ML19308B190

DOJ Answers to Interrogatories of Applicant

ML19308B190
Person / Time
Site:	Oconee, Mcguire, McGuire
Issue date:	11/30/1973
From:	Brand W JUSTICE, DEPT. OF, ATTORNEY GENERAL, OFFICE OF
To:	US ATOMIC ENERGY COMMISSION (AEC)
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ML19308B191	List: ML19308B190 ML19308B192
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NUDOCS 7912160023
Download: ML19308B190 (74)

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I o _;ad .

.ts U;!ITED STATF CF A:CRICA BEFORE THE ATOMIC E1:ERGY COMMISSION In the Matter of )

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DUKE FORER COMPANY ) Docket Noc. 50-269A, 50-270A (0conee Units 1, 2 and 3 ) 50-287A, 50-369A McGuire Units 1 and 2) ) 50-370A

! 5WERS OF 1HE DEPARTMENT OF JUSTICE

. 'O INTERROGATORIES OF THE APPLICAI;T On September 14, 1973, Applicant served Interroga-i torics and Document Production Recuests en the Department.

In a seperate filing, ths Department objects to several of those interrogatories and reauests and seeks protective orders pertaining to others. The Department also is today making available for exe.mination the documents pertinent to the reauests to which Applicant does nct obj ect. Answers made herein are ecmplete to the knowledge and belief of the under-signed representative of the Department as of November 30, 1973.

They will be supplemented as necessary to comply with Section 2.7L0(e) of the Commission's Rules of Prcctice. The following 'are the Department's answers to those interrogatories to which it does not object.

1. (a) Each reference to the " area" relates generally to.the sccc gecErcphic arcs. In the use of the term "crea" -

in conocetion with Jescriptioncof' control-over. retail cupply, 7912160O23 /A/

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wholesale supply or demand for the output of hydroelectric power, the precise boundaries of such area may vary somewhat depending respectively on the size of customer considered and depending on the amount of capacity and energy associated

{ with a potential hydroelectric site.

(b) (1) The retail market is reasonably coincident with Applicant's service area, but uit also includes areas outside thereof to which Applicant can economically extend i service.

! (ii) The wholesale market is reasonably coin-cident with a line indicating the periphery of Applicant's i'

transmission (including subtransmission) system, but it also includes areas presently removed from Applicant's existing transmission facilities to which Applicant can economically extend service.

(iii) The market for potential hydroelectric power is reasonably coincident with the two foregoing areas, J

but it may include areas within which it would-be economically feasible to. connect a new site to the existing integrated system. This would depend on the amount of ccpacity and associated energy capable of development.

Marking each of the foregoing areas on a map with the degree of precision apparently recuested by Applicant would reouire a lengthy and expensive series of engineering and economic studies based en voluminous - data not. presently

.available to G.e Department. The Department has not -H undertaken and does not propose to undertake any such studies l

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r as part of its direct case in this proceeding. The Depart-ment estimates such studies would cost in excess of several hundred thousand dollars.

(c) See answer to (b).

(d) In marketing electric power, there are three product markets of concern; (1) the retail distribution market; (2) the wholesale-for-resale bulk power market; (3) the regional power exchange market for various kinds of coordinating power and energy, and opportunitics for joint ventures or jointly owned generating companies. In all three markets, the size of the load and the distance from existing facilities govern the geographic area in which power may be feasibly marketed. This is true both from an economic and technical standpoint, without regard to legal restrictions. The' geographic boundaries of the retail.distri-bution market and the wholesale-for-resale bulk power supply market are reasonably coincident with the Duke service area.

The geographic scope of regional power exchange market cannot be described with precision, but it includes at minimum an area reasonably coincident with the service areas of the companies which formed the CARVA Pool.

(e) The product market discussed above are defined in accordance with the factors enumerated by the U. S. Supreme Court in United States v. Continental ~ Can, 3S7 U. S. 441 (196 7) ;

United States v. Alcoa (Rome CableT 377 U.S. 271 (1964); and United States v. Brown Shoe, 370 U.S. 294 (1962) . ,

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(f) The geographic markets discussed above are defined in accordance with the factors enumerated by the U. S. Supreme Court in United States v. Brown Shoe, 380 U.S. 294

, (1962) and United States v. Pabst Brewine, 384 U.S. 546 (1966).

2. The wholesale-for-resale market described in response 1(d) above is a multi-state market which might be considered to cover a vast geographic area. However, no competition for wholesale and industrial customers currently exists in this market, even though the potential for such competition exists.

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3. In addition to being useful background information, f the size of Applicant's physical and financial assets, both i

absolutely and relative to the size of its competitors, is relevant to whether the activities under the license will create or maintain a situation inconsistent with the antitrust laws. They provide some indication of a market structure in which Applicant has the market power to grant or deny potential competitors the necessary access to the regional exchange market. Applicant's size and economic resources have been important factors in enabling it since 1960 to maintain a monopoly of large-scale generation and transmission facilities in its area.

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4. This was intended to refer to the distribution systems listed as being served by Duke in its response to the Attorney General's question No. 10 and in its FPC Form 1 which are incorporated herein by reference. This figure does not include mill systems, Alcoa subsidiaries, or the University of North Carolina system. Due to changes in ownership there may no longer be 58 independent distribution systems or we simply may have miscounted.

5. The Department contends that the amalgamations and the purchases effected prior to January 1, 1960, are relevant to this proceeding only in that they have resulted in a highly concentrated market structure in which Applicant has the power to grant or deny to its ccmpetitors access to the regional power exchange market. The Department propeses to f

offer in evidence materials from Duke's Original Cost Estimate,

" Statement A" as supplied to the FPC illustrating Duke Power's corporate family tree. These materials vould show the corporate structure as of January 1, 1960, and there'fter. The Depart-ment does not propose to go into the corporate history of Duke any further than this.

The Department will contend that Duke's pre-1960 activities left it in substantial control of water power in North Carolina and South Carolina with the exception of those developed

'(1) by its partners in the CARVA Fool in their respective areas,.(2) by Alcoa subsidiaries,-(3) by the F,ederal government -

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in an insubstcutial amount, whielt is marketed through the Southeastern Power Administration, and (4) by the South Carolina Public Service Authority (Santee-Cooper), also in an insubstantial amount, and by a few small mill systems where most of the power is used for industrial purposes.

This is generally shown in a booklet prepared by the Federal Power Commission entitled Hydroelectric Power Sources of the United States (Develooed and Undeveloned), January 1, 1972, with particular reference to Table 4 at pp. 73-75 pertaining to North Carolina and South Carolina which is incorporated herein by reference. The pre-1960 concentration of control permitted Duke in 1960 and thereaf ter to dominate the retail, wholesale and power exchange markets in its area.

6. No, except to the extent that the concentration of control by Southern Public Utilities later consolidated into the present Duke Power Company lef t the market structure that exists today. See our answer to Question 5. Parallel develop-ment was concentration of ' control by each.

7. Our answer to No. 7 is identical to answers to Nos. 5 and 6. The discussion in the advice letter was pro-vided only to indicate the previous history that led to the market structure as it existed on January 1, 1960.

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8. (a) (b) This auoted statement was intended to include all types of hydroelectric development, including undeveloped sites.

(c) Control means either ownership of the site or a monopoly on the uheeling and firming power required to transmit and market from a site owned by other companies.

(d) The Applicant exercises a degree of control over the hydroelectric generation of the Southeast Power Adminis-tration in that the wheeling and firming pouer required by that Administration are available only from Duke Power. Appli-cant also has a long-term leaae on Euzzard's Roost owned by Greenwood County and may have a long-term contractual interest in a hydroelectric site owned by South Carolina Electric and Gas.

(e) Hydroeleccric sites smaller than 10 mw are not I substantial.

9. (a) The Department is generally familiar with those entities' hydroelectric facilities to the extent they are indicated on current FPC maps of electric generating facilities or-that information regarding these projects has been supplied in Applicant's response to the Attorney Genersl's cuestions.

(b) (c) Yadkin has hydroelectric facilities within Duke's area; but it has no surplus power available for central  !

station . service using it, except for some small interchange f

in the manufacture of aluminum. S2PA, Clark Hill and Hartwell -

Projects are within the area; but Applicant exercises a l

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v degree of control over that hydroelectric generation in that the t accling and firming power required by SEPA are available only from Duke. The Abbeville project is within the area.

l Buzzard's Roost is within the area. The Department also believes that a project cwned and operated by South Carolina Electric and Gas Company, of which Applicant obtains partial i

output, is within the area. Engineering-economic studies not undertaken by the Department would be necessary to determine whether the other projects are within Duke's area.

(d) The Department does not contend that Duke controls the facilities of any of the numbered entities not within Duke's area except as indicated above.

10. (a) The Department does not believe there are any t remaining. conventional hydroelectric generation sites available j for the production of base load power. The word " virtually" was used to indicate that there are other conventional hydro sites owned by other entities such as Yadkin, Inc., or Nantahala Power Company. The Department's contention that there are no undeveloped sites usable for conventional hydro for base i load was confirmed by W.'S. Lee, Senior Vice-President for Engineering of the Duke Power Company in a recent deposition taken by the Department.

(b) Economically attractive sites are those sites with sufficient water flow to be able to meet the base load and peaking recuirements of a distribution' system with a -

load factor of between 45 and 70 percent. The Army Corps of 8 - . .

Engineers in preparing its cost-benefit analysis of hydro-electric sites assumes the use of public capital at a substan-tially reduced interest rate .rather than private capital.

The Corps also assumes that coordination with other systems on reasonable terms will be available. The Department's analysis does not make the latter assumption.

(c) The Department does not believe any of these sites are attractive for conventional baseload hydroelectric gene rat ion . Several of these sites may be attractive for peaking or for pumped storage in conjunction with some cen-ventional hydroelectric siteJ. The deposition of W. S. Lee referred to above confirms this conclusion.

(d) There are no sites which would satisfy both baseload and peaking recuirements. There may be sites which are attractive for meeting peaking requirements if intercon-nected with Applicant, but the Department has not made the extensive study necessary to make such a determination.

(e) See our response to Questien 21.

(f) The Department has no current knowledge as to the abandonment of hydroelectric projects because of the unavailability of interconnection with another power source.

11. The Federal Power Commission " Map of Principal Electric Facilities in the United States," dated 1972, based on reports file d with the Federal Power Ccemission to June,1970, indicates that only Duke cwns high-voltage trans-mission lines in the area of the Piedmont Carolinas.

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l The 1971 Federal Power Commission " Map of Principal Electric Facilities in the Southeast Region," based en information to i June 30, 1970, indicates substantially the same information. l A deposition taken of Mr. Franz Beyer, Vice President for Systems Planning of the Duke Power Company, indicates that other entitics do own short lengths of transmission lines in

the same area', not exceeding a total of 200 or 300 miles, as compared with the 6000 to 8000 miles of transmission lines owned and operated by Duke in that region as of 1970 as reported by the Electric World's nirectory of Electric Utilities.

The term " control" is synonymous with ownership for purposes of this question. The important aspect of such ownership with respect to this proceeding is that Duke, through its monopoly of high-voltage transmission lines, can prevent its retail competitors from connecting their bulk supply power facilities to the regional power exchange.

12. (a) The Federal Power Commission " Map of Principal Electric Facilities in the United States," dated 1972, based on reports filed with the Federal Power Commission to June, 1970, and a similar map of icwer voltage facilities entitled

" Principal Electric Facilities in the Southeast Region," FPC Bureau of Power 1971, based on information to June 30, 1970, indicates that Duke owns substantially all of the thermal generation in the area of the Piedmont Carolinas. The term " control" is synonymous with ownership'for purposes of this cuestion. 1 10

"Substantially all" means over 90 to 95 percent of the thermally generated electricity in the area of the Piedmont Carolinas.

There may be some industrial self-generation of which the Department is not. aware, but we do not believe it to be substantial. Some of Applicant's wholesale customers.may have some local diesel generation to back up the primary service from Applicant. Houcver, we have made no specific study of this matter.

" Thermal generation" is generation in which heat is the source of the energy input to the turbines or reciprocat-ing engines. Thermal generation would include internal combustion turbines, steam turbines, diesel engines and nuclear generation.

(b) In general, any facility which produces under 100 mw would not be substantial. South Carolina Electric and Gas has some thermal generation on the periphery.of the Duke area, in particular their Parr plant, McMeekin plant, and Saluda plant. In addition, a number of textile mills have industrial self-generation--some hydro, some thermal.

The Department has made no inventory of these generating units but they are believed not to be substantial.

13. (a)' .The allocation of markets between Applicant and its wholesale customers was accomplished by contractual restrictions on end use and limitations on the size of. retail customers that could be served. The discovery documents -

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provided by Applicant indicate Applicant has compiled a list of each such limitation,and that list is more complete than any other information in our possession.

(b) These contracts are relevant as an illustra-tion of the effects on retail distribution when a vertically integrated entity has a monopoly of the wholesale bulk power supply market.

(c) These contracts do not have a continuing anti-

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competitive effect because of Applicant's agreement with the FPC to terminate these contractual provisions.

(d) The Department currently knows of no such assertion.

14. The Department is currently examining changes in Applicant's rate design which possibly had the effect of perpetuating the market allocation between Applicant and its whalesale customers. Dr. Herschel Jones , the Department's rate consultant, is presently examining Applicant's rate design.

15. See our response to Question 14.

16. (a) The "ratcheted demand" provision to which the Department refers in the Oconee advice letter can be found in Applicant's wholesale Rate Schedule 10 for municipalities and Schedule 11 for cooperatives. The particular paragraph ,

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is entitled " Determination of Billing Demand" with a sub-

, paragraph entitled "For Customers Who Do Not Contract to Take Their Entire Power Supply." It reads in Schedule 10 and 10C 4

as follous:

For Customers who do not contract to take their entire power recuirements from the Power Company, the demand for billing purposes each month shall be the maximum integrated thirty-minute demand during said month, but not less than 75 per cent of the highest integrated thirty-minute demand in the previous twelve months, including the month for uhich the bill is rendered, nor less than 75 per. cent contract demand, nor less than 30 kilo-watts except that where the location of the delivery point recuires the Company to make a new connection to its 100,000 volt transmission lines solely to serve a single Customer, the demand for billing purposes shall not be less than 5,000 kilowatts.

! A similar provision is found in Schedule 11.

1 (b) The ratcheted demand feature serves to dis-courage installation of thermal generating capacity by Duke's wholesale customers. In order to install thermal generating capacity, an entity needs the availability of reserve sharing arrangemements. The only source of power is Duke, because of its monopoly on high-voltage transmission in the area.

Duke makes pcwer available only on the basis of its wholesale rate schedules for firm power which impose a demand charge on i

9 cales of all power, whether they are for energency use or not. Should a small utility wishing, for example, to install a generating unit evaluate the economics of doing so without reserve sharing, it would find it had to install two units

! in order to market firm power out of onc of them. It could, ,

on the other hand, back up its supply of powed with a purchase 13

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under Duke's uholesale rate schedule. Should it do so, however, the obligation to pay demand charges under the racheted-demand provision would have an economic impact roughly comparable to paying Duke to install a second unit to supply it with the backup power. Transactions in the regional power c:: change market such as those Duke has entered into with Carolina Power & Light, Virginia Electric Power Company, and ~ South Carolina Electric & Gas Company are arranged on a fundamentally I

different basis: They involve sales of emergency power en an "if-and-when-available" basis and a utility receiving energy on an emergency basis is not thereafter saddled with demand charges. Power provided "if and uhen available" from another utility, when combined with pcwer from native gencrating rescurces, would enable an entity to market firm pcwcr.

(c) Any wholesale customer which has considered a generation project has been discouraged from installing generating capacity because of the "ratcheted demand" provision. The Department is currently investigating the effect of this provision on pctential entrants. It should be noted 1

chat when Duke evaluated the possibility of entry into genera-j tion by others, it never assumed that such systems would obtain standby reserve sharing arrangements with Duke.

I Rather Applicant assumed that a potential entrant would rely 1 1

on its wholesale-for-resale rate schedule containing the ratchet I l

demand feature.

(e) The lack of any provision for the supply of ,l coordinating services prevented any of Applicant's wholesale customers from entering the generating business. j 14

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17. Document Production Request.

18. See our response to Cuestion 30.

j 19. The Department has prepared no independent study as to whether the EPIC Project is technically or economically feasible without interconnection uith the Applicant. For l

purposes of this proceeding we accept the conclusions of the EPIC Project Report prepared by Beck-Southern engineers in November,1972, as to the necessity of coordination with i

Applicant from both a technical and economic standpoint.

4 The Report on pages 5 and 6 reads as follows:

l . . . The genorction and transmission facilities set forth in this report and the associated cost estimates are, therefore, based upon interconnected operation with existing utilities for purposes of reliability and reserve sharing. Such interconnected operation avoids unaccessary duplication of certain transmission facilities and excessive installed generating reserves and is, therefore, in the public interest.

2 Specifically, substantial additional economies and reductions in projected power costs would accrue through implementation of_the whccling commitment and the commitment to coordinate through the. purchase and sale of bulk power. Wheeling, if achieved under economically attractive conditions, would substantially reduce the transmission investment estimated in this report. It is anticipated that even with satisfactory wheeling arrangements, the great bulk of 500 kv and 230 kv transmission

facilities would still be constructed as planned for the EPIC arrangement. On the other hand, substantial 115 kv and lower voltage transmission facilities might well be climinated.

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t A copy of this Report has been supplied to Applicant by ,

j the Intervonors.

20. The Department agrees with the Intervenors that  ;

" Duke has errected barriers to entry at the generation and transmission levels in an attempt to preserve its. monopoly."

l The principal barrier to entry is the inability of a potential entrant to gain access to the regional power exchange in the area. A consequence of this denial of access is that all j competing systems in the Duke service area had abandoned j their generation function prior to January 1, 1960. With access to the regional power exchange, an entrant (1) can dispose of surplus energy, (2) can obtain needed supplies of deficiency power, and (3) can obtain needed transmission

, services. ApplicanIt's policy decision to wheel and firm SEPA power insured the continuation of Duke's monopoly of l.

transmission by foreclosing the construction of new publicly owned transmission facilities. Other barriers to entry may

include (1) Applicant's wooing away of potentini participants in EPIC, Inc., and (2) Applicant's ratcheted demand provision discussed in the Department's. response to' Question 16.

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21.- At a meeting of the High Point,. North Carolina, City Council called:by Mayor Robert Davis on or shortly before l October 13,.1969, Mr. John D. Hicks, at that time Secretary.

and Assistant General Counsel of Applicant, was reported by -

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the Hich Point Entercrise (Monday, Cetober 13, 1969) to have made the following statement:

Finally, he was faced with the ouestion from 3' Councilman Fred Swart: berg, if, in the long run, EPIC should prove feasible and come into existence, would Duke be willine to tie in with its system as it does with other private power companies'for joint meeting of emergency load needs ? Hicks responded that he was speaking only on his own account but that if asked for a recommendation from his company, it would be, ' Absolutely not!'

Hicks is currently Vice President, Corporate Affairs, l

i Director and a member of the Executive Committee oC the Duke Power Company. A copy of the foregoing newspaper article is l incorporated in Exhibits to the Initial Prehearine Statement

{ as part of Exhibit 12 which has been supplied to the Applicant by the Intervenors.

Other public cratements of Duke Company officials regard-ing interconnections with EPIC may be uncovered as discovery progresses. Applicant will be notified of these instances in accordau:e with the Department's duty to supplement as out-lined in the Atomic Energy Commission's Rules of Procedure.

22. (a) (bT . The joint affidavit of L. C. Williams, Robert Van Sleen and Robert T. Beck dated July 28, 1971,

, describing a meeting called by the Duke Power Company in Charlotte, North Carolina, on June 22, 1967, is evidence which indicates Duke representatives have " bluntly warned North Carolina municipal c1cceric systems that the efforts and funds that the latter could expend in seeking relief before regulatory agencies would be overwhelmed by Du'ke's resources 17

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and resistence." As of July 28, 1971, Mr. Williams was Director of Utilities for :the City of High Point, North Carolina, Mr. Van Sleen was Director of Utilities for the City of Shelby, North Carolina, and Mr. Beck was Electric Superintendent of the City of Lexington, North Carolina. The affidavit states

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in part: ,

Such meeting was held on June 22, 1967, and a large number of municipal officials were in atten-dance, including the undersigned [ Williams ,

Van Sleen, and Beck} and Dr. Hubert Plaster, Mayor of Shelby, Mr. Phil Horton, III, City Manager of Shelby, Hon. Robert Davis, Mayor of High Point, Knox Walker, Esc., City Attorney of High Point, Fred Swartzburg, City Councilman of High Point, Hon. J. Garnor Bagnal, Moyer of Statesville,

Hon. Eric Morgan, Mayor of Lexingten. Many field representatives of Duke Power Company were present along with officials of the company, including Mr. Carl Horn, Jr., then Vice President and General Counsel (new President of the ccmpanyl, Glen A.

Coan, Vice President, Rates, Douglas W. Booth, then Vice President in charge of Marketing, (now Senior.

Vice President in charge of Retail Operationsi, E. R. 5 avis, and William H. Grigg, then Assistant General Counsel (now Vice President and General Counsell. Messrs. Horn, Booth and Coon addressed the meeting.

The Duke officials opined that their municipal customers were not entitled to a wholesale rate reduction, and indeed, might be liable for a rate increase should a proceeding be commenced before the Federal Power Commission. The Duke officials said that Duke's wholesale rates were among the lowest in the nation, and cited those present at the recently concluded rate negotiations between the City of Fayetteville-and Carolina Power-cnd Light Companv. It was stated that-the result of the negotiations was a rate to Fayetteville of 7.8 mills per kwh, and - Duke's rate was already lower than that.

Mr. Horn said.that the $200,000.00 budget considered by the cities was grossly inadecuate for prosecut-ing a rate. proceeding and all subsecuent ccurt -

appeals, and that a rate proceeding would cost 18'

the cities at-least twice that amount, or $400,000.00.

Mr. Horn predicted that proceedings at thirteen

. administrative and judicial levels would be recuired before final decision in any rate complaint proceed-ings instituted by the cities. He predicted that five to seve years would be consumed by these proceeding [sJ, and stated that at the conclusion of all this the original data would be obsolete and the cities would be in the position of having to start all over again factually. He said, to our best recollection, ' Duke cannot make any reduction in rates to municipalities, and will fight as long and hard as possible.'

A copy of the affidavit is incorporated in the Exhibits to the Initial Prehearine Statement as E::hibit 3 8 which has been supplied to the Applicant by the Intervenors.

Other evidence of this type may be uncovered as discovery progresses. Applicant will be notified of this evidence in accordance with the Department's duty to supplement outlined in the Atomic Energy Commission's rules of procedure.

(c) The Department currently has no knowledge as to whether the Duke Power Company has carried out its warning given to its municipal customers. However, since the date of the Charlotte meeting referred to above, Duke has instituted three rate filings under Section 205 of the Federal Power Act, each of which constitutes a substantial increase in rates, particularly for bulk power supplied to municipalitics. Each of these filings has required Duke's municipal customers to retain counsel, to hire expert consultants in engineering, economics and finaneg and to present expert testimony in opposition to the proposed rate increases.

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23. Certain North Carolina municipalities (Duke's

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competitors in the retail market) directly recuested partici-pation in Duke's nuclear generating program. These reouests are detailed at length in the case of City of Statesville, et al. v.. Atomic Enerav Commission, 441 F.2nd 325, which is incorporated herein by reference. See also our response to Question 30. Additional instances of refusals to deal, upon which the Department intends to rely,may be uncovered as discovery progresses. Applicant will be notified of these instances in accord with the Department's duty to supplement outlined in the Atomic Energy Commission's Rules of Procedure.

24. Duke's retail competitors do not have availabic to them coordinating power and energy from the regional power

! exchange on terms ecuivalenc to those Duke offered to other members of the CARVA Fool. This discrimination prevents these retail competitors from financing, constructing, and operating their own generation and from marketing any surt.'.us power therefrom. It appears that when smaller systems started pressing for entry into the CARVA Pool, Duke terminated that pool and substituted the VACAR bilateral contracts. The specifics of these discriminatory arrangements are now being compiled as the Department examines and analyzes the nearly 100,000 documents produced by the Applicant in this proceeding.

Further examples of discriminatory dealings with retail competitors may be uncovered as discovery continues. Appli- ,

cant will be notified of these examples in accordance with j l

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the Department's duty to supplement cutlined in the Atomic Energy Commission's Rules of Procedure.

25. (a) " Market power" is an economic term used to express the ability of a particular firm in a supply or demand market to control price, cutput, and entry. Firms with a 4

large degree of market pouer in supply markets are said to have menopoly power. Those in demand markets are said to have monopsony power. Duke derives its extensive " market power" from its monopoly of bulk power supply facilities and high-voltage transmission. With this market power Duke has the ability to prevent other electric utilities from enjoying 1

the efficiencies of large scale units--in the past Duke has utilized its monopsony pouer through control over transmis-sion to control water power.

j (b) (1) The Duke Pouer Company itself resembles a i

coordinating arrangement through integrated ownership of bulk power supply facilities. Through acouisition and merger, Duke has foreclosed smaller electric entities in its service area from opportunities to bargain for coordinating arrangements with the smaller systems which have been absorbed into the present Duke Power Company.

(2) The CAR'!A Pool.

4 (3) The ' VACAR arrangements.

(4) Miscellaneous coordinating arrangements with adjacent companies in contracts listed by /.pplicant: in -

of the Attorney General.

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response to 0uestion No. 12 J

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(5) Other coordinating arrangements may be uncovered by the Department as discovery progresses.

(c) Duke has continuously, at least from January 1, 1960, denied access to coordination to all potential entrants to the wholesale bulk power supply market in its service area.

There are three exceptions to this statement that we are currently aware of:

(1) A coord'ination arrangement uith the South Carolina Public Service Authority (Santee-Cooper) may have been entered into by Duke on the condition that Santee-Cooper restrict its market area.

(2) The Southeast Power Administration (SEPA) was granted access to limited coordination by Duke so as to prevent the construction of high-voltage transmission and thermal generaticn by SEPA if access were denied.

(3) Yadkin, Inc., has been granted coordination; but it has no " retail customers" and serves only Alcoa's industrial needs.

(d) On August 29, 1967, at a public hearing con-ducted by the Atomic Energy Commission Safety and Licensing Board in Wahalla, South Carolina, Mr. Jack Harris, City Attorney of Statesville, North Carolina, requested on behalf of Piedmont Electric Cities, Inc., a 4 percent undivided interest in ' Duke's Oconee units. Of course, implicit in such a proposal is a reouest for coordination necessary to insure the technical feasibility of the intended arrangements. ~

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This recuest was rejected three days later on September 1, 1967, by Carl Horn, then Vice President (Finance) and General Counsel of the Duke Power Company. Details of the reouest and subsequent rejection can be found in the September 1, 1697, letter from Horn to Harris which is Exhibit 9 in the Exhibits to the Initial Prehearing Statement supplied to Applicant by the Intervenors. Details of oral recuests for coordination made by EPIC, Inc., to the Duke Power Company are currently being investigated by the Department.

The City of Belhaven and other cities in North and South Carolina in the area served by wholesale by the Virginia Electric Power Co., sought admission to the CARVA Pool. The Duke Power Company, acting through the Executive Committee of CARVA Fool joined in denying Delhaven's request for coordina-tion.

It is not surprising that requests for coordination have not been numerous given the Duke Power Company's uell-known unwillingness to coordinate. See our answers to ouestions 21 and 30. However, other requests for coordination may be uncovered as discovery progresses and the Applicant will be notified of these requests in accordance with th.e Department's duty to supplement as outlined in the.' Atomic Energy Commission's Rules of Procedure.

26. (a) A. coordinated nuclear generation expansion program is, at a minimum, one in which two or more utilities -

pool their reserves.so as to make the' installation of large 23

scale nuclear units econcmically efficient. Cbviously, there are numerous forms of coordination. The Department would refer Applicant to an informative paper entitled, " Principles of Coordinating Agreements" and EEI paper 65-51, both written by Committees of the Edison Electric Institute. In fact, the first article appears to have been rewritten by Franz Beyer, ,

Duke's Vice President for Systems Planning. Thic is Duke's Discovery L:c. ment No. 39000, et seo., herein incorporated -

by reference; the second paper is cited therein. An under-standing of these papers makes clear that there are degrees of coordination and that no single arrangccent or transaction can be regarded as essential in order to achieve " coordination" as referred to in Applicant's cuestion.

(b)

(1) Applicant refused to coordinate with the South Carolina Public Service Authority (Santec-Cooper) unless that utility agreed to territorial limitations on its service area so as not to compete at retail or wholesale with the Applicant. Details of these transacticas are neu being compiled as the Department examines the nearly 100,000 docu-ments produced by the Applicant in this prcceeding and makes further specific inceiry. Part of the Department's incuiry l hereto has been blocked thus far by Applicant's refusal to l

supply materials it contends are protected frcm scrutiny under l the Noerr-Pennincton doctrine.

(2) Applicant refused to coordinate with EPIC, Inc., and Piedment Electric Citiec Association. Details of ,

this refusal arc described in Question 25.

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(3) Other refusals to coordinato may be uncovered as discovery progresses. Applicent will be notified of this infor-mation in accordance with the Department's duty to supplement as outlined in the Atomic Energy Commission's Rules of Procedure.

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27. We know of no instance where Duke has refused to

interconnect for purposes of selling bulk power at wholesale.

4

28. The Department presently believes and proposes to show that Applicant has refused to wheel power for EPIC, Inc.,

and Yankee-Dixie, Inc. Details of these refusals to deal are now being compiled as the Department examines the nearly 100,000 documents produced by Applicant in this proceeding.

i

29. The Department currently does not intend to rely on any of the arrangements betueen Yadkin, Inc., and Applicant.

But such arrangements are illustrative of the typc of'coordina-tion required by independent developers of hydroelectric power if the water resource is to be utilized to its full advantage. -Applicant, through its dominance of generation and transmission facilities is the sole supplier of power exchange services necessary to effect such hydrothermal coordination.

30. - (a) (b) (c) At the August 29, 1967, public hearing-conducted by the Atomic Energy Commission Atomic Safety and ,

Licensing Board at Wahalla, South Carolina, Mr. Jack R. Harris,_

l 25' 4

I l

City Attorney for the City of Statesville, North Carolina, proposed the following:

I would like to say that the ultimate strategic goal sought by Piedmont Cities Power, Inc., and the eleven Piedmont Electric Cities which sponsor Power Supply in the legal battle which has just begun may be shortly stated.

i Number one, Power Supply renuests and demands of Duke Power Company the offer of an opportunity to purchase for the benefit of sponsors a 4%

undivided interest as tenants in common without right of partition in the ownership and capacity of the presently proposed Oconce Nuclear Station n its 1, 2 and 3.

U' -(Tr. p. 215]

Number tuo . . . Power Supply thus recuests and ' demands of Duke the offer of an opportunity to onsors a invent total ofin approximately Cconee for the benefit of sp(Tr. p. 216]

$12,700,000.

Number three, Power Supply further recuests and demands of Duke the offer of an opportunity to invest said total for the benefit of sponsors in the following annual installments: 1967, $110,000:

1968, $1,213,000; 1696. S3,539,000; 1970, $3,543,000; 4 1971, $3,024,000; 1972, S1,184,000; 1973, the sum of $73,000. (Tr. p. 216]

Number four, the eleven Piedmont Electric Cities thus seek an opportunity to own 60 percent of their current power supply and wculd remain dependent on privately ouned purchased pcuer from Duke and its great system of fossil, atomic, and hydro stations for the remaining 40 percent of their total current power supply. (Tr. p. 216]

i Number five, the eleven Piedmont Electric

Cities thus seek a saving in what they pay Duke

for-purchased power at current rates of $1.5 million annually for a total saving over the forty-

. year-commercial license period of $60 million.

[Tr. pp. 216-217]

Applicant's answer to each of these five requests was negative.

Carl Horn, nou; President of Duke Power Company, presented Duke's position in a September 1, 1967, letter to-Mr. Harris.

26

For documentation of this recuest and response, see Exhibit 9 in Exhibits to the Initial Prehearine Statement which has been supplied to Applicant by the Intervenors.

(d) (e) (f) We have no knculedge of any reouest of Applicant for the purchase of unit power from any.of its nuclear facilities. However, this matter is still under I

investigation. Supplementation of this request in accordance with Atomic Energy Commission Rules can be expected if further information is uncovered.

. 31. The reouests discussed in cuestions 25, 26(b) and 30 were all made in a " timely fashion." In particular, the Piedmont Cities Power, Inc. , and the eleven Piedmont Electric I

Cities were made six years in advance of the operation of the first Oconee Unit and prior to the initial construction of that unit.

4 32. The Department currently has no knowledge as to i whether Applicant now is a party or has ever been a party to i

l- an interconnection or coordination agreement in which it

agreed to joint -ownership af any of its generating units with any other party or ia which it agreed to sell unit power to any other party other than its obligations under the CARVA i 4

agreement as detailed in executed Notices of Obligatien. l 1

These would include agreement for sale of unit power from '

Oconce Nuclear Units 1 and_2. ,

27 a

e

]

1

33. (1) Appendices- A-E of the CARVA Fool Agreement t

provide for extensive coordinated development among the 1

member utilities, including the staggered construction of participation units. The Grigg letter does not propose f such arrangements.

1

j. (2) Under the CARVA Pool Agreement = caber utilities had the opportunity to purchase energy from Applicant at the

! cost of new large-scale units. The Grigg letter states that _

Applicant is unwilling to make sales ct "marginci cost" to 4

any other entity. While the term " marginal cost" is ambigueus, we have construed it to mean the average cost of new baseload j generating facilities.

(3) Yadkin, Inc., and the Southeastern Power Adminis-tration engage in hydro-thermal coordination, including the l

! sale of firming power with Applicant, The Grigg letter does

, not propose such arrangements.

i (4) It is unclear whether the Grigg rcrerve shcring-proposals would apply only to existing bulk power suppliers

or would also apply to future entitics engaging -in bulk pcuer j

i generation--i.e., whether the Grigg letter really indicated i'

Duke's-intention to share reserves with EPIC or smaller systems in its area now engagid solely in the distribution

[ of. electric pcwer who are poteltially bulk power suppliers.

i i --

34. The formation of tha Southern' Electric. heliability L

t.

Council (SEnC).may have'been'part of an overal1 anticompetitive ,

l .

! planito separate. reliability coordinatien -frem power pooling 28 .

_ , _ , _ _ _ _ = . a. . ,_ ,

5- l 1;

coordination. This plan came in response to c legislative I

push (e.g., the proposed Electric-Reliability A.ct of 1967) to  :

compel large utilities to coordinate uith smaller utilities for both reliability and poner pooling with the resulting l i

anticipated effect.cf providing small systems the economic benefits of coordination. Evidence indicates Lhat the formation of SERC was conceived as a method of carisfying public pres-sure for increased coordination which resulted from the l'965-Northeast blackout and the subsecuent Pennsylvania-New Jersey-Maryland blackout--to give small systemn enhanecd reliability i

but to deny them any economic advantages of poolin3 The evidence referred to above is: (11 a memo of May 9, 1969,

! from F. W. Beyer'to G. G. Mattisen and B. B. Parkar (Duke

, Discovery Cocument No. 22900),and (2) the minutes of a meet-ing of the repre~sentatives of several southeastarn utilitics held in Charlotte, North Carolina, on February 28, 1967

, ( Duke Discovery ' Document Nos . 68941, 68942). It should also be noted thct SERC is limited in =cmbership to e::isting bulk

. power suppliers.

1

35. See our ansuer to Question 33.

36. ' (a) ' (b)- (1)'The Department.does not contend that Duke's opposition to the 1952' appropriation.for SEPA vas a sham attempt to influence governmental action. Ecwever, evi'dence-of suchLactivitics may also be~ admissible to show the purpose

~

and character of other conduct.

-29

- - ~_ - - . . .. .

e 1

(2) The Department does not contend that Duke's opposition to the 1953 appropriation for SEPA was a sham attempt to influence gevernmental action. However, evidence of such activities may be admissible to show the purpose and character of other conduct.

(3) Until discovery is completed we are unable to say whether Applicant's activities at any cime regarding the Carters Island-Trotters Shoals Project on the Savannah

River was a sham attempt to influence governmentcl' action or sham litigation.

]

(4) The Department will not contend that Appli-

]

cant's attempt to obtcin regulatory approval for its accuisition -

of the Nantahala Power & Light Co:npany was a sham, but the acauisition attempt itself may have been anticompetitive.

(5) The Department does not contend that Appli--

a' cant's efforts to dissuade North Carolina municipalities frca participating in EPIC, Inc., are sham attempts to influence 2 governmental action. However, they may be admissible to shew i the purpose and character of other conduct.

. (6) The Departtnent vill not. contend that 4

. Applicant's statements anticipating the likelihood. of Duke's

! litigating regarding. EPIC, in and of themselves are activities

which constitute sham litigation. Howev'er,.such statements i 1

may be admissible to show purpose and character of other conduct.

l l ( 7) The1 Department will not contend that pur- l l ported statements by Applicant regarding anticipated litigation

I

,30 n , ,y. -

o ., ,, -----w- , , ,. n- v- m , w ,-- r,---

e i

I i

i concerning wholocale rates made on June 22, 1957, are in~and of themselves cctivities constituting sham litigation.

However, they may be admissible to show the purpose and

, character of other conduct.

l -(8) The Department will not contend that Applicant's support in 1959 for territorial limitations upon the operation of the Tennessee Vcliey Authority uas a sham ,

attempt to influence governmental cctivity. ,

(c) (d) (e) (f) The Departm?nt vill net contend

,i that an.y of the above -listed activities were attemo. ts to deny access to others to t'to legislative or adjudicatory 1

processes.

37. (a) . Applicant opposed the constructica of the i-Green Rivar Pumped Storage Projecc by EPIC, Inc.,-before the Federal Power Commission. Details of Applicant's opposition-l can be fcund in E::hibit 13 in Exhibits to the Initial P ahearina i

j Jtatemort supplied to Applicant by the Intervenors. The e

Department will not contend that this opposition was a sham i

l or an attempt to deny access to others to the legislative

or adjudicatory prccess.

Other examples of Duke's opposition to applicaticus 4

of other utilities for project licenses may be uncovered as the Depart =cne scarches the 100,000 dccuments supplied bp Applicant to the Depart =cnt in'this ecsc. The Dspertment uill supplement thic response in accordance .with the AEC rules.-

3 .

31~

i 1

4 r

(b) In testimony beforc the North Carolina Utilities 1

Commission on February 18, 1970, Carl Horn, Applicant's I President, warned that there would be " considerable. litigation" if the EPIC project ever got out of the planning stage.

Details of this warning can be found in Exhibit 14 in EnSibits i to the Initini Prehearine Statement supplied to Applicant by

! the Intervenors. Also, cce our response to Cuestion 22.

1 Since the threat was a general ene, we are unable to deter-t mine uhether this would constitute a sham.

4

.: Other " threats to engage in extensive litigation to block such projects" may be uncovered ac discovery progressec -

i

and Applicant. will be supplied with this information in accordance with the Atomic Energy Cweission rules.

1 (c) The Department has no knowledge currently of l conduct engaged in by Applicant uhich nould constitute a f sham attempt to influence governmental action.

1-(d) The Department.has no knowledge currently of l

j any attempt by Applicant to deny cthers access to the legis-l lative or adjudicative processes.

4

^

38. The Department ic presently conducting an extensive

study.-tc determine if such a price saueene e

:ists. An. answer 4 -to the cuestion will have to await completion of that study which is being conducted by Dr. Herschel Jones of the engineering consulting firm of Coracil, Howland, Hayes &

Merryfield (Bellevue,. Washington). ,

32:

4 .. . ,

I 4

i

39. (a) " Probable" in this. context means'likely to

cccur.

i (b) The "probsble activity" referred to in the

! cuoted page is the generation and marketing of low cost electric power by Applicant while simultauecusly foreclesing 4

j alternative sources of low-cost electric pcuer to Applicant's i

retail competitors by denying theia acce,s to the regicnol

, pcuer exchange market. The Department considered this i activity to be probable because this has been applicant's-pattern of behavior in the past.

4 t

{ 40. The. relative costs of power frcm the Oconce and E McGuire units are significant to thie precocding in-tuo e

ways:- (1) Should the costs of nuclear power rise.so high as to make the installation of small-scala expansion programs h

e using fossil fuel economically feasible,-some of the Appli-l cant's moncpoly power may be eroded. Iicwever, the cost of fossil-fired electric generating plants has increased at 4

i even a greater rate than the cost of nuclear energy.

] (2) -In f ashioning an appropriate remedy for. Applicant's anti-j competitive practice, the Board may wish to take into account the differencial in cost between the two plants and. conclude '

I that only access toi he t less expensive power is~an effective

~

remedy for-anticompetitive ccnduct.at the tima construction-i of Oconce was commenced.

e i

33

,, e, ,y ,, , , - , - .. --..,.,n-e,s. e >n

d 1

41. The Department agrees with this contention in that it means nuclear energy, when marketed on a large scale, is cheaper than any other kind of available power for expan-sion of the Applicant's system. Clearly, many of Applicant's j eaisting plants produce energy at a cost less than new nuclear plants; but for new generating units, nuclear energy is the

, least expensive source of power. The Duke Power Company Vice President for Systems Planning, Franz W. Beyer, agreed with this conclusion in a recent deposition taken by the Department.

i

42. Numerous municipalitics have expressed an interest

]. in antitrust issues concerning the Cconee units.

(1) The Cities of Albemarle, Apex, Belhaven, t

Cherryville, Clayton, Cornelius, Drexel, Edenton, Elizabeth j City, Farmville, Fayetteville, Fountain , Grani te Fa lls ,

Greenville, Hertford,'High Point, Hobgood, Hookerton, Hunters-ville, Kings. Mountain, Kinsten, LaGrange, Landis, Laurinburg, j Lincolnton, Lumberton, Monrce, Morganton, New Bern, Oak City, Pikeville,'Pinetops, Red S'prings, Robersonville,' Rocky Mount, Scotland Neck, Sharpsburg, Shelby, Smithfield, Stantonsburg, l Tarboro, Washington,'and Winterville, through a May'31, 1971, consolidated -reply written by Alton P. Wolf, Vice President and First Vice Chairman of the Feuer Committee. cf EPIC, Inc. ,

made _ their interest known. .

~

- 34 g & -

e , & - - m --

---='-r-v - - - * * == --

n.

d 4

l (2) The City of Morganton in a July 31, 1971, letter adopted the-consolidated respense of May 31, 1971.  !

~(3) The Cities of Albermarle and Cherryville filed a supplementary letter to the consolidcted response of Mcy 31, 1971.

i (4) The Cities of Rock Hill, South Carolina, Neuberry, South Carolina, Gaffney, South Carolina, and Easley, South Carolina, have also expressed interest. The specifics i oE-these expressions of concern can be found in the documents supplied by the Department to Applicant in resprase to these

]i interrogatories and this document production rcouest.

il'

43. The Depart = cat has never alleged that any actions taken by the North Caroline Utilities Commission or the South Carolina Public Service Authority have been in contravention of federal lau. The footnote referred to in this cuestion

does not explicitly or implicitly state such a contention.

! 44 Until discovery has been completed, the Department is unable to formulate any contentions coaccraing the validity

( under federal law of anactments of the legislatures of 1

North Carolina or South Carolina regarding electrical' services.

.The Department will supplement this response in . accord with' i

~ the Atomic ~ Energy Commission's Rules of Practice.

35

+,

O

45. Until discovery hcs been cc:qpleted, the Department cannot fctmulate any contentions as to the validity under federal law of any agreement Applicant has entered'into which on its face represented that it was undertaken pursuant to or in anticipation of state action. The Departacut will supplement this response in accord with the Atomic Energy Ccemission's Rules of Practice.

46. Until discovery has been completed the Department is unable to formulate any contention concerning territerial allocation agreements entered into by Applicant. The Depart-ment will supplement this response in accord with the Atomic Energy Commi.esion's Rules of Prcctice.

47. (a) The following accuisitions or attempted acouisitions of electric distribution systems are relevcnt to this proceeding:

(1) The attecpt to accuire the Nantahala Pouer & Light Company--offer made Janucry 31, 1959; offer expired after l960.

(2) Pisgah Mountain Electric Company, accuired on July 17, 1964.

(3) Belton Light and Power Company, acouired on November 13, 1963.

(4) Town of Ninety-six, acouired on October 1, 1969. '

1 l

l l

36 l l

i (5) Kersha Power and Light Company, accuired August 17, 1970.

(6) City of Greenville and County of Greenville (formerly Donnellson Air Force Base), accuired May 11, 1964.

(7) Greenwood County, accuired July 1, 1966.

(8) Clemson Agricultrual College of South Carolina, accuired December 15, 1964 (9) The Electric Company, Incorporated, of Fort Mill, South. Carolina, accuired September 21, 1972.

i (10) Applicant offered to buy the Laurens

Electric Cooperative, Inc., Broad River Electric Cooperative, Inc., Newberry Electric Cooperative, Little River Electric Cooperative, Blue Ridge and York Electric Coop on August 20, 1963.

(11) Applicant has offered to buy the South Carolina Public Service Authority pcwer complex in July,1964.

(12) Duke Discovery Docunent 75460 indicates Duke's intention to purchase all 116 foreign systems in its area. This document is dated June 27, 1960, and is a memo from Henry L. Cranford to Mr. P. D. Huff.

i (13) Other attempts to acquire competing etail distribution systems and bulk power suppliers may be uncovered i

l as discovery progresses, i

The trend cf concentration of-ownership recited ~

i 'above shous how a_ monopoly of the bulk power supply can lead

'  : to a monopoly at'the retail distribution level.

37

, . - . ,-,,y 2--,

1 . ..

1 (b). Appliccat has engagod in several kinds of

,' predatory or unf air practica in accuiring the above systems :

(1) A policy to refrain from coordination uith I

existing cr potential bulk power suppliers.

(2) The construction of preemptive lines against coops even though in areas where no current loads t

served by Duke existed.

(3) A possibic price saueeze in Duke's uhole-sale rate. schedule which may hcve insured that competing systems wculd not be able to serve large industrial customers.

See response to Question 38.

l (4) Applicant's policy of determining new distribution delivery points for sales to REA cooperatives and ownership of transmission for such delivery points.

48. (a) (b) (e) (f) (g) (h) The Department will not contend in this proceeding that ecmpetition is preferable to regulation, rather that competition is cceplementary to the regulatory process.

.! (c) (d) Until the completion of our disecvery, the l

Department is unable to dvaluate the anticcmpetitive effects of the actions, agreements, and understandings in cuestion.

49. Discriminaticn results from differences in rates, terms, charges or conditions of -service . offered different

- wholesale customers. ' Unreasonable discrimination is a 4 [38

d discrimination in rate uhich bears no reasonable relationship

- to relevant differences in the cuality, costs, or other characteristics of two or more services. Generally, regula-tory commissions, such as the rederal Power Commission, have a statutory obligation to prohibit unressonable discri.nination.

]

Bonbright's concept of " undue discrimination" is synonymous with the Department's concept of " unreasonable discrimination."

(See Chapter 19 of Bon)right, Princioles of Fublic U'ility; Rates.)

50. The Department believes that any tax or other advantages which may be lawfully enjoyed by municipal and i cooperative systems do not excuse anticompetitive conduct en Applicant's part and are irrelevant to this proceeding.

However, if the Board believes such purported advantages are i relevant, it must also consider Applicant's comparable competi-tive advantages such as (1) the Investment Tax Credit, i (2) liberalized and accelerated depreciation, (3) subsidies for nuclear insurance under the Price-Anderson Act. This

is not intended as an exhaustive list of advantages. The Department has not yet computed the dollar value to Applicant

, of each of these advantages.

51 '. (a) Applicant's stated position that it has never refused to coordinate may be a false statement of its actual i

policy.

I .

r .

! 39 i

(b)-(c) The Department refers the Applicent to' Duke's attached as Appendin A hereto, 5 Discovery Document Nos. 19137, 19138,/where Mr. Carl Horn, Applicant's President, suggests that Applicant refrain frca

coordination with the South Carolina Public Service Authority

(Santec-Cooper) because of Santee-Cooper's tax and financing

! advantages and Duke's concern over possible competition in l

the wholesale bulk power supply market. Mr. Horn in this letter suggests framing a response to Santee-Cocper.'s coordination proposal on other grounds. This conduct would appear to be intended to deceive.

(d) Examples of Applicant's refusal to coordincte have been recited at length in our answer to Cuestion 34.

(e) These positions are "somewhat conflicting" in J

that a Duke contention that it refuses to coordinate becauro its existence uould be threatened," would be more consistent with a Duke position that it has reasonably refused to coordinate than with its apparent position that it acy at all times be willing to coordinate.

52. The flow of resources in the markets described above are altered by differences in interest rates and the presence of tax . exemptions from municipal and cooperative electric _ systems. Whether er not this alternation would be characterized as a " distortion" depends upon whether that 4

alteration is in accordance with or departs from sound public policy.

40

-. _. - . . ~ . . - ._ _. . - - - . _ _ _ -

,1

53. The' Dapertment will contend that the technology of nucicar electric power was developed largely at public expense.

f The legislative history of the Atomic Energy Act of 1954 refers repeatedly to $12 billion as the sum e:: pended on nuclear technology up to that time. We have made no calculation as to the sum expended since 1954 nor have we made calcualtions as to the sum expended by the private sector. However, any calculation as to the amount of private research funds expended should not include the cost of reactors thich ucre in ' fact cca-mercial but were licensed by the Atcmic Energy Commission as experimental or medical therapy reactors prior to the December 17, 1970, amendment to the Atomic Energy Act of 1954. To the i extent that Applicant is itself able to utilize nuclear i generating capacity while preventing or restraining others from doing so (by denying them access to the market), it reaps the benefits of those expenditures by the Government and denies them to its competitors.

4 i

i 54 The Department has not yet determined whether these contentions will be made in this proceeding. Mcwever, the Department does believe that the application of antitrust principles will lead to a more efficient allocation of i

i resources. The battery of remedies proposed in this proceed-ing will-lead to increased efficiencies with access to the I regional power exchange for all actual and potential suppliers of bulk power. All suppliers desiring control over their 41

N bulk power supply will be able to install larger scale units than they uculd otherwise use. Larger units are a more efficient source of energy for meeting new loads in that they have a better heat rate than small units. They are cheaper per kilowatt and thus more efficient in that they use less capital resources to achieve the same output.

55. (a) (b1 (c3 (d) The Department currently does not intend to rely on the instance of actual competition described in the Baker speech in this proceeding.

(e) Materials in the Duke discovery documents indicate that Applicant has been concerned uith the possibility of cooperatives switching to self-generation and that in order to prevent the construction of such generation, Applicant may have priced power to these cocps at below average cost.

Applicant has also provided transmission services to the Southeastern Power Administration at a rate which did not provide a reasonable return on investment in order to prevent SEPA from building its own tranrmission. Details of these transactions are currently being compiled as the Department completes its examination of the Duke discovery documents.

The response will be supplemented in accordance with the Atomic Energy Commission Rules of Practice.

56. (a) The Department will contend that "those who control a dominant power pool or generatica facility cannot -

refuse caual sccess to sll systems."

42

4 i

j (b)- A pool is, of course, dcminant if it is the

only pool as is the situatica here.

(c) A given entity is among those who control a

power pool if it has the power to grant or deny access to that pool.

(d) Ecual access means access on terms-available to utilities who borgain from positicas of nearly ecual strength.-

i j Eaual access cannot be provided if a acabership standard is

{ imposed in a power pool ~recuiring a participr. ting utility to I

have available generating capacity of mutual b:ncfit to other members in ecual amounto uhore the systems are vastly different in size. A fair wholesale rate will also not provide 1

i eaual access because a gencrating entity uill generally need i

j access to coordinating arrangements, not firn power.

(e) Unecual access would be unreasonably discrimina-

, tory and would fail to remedy the cor.,petitive detriment ubich i

results when a competitor is excluded frca an escentici resourCo.

(f) The competitive advantage derived by its con-trolling a dominant power pool is the ability to install

, large . nuclear generators, which are the. most efficient nay ofEsupplying energy for meeting new loads.

(g)- The Department will contend in :this proceeding.

_ that Applicant has refused eccess to a pool.

i (h)' Fee response to Cuestion 25.

(

t m

43 F ------

7-~e

• c y%> r 7y--y ,n e r y =w + - - -* w y y

4

57. The Department will see.k to apply the bottleneck monopoly theory to this proceeding. The crucial prerecuisites to-entry into the bulk power supply market are access to the regional high-voltage transmission network and access to coordination arrangements, and we will contend that Applicant's control over the " essential resources" has affected competition in all of the markets listed in response to Interrogatory 1(d).

58. The Department currently knows of no contracts to uhich Applicant is a party or has been a party at any time during the period of January, 1960, to the present which are illegal because they are full recuirement contracts.

59. (a) (b) The Department has conducted no studies as to the necescity for interconnecting the Oconee and McGuirc-units with other entities. Applicant's own system, developed through accuisition and merger as well as internal expansion, may be sufficiently large to sustain these units without interconnection. Mcwever, as late as 1969, Applicant's i

l representatives were claiming that one of the advantages of CARVA Fool was that it ma'de possible the installation of larger size units. Whether Applicant, in the absence of the CARVA Pool or other strong Luterconnection would have decided l

l to build the units is' uncertain. It'seems likely that having l a'certain market for the surplus power from those units made

, Applicant's . projections of the cost of future bulk power .l 44

l l

l l

J

- supply more dependable and thus improved its competitive position.

(c) (d) (e) (f) The Department does not contend that " activities under the license" include the activities of other utilities interconnected uith Applicant.

i,

60. (a) (1) The impact of a new nuclear jenerating station on.the competitive advantages of a ut,ility is to 1 decrease that utilit:'s average cost or to slow down any increase in a utility's average cost compared with new generation from other fuels.

(2) The present oil shcrtage may well mean that a new situstion inconsistent with the antitrust laws vould be created by the unconditional licensing of the Oconee-McGuire units in that alternatives for small systems-1 not only vill be at a much higher cost but may be entirely

. unavailable, r (b) (c) The Department is presently evaluating whether a new situation is created in light of the present oil supply market.

( d) Applicant may have made rate concessions to its-wholesale customers to prevent their self-generation.

With the addition of nuclear power and the present supply and the recent change'in interest rate.for REA ecoperatives,.

market in oil,/these concess b ns may no- longer be necessary.

61. . (a) Interconnection: The Department,dces not -

object to'thc FPC Glossary definition of.this term.

45-

, , - - . ,, , . . _ . ~-r, .,

J (b) Coordication: This term is not listed either in the FPC Glcscary or the IEEE Dictionary, but the Departtient concurs generally in the use of that term to describe one or more of the arrangements discussed in Duke Discovery Dccument 30000.

(c) Coordincted Development: One or more of the arrangements described in Discovery Document 39000, pp. 15-18 inclusive.

(d) Pooling: The Department does not obj ect to the FFC Glossary definition.

(e) Reserve Sharing: An arrangement for the reciprccal exchange of emergency power on an if-and-when available bcsis, ususlly associated with plaas to provide adecuate reserves on the inte connected system to provide for the firmness of power on the overall system, and some fair sharing of the responsibility to provide such reserves.

( f) Transmission: The Department does not object to the FFC Glossary definition.

(g) High-voltage transmission: This term is not listed either in the FPC Glossary or the IEEE Dictionary, but we would include transmission of 100 kv-230 kv.

(h) Extra-high voltage: The Department does not object to the FFC Glossary definition or would also be agreeable to limiting this to 500 kv and above. In that event, high-voltage transmission would include 345 kv and other voltages above 230.

46

\,

(i) Unit pcuer: Power frca c specific gcnerating unit priced at the costs of that unit.

(j) Firm Power: The Department does not object to FFC Glossary definition.

(k) Spinning resers2: The Department dcas not object to FPC Glosscry definition.

(1) Baseload generation: The Department does not object to the FPC Glossary definition.

(m) Emergency power: The Department does not object to the FFC Gloccary definition.

(n) Wheeling: Providing transmission services from one or more transmission lines or a transmission system by accepting pcwer frcm another entity at one point and pro-viding power to the same or a third entity at another point.

( o) Bulk pcwor supply: Generation and/or trans-mission services.

(p) Standby pcuer: Pcwcr used in the event of a forced outage. It can either be emergency pouer or firm pouer depending on arrangements available to the purchaser and deemed satisfactory by him.

(c) Economy energy: See (m) above.

( r) Deficiency power: EEI 65-51 at page 24.

(s) Bulk power: See (o).

(t) Distribution: The Department does not object to the FPC Glossary definiticn.

(u) Distribution voltage: As applied to Duke, -

normally voltages belou 44 kv.

47

i l

l (v) Transticnien voltage: 1.s cpplied to Duke, T

normally 100 kv os above, with 44 hv norns11y as subtrans-l.

mission.

(w) Maintenance energy: Energy purchased for the

, purpose of supplying 1ond uhile the purchasing entity's own i

j units are down for maintencnce.

62. The following types of private business decisions are not subject to pervasive regulation: (1) Coordinated j development arrangements connot be compelled by any regulatory authority; (2) Sales at wholesale to new distributore are not recuired; (3) Uheeling esunot be ecmpelled, only rates charged can be regulated. The legal positien of the Depart-ment of Justice with respect to the scope of the Federal l Power Commission's jurisdiction in the general area of bulk a

pouer supply are set forth in the Supreme Court brief for the United States in Otter Tail Power Co. v. United States,

.410 U. S. 366. l

63. (a) " Super power" was a term used in the 1920's to refer to interconnected and coordinated systems. See, for example, Murray, Supernower, McGraw-Hill (1925).

i

(b) The " periphery of the Piedmont Carolinas is a not precisely definable area at the cuter edges of Applicent'r i

service. area. Applicant-may extend service at retail or wholeccle into these areas depending on the sgze or the load .,

and the distance from existing facilities.

43 N

______________.m_________._____._ _ _ _ _ . _ _ _ - _ _ _ _ _ _ _ _ . - _ _ _ _ - _ _ _ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ . _ _ . . _ _ _ . _ _ _ _ _ _ . _ _ _ . _ _ _ _ . _ . _ _

64. A commonly used for=ula in the industry is enc uhere a utility will extend frem its existing facilities if the cost of constructing the new facilitics does not enceed anticipated three-year total of revenues generated by the neu facilities. If the cost of the facility is too great, customer contributions to the utility might mske construction possibic. This mothed appacrs to have been used by Duke prior to 1962 , with perhaps another multiplier.

65. (a) Average cost is total cost dividad by total units. Average costs can also be divided into average system fixed cost and average system variable cose by dividing total system Cined cost and totcl system variable cost respectively by peak load and kilowatt-hour generation. These would produce system-wide average kilouatt cost and kilowatt hour Costs.

A system-wide kilcuatt cost may or may not be an appropriate assignement of demand costs as betueen several classes of customers with different usage characteristics.

There are a number of methods which have been developed for i such assignment of costs. Professor Bonbright lists some 29 of them. Duke appears to use three of these. If demand ccsts and administrative and general ccsts are also allocated to the various classes of customers in accordance with some l acceptable allocation method, the costs thus distributed among the varicus classes con tF n be divided into two parta-- -

49

l l

l namely capacity tad energy costs ccrresponding to fi::ed and variabic cc:ts.' The costs for a particular class can then be averased, and in that case the classes' averar;c cost wi11 ,

be the ca:ae as fully distributed costs.

4 (b) "Incremontal cost" is the difference betueen 4

cnc total cost and ancther tocc1 cost. For example, short run incremontal cost is total variable cost of generated kilowatt-hours at a clightly increased load level (at load level 2) less the total variable cost of generating kilowatt-hours at the earlier load 1cvel (load level 1) where the increase in load icvel is slight. It can be mathematically e:: pressed by the first derivative of coat with respect to d~

output, where cost is "c" and output is "o," i.e.: gg .

Professor Bonbright's discussion of short run marginal cost at pp. 320-323 is generally correct, but the undersigned finds the following discucciens of short run marginal cost to be more useful in the context of the electric utility industry: Steinberg and Smith, Econemv Leadine of Power Plants and Electric Fis.: ems, Wiley and Sons, Inc. , New York (1943); and Westfield, Marainal Ancivsis Multinlant Firms and Euciness Practices: An Examole, LXIX Quarterly Journal of Economics, 253 (May, 1955). See also:

Samuelson,' Foundations of Econ 3mic Annivsis, Chap. IV, pp. 57 ot- sec. , Harvard University Precs, Cambridge ~(2948) ; and Hughes, Short Run Efficiency and the Greanication of the Electric Potcr Industrv, LXXVI Quarterly Jcurnal of Economics, ,

L 592 (Nov., 1962).

50

Professor Ecnbright's discussica of long run marginci costs is generally correct. The excepic chown on pcge 24 of an Edison Electric Institute Report entitled " Report of the Task Force on Interconnection Arrangements, Methods of Cuning and Salling Generating Capacity"(August, 1965) Publication No. 65-51, presents a practical definition in the context of the electric utility industry. An arrangement for power from a specific generating unit as in pp. 25-23 cr a tenency in common or joint and undivided ounership in a specific unit, as in pp. 31-37, vould also result in an cppro::imation of long run marginal cost.

(c) It is not the Department's function to make such a determination, but factors such as (1) fairness or undue discrimination, (2) efficiency, (3) historical rates, (4) contractual commitments have generally been taken into account by those making such determinations.

(d) The phrase the undersigned actually used was "ccmpeting considercticns" and referred to the foregoing.

(e) (f) An adeauste response would recuire an extensive and time-consuming study, which the Department has not heretofore had occasion to make. The Department vill not contend that cach of App?.icant's rate classitications or categories of service in effect since 1960 should have been set on an incremontal bcsis. The Department believes that Applicant cculd have maintained a "coordincted development" tariff available to all interconnected systems, similar to .

its participction unit arrangement in the CARVA Fool cgree-ment as priced under Appendix C thereof.

51

66. (a) A power enchange is a market where various kinds of coordinating pcuer and energy and transmissien services arc bought and sold. A sub-pool is one portion of a pouer exchange; it might be considered a small power exchange.

(b) Geographic scope is the principal standard used to differentiate s power enchange from a sub-pucl.

(c) Consolidstion means the achievement of cccmon control, such as through statutory merger, stock accuisition or the purchase of assets--i.e., any congicmcration of formerly separate entities.

(d) See the Depa rtment's response to Questica 5 in these interrogatories.

67. At the time of the dissolution of the CARVA Fool several other electric entities ccpable of generating electric pcuer and competing with the Applicant in tha wholesale-for-resale acrket were seeking admissicu to thst pool. These were the 3elhaven Group, which cpprcached VEPCO, and Santee-Cooper, which contacted South Carolina Electric and Gas.

The PECA cities and a subgroup of Yankee-Dixie Pcwer, Inc.,

were also knocking at the door. Without access to a regional power enchange, it would not have becn economically feasible for these entities to build generating facilities. Documenta-tion of the factual basis for the Department's contention that CARVA was broken up to exclude these potential ccmpetitors will have to await the ecmpletion of the Department's examina- .

tion of the Duke discovery documents.

52

(b) The renecas accerted by Applicant are discussed in'the deposition, takca by the Depart =2nc, of Applicant's Vice President f or Systems Planning, Franz U. Ecyer. The Department must avait the completion of its examination of the discovery documents before formulating its position regard-ing the role which these asserted reasons played in the decision.

68. (a) Forms of coordinction are fcund both under the VACAR arrangements and the CARYA Fool Agreement eith the CARVA arrangement tending more toward power pcoling. They are significantly different in that the limited-term schedule of VACAR makes it an unsttractive arrangement for small systemn as compared with the arrangement for participation units under CARVA. A more definitive answer to this cuestion cannot be given until discovery is completed. Not only must documents be exsmined, but uitnesses raust be deposed to see just how, in fact, the terms of these complex agrectents have been implemented.

69. (a) EPIC, Inc., might be a regional pouer exchange market.

(b) A description of Yankee-Dixie, Inc., can be l found in the documents supplied to the Department by the

( , Applicant.

m 53

n I

(c) When the City of_ Springfield dropped out of Yankee-Dixie Power, Inc., the enchange was no longer large enough to support the installation of the planned units.

I

70. (a) Compare nonbright with EEI Publication 55-51.

f The latter is more appropriate because it ic a more practical 4

definition, in view of the purpose of the arrangement .

Professor.Bonbright at p. 325 recognizes thct "uhen used as a practical standard of rate making, the concept should be defined only in general terms and should be left for uhatever nicer definition may be recuired in the light of the particular rate making problem." EEI 65-51 presents such a " nicer definition."

(b) The CARVA Fool participation unit arrangement priced under Appendix C approximates such an arrcugement.

Capacity charge uas based on cost of most recent units on systems of pool participants. Energy was pricod'at costs ass'ociated with' maintenance and operation of new unit.

(c) See (b).

l 4'

(d) See (b).

(e) Duke Discovery Document. No. 85595 indicates i

- that as late as February, 1969, Applicant supported the use i of "long run marginal costs" in its coordination-agreement with the CARVA Pool companies.

~

71. (a) The Department agrees with_the contention of

-the.Intervenors that Duke,_ Carolina Power & Light, 54 e . + + - v- us -c - ,- y e

• y y- -- y y + evW-&- "

=+w-

I 1

4 i

1 l

1 1 . I South Carolina nicetric & Css, and VEPCO have c chared monopoly

[ on the generation of electric power over a substantial geo- [

graphic . area in Horth Caroline, South Carolina and Virginia.

1 (b) The Department is currently evaluating the 4 cvidence as to uhether these four utilities, during the existence of the CARVA and thereaf ter, notwithstanding the l dissolution of that pool, entered into a ccnspiracy to <

! monopolice electric generation by resisting jointly all recuests for coordination from prospective competitors.

72. Document Production Recuest.

i 73. The Departnent has no current knowledge as to any 1

1 j instances in which Applicant sought to affect the price of a

1 fuel for other operctors of electric generation in North or e South Carolina.

i

74. The Department centends that the activitiec under  ;

.the Oconee and McGuire licenses will maintain--i.e., continue, j carry on, support, sustain, uphold,~heep up--and indcod exacer-

! bate an anticcmpetitive.situaticn.

The activitics necessarily include the integration of- 5000 megawatts of nuclear power into Appliccnt's system for marketing in the arca of the Piedmont Carolinas where Applicant isoleccted. That.5000 cegawatts of nuclecr pcuer--

i supported {by the tying of Applicant's system into the-regional ,

- power..c::chenge--will be 'the checpest. cvailable- pcuer to serve 1 .

4 55 n , - - + , - - - . , , .y4< < -w,, - 7 w- ~w . , --r +-r - s - y ar- v ,>r4,g .w,i ,, ., , - , , - p- , yy, 4 . .

d b

new and growing loads in 1977. Such a 5000 megawatt gereration addition is hardly insignificant--33 percent of Applicant's 4

total generation capacity when installed, and cn even greater 4

! percentage of its baseload capacity (i.e., generating units -

I projected to operate nearly full time) . Installati.a of the  !

already-applied-for Catsuba units in 1979 and 1980 uill l increase the percentage of Applicent's generating capacity represented by nuclear units to 41 percent, and still further installations of large-scale nuclear generation are anticipated after Catawba.

1 i The leu-cost, large-unit, baseload nuclear power to be supplied by the Oconee and McGuire units vill strengthen and expand Applicant's system and the regional power exchange of which it is a part. This strengthening and enpansion will increase Applicant's future ability to install and obtain

low-cost pouer from large units. Yet, concurrent with i Applicant's action of installing cud planning to operate the i

Oconce and McGuire units to strengthen and expend its system and the regional exchange and support its installation cf the Catawba units cnd further large generating units, the Applicant continues to refuse reasdnable access to'the regional pcwer exchange by its potential competitors in the wholesale-for-resale firm-pewer market. I,e thus forecloses them from i

applying for licenses to install their own large, leu-cost, i .baseloed nuclecr generction--and from obtaining the' benefits i

i of-the' nuclear technology devcicped by the. Federal government-- -

and it denies them the low-cost pcuer they will need to compete SG'

l -

Y b

with Applicant's Oconee and McGuire power in supplying the i rapidly grouing electric reouire=cets of the Piedmont Carolinas and to support their own subsecuent competitive installations of Isrge generating units. Construction and operation of the Oconee and McGuire units and marketing of the power frca those i

units through integration into Applicant's system and the regional pcuer enchange demonstrably furthers Applicant's monopolization of the' wholesale-for-resale firm-power market--

thus maintaining and exacerbating a situction clearly inconsis-tent with the antitrust laws.

l-

75. The Department will contend that Applicent has 1

} conccicucly accuired cud maintained a monopoly. The evidence necessary to show monopolication has been cutlined in the

!: Department's responses to other cuestions.

a j 76. Document Production Recuest.

4 .

77. See our responses to Oucstion, 5, 6,.and 7 for-the

! relevance of Applicant's accuisitions of competing electrical

^

f systems prior to January 1, 1960.

78. Document Production Recuest.

1

~

79. A description of hcw " reserve sharing, coordinatcd development.and other types of_cocrdinction available thrcugh . :

high-voltags and entra-high-voltage.trensmission acke-57 w-~v y- w T ---T ------e-- - w .- - 4 g--m-+-?x----p

a

. i 11 possible. economies of scale in bulk pouer in bulk power supply ,

i to' systema participating in such coordinction" can be found i

in an Edison Elcetric Institute publicat. on entitled " Principles i

of a Coordinating Agreement," which Applicanc supplied to the i Department in response to the Joint Discovery Recuest.

]

i l

80. The statement cuoted from the Department's Midland advice letter uas set forth as part of a general j cxplanation of the Department's view on the scope of the

, proceeding. It was based upon the Department's general

! understanding of the ' structure and operation of the electric 4

utility 5.dustry (derived in part from widely accepted sources such as the Federal Power Commissien's National Pouer Survey), not upon any cpecific studies or the application of any specific standards.  ;

4

81. To compete in the wholesale-fcr-rosale firm-power

- market, an electric utility recuires a Icw-cost bulk pcuer-

supply. Nuclear power is cheaper now than any other kind of I

] available potter to meet the tremendous growth in electric recuirements anticipated in the Piedmont Carolinas. Nuclear power, however, may be economically produced only frca large units, i.e., units with over 500 megawatts capacity. Large I- units are econoM c sources.cf firm electric powet only if

' tied by -high-voltage and extra-high-voltage transmission to f-L an ' integrated system of generating ' units and/or to the- regional

! -power exchange. -Applicant now owns' practically all the central t

53.

_ _ __ . - - _ _ _..._a.._ - , . . _ . _ . . . _ . _ _

1 I

i t

i station power sources in its area of the Piedmont Carolinas.

l Nfhrough cunership of all the o;tra-high-voltage (345 hv and higher -) transmission and nearly cli the high-voltage (100-345 kv) transmission in its area, Applicant controls access to the i

regional power exchange there. Applicant has refused and l i

continues to refuse other elcetric utilities in this area coordinating access to its system and to the regionci pcwcr exchange. This has precluded those other electric utilities from installing the large units--the nuclear units--necessary to become actual, rather than merely potential competitors l

of Appliccut as sellers in the wholesale-for-resale firm-pcwor market. Applicant's exclusion of other potential nuclear power plant licensees frem the regional poucr exchange thus preserves its monopoly of the wholesale-for-rescle firmspower merket.

. (b) The'evijence is the generally accepted vieu of i

the interrelationship of four factors: (1) unit size; (2) system size; (3) reservec; and (4) reliability. This evidence for a ststic (or nongrowing) system would indicate i that the smaller the utility, the mera critically important is its access to the unicue econcmic benefits of interecnnec-tion- and coordinated deve'lopment with other utilities--with j coordination, the ' size of the pool limits unit size, ' rather t

than unit size being limited by company system size. The sf re of the utility defined by the word smaller is in terms I of total generation cr total load,and a smaller utility could be.one that'has:less generation cr lead than a, larger utility. ,

L l 59

, , - . . , -, ~ . . . - . . . . . . . - .

t i

i (2) The unicue ocericmic benefits include the ability to install lcrger units und to enjoy the louer costs i

of such units and to enjoy the ability to utilize nuclear fuels. The published material includes all the literature on I

prcbability studics of which a good deal is listed in Apnlica-tien oR_ Probability Methods to Genera tirm Capncity Problems, AIEE Committee; AI2E transactions (power cpparatus and systetas),

February, 1961, pp. 1165-82. This paper includes a ecmpre-J hensive biography containing 63 references. See generally, National Feuer Survav, Federal Pcwer Ccemicsica--1954, Part 2; Determina ,n of Reserve Capacity neouirements for Interconnected Systems, Advisory Committee Report No. 5. See clso, Frank Knight, Risk Uncerenintv and Profit, Ecughton Miffin Co.,

1921, Chapter 8; Structure end Metho?s for Meeting Uncertaintv.

For grouing systecs , the unicue econcaic benefits refers to s

the cbility to use larger units to moet growth loads. Fcr example, in a paper by C. H. Roher entitled Jcintly Devn1cnod Area Power Diants as a Defence Acainst Sociclinction, reprinted in Subcommittee. of House Committee on Government Operations, hearings en private electric utilitics' organized efforts to 4

influence the Secretary of Interior, pp. 349-402, 84th.Cong.,

1956, Mr. Roker, inter alia, states "the motivation in the case _ of these early joint ventures [ referring to the1 Windsor Plant of West. Bend Power Co. and Ohio Power near Wheeling, Uest Virginia, and other joint plants) was .the investment and operating econcaics of larger units, and to scce extent, _

60

A 4

1 4

4 1

, the added financial capccity reprocented by tuo systems involved.

1 l Meeting competition of governmant pouer was not an important i

factor at the time . . . . In some situations, wherein the i

substantiality of public power in-roads dictates the necessity i of generating coordination and developed effere to bring down costs, it may be necessary to choose the losser of two evils in FPC jursidiction of an otherwise intractato ccmpany or pricing yourself out of business." Mr. Rekcr goes on to show that the jointly owned pcuer plant may nell find incrensing economic justification in four instances, two of which are .

"(3) In Icss densely electrified arecs where several largely smal1 systems developed independently cannot justify a largo q unit and are placed at a particular disadvantage against j public pcuer unics: they cccrdinctc their system and build larger economic plants; (4) for the future, if atomic energy becomes feasible and econcmic as a scurce for electric d

power . . . .

82. (a) The Department may agree with the Intervenors that " Duke has employed the substantial differentials ~ already l existing in its own internal costing to skim the cream of

, the retail market." This is still under study.

(b) Large commercial and industrial loads are "the cream of the retail market" because per unit distribution 2

v

. costs:are less. Prior to 1964, Applicant employed restrictions c

in'its contracts uith its-wholesale custcmers on resales to Since 1964,-Applicant has changed its' rate

.large loads.

design and.these changes may have' produced the same effect.

L

, 61'

. _ , . _ . . . . . . - .= _ - - , - .

(c) The Dept,rtment cur.rently has this nattar under study.

(d) The Department may contend that Applicant intended to " skin the cream of the retail market." This is still under study.

(e) The Department currently has this matter under study.

83. Document Production Recuest.

84. Document Prcduction Recuest.

85. Wallace Brand has talked to the follcwing people concerning Applicant:

1. Mr. $ill Wise, formerly assceinted with Greenwood County System.

2. Mr. E. V. (Brick) Lewis, Central Coop C & T.

3. Mr. Thcmason of SCPSA (cantec-Cooper)

4. Mr. Frank Itartin of Halsey, Stuart Co. (formerly~

ef Parsons Engineering)

5. Mr. Leonard Blo::am, former mancger of an indepen-dent elect;ic utility system in the Carolines

6. Mr. Charles Leavy, former SEPA administrator

7. Mr. Thomas Uigglesuorth, former system planner

for SEPA i

8. Mr. Ken Rucker of SEPA 1

9. Mr. Albert Rucker cf SEPA l

10. Mr. Curtis 3 ell of SEPA . -

62 1

t

11. Mr. Jan Fortune of SEPA

12. Pesnibly other SEPA personnel j 13. Heads of intervening PECA cities.

14. Mr. Cecil Viverette, Blue Ridge Electric Coop.

15. Mr. William Crisp, Crisp, Twiggs & Bolch

16. Mr. Joseph Tally, Tally & Tally

17. Mr. David Stover, Tally & Tally  ;

18. Mr. Lon Bouhnight, Tally, Tally & Bouknight i

19. The manager of a South Carolina Municipal utility

. 20. Mr. Earl Chudoff, a former member of Congress from Philadelphia, and a former staff member of his former investigating committee

21. Other managers of municipal and cooperative syctcms in the Carolinas may have been contacced.

22. Mr. Robert Bathen of R. W. Bcch Co., Orlando, Florida.

23. Mr. Foley Treaduay of Southern Engineering

24. Mr. Leroy Love of a New York bond counsel firm

25. Mr. Popham of.Larramore, Dcuglas & Popham

! 26. Mr. Joe Botto, former manager of Yankee-Dinie.

27. Corps of Engineers personnel in Washington

! .and Atlanca i

28. Mr. Bill Williams, manager of the Charlotte i office of Reynolds Securities.

Mr. Brand cannot recall the date or the specifics l

I of each conversatien and wrote no memoranda of-them. In each. case the conversation was about one or-nore of the issues raised in this prcceeding about which the.other party to the -

l conversation had personal knowledge.

63 l

Mr. C. Forrect Bannan has talked to the follouing people ccacerning the Applicant:

1. Joseph Tally, David Scover, Len Bouknight of the lau firm of Tally & Tally

2. L. C. Williams and Clarence Grubb of the City of High Point, North Carolina

3. Jack Noel and Lendell Smith of the City of Albemarle, North Cacolina

4. Hal Couan of the City of Mource, Earth Carolina

5. Bob Vcn Sleen of the City of Shelby, North Carolina

6. David Lowe of the City of Lincolaton

7. Bob Ucthen of R. U. Beck Co., Orlando, Florida

8. David Springs , Franklin Rodgers , T. Foley Treedunv and Stcn Hill of Southern Engineering of Atln'ata, Georgis

9. Curtis Bell and Albert Rucker of SEFA

10. William Crisp 66 ~l 1

86. The D:partriant has retaineil an enginem:ing and economic censulting ?irm, Corncil, Iiouland, licyos & ?:erri21cid, in connection eith this proceeding.  ::cmbers of this Eira directly concerned uith this proceeding include Dr. Herschel Jones, l'r. l'arold I.:czer,1:r. P.urke IIr.yes, and ::r. Frank Lancu.

They will be applying the principles of and studying the economic benefits associated with electric pcecr poolin3 to possibly supply PECl. cities and the application of generally cecepted principles of competition to the electric power industry.

Sunnlecentarv T.nterrcenterv

1. The Department is currently e::smining documents obtcined frca Scuch Ccrclina E1cetric and Gas Cenpany in regard to agreemcats to allocate retail custom 2rs on a terri-toric 1. "hou ne lieve forced a contention regarding these allocations, this recponse vill be supplemented in accord:mee uith the Atomic Energy Commission's rules.

?h '~ /c .' . 6. ~ : - /' -

.~ .s -['

UALLACE EDUAP.D ER'.::D Attorney, Antitruet Division Department of Justice Washington, D. C. 20530 Subscribed and sworn to before me on the 30th day of h'ovember, 1973.

.. 9

• /.

Lc , . . . . _. ,. , ' lw ;J

~

~

l /

/ i 1:otary Public urconusw w* * " ""

1 4 .

. . , ." * ~ " ~ " .- ,

CON FIDE NTI A L -

May 1G,19G7 .

, - . . .'. e z . w..; ; . . v. ... ; . - . . .

7,;emo to . ,r. G. G. Mattison

. .t .

. LIr. E. B. Parker

- - Idr. F. W. Beyer '; .  :. ..

centlemen: ., . ' .

This is in reply to Mr. Mattisen's note of April 28 cnclosing and .

I

aching our comments on April 2G,1967, letter of J. B. Thomason, General -

I  ;,fanager of the South Carolina Public Service Authority, requesting a further j conference on Santcc Cooper's admission to the CARVA Fool.

.Following are my own thoughts qn how this request should be han-died, with the warning that my views have not yet been e:: pressed to or approved a by the presidents of the CARVA companies who are meeting here the same daf as the CARVA Fool E:cecutive C. ommittee.

4

1. In response to our previous inquiry as to how Santec Cooper could I be of benefit to the Fool, Thomason replies Santee Cooper "would help in a J i generCly proportionate way to spread reserve capacity among a larger number '

1 of plants, thereby reducing the percentage of reserve required." We might  ;

point out that the CARVA Pool reserve is aircady reduced to its irreducible minimum for 1967 and 1903. He already k .ows this from our F. P. C. Form 12. . .

2. Thomason states: "We believe that there are opportunities for 4 cconomy interchange between the members of the Pool and our system." Is l this correct, with his small steam uni:s and high fuel costs? .

1 a

3. In the ne::t to the last paragraph, after indicating that Santee Cooper could pari!ci , ate in the Pool under the present agreement, he states: "If there are any ad;. cts of the arrangements that could be better handled in a way different

from the CARVA Agreement, such methods would be among the matters that jcur i Commitice and we would want to consider together." When you nont meet with hi;.n 1 would raise the following points in response to the quoted statemer.t.

l (1) Appendix A, Pooling Plan. Section 2. 2 provides that "The installation of additional generadng capacity should be related to I the combined 1 cads of the interconnected systems of the Ccmpanies. "

l

- and each unit should be "ihe largest size that the e.s:isting circum-

~

stances can justify " *

• and timed to meet the requirements of the I combined loads." This section also provides for " staggering instal-lations so that in the Ica; run no ene company . vill have an unrcason-

able capital investmen

made for the benefit of others and no one f company will be dependent en c:her companies for a cisproportiont.te amount of its cacaci:v recuirements. . , t " Santec Ccoper could not pos-

. sibly meet these criteria,.and the two 100 2.'.W cicar. units thef have-scheduled for installation in 197L are too small for consideration as Participation Units. ._ .

.buw ,.

t l

. _( 2) It chauld be noted that according to the projections furnished l

' with Thomacon's letter, Santec Cucper win have a reserve mar'pt.Gjy t. vf.

-,m - - , . . . , . , , . a, - - - , + . ,__ - - - , n ,,_; - . , , , .

c.e S o . .a m w, ,4 0 , w. . ., m .J u si. a. b ,.

.i.ms ma,icates

.r. .-

anc.-.u.o.. .m l,- -

, clearly that his own system cm.not absorb the 1GO ?.iW units /

_ within the time con'.2mplated uy the CARVA Pbol Agreement ,

for a Participation Unit.

t (3) If Thomacon su;;csts that the Pool buy the excess . .

capacity of the two 100 ?.IV.' units, we should point cut that the .

formula contained in Appen:'i:. C, Su.e.nlement i. for determin-

. innu Annual Fixed C: .dr.1 Charra,s includes both State and , .

Federal taxes. Sic.ec cur cor' .nics are on record as sue .nort .

ing tax equality for all power cupplics, we are unwilling to purchase power frem um that decs not bear the same propor- .

Lionate tax load as power prod.: cod on CARVA companies' sys-tems, as this would a:nount to our sharing in his exemptica from taxation. At this coint we could ask him if Santee Cocper .

would be willing to cecome subject to all State taxes and if the answer is negative, whether he vould be wdling to make equiva-lent payments to the State in lieu of taxes. .

4. Has anyonc on the Plannin;; Committee made the assumption that '

Santec Cooper would be admitted as a Poci =cmber, and made some calculaticn of the cost to Santec Cooper of its ecuitabic share of pool transmission? If this i figure is substantial, an amount should be sugges'.ed at the next meeting with Santee Cooper. .

I have again reviewed Part 2 cf the Fodcral Power Act and have w o d 2 cv.u c t a n ". 9" i.. s . . w lu u .' o' + ". .+".' 4. n C v~. . s. .t .". .", .*. n. g . .'. - t ,v. 's o t. a. o. s n^i.~".u. . oo .

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not require Santec Cocper to file with the Federal Powcr Commission its rates to co-o.ns anc. mu n t e m. al.; . :.es. .

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panics.

At.1..ca.st ene member of the Fef.cral Power Commission would consider

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s In conclusion, I would recomnwnd that discussions of the engineering and economic arob1 cms associated with Sa.::ec Cooper's admission to the Poci

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by a o nr o 7s c&'. l. .'. o ~.. u o- . " . + . . . . .C .'.. . '. e. c C a ^., y^ ^. .  %. . o . .". c '." a,. d . *. . a e. . .

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owned or privately-owned corporation wna s:atutory powers to merge with

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. very truly yours, g w.o t/. J '. 019133 -

sihds . Carl IIorn, Jr.

C. ,-; in e. ' W. B. McGuire . .

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