ML19308B193
| ML19308B193 | |
| Person / Time | |
|---|---|
| Site: | Oconee, Mcguire, McGuire  |
| Issue date: | 02/26/1973 |
| From: | Brand W, Clabault W, Leckie D JUSTICE, DEPT. OF |
| To: | US ATOMIC ENERGY COMMISSION (AEC) |
| References | |
| NUDOCS 7912160029 | |
| Download: ML19308B193 (30) | |
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d I i antitrust review proceeding the questien whether Applicant has engs;cd in a price squacco of its t holesale custo.ners.*/ , the Department disagrees. Ue believe the F?C's opinion 1 and order pursuant to the Federal Pc::cr Act has no effect en the issues to bo heard by the Board in deciding uhether ' 4 Appliccat's activitics under the licenses applied for would create or maintain c situation inconsis tent ::ith the antitrus t I ,
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la::s--the finding : quired by Secticn 105c of the Atomic , Energy Act. j If the relationship be t <een A,t plicant's i holesale fir:1 ' m.,.. ot,ad 'oy t'..a. 4 o.0... . . - . e. ~r 0. r'. ..d n5, ,.1 4.u c e .. t ' s . . - 4.1 4...d u .~. . i ) trial rates su'aject to state ec= ission jurisdictica is cue.. . 1 l as to preclude er inhibit the electric utilities who must
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would be ro.,evanc evidence or...-a situat:..on inconsistent w:.th . the antitrust laws. The Board is not bar- cd froc examining s the cacts or t,ne race relationsnip anu, its e ffec t on re tal,. competition and nahing its c';n findings of fact t.nd law merely boccuse the ??C ecrlier may have censidered some of thc came facts uncer a dt: erent statutory a,urtsctction; 1.e., l incident to approving Applicant's t:holesale rate as just, reasonable, and lat:ful, per Section 205 of the Federal Power Act, 16 U.S.C.:324d. The Bosrd is free to consider the sama i u(Q$ V 'J , v w . ~. w 5.0. r., om S p.
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l l l l I i relevant to the Board's ultimate issue for determination in this Proceedin e,--who ther Ac. o. licant 's accivitics under the licenses applied for would create or maintain a situation inconsis tent with the antitrus t laws? The prospect of price sauce:e arises when a vertically integrated tira nas nca:.ntegrcted riva,s A uhle,n are its custc=ers at one stage of producticn and its competitors at another later stage. The problem has been aptly described by Dr. Corwin D. "duards as follous :
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- usually a profitable policy. But uhether it is intnediately profitable or not, the vertically inte-ag, q t,,,.4 c ~. . .c a . . e.'...
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a1Ive on surrorcnce or crive nla cut or the marke t and take over his business at whatever pace it finds most convenient. 2duards, Vertical Integration and the Monopoly Proble=, 17 Journal of Cc=erce 404, 1 409 (1953). . in ] Judge Learned H:nd 's lendacrh opinion /the Alcoa case nela, a price squeeze to 3ac an unlaurul e:.:ercise of monopoly 1 pouer and ordered its resumption enjoined. Lnited States v. Aluminum Co. of .W. erica , 14S F.2d 416, 438, 447 (2d Cir. 1945) (en certificate of the Suprs=2 Court). Alcon, c vertically , integrated fir :, hed c nonopoly in the production of aluminun c c .e '. ".~' ..;. &... o '. . '. . =
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sheet frc: the basic ing :. Alcon sold the ingoc at so high a price chat its ccmpetitors could not pcy the e:-:penses of rolling the sheet and sell the finished prcduct profitably at the sana c.rica as Alecc, those rollin.e. costs were a.resun:bly .
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c f. jurisdicticn falls- to tuo different agencias ; the Federal Pouer Ccanission re ulates rates for the trcn :lission of elec-
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I Each agency considers a number of different factors in determining uhat are lawful rates. For many years the funda-mental facecr in setting electric rates was the " average cost" of producing, transmitting and distributing each unit of power sold, but the concept of "carginal cost"--the cost of produc-j ing additional units of power has also come to be considered. If a firm can produce 100,000 units of a prcdue:: at a cost of $100,000, the average cost par unit is $1; and $1 per
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cost or prccucing the seconc. . ,,, L'C0 .'. o v , units vould 1.:2 9 3 0 , u Cs s^ , or $.50 per unic. The average cost of producing all 200,000 units vould be $.75 per unit. Hou migh t the fira price these 200,000 units for sale? Assume that it has been cble to sell all of the firs t 100,000 unico producac at a price of 51 e tch. :'ent assume that further demand for this product is highly price clastic and _that it could sell the second lGO,000 units only if it chargtd a price not c:::eeding $.60 per unit, and that there v o u l a. .ce no neu auyers at any pr.cc octueen p. . 00 ana. p. 4
- 2. x the fira continues to sct its scle price based en cverage c o s ~. - .. ~.. .s . i.:., 4 -.. .--. . < . . - = . ~ . ~ . . ~.
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$.90 per unit and the second clasc 5.60 per unit. The first class receives c benefit of $.10 per unit which would not have been available but for production of the second 100,000 units; and it would not hc /c been feasible to produce those units but for the dem:nd created by the second class at $.60.
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. 1 mus t buy bulk fira pc zer at wholesale , usually from an inte-grated etility in the area, such cs the Applicant. The small systens desire to compete for the same large, new pcwer loads that the major integrated sysceas are seeking to attract. If the wholesale ~ rate which the small sys tems must pay for power to serve neu ,.cac,s is cased on t.ue:.r Integrated supp,_ler,s average system cost, icht,.c that same supp3 ler is pr:.c:.ng retal, . .
power to compete for the new loads based on its icwe .- (or i presumably lower) carginal cost of installing and opercting the necessarv nau cc.:acit'>r
. > the small s'>stcas simplv < ccnnot effectively ccapote to serve those lands.
For example, if the major sys tem's average cost of prcducing bulk pcwer is 12 mills (per hilowatt hcur for both capacity and anargy), cnd its = rginal cost of bulk pcuer fra: a neu unit would ba 8 mills, and the cost of distribution of the bulk pcuer is 3 milis for either system f --tha / .:r.jer integrcted syst:n can price pcuer to serve new retail locds at 11 - ills cr above , bcsed cn its acrginct cost, while the s=all systens, buying their bulh power at a rate based on the najor nyste .:'s c rr ga ccst , ccnnet serve the new retail lords-for less then 15 c. ills. a =
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1 i In the FPC proceeding, Applicant's wholesale rate to municipal distribution systen was shown to have been vir-tually identical for many years to its Corth Carolina retail and co==ercial rate--and the wholesale rate was actually higher than the retail rate from March 1971 on. */ This rate relationship is the result of the approval of rates by two different agencies--each purcuant to its own j urisdiction. The Federal Power Co nission approved each wholesale rate using the traditional, proper, fair regulatory principle of average cost, and the North Carolina Commission has accepted cach retail industrial rate bcsed upon the equally proper, cfficient regulatory principle of marginal cost. A number of small electric systems in Eorth and South Carolina intervened cnd csked the FFC to consider and rc=cdy, in deter =ining under Section 205 of the Federn1 Forar Act, the just, racconable and lawful reta fer Appliccnt'c firn uhoiccale pouer cales, the adverse effect on corpatition for large industrial loads resulting frca enis relctionchip between Applicant's wholesale and retail rates. $$/
*/ Aonliennt cubcecuently filed uith the FFC vith recocet to E uholasal.: frel coce crijuc:=en: cicuce (KC Dochec ::o.' Z-7723)
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cnd, quito recently, lil. a nc . c: .ml.nc ia ra.:. irarente. These filingc, if cpproved, uculd incrocce the dicpcri:y be-tucan Applicant's wholesale rates and its retail industrial ratcc.
" / t a rich to : int out thcc u do noc n:rco vich tha c~c- 'iTic cpoli:ntion or tha urinciple of ~~-4.n21 coce pricinh tt ' :" 11 cyccc-" ur ed c3 a r m.: bog m t >.2 E0.
10
r FPC Examiner Kaplan responded by specifically declining the FFC's jurisdiction to consider the effect of the rate relationship on retail competition: (T]he sales to industrial custo= crc, as well as the rates charged to the 1stter by Duke and by the municipalitics and the cooperatives, are retail cales and retail rates. The regulatory jurisdiction conferred ucon the Cor. mission pur-cuant to Part II of the Federal Fe.'.:ar Act doas . not c:: tend to the reaulation of retail ratas, charges, and services; that is c=pressly recog-nized as a catter of state concern. (Citation omitted.) Thus, the cuestion of cccpetition for strictly retail service is a estter uitnin the purvicu of, cnd for racolucion by,
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state ; regulation. _2.n 1 t i n 1 ,J a c . ston at 7-i-to. 1 1 Thus h:ving disclaimed FFC jurisdiction to rctedy or even consider in its Section 205 creceeding the effect of the uholesalc-retall rate relationship on retail competi-tion, Excminer "cplan made no findings on uhether or not there vas a sufficient =2rgin between tha tuo rate levels to permit Applicant's uholesale cuccomura effectively to compete for 1crge industrial pcuar leads. All his cor=ents on the catter suggoceed uns that, price scucccc or no, the intervonor systems at least uere still in business and hcd ! cven canaged to grou. He did say, however, that their chare of lcrge industrial loc.ds was quite c=all. Initici Decision at 22, 27. It is not c1ccr uhether the FFC staff i made any indeper. dent investigntion to accertcin uhether tha rate r:10: ion: hip--or <.Olicenc's earlic: alicy of rec-
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Applicant.
'9
The FFC affir=cd Enaminer Kaplan's rejection of the .. price squeeze issue, emphasicing that the intervenors ware entitled to just and reasonable rates based on fully allocated costs--no more, no less--the same as any other customer. Opinion No. 641 at 2, 11.
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u ~a -,.-. t- Fr u iS w T a I C'.I 4n.. v. u. :- in' 7.C .2 .~ m. .- .w.~ . A. - em. 1 c.. 3 T..:. . s-Applicant would have the Eccrd eliminate the price squeeze issue frem this proceeding notuithstanding the FPC's denial of jurisdiction to consider it in approving Applicant's wholesale rate increase filing. Its crgu.m.cnt is bcsed cppcrently on Encminor Kaplan's comments that, uhether or not there was a price squeece, the small intervenor systems ucre still in business and grouing, although they ;;enerally did not serve any substantial industrial custe ars. There is no reason uhatsoaver uhy the ' card ucy not consider the price cq.:coce iss u in this proceeding. Even had the FTC considered the wholesalc-rctcil rate relation-c~ hip and ent. mined the facts of competition for large industrial loads more than peripherally in the cource of cppreving Applicant's rholesalc rate increase as just and reasonabic under Section 205 of the Federal Pecer Act, that could not bar the Board frem c':cmining the same fcets and
- .:nhing its c n findin;c cf f act and 1cu in cnarcising fu
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The Federal Pouer Commission looked at some of the facts in the light of Section 205 of the Federal Power Act. Section 205 gives the FrC cuthority to determine the 1cufulness of rates charged by public utilitics for or in connection with the transmission of electric energy in interstate commerce and the sale of such energy at wholesale in interstcto commerce. It recuires that such rctos be just and rocsonable in order not to be unlauful. It prohibits undue preference or advantage, undue prejudice or disadventcge, and cny unreasonable difference in rates as between localitics or clacsca of service. The Ecard is cched to look at the fcets of the price squecce not in applying the Federci Pouer Act, but rather in enforcing an entirely different statute, Section 105c of the Atomic Energy Act, as amended. Section 105c requires the Bacrd to determine whether Applicenc's cetivitics under the licenses applied for zould create or mainccin a cituation inconsictent uith the entitrust Icuc--including, cs the Committec Report to the 1970 c=ced:ents cches clear (p. 16), inconsistency with the policios clocrly und2rlying thoce laws, i.e., avoidence of concpolicc and rectraints on free ~ dom of cc=potition. The Ecard cust apply this sectutory standctd to cli .rcicvant fcetc, includic3 the evidenac of price sqrcocc. It cannat be bet.na Ly the .%J.arcl ?c uce C=2:iculcn's fi.: dings c: . , . ..s
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r ed.:rcl ?r ::r :.:t. 13
The Supreme Court's recent decision in Otter Tnil Power Co. v. United States, February 22,1973 (Slip cpinion attached as Appendin A), ackes thic point crystal clear. The Court, in an opinion by Justice Dougics, affirned the District Court's findings that otter Teil had violcted the antitrust laus by refusing to sell poner at uholesale to proposed cunicipal systems in co: unitics tihere it had been ceiling poner at retcil and by refusing to uheci power to such systems.
"Activitics uhich cc=c under the juricdiction of a regulatory agency neverthelesc ccy be subject to cerutiny under the entitruct 1cus," the Court said. Slip Cpinion at 5. It cited Calife.*nic v. FFC, 359 U.S. 482, 439 (1952), wherein the Court hcc held that FFC approval of a gcs conpeny acquisition purcuant to Section-7 of the Untural Gac Act uculd not bar en entitrust suit; and United States v. F.edio Cornsrs-tien of Ararica, 353 U.S. 334 (1959), uhich held that en enchange of rcdio stations that the Federal Cc=2nnicacions i
Ccemiccion hcd cpproved as in the public interce'; cculd be attcched in an antitruct cccc. : cny of the fcets reicvant in detcrcining that Otter Teil hcd violcted the entitruct 1cus surely had been considered by the FEC in the course of.its juricdiction ever O';ter Teil. E.g., ccc Slip Opinion at 6, 9. Nothing the FFC tay or nay not have donc, houever, prcvented l the i;ictrict Court fran unking itu cun findings of feet and applyi: : a.c Ec2 r.aca J.c c i o ti=.i. 14 t-
J The Federal Power Act is not an antitrust law. It k. t declares in Section 201 a n.olicy of Federal regu:.ction of 3 . I. certain aspects of the business of transmitting and selling i elec tric energy to tye pu.1.te--occcuse .. a that .ousiness ts . . e ) , affected with a public interest. The Federal Power Com.tission - is not authorized by tha Federal Po::cr Act or any other statuce 4 i to determine violations of the antitrust laws or to enforce ( e igo,.m . v. . o . e_t.,.__., , .,. u. ., .,.t..,1
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i (D . C . Cir . 19 54) . 2/ It has not 'ceen entrusted with a per-va.s 1' '/e .-^ ^a"lc. ~w^"". v , %".'.."~...o. . 4 ~.. .l u d _in c *. b..- a u' ". . 'm i " *" S "- l e.".. s s o as -
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l i 1 i i The Federal Power Coc.ission does have a responsibility to consider and apply tn,e natten,s runcar.enta,. econcate policy . . . embodied in.the antitrust laws in the process of enforcing the Federal Power Act; it must do so because antitrust policy is an element of the c.ublic interest, uhich is the standard underlying that .' ^ t. Northern Naturcl Grs Co. v. FPC, 399 F.2d ! 953, 958-959 (D. C. Cir. 19 6 4) . _':/ According to Justice Douglas, "The history of Part II of 4 the Federal Power Act indica tes an overriding policy of main-
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u- a uc.u , . _,- ,.o. n. .n _9..., , . ings of fcce cnd ultinstely, of antitrust inconsistency cr lack thereof. There is no possiblity of conflict with any ) ultimate finding made by the FFC in Applicant's uhoicsale rate increase proceeding. The Focrd certainly culd not ma'<a e g4. .d 4 ..,, t..a k t P. , , l .i.c .e. ..~. ' e . , . ^ . ~. ~ s . .^m "u 4 us '. c ..d ". e. s orm+.1e ,
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Slip-opinion at 3-9. 1 Ulth respect to interconnection, t.ne Court Icunc no present con lict *cetrocn the dec ee and any FPC order. Tho municle.clit.i o . .l. cow Lahe .nce cotcIned an :..nterconnection I. i
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, In the . instant proceeding, there is no possibility of j conflict 'actueen antitrus t remedies the Depart = cat of Jus tice , i will ask the Beard to order as cppropriate conditions of 3 Applicant's license and the order of the FPC approving Applicant 's increased t.'holesale rate . The. Depart =cnt's proposed license conditions could =che availa' ole to the intervencrs (and other scall electric utilities in Applicant's area) any or all of the follo ring: 4 (a) oknership of an appropriate portion of the Oconee and ':cCuire units or pc. car there from en an equiva-I a l-wen. *u bwe.a. e 4 .e ,e t (b) the necessarv. transmission services to transmit
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M trf.n32iSSiCU S V,S EC"'I Encillarv., CO thO fOrCEOin"o-- 1' such as .oy j o2.nt trans=2.ssion arrangements or waeen.ng; I
- (e) energency pouar cnd caintenance pcuer en bases similcr to those utilized in its arrange =2nts with other cdjccent utilities or that ordered by the il e 4.t.,cn i n.. GaJ..__gt,41.1_n_ U m41 -.
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4 i DEPART'55T 'S P2OPOS"D ISSUES OF FACT
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) t The Dec. artment of Jus tice reiterates its acccctance of . 1 the issues set out by the Board in Prehearing Order Number Four as those appropriate for trial in this proceeding. , Pursuant to Prehearing Order Number Five, the Department . ro3.,.c::ing c, ,a cca tion a t- ractucl issues as re,e- . - proposes t.ne . 1 - i vant for determination within the frscattork of the Board's a subissues b. 1-4:
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1 incoce and its sales policies at thclesale cnd retcil. 1
- 2. ;Taat is the structure oi the relevant merket includi.ng s-2 .a. g t.-. .. . ce ,.,4s . p . r. , n . e c, E ; . C *,.. 4 ,.
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(d) 1."nat percentage of the high-voltage and/or extra-high-voltage transt..ission in the relevant geo-graphic acrket(s) dcas Applicant own or control? (e) Is Applicant's centrol over generaticn and/or transmission a source e t. . . its al,eged conopoly . p ot ,,e .. . 4.,. . u,1a c c. 4 ,. - ~e. ...,.. .c..-,;v
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and Applicant's other municipal cus tomers through Applicant's wholesale rate schedules?
- (h) If Applicant's wholesale rate schedules do not afford such access , are alternatives offering comparable bene fits available to the intervenors and Applicant's other nunicipal customers?
(1) What effect has the alleged absence of access to coordinction had on the ability of small
, electric systems to ccupete effectively cgrinst Applicant in any of the relevant marke ts over the long term?
4 (m) Were any small systems that failed to survive able to secure bulk power supplies to retain and/or increase their shares of cny relevant I narhet?
- 3. Uhtt additien21 facts are noccascry to understnnd l the natura ci the structure of Applictnt and the relevant ::arket including any facts denonstratinoo that the structure of Applicent seas affected bv -
activitics tanding to inproperly incresse its posi-tion in the ccrhst and includin;; cny fcces demonstrct-ing that the relevant mark 9.t is improperly restricted, e d ninatod or contrailed.by 1.;.lictn:. (s
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1 1 (b) Has Applicant inposed a price saueeze upon its wholesale customarc-retail ecupetitors? (c) Has Applicant attempted to prevent the es tablish-ment of alternative bulk power facilities or systems , including federal hydreolectric projects , or to cause the es tablishment of such facilitics or sys tc=s to ec en such conc. .i tr.ons as to a11cw Applicant to concrcl or influence the design cr operation thareo -,:, (d) Hes Applicant, through prcctices not economically inevitaole , prev?nted erranger.cnts : hich would . allow municipal and cooperative systems to utilize Applicant's transcission facilitice to n,'J t u- 4 .. s. - C.-.- ~. .. wo C ov- - C'. .' ... , 4 w^.. o r (3., ..s.usm *..'.+vn ~. 4--i"'1 O cte.N... ,, 4 --1 .4. 1" e .r 9 ( c )' W. ., s'x.
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1 of Applicant 's sys ten in order to provide insur-ance against the rish of forced outage of the Oconce and/or McGuire Units cnd vice versa? (d) Was the economic fecsibility of the Oconec and f McGuire Units deterlined by planning on their i integration cnd operation as part of .ipplicant's b uv. _ .y ..:. .. . . z u .. ., ., .,. .,.= -..._.. .) (e) Is the economic feasibility of the Oconce and McGuire Units dependent on their coordination with units of other utilitics or dependent on 4 v- o o..a : _, <, ., ,e
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(i) To what e:: tent in the near term and the long term will nuclear generatica comprise the base load capacity in Applicant 's bulk po:.'er supply systen? Respectfully submitted, LinLLA LL L. L.Ls..D L;. . 'l L; h. : 3.
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T. 7T.u T.T_ T .* '. .tm t . LL.a sn .,.w a ? 'Tm.* Attorneys, /.ntitrust DiviSicn Depcrtment of Justice
'Jashington. D. C.
February 26, 1973 4
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4 n UNITED STATES OF AMERICA i , ,e r. n.,se D v 1 Am:- ATOMIC ENERGY CODIISSION 4 In the Matter of )
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DITAE PO:lER CCMPANY ) Docket Nos. 50-269A, 30-270A, f (Oconce Units 1, 2 and 3 ) 50-287A, 50-369A, McGuira Units 1 and 2) ) 50-370A i Cr..R*i lU. TCu's*t _7 O7 S57dT C "t. . 4 I hOreby Ce,~1f., j t. %. .. ~ ,.+-c i m , 4. o o,. oris mm.tv. .,n..p 7_r.::' C.:' .;'.Jr. D .o. .m..s. -.-" L . 0:. jyS L'~r,sn (s.. n n n*Lm.p>"'e-'*-n . . .. ~ V.a . . e'.7..". ..-v . Wr E vq nn^^=..= a n.w L ww Dive
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i Honorrble Jose *jh 7. Tubridy Georg: A. Aecry, Equire
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Atomic Scfety cnd Lico., sing Washington, D. C. 20035 3cc r '. U. S. Atenic Ent n,r Co-nission J. O. Tclly, Jr., Escuire
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t t :- Mr. Abraham Breit=an, Chie f Mr. Frank U. Karcs , Ch'ie f Office of Antitrust and Public Proceedings Branch -
; c e o r t.nee oecretary c:
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U. S. Atomic Energy Commission - the Cc= mission Washington, D. C. 20545 U. S i Commission y.vas... Atom cD.Energy nington, C. 2 034a_ Dcvid Stover, Esquire Tally, Tally & Douhnight. Chcirman, Atomic Safety 429 N Street, S .W . i and Licensing Appeals Board Washington, D. C. 20024 U. S. Atomic Energy Cecr.ission Ucchingecn, D. C. 20545 Atcmic Sa fety and Licensing Bocrd Panel U. S. Atomic Energy Cctrission Uashington, D. C. 20545 3
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i l DAVIu a. L m ta I ttorney , Anti:ruc t- Divisica Depcrtuent of Justice Washington, D. C. 20520
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