ML19289D202
| ML19289D202 | |
| Person / Time | |
|---|---|
| Site: | South Texas  |
| Issue date: | 02/02/1979 |
| From: | Franklin W LOWENSTEIN, NEWMAN, REIS, AXELRAD & TOLL |
| To: | Glaser M, Mark Miller, Wolfe S Atomic Safety and Licensing Board Panel |
| Shared Package | |
| ML19289D203 | List: |
| References | |
| NUDOCS 7902260582 | |
| Download: ML19289D202 (5) | |
Text
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And yet, this is the study .with all of its weaknesses (including the fact that the PTI study became outmoded to ! some extent with the inclusion in the study of generation based primarily on coal resources which had not been contracted for), that the CSW Board used to base its decision to enter interstate operations and upon which it based its conclusion that an antitrust case should be filed in this court because plaintiffs were being boycotted by defendants, and this would have a terrible i= pact upon the price of plaintiffs' electricity in the future. I recognize, as I think counsel for plaintiffs pointed out during the testimony, that just because the initial figures were wrong and that new, more accurate figures are provided, that that fact alone does not negate the existence of an antitrust violation. But in this case I think it clearly goes to the credibility of.the plaintiffs' case--an apparently hasty decision.was made on ince=plete data, which included some broad brush studies of transmission, and no reliability studies. If plaintiffs were seriously concerned about procuring the alleged savings and pursuing the =ost economical mode for CSN, their actions would seem, at best, - hasty, and the fact that those decisions were hasty and were apparently primarily motivated by the SEC proceedings and
preservation of the holding company, rather than by concern over antitrust violations, makes me seriously question the correctness of the PTI study and all studies thereafter as they relate to this litigation. That skepticism is hightened by my recollection of the testimony, and review of it over the past few weeks, because serious holes and erroneous assumptions were built into the various studies and restudles of the economics of the situation. Another of plaintiffs' witnesses, Mr. Bruggeman, attempted to update Dr. Wood's work in studies completed after the trial of this lawsuit had begun. These CSW plans, proposed without Dr. Wood's assistance, projected for a twenty year period, with losses for the first ten years of the study. There was no evidence that CSW had any fuel resources for O O
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p generators for the second ten years of the study period, and there was no competent evidence upon which Mr. Bruggeman could , rely in projecting the fuel cost for plants 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 almost entirely on , hearsay, were not even admitted in evidence for the truth of the infornation they contain. Nevertheless, in reliance on its studies, Mr. Bruggeman sought to make an arbitrary allocatica of the savings to show the possibility that plaintiffs would share in them, even though he was not qualified as an expert on allocation of savings within a power pool. That allocation depends on future decisions by regulatory authorities, so there is no basis for determination on this record that plaintiffs will share in any portion of the savings attributable to Mode 4. Any savings pr ,ected without any co=petent evidence with respect to cost are purely conjectural and speculative. CSW has apparently decided to"i=ple=ent the generation p'ans proposed by Mr. Bruggeman's study, (R.2332-33(Bruggeman)] , and has apparently abandoned the PTI and other generation plans. [R.2404(Bruggeman)]. Mr. Bruggeman assembled new
generation plans which were co=pleted after two weeks of trial. I might add, in passing, that I had no real idea, most of the time, what Mr. Brugge=an was talking about, and after rareading his testimony, I still find it very confusing
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and not any more enlightening. I think the plaintiffs had a duty to present the evidence to the court in a comprehensible form--I don't know too many judges that are electrical engineers or system planners, and when it case to Mr. Bruggenan, the plaintiffs failed in that respect. I found Mr. Scarth's testimony the most enlightening of all, and, despite plaintiffs' cross examination, I believe his exhibits and testimony about Brugge=an's figures showing alleged savings to CSW, and not Bruggeman's testi=cny, at least what I understood Bruggeman to say.
i _S 8 The Bruggeman studies which were completed after this . trial began were illogical and biased in favor of Mode 4 as = compared with Mode 13: (a) Bruggeman's Mode IB generation plan assumes three more expensive 400 megawatt coal units at Lake Diversion and two less expensive 640 megawatt coal units at Lake Diversion in Mode Four. The same assumption in both modes reduces the alleged savings of Mode 4 over Mode 13; (b) Bruggeman's studies do not include off-system opportunity sales even though PSO has historically had extensive off-system opportunity salens. Off-system sales reduced the alleged savings of Mode 4 over Mode 1B; (c) Bruggeman's studies do not include ar.y charge for rheeling even though such costs will be required for the massive amounts of power proposed to move over transmission . lines of the TU companies and other non-CSW companies. The inclusion for wheeling costs reduces the alleged savings of Mode 4 over Mode 13; (d) Bruggeman's studies do not include a charge for line losses or other essential transmission lines for non-CSW companies. The inclusion of costs for line losses and mini =um additional transmission lines just for the TU system reduces the savings of Mode ' over Mode 13. Even using the same assumptions and data Mode 13 - la 4
a savings not a loss as compared to Mode 4 if only these reasonable changes and costs are included. The conclusions and opinions of Mr Bruggeman were based upon fuel costs and other estimates which are not in evidence and upon which there was no evidentiary predicate laid. Mr. Bruggeman was not qualified to opine as a fuel expert. Consequentiy, those unclusions were admitted into evidence only for the fact that he made such conclusions and not to the truth thereof. The opinions of Dr. Wenders,concerning the nature and extent of competition among electric utilities in Texas is based entirely upon the conclusions of Mr. Bruggeman (see R.2702(Wenders)] and upon the realization of net savings in
81 l i a Mode 4 configuration. Since Mr. Brugge=an's conclusions s have not been established by comper.ent evidence for the truth thereof, the opinions of Dr. Wenders do not support their conclusions. Indeed, the implementation of Mode 4 is likely to result in substantial net cost rather than any savings. Cascading blackouts can and do occur on electric systtus at a time when the systems on " paper" appear reliable. The
. ncrtheast blackout is an example of this. Electric systers in' Texas form a peninsula and are capable of being interconnected with just one other Reliability Council. Human error impacts the reliability of an electric system, and the larger the interconnected system becomes, the more co= plicated coc=unication among system members and the chance for hu=an error creating a cascading type blackout is greater. From the testimony, the plaintiffs have not established that the interconnection of TIS /ERCOT with SWPP would be as reliable as the current intrastate operation, or even a reliable network.
Even assuming that plaintifs had proved a violation of the antitrust laws by defendants, there is no evidence that they are threatened with harm as a result of such violation. Plaintiffs parent holding company has not yet obtained approval from the SEC which would result in a synchronous,
interstate mode of operation for the four CSW subsidiaries. In addition, plaintiffs have not even submitted plans for interstate operations to the Texas PUC for approval. Under the latest Mode 4 plans present-d by CSW at the SEC, no savings would be realized by plaintiffs until at least 1986, and under the evidence in the record, savings that far in the_ future are speculative at best. Apart from Mode 4, plaintiffs have the option of interconnecting with SWPP in a Mode 2 configuration which defendants do not oppose. Under these circumstances, plaintiffs have failed to prove threatened
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loss or damage sufficient to support their claim for permanent and injunctive relief. To sunnarize, "(r)ecovery and' damages under the antitrust law is (sic) available to those who have been directiv injured
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i, seemingly vertical relationship may be deemed capable of horizontal restraints if they are actual or potential : competitors.*Dougherty, suora. Horizontal agree =ents are those in which the participants in the normal course of things will be co=peting a=ong themselves. 388 U.S. 352, 359. As stated in United States
- v. Topco A'ssociates, Inc. 405 U.S. 596 (1972) it is a per se violation of 5 1 of the Sherman Act when there is an. agree =ent between competitore of the same level of the market serv.ccure to allocate territories in order to m4n4m4:e competition, or, a horizontal restraint.
Again, I must consider whether or not plaintifs and defendants are co=petitors, and I reach the same conclusion: for purposes of 5 1, and horizontal restraints, they are not, and therefore the per se approach shocid not apply, but rather the rule of reason analysis. In addition, I cannot see any way that the plaintiffs can argue that the defendants have allocated territories in order to minimize competition. The PUC in Texas allocates geographic territories for the electrical market in Texas, and while defendants have some influence in the PUC a; do the plaintiffs, they have no open control over those decisions. For this reason also, I do not see how this is a horizontal restraint case. Plaintiffs have cited a recent Fifth Circuit case involving 1 -4 *ili ie as authori for er se treatment. 'Gainesville
Utilities Deot. of Florida Power & Light Cg., 573 F.2d 292 (5th Cir. 1978). In Gainesville, unlike the factual circu= stances in this case, the plaintiffs were able to shew opportunities for one utility to " invade" the service territory of another utility, a history of consultation between two neighboring utilities and the allocation of new wholesale customers between utilities as requests for service arose. In Gainesville there was an agreement to allocate custe=ers which was obviously anticompetitive in effect and intent; no similar agree =ent exists in this case. If this is a vertical restraint case, and I a= not cure
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that it is,-(the Fifth Circuit _.has,found it difficulti - -u
by 'the lessening of competition and is withheld from th'ose who seek the windfall of treble damages because of incidental ham."
- Larry R. George Sales Co. v. Cool Attic Corp. ,
F.2d (5th Cir. I978), p.1993 at 1998 Ad. Sheet (emphasis added) (Robinson-Patman Act case). Here there is only an inci-dental, if any, effect on pricss, and plaintiffs are not entitled to a windfall of iniunctive relief because of incidental ham. Vertical and Horizontal Restraints When this case was orignally filed in 1976, certain territorial restrictions 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 unrensonable without more for a manufacturer to restrict and confine areas for persons with whom an article may be traded after' the manufacturer has parted with dominion over it, " Schwinn at 379, but when a " manufacturer retains title, dominion and risk with respect to the product and the position and function of the dealer in question are in fact indistinguishable from those of an agent or salesman of the manufacturer" 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. GTE Sylvania, 433 U.S.36 (1977), although the Court left the door slightly ajar for applying per se illegality to particular applications of vertical
restrictions if they were based upon de=onstrable economic effect, rather than Schwinn's femalistic line drawing. Continental at 58.
"(T)here are certain agreements or practices which because of their prejudicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal with elaborate inquiry as to the precise har= the7' have caused or the business excuse for their use.
Northern Pacific Railway v. U.S., 356 U.S. 1, 5 (1958). Horizontal markets divisions, as opposed to the vertical restrictions discussed in Schwinn, and Continental are per se illegal under the Sherman Act. Ti= ken Roller Bearing Co. vs . U. S . , 341 U. S . 593 (1951) ; Doucherty v. Continental Oil Co. , 579 F.2d 954 (5th Cir.1978), and entities in a
and those ine.?rred by the parties in the related SEC, NRC, PUC, S etc. hearings, in any rate request by these companies. It is so Urdered.
. OUNur .e D STATES DISTRICf ' JUDGE
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APPENDIX A ADDITIONAL FINDINGS OF FACT AND CONCLUSIONS OF LAW . Findings of Fact *
- 1. Inis Court specifically finds that the statements at trial by executives of TU, TESCO, DPL and HLP that they have not agreed with each other to refuse interconnections which might result in FPC jurisdiction are credible in light of all the facts in the case, and are entitled to great weight. ,
- 2. The South Texas Project (STP) nuclear generating station, c project co-owned by HLP, CPL, City 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 u?on each participant confining its operations (or at least tae transmission of the electricity from STP) to the intrastate transmission of electricity, solely within the State of Texas.
- 3. None of the parties voiced objection to this procedure (see Finding of Fact #2) at the time construction was planned or begun on the STP; if they had, the project could have been designed so that those parties wishing to re=ain in intrastate cot =:2erce could do so and still get their power from STP, while those insisting upon interstate operation could receive their power.
4, The generation facilities of the STP cannot, at the current stage of construction, be converted to produce two types.of electricity (intrastate and interstate); any regulation of the character of the electricity muat occur when the power leaves the STP.
- 5. There is ne competition ameng electric utilities in Texas or only de minimus competition to attract industrial customers to locate plants or faci.11 ties in Texas electric utilities' service areas.
- 6. There is no competition among electric utilities in Texas or only de minimus competition to attract wholesale sales and purchases.
- 7. If plaintiffs ace unable to retain their interconnections
-- with defendants ones plaintiffs begin to engage in completely interconnected, centrally dispatched operation with PSO and SWEP, plaintiffs might incur increased fuel costs but the evidence on this point is highly speculative, as is the amount of othar increased costs plaintiffs might incur.
- 8. CPL has threatened breach of the STP and unless restrained will do'so when the project is complete by cen-necting in interstate cocnerce while continuing to receive power from the STP, thus putting all of the participants in the STP involuntarily into interstate co=nerce.
- 9. Plaintiffs have failed to prove facts which could be the basis of an injunction against the defendants.
- 10. There is no substantial evidence of competition between defendants and plaintiffs in the following categories of so-called markets: franchise competition, interfuel competition, 61
self-generation competition, wholcale competition, retail competition or retail competition for new industrial customers.
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- 11. Plaintiffs failed to define t~de size, scope and geogrpphic .
limits of any of their alleged relevant markets.
- 12. Plaintiffs failed to prove or even assert that Defendants were motivated by anticompetitive intent or purpose in deciding to disconnect from Plaintiffs on May 4, 1976 and thereby preserve the right to decide for themselves whether to com=ence interstate operations.
- 13. , Plaintiffs failed to prove injury to competition as opposed to the highly speculative possibility of injury to themselves as " competitors" .
- 14. In terms of threatened future harm, Plaintiffs' economic studies failed to de=custrate any significant competitive injury resulting from Defendants' alleged anti-t::ust violations.
- 15. Since August 26, 1935 TESCO, TFL, DPL, BLP and others have independently pursued a policy of remaining in intrastate commerce, not subject to FPC control.
- 16. WTU's provision of electric service to customers located in the towns of Davidson, Frederick and Tipton, Oklahoma on May 4,1976 and thereafter affected the reliability that HL?,
TPL, TESCO and DPL were able to provide to their respective customers.
- 17. Tha*e is no evidence that the disconnection by each of the TU companies was the product of an agreement to disconnect.
Indeed, all the evidence is that they did not have an agreement to disconnect in the event of interstate operation by any system connected with them.
- 18. The TU companies, while not severing connections with each other on May 4, 1976, did not do so in reliance upon any mutual understanding or agreement that each of the TU coc:panies would operate only in intrastate commerce.
- 19. The electric utility industry in the United States currently consists of three seperate interconnected groups:
ERCOT, with a peak lead of approxi=ately 30,000 megawattes; the utilities generally west of the Rocky Mountains, with a peak load of approxi=ately 70,000 megawatts and the utilities other than ERCOT members, generally east of the Rocky Mountains with a peak load of approximately 300,000 megawatts.
- 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 jurisdiction of the parties and of the subject matter of this suit.
- 2. Although Plaintiffs and Defendants are not " jurisdictional" (being intrastate utilities) and not subject to FPC/FERC regulaiton, the Sherman Act 51 " jurisdiction" extends to conduct which has or could likely have a substantial effect on interstate cec =erce, Je=inist Womens Health center v. Mohammad, 586 F.2d 530,539 (5th Cir.1978), and for purposes of jurisdiction the actions of 62
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- I Defendants could have a substantial effect on interstate commerce.
- 3. Venue is proper in this district.
- 4. The . determination of TESCO and HLP to avoid the consequences of federal rege'.ation does not c'enseitute an unreasonable restraint of trade or an unlawful boycott in violation of the Sherman Act.
- 5. TESCO and HLP each have a right to restrict their operations to the State of Texas where they reasonably and in good faith believe that such operation is in the best interests of TESCO or HLP and in the best interests of their customers.
- 6. The interconnection agreements between TESCO and WTU do not constitute an unlawful conspiracy, combination or agreetcent in restraint of trade or an unlawful boycott in violation of the Sher =an Act.
- 7. The interconnection agreement between TFL and HLP does not constitute an unlawful conspiracy, combination or agreement in restraint of trade or an unlawful boycott in violation of the Sherman Act.
- 8. The TIS agreement and the ERCOT agreement do not constitute an unlawful conspiracy, combination or agreement in restraint of trade or an unlawful boycott in violation of the Sher =an 1 Act.
- 9. The existence of cooperation and coordination among the electric utility systems of TIS and ERCOT operating interconnected and in electrical synchronism with each other solely within the state of Texas does not constitute an tmlawful conspiracy, combination or agree =ent in restraint of trade in violation of the Sher =an Act.
- 10. TPL, DPL and TES.C0 did not conspire in any manner to violate the .ntitrust laws, specifically $1 of the Sher =an Act. -
- 11. TPL, DPL, and TESCO did not violate the Sherman Act 51 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 motivation of Plaintiffs' parent corporation, the lack of any business purpose for the midnight wiring, the threats of force previously and consistently made by CSW and the Defendants' desire to remain in intrastate comerce, or to at least make a voluntary decision to enter interstate comerce.
- 13. The Public Utility Regulatory Policies Act of 1978 -
adds a new Section 210 to the Federal Power Act which gives PERC the authority to order an otherwise intrastato electric utility to interconnect with another electric utility where such interconnection with another electric utility is in the Public interest and where the interconnection would encourage the overall conservation. of energy or capital, optimize the 63
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k overall efficiency of use of facilities and resources, or l . improve the reliability of any electric utility. i l p s . . . -
- 14. It would not be in the public interest to force the I Defendants to interconnect in interstate comerce.
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- 15. It would not encourage the overall conservation of I energy or capital to force the Defendants to interconnect :
in interstate commerce. : L
- 16. It would not optimize the overall efficiency of the c I use of facilities end resources to force the Defendants i to int _erconnect in interstate co=cerce. L
- 17. It would not improve the reliability of any electric :
utility to force the Defendants to interconnect in interstaae commerce, and would, in fact, decrease the reliability of the Defendants.
- 18. Any contractual prohibitions agains: interstate sales contained in the contracts made between the parties regarding, for example, sales of ezonomy power, etc. , are not void or voidable, and are not per se or unreasonable violations of the Sherman Antitrust Act 51; they are
; reasonable restrictions. -
- 19. The actions of the Defendants do not run couuter to the public policy declared in the Sherman and Clayton Acts.
, , 20. The actions of the Defendants do not constitute unfair methods of competition.
- 21. The intrastate agreements and Defendants' actions t '
do not foreclose a significant amount of potential competition. -
- 22. The intrastate agreements and Defendants' octions '
do not create or maintain a situation inconsistent with # the antitrust laws and do not significantly affect the ' parties' activities under the antitrust laws. m ,
- 23. Defendants' attempts to petition the PUC, FPC, this court and other governmental bodies to preserve the current intrastate status of Defendants were and are genuine atte= pts to influence public officials to take governmental action and were not merely a sham to cover up an attempt to directly interfere with the business relationships of Plaintiffs.
- 24. Defendants' attempts to petition the PUC, FPC, this court and other governmental bodies to preserve the current intrastate status of Defendants were and are protected by rhe First Amendment. California Motor Transeort Co. v. Truckinz Unlimited, 404 U.S. 508 (1972); United Mine Workers v. Pennington, 381 U.S. 657 (1965); Eastern Railroad President s Conference v.
Noerr Motor Freight Inc. , 365 U.S.127 (1961).
- 25. There is no evidence that Defendants' petitioning activities 64 4
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in requesting the PUC, FPC, this court and other governmental bodies to preserve the current intrastate status of the Defendants was a " sham".
- 26. i'laintiffs are not entitled to injunctive relief under
. $16 of the Clayton Act for the purpose of permanently restriihing the Defendants from enforcing any written or oral contracts 11 provision prohibiting the flow of electricity / electric energy in interstate commerce, and are not entitled to injunctive relief permanently restraining Defendants from disconnecting their systems from, or refusing to inter-connect their systems with' , those of Plaintiffs.
27., CPL has anticipatorily breached and CSW has caused CFL to anticipatorily breach the STP Agreement.
- 28. CFL has not yet breached the STP Agreement because the Project is not complete and no power is. currently being generated or transmitted from that facility.
- 29. CPL 1s hereby per=anently restrain 2d from permitting power it receives from the STP to enter interstate cot:=erce as long as CPL remains a participant in the STP agreement and as long as that Agreement re= sins in force.
- 30. Plaintiffs have not established irreparable injury
- to competition, an unlawful restraint of trade, a conspiracy in restraint of trade or 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 dee=ed to be a conclusion ,
of law is hereby adopted as such.
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APPENDII 3 The map, below, shows the genersi geographical outlines ' of the electric ce=panies in the State of Texas and .
; neighboring states.(Pz 766) ~
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APPENDIX C The map, below, is a more accurrate depiction of the geographic service territor.as of West Texas Utilities . also the and Texas areas served Electric by bothService TESCOCompany, and WTU. showing (TESCO #305)
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APPENDIX E The diagram / map, below, shows the Texas Interconnected System, and its participants. The numbers within the circles , indicate the number of interconnections among the TIS members.~ The TIS members are: TPL (Texas Power and Light); ELP (Houston Power and Light); AUSTIN (City of Austin); LCRA (Lower Colorado River Authority); CFL (Central Power and Light); STEC/MEC (South Texas Electric Cooperative /Medina Electric Cooperative); CPSB (Central Public Service Board of San Antonio); WTU (West Texas Utilities); BEPC/TMPA (Brazos Electric Power Cooperative / Texas Municipal Power Authority); DPL (Dallas Power and Light); and TESCO (Texas Electric Service Company). (TEECO #309) t 4 S b a : N E 0; o -
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c APPENDLC D ..- s The map, below, shows-the current interregional interconnections in the United States. Each region is connected to at least , two other regions and has at least 13 interconnections in the [ group of interconnected regions (excluding ERCOT and WSCC) . .- l ERCOT could only be connected to the Southwest Power Pool l (only one region), and this would adversely affect the j reliability of ERCOT because it would become an isolated j
" peninsula". All of these regions make up the National l Energy Reliability Council (NERC). :
The regions are: NPCC (Northeast Power Coordinating Council); I MAAC (Middle Atlantic Area Reliability Council); SERC (Southeast l Reliability Council); ECAR (Eastern Central Area Reliabilly l Council); MAIN (Mid-America Interpool Network); SPP (Southwest ! l Power Pool); MARCA (Mid-Continent Reliability Coordination i Agreement); ERCOT (Electric , Reliability Council of Texas); ! and WSCC (Western Systems Coordinating Council). :- The numbers within the circles on the disgram/ map indicate the n-her of interconnections between the regions. (TESCO #307) 2 gg 9 !2 D li z z-N gi - o
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. ,o on occasions 3 (see Doucherty, suora) to determine which pigeonhole the facts in this case belong) it would be governed by the rule of reason.
Rule of Reason Justice Brandeis articulated the basis for the so-called
" rule of reason" test in the Sherman Act cases in Chicago Board of Trade v. United States, 246 U.S. 231, 238 (1918).
"The true test of legality is whether the restraint impose,d is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress and even destroy competition. To determine the. question the court must originally consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable; the history of the restraint, the evil believed to exist, the reascn for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of the intent may help the court to interpret facts and to prevent consequences."
The rule of reason does not permit the court to consider any argument in favor of a challenged restraint that could be labeled reasonable; rather the court must focus on the challenged restraints impact on competitive conditions. National Society of Professional Engineers v. U.S.,, U.S. (1978). The test prescribed by the Supreme Court in Standard Oil v. United States, 221 U.S.1 (1910) is that rthe challenged contracts 'or acts may be , unreasonable if that determination is based either on the nature
. or the character of the contracts or the surrounding circumstances giving rise to the inference or, presumption that they were intended to restrain trade and enhance prices. National Society, supra. Again, the intent or purpose of the contract must be considered when the court decides whether or not a Sherman Act violation has occurred. Standard Oil at 58; Chicago Board, at 238; National Society. The key inquiry, however, is whether or not the challenged agreement (if one is found) terely regulates and promotes competition or suppresses it. National Society, supra. Absent anticompetitive effect, an unlawful intent will not establish a rule of reason violation, nor will the use of unfair methods of co= petition. H&B.Ecuipment Co.Inc.
- v. International Harvester, 577 F.2d 239 (5th Cir.1978) .
i As of May 4,1976, defendants had been advised that CSW was going to integrata its four subsidiaries to avoid legal e problems at the SEC. CSW had clearly threatened to take action against defendants to force them to participate in CSW's scheme to integrate its system. When defendants learned of the radial tie into Oklahoma, and the legal actions associated therewit.h, it is clear they had to either
- disconnect or surrender. to CSW's plan of coercion. . :
Defendants have established a long history of examination of the questien of the benefits of interconnection with SWPP, and they have always concluded that they were better off operating in their intrastate mode. Defendants concluded early in 1976 that the PTI report provided absolutely no basis for a change in their view. The PTI report, which was the only study given defendants before May 4, 1976, does not even address the benefits or costs for non-CSW systems resulting from the proposed interconnection. Accordingly, as of May 4, 1976, Defendants had no basis upon which to change their prior convictions that interconnection with SWPP would degrade their reliability and would impose substantial j costs upon their customers with no resultant benefits. ! As of the time of this trial, defendants have exhibited j willingness to continue their past history of examining the ;~
costs and benefits associated with interstate connection with SWPP. Defendants have shown a reasonable belief that intarconnection with SWPP would not be economical and would degrade their reliability. Plaintiffs have presented no evidence showing that defendants would benefit from the . interconnection, other than some rank speculation by Mr. Arey about the ability to sell sone power to SWPP. Mr. Arey conceded, however, that it is not the nor=al industry practice to build interconnections to make such opportunity sales. There is absolutely no evidence suggesting that the companies in SWPP would desire interconnection or would desire to purchase any such power. The only other potential benefit fron interconnection, a reduction in reserve c.apacity, would not be economically practical according to Dr. Wood.
Plaintiffs themselves conceded that TIS is one of the most reliable interconnected systems in the United States. " In addition, plaintiffs' expert, Mr. Arey, admitted that TIS was a reliable system and that there was no need for interconnection with SWPP from a reliability standpoint. Defendants have shown that TIS has an outstanding record of success in responding to emergencies, and they believe that their method of operation accounts for the high reliability of TIS. Interconnection with SWPP would necessarily alter this method of operation and thus lead to degradation in reliability. Defendants also believe that interconnection with SWPP would greatly complicate management and coccunication problems within the interconnected group. Mr. Aray admitted that the most recent blackout of New York City was attributable in part to such ce=:::unication problems. None of the voluminous reliability studies conducted by plaintiffs addressed chese concerns voiced by ek.e defendants. As of May 4, 1976, defendants had reason to believe that interconnection with SWPP would degrade their reliability and increase their c.ost of operation with no significant offsetting benefits. Plaintiffs had presented them with absolutely no evidence to the contrary as of that date. Notwithstanding this fact, HLP was still evaluating the question of whether it would participate in an interconnection with TIS and SWPP. Thus, when HLP learned of the midnight
wiring, it elected to disconnect in order to preserve for itself tha right to make unilateral decisions as to the desirability of such innerconnections. Both defendants were concerned that the FPC night take steps to order the innerconnection of TIS and SWPP over the objection of defendants in light of the long history of efforts by the FPC to bring about such an interconnection despite the opposition of defendants and the other members of TIS. Defendants believe they are Pursuing the best course of action for their custoners and had no antico=petitive' intent or purpose'in disconnecting from plaintiffs. I also believe frem the testimony presented at the trial that defendants are pursuing the best' course of
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3 . There is absolutely'no evidence of any prior agreement by' defendants to dise =nect from any member of TIS which con:menced interstate operations. Mr. Jordan, president and chief executive officer of HLP, testified that as of May 4, 1976, he had never even talked with anyone from TU or its sub-sidiaries about the issue of intrastate operations. In fact, if there had been a prior agreement to disconnect between de'fendants, there would have been no need for them to have disconnected from each other. The absence of any preexisting agreement to disconnect is further confir=ed by the extended negotiations that were required before defendants restored their interconnections on May 10, 1976. The evidence clearly establishes that at the time TIS was formed, all of its inenbers were con:mitted to the proposition that it was in their mutur.1 best interest to operate on an int rastate basis. Nonetheless, if any member of TIS chose to withdraw f cm TIS, it was free to do so. The other , members were to be given notice of such a decision and were to be given an opportunity to decide for themselves whether they would go interstate as well or rc=ain intrastate. Given the defendants reasonable opposition to interconnection with SWPP and threats by CSW to force both of them into such an interconnection, it is not surprising that they both elected to disconnect from plaintiffs on May 4, 1976. Defendants acted unilaterally and took the only course of
action open to them if they were to avoid the adverse effects of interstate opsrations. . I think it is clear from the evidence that there was no anticonpetitive effect by the alleged actions of the defendants and therefore no violation of 5 1. In addition, again I must look to the competition between plaintiffs and defendants, and again, for the reasons stated before, I find it non-existent or de m4n4 mis.
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Finally, considering the purpose of defendants to avoid FPC jurisdiction and the reason for adopting the intrastate mode 'to avoid FPC jurisdiction, as well as my belief that the effect of defendants' actions on the plaintiffs is I
I highly speculative and questionable I believe plaintiffs have failed to show a violation of 5 1 of the Sherman Act - under the rule of reason. For the reasons set forth above, and in the appendix, I find no violation of 5 1 of the Sher =an Act and I deny plaintiffs' request for injunctive relief. HLP's Counterclaim HLP, CPL, City of Austin and the City of San Antonio a'r e all participants in the construction of a nuclear power and generation facility known as the South Texas' Project. The South Texas Project (STP) involves the construction and operation of two 1250 megawatt nuclear generating stations in Matagorda County, Texas. The participants all signed a document, executed as of July 1st, 1973, known as the participation agreement, which HLP alleges that CFL breached. The est"ated cost of the project exceeds one billion dollars. ELP alleges that CPL, under pre.ssure from CSW, breached . 5 8.2 of the South Texas Participation Agreement, which provides :
"8.2. Each participant shall' design, construct, own, operate and maintain the transmission' facilities necessary to connect its system to the South Texas project switch yard, with the objective of permitting each participant to transmit under normal operating conditions its generation entitlement share from units of the South Texas Project to assist in a manner which will not unreasonably affect the .
. operation of electric systems of the other parti-cipants or the interconnected system af others..."
(HLP Ex. #208)
CPL's participation in the 1Ey 4, lo76 interstate interconnection, plus the August 27, 1976 com:ser. cement of CPL /'w"fU operation in synchronism with the Southwest Power Pool allegidly created a situation in which the South Texas project could not be planned, constructed or operated as originally contenplaced. If CPL establishes interstate interconnections and/or operates in synchronism with the Southwest Power Pool, ELP' alleges in its complaint that it would incur enormous expense in redesigning and reconstruccing its entire trans=ission system in order to operate in a synchronous AC mode or, by the construction of a direct current (DC) interconnect which would allow any enticy
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operating in synchronism with the Southwest Power Pool to
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remove its power entitlement from the South Texas Project by direct rather than alternating current. These costs allegedly amount to over one billion dollars and HLP asks for recovery of this sum plus entry of a permanent injunction comanding CPL, kTU and CSW to refrain from taking any action which woul.d require any participant in the South Texas Project to transmit its power and entitlement under abnormal operating conditions in a manner which would unreasonably affect the operation of the ' electric systems of the various participants in the South Texas Project or the other interconnected systems of others. At the time the STP participation agreement was signed, it was not contemplated that any participant in STP would unilaterally com=ence synchronous operation with systems outside of the TIS while remaining a member of TIS. In August, 1976, CPL and kTU commenced synchronous operation with SWPP, and on December 14, 1976, CSW advised the SEC that it was going to make permanent the synchronous interconnection of its four subsidiaries. Evidence presented in this record indicates that this synchronous operation created substantial operatics problems for plaintiffs until it was terminated by CSW in January,1977, following the filing of HLP's counterclaim. The evidence is undisputed that had CPL continued to operate in this manner, both CPL and HLP could not have both obtained their power from STP absent a physical separation of the two plants with the installation of DC transmission equipment
neither of which have been planned for at this time. The testimony is also undisputed that had CSV and CPL informed HLP that it wished to operate in interstate cor=erce when the project was originally conceived, it would have been possible to design the STP in a different wnner so that CPL and HLP/ TIS could both get power from STP without there being a connection between the CWo systems. Wh11e CSW is now constrained by the terms of the orders of the Texas Public Utility Co= mission, CSW is nonetheless ce=mitted to the establishment of snychronous ties between its four companies, notwithstanding the fact that CPL is still participating in STP. This problem is compounded by the fact that CFL and WTU are re-O -%.%,, ,m.,--- -
/ 1 ,. , that they will be operating on a synchronous basis with their affiliates in SWPP. CSW has demonstrated a past history of causing precipitate operating changes among its subsidiaries despite the problems created by such changes and without any prior study of the anticipated effect. HLP has also shown that if CSW was able to force its mode.4pl$nofoperationontheSTPpar.ticipants,andthe systems with whom they are interconnected, this mode of operation will unreasonably interfere with the operatiion of its electric system. First, the interconnectio' nmay require an upgrading of existing transmission lines because of the additional flows that will come into HLP's system in the event of an emergency. Second, to the extent existing lines are adequate for the power flows under mode 4, the capacity of these lines will be used.by CSW for their proposed transfers and as a backup in emergencies within the proposed CSW powerpool. The net effect, therefore, is to use capacity pismned by HLP and other systems for their use in transmitting power from STP and other plants on ,their systems. Since the TIS transmission system is not presently designed to act in synchronism with SWPP, it could not have been conte = plated that CPL would unilaterally bring about the kind of drastic operating changes in TIS that necessarily would follow from any form of synchronous interconnection with SWPp as long as CPL remained a member of STP. This is a clear cut exa=ple
of action by one participant which would interfere with the electric systems of the other participants in the systems with which they are presently connected. I find that CSW and CPL's cor=itment to the establish =ent of synchronous operation between WTU, CPL, PSO and SWEP violates 58.2 of the South Texas Participation Agreement because that commitment is an " objective" which will " unreasonably affect the operation of electric systems of other participants", specifically HLP. While CPL /CSW's operation in synchronism will not affdct the participant's ability to get electricity until the STP actually begins operation (it is still under construction), ELP need not wait for fission before seeking an injunction prohibiting
I violation of f 8.2. I find that under the evidence in this case plaintiff CPL's conduct threatens a violation of Section - 8.2 of the STP agreement and C; is hereby permanently enjoined from permitting power it receives frc= STP to enter inter-state commerce as long as CPL remains a participant in the STP Agreement and as long as ! 8.2 of that Agree =ent re=ains in ' force. . Costs and Attornevs Fees While both sides have vigarously contended that they are protecting the public interest by atterpting to preserve or eli=inate the current intrastate electric utility syste= in Texas, both sides in this proceeding have ignored the i= pact on the public of the staggering costs and attorneys fees expended by the parties in this case and in the proceedings before the 3EC, FPC, FERC, PUC, NRC, and other forums. It would be naive to assume that the co=panies will absorb ~ these expenses by way of reductions of earned surplus; it is more reasonable to assu=e that the_se expenses will be passed along to the public in the rate structure. I have no control over whether or not the costs and attorneys fees in this case, or any of the other proceedings
involving these parties, can be passed along in the form of increased rates to the public. While the motive of CSW and the plaintiffs in bringing this antitrust action is irrelevant (except as I have otherwise noted) to a determination on the merits of plaintiffs' antitrust claims, I think it is very relevant to the question of whether or not the public should be forced to 3 pay increased rates to cover the expenses of this action. CSW's apparent pri=ary purpose for filing this lawsuit was to 4 preserve it s holding company status. I do not feel that the public should have to pay any of the expenses incurred in the - attempt to preserve CSW as a holding company. I hope that the PUC seriously considers denying the inclusion of these expenses
. :. ~. .
, . Footnotes -
1. Definition of terms used in this opinion: bulk transmission system: higher voltage and higher capacity lines tying together power plants and serving major loads going to interconnections closed connection: switch is closed and power can flow over the interconnection between the two systems distribution line: serves local loads generation: the production of electricity intrastate: electric utilities operating in such a manner that electric energy does not cross state lines interstate: electric utilities operating in such a manner that electric energy is either transmitted or received across state lines open interconnection: switch at the interconnection is open with no power or energy being able to flow over the interconnection parallel coerstion virtually the same as synchronous operation radial line: " single feed"--one electric line to a town; two transmission lines to a town would be " dual feed" reserve: two types of electric energy reserve soinninz reserve--reserve that a utility has on line at any ti=e esoseitv reserve--total generation of the capacity of the utility system less expected peak demand (the maxi =um amount of energy demand on the system during the year),or reserve above the pe'sk demand of generation svnehronous operation: means two or more clectric utilities systems interconnected with the generators operating in synchronism with each other
transmission line: serves bulk powar supply 2 Definitions of abbreviations used in this opinion:
"CSW": Central and South West Corporation
" CPL": Central Power and Light Company.
"WTU": West Texas Utilities Company "PSO": Public Servu Company of Oklahoca "SWEPCO" or "SWEP": Sotithwesttru Electric Power Company .
"TU": Texas Utilities Company "DFL": Dallas Power and Light Company
~"TESco": Texas Electric Service Company "TFL": Texas Power and Light Cou:pany 9
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4 "HLP": Houston Lighting and Power Company ,
" TIS ': Texas Interconnected Systems '
"ERCOT": Electrf.c Reliability Council of Texas "SWPP" or "SPP": Southwest Power Pool #
"FPC": Federal Power Commission "FERC": Federal Energy Regulatory Com.ission "PUC": Texas Public Heility Commission "SEC": Securities and Exchange Com:hission "CPSB": City Public Service Board of San Antonio, Texas
" AUSTIN": City of Austin, Texas "LCRA": Lower Colorado River Authority "TMPA ": Texas Meicipal Power Agency 3
The PUC has deferred a ruling on issues similar to the issues presented in this case pendi.ng a ruling by this court on the merits of this suit. I therefore think it appropriate to com=ent on these attorneys fees, even though I cannot award attorneys fees, since the PUC will be relying on this court's view of the evidence. 4 This finding is limited only to this discussion concerning the s' propriety of passing through these legal expenses to the public in the rate structure. 5 The Defendants =ay have a valid argument that they should be able to pass through their costs to the public because they did not institute this litigation, and were forced to defend it. 1
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