ade is unreasonable". Colu=bia, g 2;3,. "Prohibi: ion of ccuspiracies in restrain of trade, except where prac:1ces fall under a judicially crafted per se ban, a finding of illegality presupposes the determina:1cn in any given case that the 'effect upon cc=peci:icn in :he =arketplace is substantially adverse.'" colu=bia, suora a:

26. The inquiry =us focus on the percentage of buainess controlled, the streng:h of the re=aining co= peti:ics, and whether the acticas spring frc= business require =en:s or pu: pose to =enopolice. Ti=es-Picacr.e Publishinz Co. v.

United States, 345 U.S. 594, 615 (1953); Cole =hia, suera. In drawing the narrow circle around the relevant produe: =arket, care =ust be taken to exclude any produe: to which, within reasonable varia:icn and price, culy a li=ited nu=ber of buyers will turn. Colu=bia, suora. Analysis of the =arke: =ay reveal well defined sub-=arkets for ancitrust purposes whose boundaries can be decer=ined by exa=ining industry or public reccg..ition, or the sub-earket as a separate econe=ic entity, the produe:s peculiar charac:eris:ics or uses, unique produe: ion factilities, distinct cus:c=ers, distinc: prices, sensitivi:7 of price changes, and speciali:ed vendors. Brown Shoe Co. v. Uni:ed States, 370 U.S. 294, 325 (1962). I can find no evidence of co=pecition between plaintiffs and defendants for purposes of the Sher =an Act. yirst. there is no direct ce=petitien between the plain:iffs and defendan:s except in the li=i:ed dual cer:ification areas or fringe areas of WTU and TISCO,which is only de:er=ined cc=pe:ition. The Texas Legisla:ure expressly recogni:ed the absence of teaningful ec= peti: ion a=eng elec::ic u:ilities by sta:ing: . the legisla:ure finds tha: public u:ili:ies are by defini:1cn =enopolies in the areas they serve; tha: therefere :he nor=al ferees of ce=pe-ticien which cperste to regula:e prices in a free enterprise socie:y do no: opera:e; and therefore ' ' ' ~ ~ - - - - - a.-.=. .-,w.,- .v = --: --

r ^l u:ility races, opers: ions, and services are regulated by public agencies, with the cbjective that such regulation shall ocerate as a substitu:e for such conpetition.. tex. R.Civ.S tat. Ann. Ar:. 1446(c). Elec:ric utilitiet in Texas are required to serve all custe=ers in their cer:ified service terri: cry. They are per=itted to operate only wi din and are prohibited frc= serving beycnd the geographic li=its of their service territory ~ as approved by the PUC. They are also required :o sell electricity at rates established either by the PUC or by an incorporated =unicipali:y, and are prohibited frc= offering a special race to cus:c=ars. Plaintiffs have ad=1::ed to the U.S. Depart =en of Justice, which was then conducting an anti: rust review in connection with licensing of the construction of nuclear povered generatics plancs, that there exis:s no ec=petitica becueen plaintiffs and defendants and ca: the defencants' =aintenance of their intrastate scacus did not injure plaintiffs' abili:7 to ce=pece with others. Retail ec=petitica exists enly a=cng utilicies within duly certified areas, and IC.? has no duly carrified areas with WJ or CPI.. TESCO has no duly certified areas with CPI, and de areas which are duly certified between WJ and TISCO are so insignificant that the revenue to TESCO in 1977 frc= cus:c=ars loca:ed in these areas constitu:ed less then one-half of 1*. of its total revenues. Consequnecly, actual and potencial direct ec=peci:icn a=eng WJ and TISCO is de -4"4-* s. In addi:icn, dere exis:s no

• consequential ec= petition in de fringe areas between the service areas of plaintiffs and defenants. These areas are sparsely popula:ed, with no consequential ecenc=ic growth and no econo =ic incentiva for k':"J or TISCO to engage in ce= petition in these areas. Plaintiffs rely pri=arily on l

exa=ples of indirec: cc=petitien, therefere, to establish l that defendants and plaintiffs really ec=pete. As I unders:and the evidence, che areas of indirec: Cecpeti: ion suppcsedly include: (1) ce=peci:ica between l the plaintiffs and other electic u:ili:ies, not necessarily i the defendants, in areas that are =ultiply cer:iff *d by the PUC in certain f:inge areas loca:ed be veen the vo utili:ies; i gg e 9

(2) co= petition between plaintiffs and other utilities including defendants to at:rac:'new cus:c=ers (including industrial, co==ercial and residen:ial, though pri=arily indus: rial) to locate in their service territory; (3) cc=pe:ition to retain current cuscc=ers by providing low cost reliable electric service that outperfor=s alternative =ethods available to the industrial, cc==ercial, or residen:ial user; and, (4) ce= petition for wholesale custc=ers. So=e of plaintiffs' witnesses said that two utill:1es are in ec= petition when one utility takes so=s actics that vill affect, in se=a way, the price charged by the other utility for its electric pe.ar. Thus, the defendants alleged refusal to operate electrically interstate has an effec: on plaintiffs' prices, as evidenced allegedly frem plain:iffs' econc=ic tesci=eny, and :herefore plaintiffs are in ec= petition with the defendants. The theory is that if defendants' actions raise (or restrict a lowering) of plain:iffs' price it charges its cust =ers for elec:ricity, then plaintiffs will be unable to ec=pete effec:ively for new indus: rial custo=ars, existing cus:c=ars, or wholesale cus::=ars of plaintiffs' pewer since those custc=ars =ay be lost to cheaper for=s of electric 1:7 or other for s of power. Co= petition, to the plaintiffs =eans a choice (see F.r. Price's testi=eny). Plain:1ffs are in ec= peti icn with all . of those choices, and if the defendants affec: tha: choice in any canner that affects plaintiffs' price of electrici:y, . plaintiffs and defendan:s are in ec=peci icn. I will confine =y re= arks here to a discussion of Plaintiffs' wi:nesses en ce= petition; my views en defendan:s' affect on the price of plaintiffs' electricity are discussed later. First, though, I should point ou: that if plain:iffs' view of ce= petition is correc:, then every Sher =an Act case is really a price fixing case. If we accept plaintiffs' view of ce=peci: ion, then every purchaser ha.s an ul:i=a:e choice of whether to buy a particilar p cdue:, and every nanufacturer in some way (significanc or Lasignificant) effects the price of every ce= nodi:y, thus there are no Etographic li=i:ations (and probably few produe: li=1:a:iond me

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to the co= peut:.ve =arket in an antitrust case. Dr. Wenders ad=1::cd that the geographic ex:ent of the =arket for new industrial cus:c=ers could be nation-wide or even world-wide. This is an incredibly broad =arket, and plaintiffs cade absolu:ely no effor: to =easure the i= pact on cc=-eti:icn which would occur in this =arket as a resul: of defendants' alleged antitrus: violations. The case law also does not support such a broad reading of the te:u market in a Sectica 1 case, or for chat cat:er, in a Section 2 case either. Dr. Wenders' dafinition of ec=petitica in an ecenc=ic sense, as I understand i:, was tha: if a custc=ar had a reasonable alternative choice (and he never did adequately define exactly what he =eant by reasonable al:erna:ive choice) to buying electric power frc= the defendan:s, then there was ce=peci: ion wi:h the defendants. '"he sa=a would be crua with the plaintiffs. Thus, for exa=ple, when an industrial custc=ar censidered locating in the ELF service territory and other territories around the coun:ry, including CPL, HL? would be ec=peting with those territories including CFL even though HL? did not seek the cus:c=ar, did not want the business, did not know it was being considered by the customer as a possible location, did not know about the alternative choices being; censidered, and elec:ricig ra:es and reliability were not of any consequence in a custe=er's decision to loca:e in ene ser-rice terri:ory or another. Dr. W enders also testified tha: as to produe: =arke=, all gpes of fuel were reascuable alternatives or could be reasonable alternatives to elec:ricy, and were thus in ec=peci:1on with electricity, including bacteries, wood, gas, vind= ills and solar power. Under the Sher =an Antitrus: Law, I cannot accept these defini:icns of ce= peti: ion either. They are f ar too broad, and in fac:, I a= not aware of any courc that has accepted these broad defini:icns of ei:her product or geographic =arket. If I were to accep: these defini:icns, I would, it seems to me, be virtually eli=ina:ing the cence;:s of geographic and produe: =arke: frc= considera:ica in an entitrust case. 11 .,__..,,,,m..._... -._...m .:=,

.r Dr. We ders testified abou: a coo-dinated services n =arket which. en cross exa=inaticn, he ad=i::cd was no: really a marke where ce= petition occurred, bu: rather an area of cooperation. The co=pe:itien occurred at =arkets, in his words, "downstress", of this coordina:ed services market, but the allegacions in this anti: rust case, he ad=itted, relate to an alleged violacion of See:1on 1 tha: resulted in failure of the defendants to coceerate in this sc-called coordinated services =arke: which than had an indirec: effec: on the downstreas =arkets. I as not surs if plaintiffs are really advancing Dr. Wenders' :heory or not; one of :he proble=s I have had with this case has been tha: jus when T "nderstand all of the theories plaintiffs are advancing in : heir clats under Section 1, thei: theory of the case shif:s to acec=odate a change in case law or arg'.:=ents by the defendan:s. Ass H g Dr. Wenders is correct in his analysis of plain iff. case, however, it is certainly not a violation of $ 1 of the Sher =an Act to refuse to cooperate in an area where there is currently no ec=pect: ion between the parties. It would rewrite the antitrus: laws, which the plain:iffs see=ed to be suggesting should be done La a nu=ber of areas, for this court to say that it waJ a ViolatiC3 of $1 for the defendants to refuse to ceoserate with the plaintiffs. Plaintiffs failed to establish the size, scope or geographic li=1:s to the dow s:rea= =arke:s. yurther= ore, plaintiffs did not shew any threacaned har= to co=peci:ica in these =arkets. Specifically, there is no proof that even if plaintiffs' rates increased, they would lose business or be unable to attrac: new business because of. so=a uniden:ified increase in their ra:es at:ributable to the inabili:y to cpera:e in Mode 4 A review of the evidence de=enstraces that pisintiffs failed to prove substanzial effect en co=pe:itien in any of the downstreas =arkets. To begin with, plaintiffs asser: that there is co= petition for franchises to serve re: ail load in the cities and ec'.ns wi:hin Texas. There ic no 34 -~.w... . _ _ r- -,.._.u..

evidence that HLP has ever lost a franchise or that another utili y has over been been franchi:ed in a town in which EL? had a franchise. No HLP franchise will expire before 2,007 and no CPL franchises will expire for =any years. There was -no evidence that Plaintiffs and defendan s have ever ce=peted for franchises and no evidence that they will in the future. e Dr. Wenders ad=itted that defendants would have no econc=ic incentive to disadvan: age plain:iffs in regard to franchise ce= petition. Finally, plaintiffs =ade no effor: to =easure the a=ount of cc= petition involved with franchises. Plaintiffs also contend tha: they will be disadvantaged in interfuel cc= pati: ton. The interfuel markec. as described by Dr. Wenders, includes' virtually every conceivable energy source which could serve as a substi:ute for electric energy. As I have stated, this is an ex:re=ely large =arke:, and plaintiffs =ade no at:e:pt to =easure the a=cune of ec=peci:icn in this market. Likewise, plaintiffs made absolu:aly no effort to =easure the L= pact on co=peticion within this =arket as of the ti=a of defendants' disconnections en May 4, 1976. Finally, plain:iffs' econe_ic exper: ad=1::aa that the defendants would have no econo =ic incentive :s : 7 :o affect such co=peciti.rn. Plaintiff next advanced a ce=petitive theory of self-generation wi:h respec: to the choice that their cus::=ers have to generate their own supplies of electricity. Dr. Wenders ad=itted thac :he feasibili:y of self-genera: ion of electricity usually deper.ds upon the availabili:7 of waste s te rn. With respec: to its cus:c=ers who have waste stea= available, hewever, KLF encourages self-genera:1on. As vi:h interfuel co= petition, plaintiffs cade no effor: to define the size, scope of geographic 11:1: of this =arket.

Moreover, Plaintiffs totally failed to de=enstra:e hew decisiens by their cusco=ers :o co==ence self-generation would have any effect on co=petitien a=ong the electric utili:tes, including plaintiffs and defendancs.

Again, wi:h respec: co wholesale ec= petition, plain:iffs failed to define the si:e, scope and geographical li=i:s of .e

• --g

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such market. Dr. Wenders even volunteered that while he thought wholesale ce=pe:ition related pri=arily to TIS, the geographic ex:ent of this =arke: was li=ited only by the distance at which ele.cricity could be transferred econc=ically. Pisintiffs made no effor: to establish this distance, and again it =ust be presu=ed that this =arket would be extre=ely broad since plain:iffs are the=selves planning to trans=i: power to their affilia:ed ec=panies in Oklahc=a, Arkansas and Louisiana under CSW's intercennec:ica proposals. There was no atte=pt by plaintiffs to shew tha: ce=petitlen in the wholesale =arket would be restrained by plain:iffs' inability to i=ple=ent Mode 4 More specifically, there was no showing that even if plaintiffs' rates were increased, they would lose existing wholesale cus:c=ers or wculd be disadvancased in ce=peting for new wholesala loads. Ac = cst, plaintiffs shewed that there were a few situaticus in which wholesale custc=ers in Texas switched suppliers for reascus that =ay or may not have been related to differences in electric rates, but there was no evidence of ec= peti: ion between plaintiffs and defendants for wholesale custc=ars. Mr. Jordan, president of HLP, testified that ELP had caly cne wholesale custc=er and that HLP did not want any =cre wholesale custe=ers. With respect to retail custe=ers, direc: cc=pe:itica a=eng electric utilities in Texas is possible only in areas where the PUC has cer:ified two or = ore u:ili:1es to previde service, there is affir=ative evidence that there is no dual certificatien of territories served by plaintiffs and defendant ELP. The a= cunt of load served by TISCO in areas duly certified with WTU a=oun: to apprcxi=a:ely one-half of 1% of TISCO's total load. Accordingly, the poten:ial for retail ec=pe:1:icn a=cug :he par:ies is so =ini=al as to be virtually non-existen:. Plaintiffs have atta=pced to bolster their theory of retail co=peci:ica vi:h asser:icns that the par:ies ec=pe:e for the location of new indus: rial custc=ers in their service areas. While there appears to be evidence that all the -,-.-------.--w. e

a par:1es have =ade efforts to at::act new industrial cus c=ers in the past, the changing econc=ic condi:icas for electric utilities in Texas during the 1970's, including rising costs and fuel shortages, have reduced, if not eli=inated the incentives these u:ilities =ight have in seeking to obtain industrial or wholesale custe=ars. h*LP had abolished its area develop =ent depar=ent by 1973. There was e=ple testi=eny that although there had been industrial ce=pany inquiries to the plaintiffs concerning electric rates in their area, electrici:7 is not really a significant factor, except perhaps in ene or :wo industries that are not well represented in Texas, in a decisien to loca:e a plant in one location or another. Corporat:.ons deciding en the loca: ion of new indus: rial plan:s no= ally consider a wide range of factors, including availabili:7 of raw =aterials, location of =arkets, transpor:ation costs, and taxes. Co= pared with other factors, the cost and availability of electricity have had little or no significance in influencing corperate decisiens concerning loca:icus of industrial plants in Texas. Plaintiffs in fac: failed to show a single instance where a decision to locate a new plant was based pri=arily en electric rates. Added to this is the fact that plaintiffs did not ci:e a single situation in which both plaintiffs and defendants were ac:ively at:a=pting to induce the sa=e industrial custc=er to locate in their respective service areas. Plaintiffs' exhibi: 733, which represents duly certified areas in the WJ systa=, shows a very few towns that are duly certified with very s=all populations. Finally, and these are just a few exa=ples of any instances that I can cite, kI'J told the Justice Depar =ent. TISCO 236; DHX 63; ERX 156, that TISCO and WJ did not ec=pete, at a ti e that the Justice Depar =ent was investigating to deternine wha:her or not possible anti: rust violations had occurred in the Co -manche Peak project; CPL =ade the sc=e ed=ission. LEX 199, DHX 200. Apparently k"lJ's and CPL's defint: ion of .CCCpetition, for antitrust purposes, has changed since the

• • • • • • • • • enn.a.

..ap,ese emano me. w Ne W m.",* n"4 ""mei. "* * * ** * *

• ti=a of that respense.

I also did no: find Dr. Wenders to be a very credible or qualified witness, and I will outline in brief se=e of the reasons I reached that judg=en:. Dr. Wenders based his cesci=ony on the record in this case and on the deposi: ions en file in this case, as well as his own invas:igation. Dr. Wenders unqualifiedly relied en the deposi:icas on file in this case, and subsequencly qualified that s:a:e=en: in a very significant respect, when en cross exa=1:ation he said he did not agree with every:hing Dr. Cols had said, including a definition of ec=peticica offered by Dr. Gols that differed fres Dr. Wender's defini:icn. And, although he said he based his testi=eny in the actual transcript of this case, it appears tha: Dr. Wenders had read selec:ed portions of the transcript, and La so=e instances had caly read the direct exa=inatica cf so=a witnesses, excluding :he cress exa=ination. His outside preparacics :o deter =ine the proper =arket analysis also appeared to =e to be rather selective. In short, Dr. Wenders i= pressed =e as an exper: who selected =acerial favorable to an analysis of this case that favored the theories advanced by :he plain:iffs, ignored the evidance or theories produced by the defendan:s, and chose not to =ake a ec=plete review of the record or evidence available, leading :- to view his conclusiens with grave suspicion. I think, fre the record, and censidering wha: I have said so far, that if any product and geographic =arket has been shown, the correc: produe: =arket should be IL=ited to electricity and the rele geographic =arke: should be li=ited to the physical service areas of the plaintiffs and defendants because : hat is where the direct cc=pe:i:icn, if there is any, and I think :here either is ncne or de =ini=is cc= petition, occurs. Uni:ed States v. Marine Bielerists, h, 418 U.S. 602 (1974). Aside fic= plaintiffs' failure to show any =eaningful or significant ec= petition a=cng electric u:ilities in Texas, they totally fail to prove cha: defendsnes were oh== ,y .es me,e w*48=-***-"

• • =sinee**,,p e

-=s*

=ocivated to any degree whatsoever by any anti-cc=peci:ive in:en: in their decisions to disconnec: fre= plaintiffs on May 4, 1976. In fact, plain:iffs did no: shew that defendants even considered possible effects en cc ;etitica prior to the discennections on May 4, 1976. Defendants' representatives testified tha: they decided to disconnect because interconnec:1cn with the Southwes: Power Pool, which could result frc= a failure to sever connections with plaintiffs, would produce a heavy econc=ic burden for their custe=ars without offse::ing advantages, would degrade the reliabili:7 o' -ka'- electric syste=s, and would i= pose additional ces:s associated with federal regulation. Plaintiffs presen:ed no evidence :o the contrary and do not even assert that-defendan s had an anticc=petitive purpose in deciding to disconnec: and preserve their right to decide for the=selves whether to co==ence interstate operations. Plaintiffs' theory of the cc=petitive i= pac: resul:ing frc= defendants' discennections on May 4, 1976 proceeds indirec:ly through several steps..Tirst, plaintiffs centend that the discennections precluded them frc=. i=ple=enting Mode 4 which would reduce their costs and revenue require =ents. Second, higher costs and revenue require =ents wculd presu= ably cause plaintifs to L ve higher ra:es. Third, assu=ing plaintiffs had higher races, they would theoretically be ha.pered in their ability :s co=pete i= various "dcunstrea=" retail and wholesale =arkets for elec:ric service. Centrary to this =ulti-faceted theory, plaintiffs' ce=pany wi:nesses ad=itted that they had no knowledge of any los custc=ers or other ce= peti:ive disadvantages suffered by plain:iffs as a result of defendan s' discennections. Merecever, plaintiffs' econc=ic expert, Dr. Wenders, ed=it:ed that if plaintiffs could obtain grea:er econe=ic benefits fres in::ss: ate operation as opposed to interconnection with the other CCW subsidiaries in interstate ce=nerce, plaintiffs' whols theory of ce=pe:1:ive i= pac: would fail, ' On this record I think plaintiffs are bet:er off re=aining in' intrastate ec==erce or Mode 2 inters: ate ce==erce, when ec= pared to Mode 4 ~* e - .,3p e,p a- ,,**=eMDe w

\\ q d. Finally, despite all of his testi=ony concerning theeries of co= petition and ce= peti:ive i= pact, Dr. wenders had "no e idea" whether 1: was reasonable or unreasenable for defendan:s to discennec: frc= plaintiffs under the circu=s:nnces of May 4, 1976. In Dr. 'Jenders' words "May 4:h, :o =e, is a ca::er of sideshow." Price Fixin: An agree =ent tha: in erferes wi:h the se: ting of price by free =arke: forces is illegal on 1:s face. United S:ates vs. Container Corp., 393 U.S.333 (19 49 ). The per se rule applies even when the restraint en prices is somewhat indirect. Si=rsen v. Union 011 Co., 377 U.S.13,16 to 22 (1944); United States vs. General Motors Cors., 334 U.S. 127, 147 (1966). The cour; cus: ex=-d e the purpose of any alleged agree =en: to fix prices, hewever, just as it ex=-4 es the purpose of any alleged group boyco::. United States v. General Motors Cor=., 340 U.S. 127, 127 (1926). "(I)f a =anufacturer is unwilling to rely on individual self in:eres: :o bring about general volun ary acquiesence. which has the colla:eral effec: of eli=ina:ing price co=pe:ition, and :akes affir=ative ac:icn to achieve uniform adherence by inducing each cus:c=er to adhere to avoid such price ec=peci:ics,'the cus:c=er's acquiesence is not then a =a::er of individual free choice prc=p:ed alone by the desirability of the produe:. The produe: then ec=es packaged in a ec: pati:1on free wrapping--a valuable feature in 1:self--by vir:ue of concer:ed ac:icn induced by :he =anufac:urer. The =anufac:urer is :hus the organizer of a price maintenance ce=bination or conspiracy in viola:icn of the Sher =an Act." United States v. Parke Davis & Co., 36 U.S. 29, 47 ( 1940 ). "(A) ce=bination for=ed for the purpose of fixing, pegging, or stabilizing the price of a ec==odi:y :n inters: ate er foreign cc==arce is illegal per se." United States v. Seconv vacuum 011 Co., 310 U.S.150 0129). There are a nu=ber of exa=ples of typical price fixing cases, such as the exchange of price fixing infor=atica vi:h an agree =ent to adhere to a price schedule, Sugar !=s:itu:e v. United States. 297 U.S. 553 Q11f), United S:ates vs. Socenv-Vaeuen 011 Co., 210 U.S.150 09FD ; agree =en:s :s elimins:e sales of a product by co= peti: ors in order to protec: agains: real or apparent price cc=pe:1:icn, United States v Ceneral _ Motors Cere.. 384 U.S. 127 (1956); and refusal :o deal vi:h wholesalers who did no: coopera:e wi:h the ce=pany's goal of on - ~ ~ ~ _ _ _ _ _ _ ..n y

obtaining adherence to suggested =ini=us rc: ail prices, United States vs. Parke Davis Co., 362 U.S. 29 ( 4 0 ), United States vs. Sealv. Inc., 388 U.S. 350 (1967). W.cn per se treat =ent is inappropriate, the court should exa=ine the allegations under the rule of reason standard. In Re Nissan Antitrus: Litientien 577 F.2d 910 (5th Cir.1978). The power, to fix prices, whether reasonably exercised or not, involves power to control the =arket and to fix arbitrary and unreasonable prices. United States vs. Trenton Potteries Co., 273 U.S. 392, 397, (1927). Plaintiffs have evaluated several = odes of fu:ure operation of their sy,s:e=s. Under one = ode, (Mode 4), WJ and CFL will allegedly engage in ec=pletely in:erconnected interstate operacien with TSO and S*R.?, have their generating plants centrally dispatched with those of 750 and S*J.? and retain their intercennec:iot.s with the other !!S co=panies, including TESCO and HL?, placing the la::er cc=panies in interstate coc=erce. Under another =cde (Mode 2) CJ and CFL will engage in ec=pletely interconnected centrally dispatched intersta:e operation with TSO and S*4E?, but will not retain their intercennections with any TIS co=panies including TESCO and HLP and those lat:ar cc=panies will re=ain in intrastate operation. Plaintiffs also evaluated another = ode of operatien (Moda 1) which refers to that = ode of operation in which all ERCOT =e=ber ce=panies are intercennec:ed, directly or indirectly, bu: have no direct or indirec: interconnec: ions elec:ric u:ili:ies operating in intarsca:e co=erce. I think I have already indica:ed that I do not think this case falls within the tradi:ienal concept of a price fixing case. There has been no effer: by :he defendan:s :o set either =ini=us or =axi=us prices, or to exchange prica infor=ation or :o in any way protect prices. "'he only relacion this case has to prices is plaintiffs' arg=ent that because defendants' actions allegedly affec: or will affect over the next 20 years the prices the plain:iffs charge for elec:ricity and these charges, being higher than ,,pW T g* $

• M"*,d",7

if Mode 4 were i=ple=ented, will affect plain:iffa' co=pe:1:ica in the electric industry with the defendants. I have already rejected tha: broad theory of price fixing as ::ansforning all antitrust cases in:o price fixing cases, and I find no inter-ference in this case by the defendants with the free =arket forces at work in the business world. "A =anufacturer's refusal to deal with a distributor or dealer does no: violate the antitrust laws =arely because it adversely affects the entity refused." Mareuis v. Chrvsler Core., 577 F.2d 624 (9th Cir. 1977). These effec:s are d--acerial if the refusal is for business reasons which are sufficient :o the =anufacturer as long as there is no arrange =ent restraining trade. Marquis, suora; Joseeh & Sons. Inc. vs. Hawaiian Inc. Oaks and Licuors Ltd., 416 F.2d 71 (9th Cir. 1969). Plaintiffs' evidence concerning the defendan:s' effec: on plaintiffs' prices of elec:ricity due to the refusal to inter-connec: in:o interscate co==erce and integra:e the CSW system is not persuasive to e. The existence of a threatened injury to the plaintiff ec=panies is also a require =en: for the extre=a injunctive relief soughc by the plaintiffs. Zenith, suora. Plaintif t's' first evidence of the injury to the plain:iffs by this alleged viola ion of 5 1 was a' study condue:ed by Power Technologies, Inc. "This particular study was triggered by specific questions raised before the Securi:1es & Exchange Coc=ission involving C&SW's present operating pat:ern. The possibility of changing this pattern raises :he broad question of the possibility of al:ering the basic operatinh pattern of the entire region to one where all u-ilities in E2CCT and SWPP are interconnec:ed. This study does not atte=pt to examine and answer directly this broader question but ins:aad evaluates the three alternative possibili:1es in cer=s of the potential econo =ic i= pact on each of the cus:c=ers of C&SW". Page vii-viii PTI study, Px. 671. Thus the study was coc=issioned not because plaintiffs had long desired :o enter interstate ce==erce nor because they fel: defendan:s were boycot:ing the=, but rather it was done in response to -.._m. .v..,--...--.

the SI:: proceedings in which a group of u:ili:ics challenged CSW's holding co=pany c:atus. This, in =y =ind, thr:ws into serious doubt the credibili:7 of the studies that were conducted by CSW, sc=e of which were going on and were co=pleted only after :he beginning of this crial. The ?!! study had a defi=1:e purpose in mind: to exa=ine the cost of integrating the CSW syste= and it did not censider the impaci: on ERCOT in ter=s of cost or alleged savings, and in fact did not break out the savings for :he plain:iffs in this case. The PTI study did not under:ake to evaluate the bes: = ode of operation for WIU and CFL nor the bes: =ede of operation for PSO and SWI?CO nor the best = ode of operation for utilities opera:ing in the State of Texas er in SWFP. I a= not able to place =uch f aith in such a dic: aced study, and the other studies introduced into evidence by the plain:iff following the PTI study are also, I believe, tainted with the sa=e questionable =otive. I discussed earlier plaintiff's cocive which' I have taken into ace:unt, so.I will net expand on this point any further. I will note a few things about this study and the other studies. For exa=ple, in the PTI repor Dr. Wood relied on CSW's operating c. - ittes :o get his infor=ation on fuel availability for power plants put in the genera: ion plan:, and the CSW planning subec==1::ee for load forecas and fuel cost. These two fac: ors were very i=portan: in the s:udy, but rather than =aking an independent analysis (or being per=itted to =ake that analysis) he principally relied on CSW for the infor=acion. In Mode 1, Plan One,which I recognize has supposedly been abandoned by the plain:iffs now, i:s base case. applicatien in co=parison to Mode Feur. Plan 11 was seriously hampered by the fact that M:de One, ?lan icontained a large nt=ber of very s=all generating uni:s as co= pared with the preferred plan. While Mode 4 was develcped by ?!!, the econo =ic resul:s were co= pared :o Mede One, which was develcped by CSW personnel. No plans were dram by Pisintiffs which"cptic:1:ed"(to use ._..n.- . - - =

.jp -m e -- the ter= of the wi:nesses) ERCCT with contralh ed dispatch for ce=parative purposes, although tha: could have easily been done. The PTI report did no: includa cos:s for wheeling, line losses or off-syste= econc=y cales (except chose PSO had under contract), even though PSO has his:orically engaged in =assive off-sys:e= opportuni:y sales. None of the defendants were ever. offered by the plaintiffs any c =pensacica for the cost of installation of Mode 4 The PT: trans=ission systa= vas a broad brush creat=ent and no reliability study was conducted. "It is planned to conduct a reliability study in order to consider the interrela:icn of intercon=ec:ica capability, generating unit size and type with the reserve require =ents necessary to hold a given, objective standard of service reliabili:y calculated using probabili:y =ethods." PTI at 8. The econo =ic benefits shown on de study supper:ing the plan sub=itted to the SEC are clearly speculative in nat::.re and provide no basis for a findhg of co=pe:itive injury: ~~- ' (a) There are no savings to CSW fro: Mode 4 until 1986: (b) 50, of the savings co=e in :he las: dras years of the 20 year study and there is no provision for si:es or fuel for any of the plants planned for any of those three years; (c) After 1986,12 of the 22 new power plants to be built by CSW are li;;nha-fuel plin:s for whhh CSW has no assured supply of fuel; (d) 90*. of the alleged savings ce=e fro: differences in fuel costs. The fuel costs used in chese studies are very speculative, and in fact, cer:ain of the fuel cost assu=ption changed drastically in :he shor ti=a between preparation of the PT! report and the SEC study; (e) If Mode 4 is not 1 ple=ented by 1982, the studies would have to be reevaluated and there are nu=erous regulatory hurdles that CSW =us: clear before 1: can begin i=plenen:ation of Mode 4 Dr. Wood admi::ed : hat his cos: calculations should bu: did not, include cos:s that would be i= posed on defendants t.4 m.----=.---

l .. ~ ~ - - - - - and other =e=bers of U S as a resul: of the proposed pcwer cransfers between C::W subsidiaries. The o=ission of these records has been jus:ified by CSW's posicion that the interconnection between CPL and SWIPCO would serve as a "contrac: pach" (a that no expert in he electric utili:ies indus:ry had ter heard before it was proposed as a conceptual idea by the plaintiffs in this and related licigatien) the cose.of which would cupposedly approxi= ate the cost of wheeling power through U S. Plaintiffs' transmission design expert, Mr. Army, ad=1::ed that notwithstanding the existence of this "contrac: path" up :o 70*. of the CSW transfers would still go over the transmission lines of defendan:s and o:her me=bers of U S. The evidence shews that the " contract pa:h" was no: in any way designed to ce=pensa:e defendants. In his deposition, Mr. Aray ad=it:ed that he was told to include the direct tie between CPL and SWE2C0 in his transmissien design because of CSW's legal proble=s at the SIC. Mr. Arey also ad=itted that CSW would be using the US trans issien syste= and that the abili:7 to use'the CS systa= represen:ed the diiference in cost to CSW between Mode 4 and Mode 2. Nonetheless, plaintiffs have never offered to pay defendan:s for either the use of their syste=s or the cost i=pesed en the=, but have in fact insisted that defendants should bear part of the costs of the intercennecticus. Dr. Wood ad=1::ed tha: ei:her Mode 2 or Mode 4 would schieve integration of CSW and :bac Mode 4 would save only 1.l~. to 1.67. = ore than Mode 2 for all four subsidiaries conbined, over a 20 year period. This difference is withou: the penal:7 which should be charged agains Mode 4 for wheeling and internal cos:s that would be i= posed on the non-cSW =e=bers of U S. Dr. Wood also ad=i::ed : hat he was not able to =ake any allocation of :he Mode 4 savings a=ong the four CSW subsidiaries. He further ad=itted :ha: the ac:ual allocation of savings would ulti=ately depend on :he outec=e of regulatory hearings in the States of Texas, Cklahoma, Arkansas and Louisiana. mm. m. %, .mg 1 =y**. I.

.a And yet, this is :.e study, with all of its weaknesses (including the fact that the PT! study bec =e out=oded :o e so=e extent with the inclu:ica in the study of generacien based pri=arily on coal resources which had not been cen::ac:ed for), that the CSW Board used to base its decisien'to encer interstate operations and upon L;.ich it based its conclusien that an antitrust case should be filed in :his court because plaintiffs were being boycotted by defendants, and this would have a terrible i= pact upon the price of plain:iffs' electricity in the future. I recog=ize, as I think counsel for plaintiffs pointed out during the testi=eny, that just because the initial figures were wrong and tha: new, more accurate figures are provided, that that fact alone does no: r. agate the existence of an antitrust violation. But in this case I think 1: clearly goes to the credibility of the plaintiffs' case--an apparently hasty decision was made on ince=ple:e da:a, which included so=e broad brush studies of trans=ission, and no reliabili:7 studies. If plaintiffs were seriously concer=ed about procuring the alleged savings and pursuing the =cs: econo =ical =ede for C5W, their... ns would see=, at bet:, hasty, and the fact that th.. decisi.v.s were hasty and were apparently pri=arily cociva:ed by the ih froceedings cnd preservatien of the holding ec=pany, rather than by concern o<er antitrust violations, =akes =e seriously questien the correctness of tho PT! study and all studies thereaf:er as they relate to this li:igacion. That skepticirn is high:ened by my recollection of the reset =eny, and review of it over the past few weeks, because sericus hcles and erroneous assu=ptiens were built into the various studiet and restudies of the scenc=ics of the situa:icn. Another of plaintiffs' witnesses, P.r. Brugge=an, atte:p:ed to "ste Dr. Wood's work in studies ce=pletas af:ar the trial of this lawsuit had begun. These C5W plans, proposed wi:hout Dr. Wood's assistance, projected for a twen:7 year period, with losses for the first ten years of the study. There was no evidence tha: C5W had any fuel resources for N% en... >*- . elm- , gg

• • • 1*gN**..g.,,.

M..

generators for the second can years of the study period, and there was no ec=petent evidence upon which Mr. Br.:gge=an could e rely in projecting the fuel cost for planto during the second half of the study period. Coal contracts had not been secured, lignite leases not developed, nor plant locations determined. These studies, based al=est entirely en hearsay, were not even ad=itted in evidence for the truth of the infor=ation they contain. Nevertheless, in reliance on its studies, Mr. Brugge=an sough: to =ake an arbi::ary alloca: ion of the savings to show the possibility that plaintiffs would share in tha=, uven though he was not qualified as an expert on allocation of savings within a power pool. That allocation depends on futare decisions by regulaccry authorities, so there is no basis for deter =ination en this record that plaintiffs will share in any portien of the savings at:ributable to Mode 4 Any savings projected withcut any tr=petent evidence with respec: to cost are purely conjectural and speculative. C5W has apparently decided :o'i=ple=ent the generati:n plans proposed by Mr. Brugga=an's study, [R.2332-33(3rugge=an)], md has apparently abandoned the PTI and other generation Plans. [R.2404(3rugge=an)]. Mr. Brugge=an asse= bled new generation plans which were ce=pleted after rao weeks of trial. I might add, in passing, that I had no real idaa, most of the ti=e, what Mr. 3rugge=an was talking about, and after rereading his testi=cny, I still find it very confusing and not any more enlightening. I think the plaintiffs had a duty to present the evidence to the cour: in a ec=prehensible for=--I den't know too =any judges that are electrical engineers or syste= planners, and when 1: ca=e to Mr. Brugge=an, the plaintiffs failed in that respect. I found Mr. Scarth's testi=ony the =ost enligh:ening of all, and, despite plaintiffs' cross exa=ination, I believe his exhibits and testi=eny about 3rugge=an's figures showing alleged savings to CSW, and not 3rugge=an's testi=cny, at least what I understood Brugge=sa to say. ,.../.*.,

bA The 3rugge=an studice which were ec=plored af ter this trial began were illogical and biased in favor of Moda 4 as 4 co= pared with Modo 13: (a) Brugge=an's Modo 13 generation plan assu=es three

cre expensive 400 =egawatt coal uni:s at Lake Diversion and two less expensive 640 =egawat: coal uni:s a: Lake Diversion in Mode Four. The sa=a assu=p: ion in both = odes reduces the alleged savings of Mode 4 over Mode 13; (b) Brugge=an's scudies do not include off-syste

opper: unity sales even though PSC has historically had ex:ensive off-syste= opportunity sales. Off-systa= sales reduced the alleged savings of Mode 4 cver Mode 13; (c) 3rugge=an's studies do not include any charge for wheeling even though such costs will be required for the =assive a=ounts of power preposed to =ove over tranr=issien lines of the TU co=panies and other nes-CSW cc=panies. The inclusion for wheeling costs reduces the allegcd savings of Mode 4 over Mode 13; ~~ ~ " ~ ' (d) Brugge an's studies do not include a charge for line losses or other essential trans=1ssion lines for non-C5W co=panies. The inclusion of costs for line losses and

ini=t.=2 additional trans=ission if,es just for the TU sys:e

reduces the savings of Mode 4 ove, Mode 13. Even using the sa=e assu=ptions and data, Mode 13 resul:s in a savings not a less as cr= pared to Mode 4 if only these reasonable changes and costs are included. The conclusions and cpinions of Mr. Brugge=an were based upen fuel costs and other estL=ates which are not in evidence and upon which there was no evidentiary predicate laid. Mr. 3rugge=an was not qualified to opine as a fuel exper:. Consequently, those conclusions were ad=1::ed in:o evidence only for :he fae: that he cade such cenclusions and not to the tru:h thereof. The opinions of Dr. Venders concerning the na:ure and extent of ce=pe:icion a=eng elec:ric utili:ies in Texas is based entirely upon the conclusiens of Mr. 3rugge=an (see R. 702(Wenders)] and upon the realiration of ne: savings in 8 " e eem_ 3 /4'% em.. e w* e= es w aime - ens ,=e

a Mode 4 configura:icn. Since Mr. Bruggenan's conclusiens have not been established by ec=pe:en: evidence for the truth thereof, the opiniens of Dr. Wenders do not suppor: their conclusicas. Indeed, the i=ple=entaticn of Mode 4 is likely to result in substantial not cost ra:her than any savings. Cascading blackouts can and do cecur en electric syste=s at a ti=a when the syste=s en " paper" appear reliable. The northeast blackout is an exa=ple of this. Elec:ric sys:e=s in Texas for= a peninsula and are capable of being inter:ennected with just ene other Reliabili:7 Council. Hu=an error i= pac:s the reliability of an elac:ric systa=, and the larger the interconnec:ed systa= bece=es, the = ore ec= plicated co==unica:icn a=rng systa= ce=bers and the chance for bu=an errer crea:ing a cascad.ing type blackcu: is grea:er. Frr= the tes:i=cny, the plaintiffs have not established tha: the in erconnection of TIS /ERCCT with S*J7P would be as reliable as the curren: in::astate opera:ics, or even a reliable network. Even ass" '"g tha: plain: ifs had preved a viola:1cn of the antitrust laws by defendants, there is no evidence that they are threatened with har= as a resul: of such viola:ica. Plaintiffs paren: holding ec=pany has not yet obtained approval fre= the SEC which would result in a synchrc=cus, interstate = ode of operation for the fcur C53 subsidiaries, in addi:icn, plain:1ffs have not even sub=icted plans fer interstate operaciens to the Texas FUC fcr approval. Under the lates: Mode 4 plans presented by C5W at the SEC, no savings would be realized by plain iffs until at least 1986, and under the evidence in the record, savings : hat far in the future are specula:ive a: best. Apart frc= Mode 4, plaintiffs have the option of intercennec:'ng wi:h S*J7P in a Mode 2 configura:ics which defendants do not oppose. Under these circu=scances plaintiffs have failed to prove threatened loss or da=4ge sufficien: to suppor: their clai= for per=anen: and injunctive relief. To su==arise, "(r)ecovery and damages under the anti: us: law is (sic) available to these who have been dirceciv injured ~* - - - - ~......,,, ...-..-..s..

by the lessening of co= petition and is withhold fro = those who seek the windfall of treble ds= ages because of incidental har=." Larry R. Ceorge Sales Co. v. Ccol attic Cors., F.2d ___,(5th Cir. 1973), p. 1993 et 1998 Ad. Sheet (e=phasis added) (Robinson-Pat =an Act case)- Here there is only an inci-dental, if any, effect on prices, and plaintiffs are not entitled to a windfall of injunctive relief because of incidental ha==. Vertical and Mortmental Restraints When this case was orignally filed in 1976, certain territorial restricticns were per se illegal under the Sher:an Act. United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967). "Under the Sher =an Act it is unraasonable without = ore for a =anufacturer to restrict and confine areas for persons with whc= an article =ay be traded after the =anufacturer has parted with do= inion over it, " Schwi.n at 379, but when a "=anufacturer retains title, do=inien end risk with respect to the product and the position and function of the dealer in question are in fact i= distinguishable frc= those of an agent er sales =an of the =anufacturer" then the rule of reason governs. Schwinn at 380. Per se rule applied in Schwinn to territorial restriction was overruled in Continental TV Inc. vs. CTI Svivania, 433 U.S.36 (1977), although the Court left the door slightly ajar for applying per se illegality to particular applications of vertical restricticus if they were based upon de=enstrable econc=1c effect, rather than Schwinn's for=alistic line drawing. Continental at 58. "(T)here are certain agree =ents or practices which because of their prejudicious effect on ec=petitica and lack of any redee=ing virtue are conclusively presu=ed to be unreasonable and therefore ille with elaborate inquiry as to the precise har= gal thev have caused or the business excuse for their use. _ Northern pacific Railway v. U.S., 356 U.S. 1, 5 (1958). Horicontal =arkets divisions, as opposed to the vertical restrictions discussed in Schwinn, and Centinental are per se illegal under the Sher =an Act. Ti= ken Roller Bearing Co. v3. U.S, 341 u,S, 593 (1951); Deucherev v. Centineneal oil Co., 579 7.2d 954 (5th Cir. 1978), and entities in a .w = -.

see=ingly ver:ical relacionship ::y be dee=ed capable of horizon al restrain:s if they are ac:uel or potential ce=petitors. Douthertv, suora. Horizontal agree =ents are those in which the par:icipants in the normal course of things will be ce=peting a=cng die =s elve s. 388 U.S. 352, 359. As stated in United States

v. Tocco A'ssociates, Inc. 405 U.S. 596 (1972) 1: is a per se violation of $ 1 of tne 3her=an Act when there is an agree =ent between ec=petitors of the sa=e level of the =arket s:ructure to allocate territories in order to =ini=ize cc= peti:icn, or, a horizontal restraint.

Again, I =ust consider whe:her or not plaintifs and defendants are co=petitors, and I reach the sa=e conclusien: for purposes of 5 1, and hori:en:al res::ain:s, they are not, and therefore the per se approach should not apply, bu: rather the rule of reasca analysis. In addi: ion, I cannot ses any way that the plaintiffs can argue that the defendants have allocated territories in order to =ini=1:e co= petition. The PUC in Texas allocates geographic territories for the electrical market in Texas, and d ile defendan:s have so=e influence in the PUC as do the plaintiffs, they have no open centrol over those decisions. For this reason also, I do not see how this is a horizontal restraint case. Plaintiffs have ci:ed a recen: Fifth Circui case involving electric utilities as au:hori:y for per se treac=ent. Cainesville Utilities Dept. of 71erida ? ver & Lich Co., 573 F.2d 292 (5th Cir. 1978). In cainesville, unlike the factual circu=s:ancas in this case, the plaintiffs were able to show opper: unities for one utility to " invade" the service territory of another utility, a history of consul:ation be:veen evo neighboring utilicle3 and the alloca:1on of new wholesale cus:o=ars between utilities as requests for service arose. In Cainesville there _was an agree =ent to allocate cus:: ers which was obviously antico:petitive in effec: and inten:; no st=ilar agree =en: exists in this case. If this is a vertical restrain: case, and I a= not sure that it is.*(the Fif:h Circui:_hss fcund it difficul: 2. ~ ---

cn occasions, (see Dourkarev, nuort) to deter =ine which pigsenhole the fac:s in this case belong) it would be governsd by :he rule of reason. Rule of Reasen Justice Brandeis articulated the basis for the so-called " rule of reason" test in the Sher:an Ac cases in Chicago Board of Trade v. "ni:ed States, 246 U.S. 231, 238 (1913). "The true test of legali:7 is whether the restraint i= posed is such as =erely regulates and perhaps thereby pro =otes cc= petition or whether it is such as =ay suppress and even destroy co= peti: ion. To deter =ine the ques:1on the cour: =ust originally consider the fac:s peculiar to the business to which the res:: sinc is applied; its condition before and af:e; the restraint was i= posed; the nature of the restraint and its effec:, ac:ual or probable; the history of the restrain:, the evil believed to exis:, the reason for adopting the par:icular re=edy, the purpose or end scught to be attained, are all relevant facts. This is not because a good intantien will save an otherwise objec:icnable regula:icn or the reverse; but because knculedge of the in:ent =ay help the cour: to in:erpre: facts and to prevent consequences." The rule of reasen does not per=1: the cour: to consider any argu=ent in favor of a challenged rastrain: tha: could be labeled reasonable; ra: hor the cour: =us: focus en the challenged restraints i= pact on co= peti:ive condi:icns. National Society of Professional Engineers v. U.S., ___U.S. (1978). The tes: prescribed by the Supre=a Cour: in Standard 011 v. United State. 221 U.S.1 (1310) is that the challenged contrac:s 'or acts =ay be unreasonable if that determination is based either en the nature or the character of the contracts or the surrounding circu=s:ances giving rise to the inference or presu=ption that they were intended :o restrain trade and enhance prices. National Society, supra. Again, the intent or purpose of :he contract =ust be considered when the cour: decides whether or not a Sher =an Act violation has occurred. Standard oil a: 58; Chicago Board, at 238; National Societ7 The key inquiry, hewever, is whether or not the challenged agree =en: (if ene is found) =erely regulates and pro =otes co=peticion or suppresses it. National Societv. _sup ra. Absent an:ico=pe:icive effect, an unlawful intent will not establish a rule of reason violatica, nor will the use of unfair =echods of cr=pe:ition. H&3.E:ui:=cn: Co.Inc.

v. International Harvester, 577 T.2d 239 (5:h Cir. 1978).

52 - ~ ~... - - -. -

As of ILy 4, 1976, 'efendants had been advised ths: COW was going to integrate its four subsidiaries to avoid legal proble=s at the SEC. CSW had clearly threatened to ske action against defendan:s to force the= to participate in CSW's sche =e :o integrate 1:s sys:es. When defendan s learned of the radial tie into Ckiahc=a, and :he legal actions associa:ed therewith, it is clear they had to either disconnect or surrender to CSW's plan of coercion. Defendants have established a long history of ext =ina icn of the g:estien of the benefits of in:erconnection with SWPP, and they have always concluded that they were be::er cff operating in their intrascate =cde. Defendan s concluded early in 1976 that the PT! repor: provided absolu:ely no ti:is for a change in their view. The PT: report, which was the only study given defendants before May 4,1976, does not even address the benefits or costs for non-CSW syste=s resulting frc= the proposed in:ercennection. Accordingly, as of May 4,1976, Defendants had to basis upon which to change their prier convictions that in:erconnection vi:h SWPP would degrade their reliabiliry and would i= pose substantial costs upon their custe=ers vi-A no resul:an: benefi:s. As of the ti=e of this trial, defendants have axhibited willingness to centinue their past his:ory of examining the costs and benefi:s associated with inters: ate ccnnection with SWPP. Defendants have shown a reasonable belief :ha: in:erconnection with SWPP would not be econc=ical and would degrade their reliability. Plaintiffs have presen:ed no evidence showing tha: defendants would benefi: frc= the interconneccion, other than seme rank speculation by Mr. Arey abou: :he ability to sell se=e power to SWPP. Mr. Aray conceded, hcwever, thac 1: is not the nor=al indus:ry prac:i:e to build intercennections to =ake such cpper: uni:y sales. There is absolutely no evidence suggesting tha: the c:=panies in SWPP would desire interconnec:ica or vould desire :o purchase any such power. The only c:her po:en:ial benefi: fres interconnection, a reduction in reserve capaci:y, would not be econe=ically prac:ieal according to Dr. Wood. Ohggg ',Ng" 4M " * $ ,g9g )

• "O*

N* -***ee6e66

Plaintiffs the=selves conceded tha: TIS is cne of :he cost reliable intercennected syste:s in the Uni:ed S:stes. In addition, plaintiffs' exper:, Mr. Arey, ad=1::cd tha: T13 was a reliable system and thac there was no need for intercennec:icn with SWPP from a reliability standpoint. Defendants have shown that TIS has an outstanding record of success in responding to e=argencies, and they believe tha: their method of operation accoun:s for the high reliability of TIS. Interconnection with EWPP would necessarily al:er this =ethod of operation and thus lead to degradacica in reliabill:y. Defendants also believe that interconnectica with SWPP would greatly ce=plicate canage=ent and ce==unication proble=s within the interconnected group. Mr. Aray ad=1::ed tha: the =ost recent blackcut of New York Ci:y was attributable in part to such ec=:.:nication proble=s. None of the voluninous reliability studies condue:ed by plain:iffs addressed :hese cencerns voiced by the defendants. As of May 4,1976, defendants had reasen :o believe that interconnectica with S*4PP would degrade their reliability and increase their cost of operatien wi:h no significan: offsetting benefits. Plaintiffs had presented them with absolutely no evidence to the centrary as of tha: date. Notwithstanding this fact, Hl.P was still evaluating the quercien of whether 1: would par:icipate in an interconnecticn with TIS and SWPP. "hus, when HI.? learned of the rJ.dnigh: viring, i: elected to discosaac: in order to preserve for itself the right to =ake unilateral decisions as to the desirability of such innercennections. Both defendants were concerned that the FPC might take steps to order the innerconnection of TIS and SVPP over the objecticn of defendan:s in light of the long history of effer:s by the FPC to bring abcut auch an intercennection despi:e the oppositicn of defenden:s and the other ce=bers of TIS. Defendan:s believe they are Pursuing the best course of action for their custc=ers and had no anticonpetitive intent or purpose in disecnnecting from plaintiffs. I also believe frc= the cesci=eny presen:ed et the trial that defendants are pursuing the bes: course of action for their custo=ers. ~.---_,n,,,, .a ~

~ anere is absolu:aly no evidence of any prior agree =e.nc by defendants to discennect frc= any ne=ber of TIS which co==enced interstate opera: ions. Mr. Jordan, president and chief execu:ivo officer of KLP, tes:ified that as of May 4, 1976, he had never even talked w1:h anycre frc= TU er 1:s subsidiaries about the issue of intrastate operaciens. In fact, if there had been a prior agree =en: to disconnect between defendants, there would have been no need for then to have disconnected frc= each other. The absence of any preexisting agree =en: to discennect is further confir=ed by the ex: ended negotiations that were required before defendants restored their inter:cnnec:icus on May 10, 1976. The evidence clearly establishes that at the ti=a TIS was for=ed, all of its =e=bers were ce==1::ed to the preposition tha: it was in their =u:ual bes: in:eres to operate en an intrastate basis. Nonetheless, if any - -ker of TIS chose to withd:rw frc= TIS, i: was free to do so. The other = embers were to be given notice of such a decisien and were to be given a= opportunity :o decide for the=selves whether they would go interstate as well or re=ain in rastate. Civen the defendan s reasonable oppositien to interconnec:icn with S* PP and threats by CS*4 to force both of them in:o such an interconnectica, it is no: surprising that they both elected to disconnece frc= plaintiffs on May 4, 1976. Defendants ac:ed unilaterally and :cok the only course of action open :o them if they were to avoid the adverse effects of Laterscate operatiens. I think it is clear fro = the evidence tha: there was no antico=peci:ive effect by the alleged actions of the defendants and therefore no violatica of f 1. In addition, again I =us: look to the ce=peci: ion between plaintiffs and defendants, and again, for the reasens sta:ed before, I find it non-exis:en: or de =ini=is. Finally, censidering the purpose of defendants to avoid TPC jurisdictica and the reason for adopting the in:rastate node to avoid TPC jurisdic: ion, as well as =y belief :ha: the effec: of defet ! ants' actions on the plain:iffs is ce ..a n .- s o -ee. ~~. -ey ' = = =

highly speculative and questionable. I believe plaintiff: have failed to show a violation of $ 1 of the Sherman Act under the rule of reason. Por the reasons se: forth above, and in the appendix, I find no violation of $ 1 of the Sher =an Act and I deny plaintiffs' request for injunctive relief. ELP's Counterclais HLP, CPL, City of Austin and the City of San Antonio are all participants in the construction of a nuclear power and generation facility known as the South Texas Proj ect. The South Texas Project (STP) involves the ccustructie.n and operation of two 1250 =egava : nuclear generating sca:icns in Matagorda Coun:y, Texas. The participants all signed a docu=ent, executed as of July 1st, 1973, known as the participation agree =ent, which HLP aller,es tha: CPL breached. The esti= aced cost of the project exceeds one billion dollars. HLP alleges that CPL, under pressure fres CSW, breached 5 8.2 of the South Texas Participatien Agreement, which provides : "8.2. Each participan: shall' design, construe:, own, operate and =aintain the ::ansmission facilities necessary to connec its system to the South Texas project switch yard, with :he objective of per=1::ing each participant to trans=1: under nor=al operating conditions its generation enti:le=snt share frc= units of the South Texas Project to assist in a manner which will not unreasonably affect the . operation of electric systa=s of the other par:1-cipants or the interconnected systas of others..." (HLP Ex. d118) CPL's partiespacion in the May 4, 1976 inters: ace interconnection, plus the Augus: 27, 1976 co==ence=ent of CPL /WTU operation in synchronis with the Southwest Pcwer Pool allegedly created a situation in which the South Texas project could not be planned, constructed or operated as originally conce= plated. If CPL establishes in:arstate intercennections and/or operates in synchrenis= with the Southwest Power Pool, ELP alleges in its cceplain: that it would incur enor:cus expense in redesigning and recons true:ing its en:1re trans=1ssion system in order to operate in a synchronous AC mode or, by the constructicn of a direct current (DC) interconnec: which would allow any entity e. .--.s...---...

operatin;; in synchronis: with the Sou:hwes: Power Pool to re=ove its power en:itle:ent frc;2 the South Texas Project by direct rather than alternating current. These costs allegedly to over one billion dollars and li~? asks for recovery a=cun: of this sus plus en:ry of a per:anent injunction ce==anding C7L, m and CSW to refrain frc= taking any ac:1cn which would require any participant in the Sou:h Texas Projec: to trans=1: its power and entitle =ent under abnor=al operating condi: ions in a =anner which would unreasonably affect the operation of the electric syste=s of the various par:icipants in the South Texas Project or the other interconnected syste=s of others. At the time the STP participatica agree =ent was signed, it was not cente= plated tha: any participant in S ? would unilaterally co==ence synchrencus operatica with syste=s outside of the TIS while re=aining a -=-ker of TIS. In August, 1976, CPL and WTU ce=enced synchreneus opera: ton with SWFP, and on Dece=ber 14, 1976, CSW advised the SIC tha: it was going to =ake per=anent the synchronous interconnection of its four subsidiaries. Evidence presented in this record indicates tha: this synchronous cperatica created substan:ial operating probla=s for plaintiffs until it was ter=inated by CSW in January,1977, follovirg the filing of HLP's countercla1=. The evidence is undisputed that had C7L continued to operate in this canner, both C71. and ELP could not have both obtained their power frc= S!? absent a physical separatica of the two plants with the installatien of DC trans=1ssion equip =ent, neither of which have been planned for at this ti=e. The :esti=:ny is also undisputed : hat had CSW and C?L infor=ed liLP chat it wished to operate in interstate ce=arce when the projec: was originally conceived, it would have been possible to design the STP in a different canner so that CPL and it.?/ TIS could both ge: pcver frc= STP without there being a connec: ion between the two systems. While CSW is now constrained by the :er=s of the orders of the Teaas Public U:ility Co ission, CSW is nenetheless c- '::ed to the establishment of snychronous ties between 1:s fcur cc=panies, notwithstanding the fac: that C7L is still participating in ST?. This proble= is ce= pounded by the fact that CFL and '-TJ are re- !" ' ~., e - s. s.......,,.~. e w..<. n-u.- eu.,.,.. o~,e4e, -......_....n.,...-..

that they will bs operating en a synchronous basis with their affiliates in SWFP. CSU has de=enst::ced a pas history of causing precipita:e operating ch nges a=eng i:s subsidiaries despite the proble=s created by auch changes and withou: any prior study of the anticipated effec:. HLP has also shown that if CSW was able to force its ~ =ods 4 plan of operation on the STP participants, and the syste=s with whc= they are incarcocnec:ed, this = ode of operation will unreasonably interfere with the operation of 1:s electric systa=. First, the incerconnec:ica =ay require an upgrading of exis:ing crans=issica lines because of the addi ional ficvs that will ec=e into HL?'s syste= in the event of an e=ergency. Second, to the extent existing lines are adequate for the power flows under =cde 4, the capaci:7. of these lines will be used by CSW for their proposed transfers and as a backup in e=ergencies within the pruposed CSW powerpool. The net effec:, therefore, is :o use capaci:y planned by HL? and other syste=s for their use in trans=itting power frc= STP and other plan:s en their systa=s. Since che TIS trans=ission sys:e= is not presen:ly designed to act in synchronis= with SWFP, it could not have been conte =placed that CFL would unilacerally bring abcut -Je kind of drastic operating changes in TIS that necessarily would foew f c= any for= of synchronous interconnection with SW7P as long as CPT. re=ained a =e=ber of STP. This is a clear cut exa=ple of action by cne par:1cipan: which wculd interfere with the electric systa=s of the other participants in the syste=s with-which they are presently connected. I find tha: CSW and CFL's ce==1:=ent to the es:ablish=ent of synchroncus operation between WTU, C?L, 7S0 and SWI? viola:es Fa 2 of the South Texas Participation Agree =en: because that ec:=itsent is an " objective" which will "unreascnably affec: the operacion of elec:ric systems of other participants", specifically KLP. While C?L/CSW's cperation in synchroni:= will no: affect the participan:'s abili:y to get electrici:y un:ti the ST? ectually begins operacica (L: is still under construction). EL? need not wait for fission before seeking an injunction prohibt:ing

l and those incurred by the parties in the related SIC, NRC, PUC, 5 etc. hearings, in any rate request by these cc=panies. It is so Ordered. UllITED STATES DISTRICT '.IUDGE $Wm 5) m f g Date Y. 60

- - - - ~ - - APPE'O!X A ADDITIC::AL FI:'DI;CS OF FACT A:Q CC:;CLUSIZ:S OF LW Findines of Fae: l. Ints Laurt specifically finds tha: the s:ste=ents at trial by execu:1vec of TU, TOSCO, DFL and ELP that they have not agreed w1:h each other to refuse in:erconnections which =ight result in FPC jurisdiction are crodible in ligh: of all the facts in the case, and are en:1: led to great 'veight. 2. The South Texas Project (S!?) nuclear generating station.a project co-owned by ELP, C?L, Ci:y of Austin and City of San Antonio, was planned and is currently being constructed on the understanding between the co-owners that participation in the ownership of the project was conditioned upon each participant cenfining 1:s cpera: ions (or a: leas: the transmission of the elec:::ci:y fro = ST?) to the incrastate trans=ission of elec:ricity, solely within the State of Texas. 3. None of the parties voiced objection to this procedure (see Tinding of Fact #2) a: the time construe: ion was planned or begun on the STP: if they had, the proj ect could have been designed so that those parties wishing to re=ain in intrasta:e co==erce could do so and still get their power frc= STP, while chose insisting upon in:erstate operation could receive their power. 4 The generation facilities of the ST? cannot, ac :he current stage of ccustrue:1on, be converted :o produce two types of electricity (intrasca:e and in:ars:ste); any regulacion of the character of the electricity =ust occur when the power leaves the ST?. 5. There is no ec= petition a=ong electric utilities in Texas or only de =ini=us co= peti: ion to at::act indus: rial custe=ars to locate plants or facili:1es in Texas electric utilities' service areas. 6. There is no co= petition a=ong elec:ric utili:ies in Texas or only de mini =us ce= peti: ion to attract wholesale sales and purchases. 7. If plaintiffs are unable to retain their intercennec: ions With defendants once plaintiffs begin to engage in ec=pletely interconnectod. centrally dispatched operation w1:h PSO and SWE?, plaintiffs =ight incur increased fuel costs but the evidence on this point is highly sptculative as is the a=ount of other increased cos:s plaintiffs =ight incur.

8. CFL has threatened breach of the STP and unless restrained will do so when the project is ce=plete by cen-necting in interstate ce=nerce while continuing to receive power fran the ST?, thus putting all of the participants in the STP involuntarily into inters: ace ce==arce.

9. Plaintiffs have failed to prove facts which could be the basis of an injunction against the defendancs. 10. There is no subs:antial evidence of c =peci: ion between defendan:s and plaintiffs in the follcwing ca:egories of so-called =arkets: franchise co=peci:icn. interfuel ec=pe:1:icn, 61 i l

c :1f ;eneration ce=patition, tholesale co=pe:ition, retail ce= peti-* en or retail co= petition for new indus trial cus to=er:.

11. Plaintiffs failed to define the si:c, scope and geogrpphie.

li=its of cny of their alleged relevan: =srkets. 12. Plaintiffs failed to prove or even asser: that Defendan:s were =otivated by antico=petitive in:ent or purpose in deciding to disconnec: fro = Plaintiffs on May 4, 1976 and thereby peeserve the right to decide for the=selves whether to ce==ence interstate operations.

13., Plaintiffs failed to prove injury to co= petition as opposed to the highly speculative possibili:7 of injury to themselves as "co=petitors".

14. In ter=s of threatened future har=, Plaintiffs' econc=ic studies failed to de=enstrate any significant co=petitive injury resulting frc= Defe_idants' alleged anti-trust violations.

15. Since August 26, 1935 TESCO, TFL, D7L, EL? and others have independently pursued a policy of re=aining in intrastate co==arce, not subject to FFC control.

16. UTU's provision of electric service to custa=s:s located in the towns of Davidson, Frederick and Tipton, Oklahc=a on May 4,1976 and thereafter affee:ed the reliability that ELP, TPL, TESCO and DFL were able to provide to their respective custo=srs.

17. There is no evidence that the disconnection by each of the TU ce=panies was the product of an agree =ent to disconnec.

Indeed, all the evidence is that they did not have an agree = ant to disconnect in the event of interstate operation by any systa= connected with the=.

18. The TU co=panies, while not severing connections with each other en May 4,1976, did not do so in reliance upon any

=utual understanding or agree =ent that each of the TU co=panies would operate only in intrastate co=_arce.

19. The electric utility industry in the United States currently consists of three seperate interconnected groups:

ERCCT, with a peak load of approxi=ataly 30,000 = egawa:::s; the utili:ies generally west of the Rocky Mountains, wi:h a peak load of approx 1=mtely 70,000 =egawatts and the u:ill:1es other than ERCCT =a=bers, generally east of the Rocky Moun:ains with a peak load of approxi=ately 300,000 =egavates.

20. Any conclusion of law which is deemed to be a finding of fact is hereby adopted as such.

Conclusions of Law

1. This court has jurisdie:icn of the par:ies and of the subject =atter of this suit.

2. Although Plain:iffs and Defendants are not "jurisdic: tonal" (being intrastata utilities) and not subject to F?C/TERC regulatier..

the Sher =an Act il "jurisdic:icn" ex: ends to conduct which his or could likely have a substantial effect on in:ers:ste ec==er:8 Ie:ints; ve= ens Hesi:5 center v. Mehs==ad, 536 F.2d 530.539 (5 th Cir.1978), and for purposes of jurisdiccion the actions of 62 .,.--.w,--.----..

1_______. Defer.dants could have o subatential effect on interstate co==orce.

3. Venue is proper in this district.

4. The deter =ination of TESCO cnd EL? to avoid the consequences of fedsral regulation does not constitute an unreasonable aestraint of trade or an unlawful boycott in violation of the Sher =an Act.

5. TESCO and ELP each have a right to restrict their operations to the State of Texas where they reasonably and in good faith believe that auch operacion is in the best

!.ntercats of TESCO or ELP and in the best interests of their custo=ars.

6. The interconnection agree =enca between TESCb and 'JT" do not constitute an unlawful conspiracy, combination or agree =ent in restraint of trade or an unlawful boycott in violation of the Sher..an Act.

7. The interconnection agree =ent between TPL and ELP does not constitute an unlawful conspiracy, co=biration or agree =ent in restraint of trade or an unlawful boycott in violation of the Eher=an Act.

8. The TIS agree =ent and the ERCOT agree =ent do not constitute an unlawful conspiracy, co=bination or agree =ent in restraint of trade or an unlawful boycott in violation of the Sher =an 2

Act.

9. The existence of cooperation and coordination a=cng the electric utility systa=s of TIS and IRCOT operating interconnected and in electrical synchronism with each other solely within the state of Texas does not constitute an unlawful conspiracy, co=bination or agree =ent in restraint of trade in violation of the Sher =an Act,

10. TPL, DPL and TESCO did not conspire in any =anner to violace the antitrust. laws, specifically $1 of the Sher =an Act.

11. TFL, DPL, and TESCO did not violate the Sher =an Act $1 when they disconnected from the Plaintiffs following the May 4, 1976 midnight wiring.

12. Defendants' actions on May 4,1976 and following were reasonable when viewed in light of the intent and =ocivation of Plaintiffs' parent corporation, the lack of any business purpose for the midnight wiring, the threats of force previously and consistently =ade by CSM and the Defendants' desire to re=ain in intrastate ce==erce, or to at least =ake a voluntary decision to enter interstate co==erce.

13. The Public Utility Regulatory Policies Act of 1973 adds a new Section 210 to the Federal Power Act which gives TERC the authority to order en otherwise intrastate electric utility to interconnect with another electric utility where such interconnection with another electric utility is in the public interest and where the Lnterconnection would encourrge the overall conservation of energy or capital, opti=1:e the 63 - ~~- ~~

=----.---

overall efficiency of use of facilities and resources, or _... i= prove the reliability of any olcetric utility, 14. It would not be in the public interes to force the Defendsnes to interconnect in intersts:e co=nerce. 15. It would not encoursge the overall censarvat*cn of energy or capital to force the Defendants to interconnect in interstate coc=srce.

16. It would not optimi:e the overall efficiency of the use of facilities and resources to force the Defendants to interconnect in interstate cor_arce.

17. It would not i= prove the reliability of any elec:ric utility to force the Defendants to interconnset in interstsee co==arce, and would, in fact, decrease the reliability of the Defendants.

18. Any contractual prohibitions agsinst interstate sales centained in the contracts =ade between the parties regarding, for exa=ple, sales of eeeno=y power, etc., are not void or voidable, and are not per se or unreasenable violations of the Sher =an An:itrust Act 51; they are reasonable restrictions.

19. The acti:ns of the Defendants do not run counter to the public policy declared in the Sher =an and Cisyton Acts.

20. The actions of the Defendants do not cons:itute unfair cathods of ce= petition.

21. The intrastate agree =ents and Defendants' se ions do not foreclose a significant scount of potential ce= petition.

22. The intrastate agree =ents and Defendants' actions do not create or caintain a situation inconsistent with the antitrust laws and do not significantly affect the parties' activities under the antitrust laws.

23. Defendants' atte= pts to petition the FUC, F7C, this court and other govern = ental bodies to preserve the current intrastate status of Defendan:s were and are genuine atte= pts to influence public officials to take governnental ac:icn and were not =erely a sha= to cover up an a::e=pt to directly interfere with the business relationships of Flaintiffs.

24. Defendants' atte= pts to petition the FCC, TFC, this court and other govern = ental befies to preserve the current intrastate status of Defendants were and are protected by the First A=end=ent. California Macer Tranner: Co.

v. T.:ckim Unlimited, 404 U.S. 508 (1972); United Mine Workers v.

Per.nie r t en, 381 U.S. 657 (1965); Eastern Railroad Presidenc's Conference v. Foerr Pbror Freight Inc., 365 U.S. 127 (1961).

25. There is no evidence that Defendants' petitioning acticities 64

in requesting the PUO, FPC, this court and other Covern= ental bodies to preserve the current intrascato status of the Def:ndants was a " sham". 26 Pleintifts are not entitled to injunctive relief under 516 of the Clayton Act for the purpose of per=anently restriihing the Defendanta from enforcing any written er orel contract:bl provision prohibiting the flav of electricity / electric energy in interstata co==sree, and are not entitled to ir.junctive relief per=anently restraining Defendants from disconnecting their syste=a from, or refusing to inter-connect their systa=s with.*, those of Plaintiffs.

27..CML has anticipatorily breached and CCJ' has caused CFL to anticipatorily breach the STP Agree =ent.

28. CFL has not yet breached the E!? Agree =ent because the Project is not ce=plete and no power is currently being generated or transmitted from that facility.

29. CFL is hereby per=anently restrained from per=itting power it ra:cives from the STP to enter interstate ce==arce as 1cng as C7L re=ains a participant in' the STP agreecent and as long as that Agreement re= sins in force.

30. Plaintiffs have not established irreparable injury to co= petition, an unlawful restraint of trade, a conspiracy in restraint of trade o* an unlawful boycott at any ti=e from 1935 to the present and are therefore not entitled to injunctive relief.

31. Any finding of fact which is deemed to be a conclusion of law is hereby adopted as such.

65 .e y. .. - am a= - ?.

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APPC: DIX C Tlia emp, below, is a core accurreto depiction of the geographte service territories of k*est Texas Utt11 ties and Texas Electric :;orvice Ca=;cny, :;howine. also the areas served by both TESCO and b U. (TEsco 9305) ur .c M; i,...... ., ~[ 7-gg 3.- i ' ' --f' ' ". ~ l i Mi. i ' --{, ~~~ c-I ~[ ..s e =o g. %. E EilO .. r '. -

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APTEIC t* D The =sp, belew, shows the current interrc:;ional interconnecti:ns ~~ in the Unitcd States. Each region is c=nnected to et least two other regions and has at least 13 interconnectices in the ' group of ir:terconnected regions (e:cluding EP. COT and *? SCC).. ERCOT could only be connected to the South est Power Pool (only cne region), ar.d this would adver:ely affect the reliability of ERCCT becau:e it would beco=e an isolated " peninsula". All of these regions =ake up the !Istional Energy Reliability Council (!!ERC). The regions are: !T?CC (??ortheast Power Coerdinating Council); mAC (Middle Atlantic Area Reliability Council); SERC (Southeast Reliability Council); ECAR (Eastern Central Area Reliabilly Council); MAUT (Mid-A= erica Interpool !!stverk); SPP (Southwest Power Pool); mKCA (Mid-Continent Reliability Coordination Agree =ent); ERCOT (Electric Reliability Council of Texas); and USCC (Western Systa=s Coordinating Council). The nu=hers within the circles on the diagra=/=ap indicate the nu=ber of interconnections between the regions. (~ESCO v307) !2 g =. -9 I! O 't W E! sg i u = -Gr-0 E-8 l$j 2 g =g -W ,il Es in e I81 "a n = = u S< 0 'Z lII 9 Ei 8 as W $W i.s .= S e W

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.r "ooensees 1. Definition of terns used in this opinion:

• bulk trans,ission svsta -! higher voltage and higher capacity lines tying together power plants sad serving =ajor loads going to interconnecticas closed connection: switch is closed and power can flow over the interconnection between the two syste=s distribution line: series local loads penerstion: the production of electricity intristate: electric utilities operating in such a c=anet that electric energy does not cross state lines interstere: electric utilities operating in such a =anner that electric energy is either transmitted or received across state lines coen interconnection: switch at the intercennection is open witn no power or energy being able to flow over the interconnectica persliet overstien: virtually the same as synchronous opersti:n radial line: " single feed"--one electric line to a coun; tvo transmissien lines to a town would be " dual feed" reserve: two types of electric energy reserve

~~ spinnine raserve--reserve that a utility has e s line a t any ti=a enreciev reser-re--total generation of the capacity of the utility syste: less expected peak demand (the ta x * ~ scount of energy de=and on the syste= during the year),or reserve above the pe'ak de=and of generation svnehronous oeerstion: =aans two or more electric utilities systa=s interconnected with the generators operating in synchronis: with each other trans=ission line: series bulk power supply 2 Definitions of abbreviations used in this opinion: "CSW": Central and South West Corporation "CFL": Central Power and Light Cc=pany "WTU": West Texas Utilities Cc=cany "Pso" Public Serve Cc=cany of Oklaho=a "SWE PC0" or "S' Ip": Southwestern Electric Power Cc=pany "TU": Texas Utilities Cc=pany E": Callas Power and Light Co=pany "TESC0": Texas Electric Service Cc=pany T PL" : Texas Power and ight Cc=pany 70 ...,, _..,~. ev =: ----e~'

4 "HTJ": Houston Li;;hting and Pouce Co=pany WI: Texas Interconnected Systo s 'ERCCT": Electric Reliability C:uncil of Texas "s ;PP" or "5?P": C:sthwest Power Pool "FFC": Federal Power Co=ission "FERC": Federal Ener;;/ Regula tory Cc=ission "FUC": Texas Public Utility Co=ission "SEC': Securities and Exchange Co=iission "CPSB": City Public Service Board of San Antonio, Texas "A USTI'T": City o f Aus tin, Texa s "Lc2A": Lower Colorado River Authority "TMPA": Texas M.tnicipal Power Agency 3 The PUC has defer ed a ruling on issues si=ilar to the issues presented in this case pending a ruling by this court on the =eries of this suit. I therefore think it appropriate to co=snt on these attorneys fees, even though I cannot award attorneys fees, since the FCC will be relying on this court's view of the evidence. 4 This finding is li=ited only to this discussion concerning the propriety of passing through these legal expenses to the public in the rate st:. secure. 5 The Defendants may have a valid argn=ent that they shculd be able to pass through their costs to the public because they did noc institute this litigatien, and were forced to defend it. 71 ~.. --. v ..... -.. -..--}}