ML19308E050

Responds to AEC Request for Antitrust Advice.Recommends Proposed Util Commitments Be Imposed as License Conditions. Util 711206 Ltr to DOJ Outlining Commitments Encl

ML19308E050
Person / Time
Site:	Crystal River
Issue date:	02/11/1972
From:	Comegys W JUSTICE, DEPT. OF
To:	Rowden M US ATOMIC ENERGY COMMISSION (AEC)
References
786, NUDOCS 8003200783
Download: ML19308E050 (10)

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sN Re: Florida Power Corporation / I g/

Crystal River Nuclear Generating 0 e Plant Unit 3, AEC Docket No. 50-302 Department of Justice File 60-415-38

Dear Mr. Rowden:

You have requested our advice pursuant to the pro-visions of Section 105 of the Atomic Energy Act of 1954, as recently amended by P.L.91-560 (December 19, 1970),

in regard to the above cited application.

Introduction The Crystal River No. 3 unit, en 825 Mw nuclear unit, vill be Applicant's first nuclear generating unit. It is to be located at Florida Power Corporation's Crystal River Generating Station located in Western Citrus County, Florida where it presently has two fossil fuel units. A hearing on its application for operating license was requested on June 2,1971 by the Gainesville Utilities Department pursuant to the provisions of Section 105c(3) of the Atomic Energy Act of 1954, as amended.

Anolicant Applicant is one of three major independent vertically integrated electric utilities in Florida; the other two are the Florida Power and Light Company serving in southern and east coast Florida, and the Tampa Electric Company serving in metropolitan Tampa and the surrounding area. Applicant serves central and west coast areas of 766

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Florida, in St. Petersburg and to the north, having a total service area in excess of- 20,000 square miles.

Other major systems in Florida include the Gulf Power Company serving the Florida Panhandle (a subsidiary of the Southern Company system which extends over Georgia i and portions of Alabama and Mississippi) and the large

municipal systems in the Cities of Jacksonville and j Orlando. -

! . Applicant's 1970 peak load was approximately 2,000,000 kilowatts. Applicant's total assets as of 1970 exceeded

$676 million; its electric operating revenues for -1970 were $158,145,000.

Its eight major steam generating stations with a j total capability in excess of 2,000,000 kilowatts and

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its gas turbine stations with a total of 239,000 kilowatts are integrated into a generating system by over 3,300 circuit miles of high voltage transm1.; ion, including 698 miles of 230 kv transmission, over a thousand miles of

115 kv transmission, and almost 1,500 miles of 69 kv trans-l mission. The foregoing transmission is virtually all the-high voltage transmission in its area.

l l The population in the retail territory served by i Applicant is approximately 2,140,000 which it serves through approximately 13,000 pole miles of distribution facilities.

4 Its bulk power supply system is interconnected with and i coordinated with bulk power supply facilities of the l l Southern System, the Tampa Electric Company, Florida Power l and Light Company, and the City of Orlando, through high l

voltage interconnections. It also has or will soon have l j interconnections with the City of Gainesville, the. City of q e Sebring, the City of Tallahassee, and the City of Wauchula.- q j It supplies electric power in bulk to a number of municipal l I

and cooperative retail distrd.bution systems operating in its general area.

Competition Florida law does not require electric utilities to restrict their retail or wholesale service areas. Bills which would restrict service areas have been proposed from i

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, time to time in the Florida legislature but have failed to pass. The Florida Public Service Commission has approved a number of voluntary territorial agreements reached by Applicant with several adjacent systems.

-Some of the foregoing territorial agreements purported to cover the provision of power in bulk. However, these

-provisions were the subject of a complaint filed under Section.1 of the Sherman Act in a District Court in Florida j by the Department and in a consent decree entered August 19, 1971 in U.S. ' v. Florida Power Coro. , et al,63-297, Civ. T. ,

1971 TraHe Cases 173,.637, Applicant agreed to remove any such agreements with other electric utilities so far as the provision of electric power .in bulk was concerned, including coordinating power and energy.

There is a small amount of hydroelectric power marketed from a federal hydroelectric project on the Florida-Georgia boundary. Some of the larger municipals in the area generate all or part of their bulk power supply but the economic feasibility of obtaining a competitive bulk supply is dependent in large measure on their obtaining the economies

of scale available from access to coordination over which Applicant has control.

Market Power Applicant owns and controls all the high voltage trans-mission in its general area which gives it the ability to integrate its generation and load into a large system and through its interconnections with other utilities (and consequent access to major regional systems) to obtain the economies of scale and the ability to install large generating units such as the captioned unit. It has engaged and is now engaging in the sale in bulk of the full electric power supply requirements of a number of distribution systems operating in its service area but it is alleged that it has at other times refused to engage in such sale. It has from time to-time interconnected its bulk power supply system through high vo'1tage interconnections 4

for the purpose of sharing reserves and coordinating the i development of its system with that of adjacent systems, and engaging in other varieties of coordination. It has been alleged that it has from time to time ' refused to coordinate 'its generation with that of some of the smaller 3

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systems in its area or has sought to condition such coordination on the execution of a territorial allocation. Pursuant to an order of the Federal' Fower Commission, the City of Gainesville was granced relief from Florida Power .Cogoration's refusal to interconnect

.and coordinate installed reserves and other varieties of operating coordination. 40 FPC 1227 affd in part 425 F.2d 1196 (CA 5,1970) affd wholly, Gainesville Utilities-Dent., et al.v. Florida Power Coro., 402 U.S. 515 (1971) . However, the Federal Power Commission is limited in the varieties of coordinction it may compel by a proviso in Section 202b of its Act which limits compulsory coordination to that which can be effected without compelling the jurisdictional utility to increase its generating capacity. The Applicant has voluntarily engaged in some transactions of coordinated development with major and small utilities in its area by purchasing " unit power." It has been alleged that from time to time it has refused to engage in such transactions.

An alternative for small systems in -Florida to engage in coordinated development is by transactions with other small systems. However, such arrangements would be economically feasible only if such systems could wheel power over transmission lines of the Applicant. The Federal Power Commission lacks authority to compel Applicant to enter into wheeling arrangements which might permit smaller systems in Applicant s area to achieve a feasible program of coordinated development among themselves.

Although Applicant now wheels power over its system i between the Southeastern Power Administration's Jim Woodruff project and a number of independent systems in its area, it has been alleged that Applicant has at other times refused to engage in wheeling transactions.

Discussion Applicant's strategic dominance over high voltage transmission in a major area in Florida may give it control over its competitors' access to a competitive bulk power supply. Such control of bulk power supply may also impair competition at the retail level. U.S.

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v. Otter -Tail' Power Co. ,1971 Trade Cases j73, 692

-(D. Minn. Sept. 9, 1971). Thus Applicant s-policies.

regarding whether or not it will sell power in bulk- to independent distribution. systems and whether or not ;it i will interconnect and the extent to which it will coordinate with smaller systems maintaining independent generating facilities could lead to unlawful monopolization of the electric power business in a major area of Florida, if the market power Applicant holds by virtue of its ownership of transmission were to be abused. Small systems in this area have represented to the Department that the past course of conduct pursued by the Applicant has.had this effect.

When these matters were raised with representatives of the Applicant, they denied .that its actions were made with the intent en monopolice or with such effect. However, Applicant has agreed to pursue henceforth a course of action which should preclude such problems arising in the future . Applicant has agreed to undertake commitments to interconnect and coordinate reserves with any. entity in its area having a bulk power supply, to purchase and sell bulk power to any other such entity and to coordinate in the planning of new generation and transmission, and to wheel power over Applicants' system between entities with which it is interconnected. These commitments, set forth

! in the attached letter of Applicant to the Department of j Justice dated December 6, 1971, collectively state a policy i which should tend to eliminate abuses possible from Applicant's j unregulated monopoly control over transmission.

l The commitments in the attachment were explored fully

with Applicant to determine whether they would provide a

- satisfactory basis for recommending issuance of a license

- conditioned by such. commitments, without necessiW for hearing. In the course of these~ discussions, Applicant

stated that its commitment to

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. . . . interconnect with and coordinate i

reserves by means of the sale and exchange a

of emergency bulk power with any entity i or entities in its service area engaging in or proposing to engage in electric bulk power supply on terms that will provide for Applicant s costs (including a reasonable return) in connection therewith and allow t?e other participant (s) full access to the benefits of reserve coordination (Letter, paragraph.no. 1) 5=

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includes interconnection at the highest transmission-voltage available from installed facilities in the area where such arrangement was economically feasible, and that it contemplates an arrangement sLmilar to that of the "Gainesville" interconnection in which the smaller system's reserve responsibility is not tied to its largest unit size, and in which emergency power supply is not limited to a fixed amount, but would be supplied-to the fullest extent available where such supply does not impair service to Applicant's customers.

Applicant also clarified its commitment to:

. . . facilitate the exchange of bulk power by transmission over its system between or among two or more entities with which it is interconnected on terms which will fully compensate it for the use of its system to the extent that subject arrangements reasonably can be accommodated from a functional and technical standpoint (Letter, paragraph no. 3) as not being limited to systems to which it is interconnected at the time of its commitment, but as also including those with which it might, in the future, be interconnected, 4

including those interconnections obtained by virtue of its commitments in Paragraph No.1 of its attached letter.

Applicant declines to commit itself to sales of

" unit power" or " deficiency power" at the cost of new power supply, or to engage in joint ventures which could I have the same result. -1/ It asserts that it has never made any such sales to any electric utility and has not engaged in joint ventures. However, Applicant assures us j that it would engage in these transactions with smaller l systems in its area if it entered into such transactions i with any " wholesale customer." (In this context Applicant uses the term " wholesale customer" to include any other party to an interconnection arrangement.) Applicant is agreeable to this understanding being reflected in the conditions to the license which it seeks.

1/ Gainesville requested participation in the captioned I unit as early as 1968. I 6

l As noted above, Applicant apparently has not discriminated against smaller systems by engaging"in

" unit power sales" or sales - of " deficiency power to

,- other entities at Applicant's costs of new power supply, i

or by. engaging in joint ventures with any other- entity.

Also, the size and geographical distribution of smaller -

i systems in Applicant's area of Florida is such that the

, commitments. Applicant is now making and willing to have imposed as conditionL to its license, particularly the commitment to wheel power contained in . Paragraph no. 3 of its letter of December 6, 1971, afford such smaller

systems the opportunity to construct at least one alternative which would give them competitively relf eble j and competitively low cost bulk power. For example,

, independent . smaller systems in the area could construct large units to supply their needs, protecting themselves

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against the risk of . forced outage by typical. industry i reserve sharing arrangements with and through Applicant's system. Further,-they could enter into coordinated develop-ment with any other independent system reached by. Applicant's transmission lines. If experience under the license conditions which we now recommend shows that this result would not be obtained, this would be a factor for consideration:

in antitrust review of any subsequent license applications by this Applicant.

It appears that if Florida Power Corporation's commitments were to be imposed as license conditions by the Commission, the question of accommodating antitrust

policies with power needs in this case would be satis-factorily resolved. Accordingly, we recommend that the commitments proposed by Florida Power Corporation be tmposed by the Commission as license conditions as agreed to by the Applicant. If this were done there l would be no need for an antitrust hearing in this matter. l d

Sincerely yours, '

i WALKER B. COI1EGYS Acting Assistant Attorney General

Antitrust Division l

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sT. PETERSBURG]b FLORIDA December 6, 1971 -

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Mr. Joseph J. Saunders .

Chief, Public Counsel and -

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United. States Department of Justice Washington, D. C. 20530

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Re: Florida Power Corporation Crystal River Nucicar Generating Plant No. 3 AEC Docket No. 50-302A Department of Justice File 60-415-38

Dear Mr. Saunders:

With regard to the antitrust review of the above nuclear licensing application being conducted by the Antitrust Division of the Department of Justice, we are most appreciative of the opportunity afforded us Wednesday, December 1,1971 to meet with you and Messrs. Wallace B. Brand and Milton J.

Grossman of the Antitrust Division. Florida Power -Corporation (Applicant) was represented at the meeting by Bernhard G. Bechhoefer, Esq. of Washington,

/ D. C. , Mr. Harry A. Everta, III, an Assistant Counsel of Florida Pouer ~

Corporation and myself.

Your staff has suggested that our installation and operation of the Crystal River Unit No. 3 nuclear p nerating unit has the potential of creat-ing a situation inconsistent with the antitrust laws. The areas of potential inconsistency would arise out of Florida Power Cofporation's ownership and operation of the Crystal River Unit No. 3, coupled with restrictive policies regarding: (1) emergency bulk power exchanges and coordination of reserves; (2) coordi_ating with other entities planning for generation, transmission and associated facilities; (3) exchange of power between two or more entities; and (4) bulk power sales for resale. To alleviate your staff's concern that any'of Florida Po',er Corporation's bulk power policies may have the potential of creating A situation inconsistent with the antitrust laws, and solely for the purpose of obviating the need for.any antitrust hearing in the above-captioned proceeding, Applicant sets forth below its policies, regarding the above four expressed concerns, which it will maintain dur'ing the license period of the Crystal River No. 3 nuclear generating unit.

1. Applicant will interconnect with and coordinate reserves by

. means of the sale and exchange of emergency bulk power with any entity or entities in its service area engaging in or proposing to qg,g -

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Mr. Joseph J. Saunders December 6,1971 l

1 engage in electric bulk power supply on terms. that will provide for Applicant's costs (including a reasonable return) in connection ^ there-with and allow the other participant (s) full access to the benefits of reserve coordination.

2. Applicant will purchase from or sell " bulk power" to any other entity or entities in the.aforesaid area engaging in or proposing to engage in the generation of electric power in bulk, at its posts (including a reasonable return) when such transactions would

<cs _,___ serve to reduce the over-all costs of new bulk power supply for itself or the other participant or participants to the transaction. This refers.specifically to the opportunity to coordinate in the planning of new generation, transmission and assor.iated facilities.

3. Applicant will facilitate the' exchange of bulk power by transmission over its system between or among two or more entities with which it is interconnected on terms which will fully compensate it for the use of its system to the extent that subject arrangements reasonably can be accommodated from a functional and technical standpoint.

4. Applicant will sell power in bulk to any entity in the aforesaid area nou engaging in or proposing to engage in the retail distribu-tion of electric power. .

The implementation of the foregoing policies and transactions shall be consistent with the provisions of the Federal Power Act. Further, all rates, charges or practices in connection therewith will be subject to e' ' the approval of those regulatory agencies having jurisdiction over them. Nothing ~

in this letter shall be construed to be a waiver by the Applicant of its right to contest whether or not a future factual situation is inconsistent with any of the foregoing policies.

As a further showing of its intent to continue the above policies, the Applicant would not object to the inclusion of this letter and its statements of policy being made a part of any licensing action forthcoming from the United States Atomic Energy Commission specifically directed toward its Crystal River Unit No. 3 nuclear generating plant for which the subject application is pending. ,

Sincerely yours, '

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J. 1. Rodgers c Assistant Vice President and Nuclear Project Manager. -

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