ML19317E792

Initial Prehearing Statement of Municipalities of High Point,Lexington,Monroe,Shelby,Albemarle,Drexel,Granite Falls,Landis & Lincolnton,Nc.Certificate of Svc Encl

ML19317E792
Person / Time
Site:	Oconee, McGuire, Mcguire
Issue date:	08/09/1972
From:	Bouknight J, Stover D PIEDMONT CITIES OF NORTH CAROLINA, TALLY, TALLY & BOUKNIGHT
To:
References
NUDOCS 7912180979
Download: ML19317E792 (17)

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. 4 UNITED STATES OF AMERICA N.

, ' ATOMIC ENERGY COBNISSION In the Matter of ) ,

DUKE POWER COMPANY ) Docket Nos M -269A, 50-270A (Oconec Units 1, 2 4 3 ) 50-287A McGuire Units 1 6 2 ) 50-369A, 50-370A INITIAL PREHEARING STATEMENT OF THE MUNICIPALITIES OF HIGH POINT, LEXINGTON, MONROE, SHELBY, ALBEMARLE, l DREXEL, GRANITE FALLS, i LANDIS, AND LINCOLNTON, NORTH CAROLINA This prehearing statement is filed by the municipalities named in the caption (" Cities") in response to the " Notice and Order for Pre-l hearing Conference" issued on 14 July, 1972, by the Atomic Safety and Licensing Board (" Board") convened to hear these dockets. In accordance with Paragraph A of that Notice, we are here supplying, insofar as possible at this stage of the proceeding, statements of Cities' legal theory and supporting authorities, and an outline of the underlying facts, so far as presently available and subject to practicable presentation herein, all of which Cities rely on in their contention that "the issuance of the permits applied for would create or maintain a situation inconsistent with the antitrust laws."

Cities wish to state preliminarily that it is not possible at this time to recite completely the facts on which they might rely, and which the Board might find relevant, in the course of the hearing.

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Neither Cities, the Department of Justice, the AEC Regulatory Staff, nor the applicant Duke Power Company (" Duke") has yet conducted any discovery.

Consequently it is unlikely that any party is now in full possession of the facts on which it would ultimately rely. As a corollary, Cities must state at this time that the legal theory outlined herein is subject to further refinement, alteration, and reinforcement in the light of further facts disclosed by discovery, and of the evidence adduced and contentions advanced by other parties. Nor do_the legal authorities mentioned herein necessarily constitute an exhaustive list. We note that Paragraph C(2) of the Board's Notice contemplates " additional discovery" after the prehearing conference, and we anticipate that the parties will undertake discovery even before that time.

. At the present time, therefore, Cities are furnishing a preliminary view of the legal theory they expect to employ, together with the legal conclusions to be drawn therefrom, and supporting authorities, and stating certain ultimate facts and furnishing certain evidentiary facts on which their legal thcory rests. Cities reserve the right to amend or add to their

. presentation at a later date.

I. DESCRIPTION OF 'IHE PARTIES

1. Cities are municipalities, each owning and operating an 5 electric distribution system selling at retail to ultimate consumers within and without the municipal limits. All of these Cities are all-requirements wholesale customers of Duke, and are tota'11y dependent on Duke for power supply. In many instances they compete with Duke for retail customers.

Their aggregate wholesale power bill amounted in 1970 to some $6,685,000.

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2. Duke is a large, vertically integrated, investor-owned utility -

serving a substantial part of western and central North Carolina. Within its territory, Duke owns and operates for its own purposes practically all the generation and transmission at the higher voltage levels. None of the Cities owns any generation, and none owns transmission outside its city limits or the immediately surrounding territory. In particular, no City is interconnected with any other (or any other electric system) by any means except Duke's transmission lines.

3. Duke is signatory to bilateral contracts with surrounding privately-owned utilities (Carolina Power and Light Company, South Carolina Electric and Gas Company, and Virginia Electric and Power Company), which together provide for interchange of power and energy and joint planning among the four companies. These four utilities among themselves monopolize the generation and transmission of bulk power over a substantial area in the Carolinas and Virginia. Duke also has interchange contracts, of a less comprehensive nature, with Georgia Power Company and Appalachian Power Company.

4. The lowest-cost source of energy presently available to Duke is nuclear gen'eration, provided it is used on a sufficiently large scale.

Although it is a very large utility , 1Duke can obtain the full benefits of this low-cost generation only by construction on such a large scale as to require the interconnection, exchange, and coordination agreements referred to above. I

5. Cities have no access to the " pool" described above. As Duke is unable alone to take full advantage of the economic benefits of 1

Nationally Duke is fourth in total net generation. In 1970, its peak load was 6,283,915 kW, as compared with 203,260 kW for all of Cities taken together.

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nuclear power, but must make arrangements with neighboring utilities for the utilization of nuclear resources, and as each City operates an electric system far smaller than Duke's, none of them is able (either alone or in combination with others) to enjoy the benefits of this low cost power source.

6. Duke sells the largest part of its output at retail, frequently in competition with Cities and other municipal and cooperative systems. In particular, Duke and Cities compete for large, high load factor customers, since these customers are of particular economic benefit to the utility supplying them. Duke has been highly successful in attracting such customers.

In 1969, some 54% of its sales to ultimate consumers were to industrial or L

other large users, and its industrial customers maintained an excellent load factor.

II. CITIES' IIGAL CONTENTIONS

1. Cities expect to demonstrate the following propositions in this proceeding:

a. A situation inconsistent with antitrust laws now exists; and it would be maintained (and, indeed, greatly exacerbated) by the unconditioned or inadequately conditioned licensing to Duke of this qualitatively superior technology.

b. If--contrary to Cities' contentions--it is found that the existing situation is not l

2 l As the preceding footnote shows, Cities as a group are still i

much smaller th m Duke. Besides, as mentioned earlier, they own no transmission through which to exchange power and coordinate operation i and construction.

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inconsistent with the antitrust laws, such a situation would be created by issuance to Duke of unconditioned or inadequately conditioned licenses, because; ~

i. Duke would thereby gain such a dominant position in the bulk power market as to reduce substantially the possibility of future competition therein, and.such dominance and lack of competition would inevitably hinder competition at the retail level; and ,

ii. Monopolization by Duke and other large utilities of the technology of nuclear generation would contravene the anti-trust laws and the Atomic Energy Act of 1954, as amended, and would threaten the viability of the small electric

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systens, leading to undesirable con-centration and reduced competition.

c. In eithor event, the appropriate remedies include:

1. Permitting Cities to pay'for and own

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an entitlement share in the output of .

. these units;

11. Requiring Duke to provide, on terms l

permitting it to recover its costs Page Five

l including a fair return, the delivery and back-up services without which the right to such entitlement share is illusory, and 111. Requiring Duke to treat intervenors, and any other entities which enter, or pro-pose to enter, the bulk power market, as u access to all

, coequals with rightf'l aspects of the wholesale power market.

III. FACTUAL CONCLUSIONS Cities intend to adduce evidence establishing the follotfing basis in ultimate fact for the relief requested:

a. Duke enjoys a monopoly of generation and transmission in the relevant market (or markets) .

,b. Duke has erected barriers to entry at the generation and transmission levels, in an attempt to preserve its monopoly.

c. Duke has used its generation and transmission monopoly, and the resulting captive status

, of municipal systems purchasing wholesale power from it, to gain a competitive advan-i tage at the distribution level. Specifically, l

Duke has I

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i. imposed a price squeeze upon the municipal systens, and

11. employed the substantial diffetentials already existing in its own internal '

costing to skim the cream of the retail market.

The effect of which is:

1. That Duke has completely foreclosed Cities from ability to compete with it for large, high load factor custo-mers; thereby, ii. Achieving for Duke (and depriving Cities of) the economies which this desirable class of customers contribute to an electric system.

d. These nucicar plants, if cost of construction and fue) is anywhere near the low levels estimat*d,

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will give Duke a still greater advantage at the wholesale level and further widen its internal cost margins, thus increasing Duke's ability to take advantage of varying margins within its own system in pricing as between classes of its customers, both wholesale and retail.

e. In achieving its present scale, Duke has relied heavily on its access to the wholesale power Page Seven

market and, specifically, has pooled with 1

other companies, has benefited from unit purchases, short- and long-term exchanges, and other such transactions; has maintained -

equalized reserves with other companies; has wheeled power for others; has provided firming and backup services; has jointly

' built at least one experimental nuclear generating plant with three other companies; and has planned generation and transmission facilities in coordination with other suppliers.

And Duke has constructed and evidently intends to construct the nuclear units here at issue in the expectation of enjoying the same access to the wholesale market. -

IV. DETAILED FACTS s

As t'o the ultimate facts stated in items d and e above, Cities l

1 will rely principally on such sources as: standard Federal Power Commission reports, maps and publications; Duke's reports to the Federal Power Commis-sion; the application and supplemental data in the present proceeding; and

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rate schedules and contracts relating to bulk power market transactions which are required to be filed with the Federal Power Commission. -

Cities believe that the Board's Notice, insofar as it calls for a statement of facts, is directed specifically toward instances of anticom-petitive conduct by Duke (alone or in concert with others) as to which Page Eight O

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. evidence may be adduced. Thus, as to the ultimate facts designated under items b and c above, Cities respond as follows (without limitation of the right to add to or amend such factual presentation at a later date):

A. Exhibits 1 through 20 contain instances of erection by Duke of barriers to entry of competition with it at the bulk power gederation and/or transmission level. Described more specifically, they are:

Exhibits 1 through 4. Excerpts from Interior Department Appropriations hearings before various Congressional committees, exemplifying Duke's opposition to construc-tion of Federally-owned transmission.

Exhibit 5. Excerpt from minutes of a Corps of Engineers (Rivers and flaIbors Board) hearing, at which Duke's President opposed construction of a Federal hydroelectric ,

project.

Exhibit 6 tIcerpt from a hearing of the llouse Committee on Publi .rks, containing Duke fastimony in opposition

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to the Trotters Shoals Federal hydroelectric project.

Exhibit 7. Letter from the President of Duke to the U. S.

Army District Engineer, raising further objections to certain Federal hydroelectric development.

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' Exhibit 8.

Excerpts from pleadings before the North Caro' lina Utilities Commission in regard to the attempt by Duke to take over Nantahala' Power and Light Company l

l (an Alcoa subsidiary in western North Carolina, having access to an interconnection with the Tennessee Valley Authority).

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Exhibit 9. Letter of Duke's General Counsel to the Atomic Energy Commission, transmitting a copy of Duke's refusal to accede to Cities' request, in an earlier stage of the Oconee proceeding, for participation in the project.

Exhibit 10. Letter and memorandum from Duke's president to all Duke shareholders, attacking EPIC's plan for a competing bulk power system.

Exhibit 11. Duke 1ctter to the Mayor of Statesville, North Carolina, transmitting a Duke press release attacking EPIC.

dthibit12. A Duke memorandum addressed to t' City of High Point, further attacking EPIC.

Exhibit 13. Duke's petition to intervene in opposition to the application by EPIC for a preliminary permit covering the Green River pumped storage project (FFC Project No. 2700). emphasizing Duke's intentica to oppose the construction of any generation or transmission facili-ties by EPIC or its members.

Exhibit 14. Excerpt from Duke testriony before the North Carolina Utilities Commission, containing further promises of extensive anti-EPIC litigation by Duke.

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Exhibit 15. Excerpt from a Duke bond prospectus dated Auht 5, 2970, undertaking to oppose the grant of Federal or state authorizations for EPIC generating and transmission projects.

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l Exhibit 16. Copy of the Southeastern Reliability Council (SERC) Agreement, showing the provision excluding Cities and other small systems from full participation.

Exhibit 17. Excerpt from testimony given by a consultant to Duke's cooperative customers, regarding his exclusion from a SERC meeting.

Exhibit 18. Affidavit of the directors of utilities of three of Duke's nunicipal wholesale customers, intervenors

,herein, detailing threats by Duke of extensive litigation should the municipalities attempt to oppose Duke's wholesale rates. .

Exhibits 19 and 20. Testimony before the House and Senate Committees on Public Works, wherein Duke's president

, advocated limitation of the secvice area of the Tennessee Valley Authority.

B. Exhibits 21 through 23 demonstrate the price squee:e referred to herein. Exhibit 21 is a chart illustrating Duke's recent rate history as to municipal wholesale customers and retail industrial

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purchasers. (This exhibit was filed with the FPC in the "Brief on Exceptions of Municipal Intervenors", Docket No. E-7S57, on 3 March,1972.)

Exhibit 22 consists of tables introduced as exhibits in that I

same FPC proceeding by Robert E. Bathen, a witness for the municipalities.

They il1Qstrate the price squee:c facing municipal customers of Duke, l first, for the period up to 14 December,1970, and second, for the 1

period 14 December,1970 - 1 July,1971.

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Exhibit '23 is a group of tables filed with the FPC in Docket No. E-7720, as a part of the municipal customers' motion to reject the Duke filing in that rate proceeding. They demonstrate the further price squeeze which Duke proposed to impose as of 1 June,1972.

V. AttrHORITIES RELIED UPON

1. Application of a price squeeze by a monopolist at one level of an industry in order to achieve monopoly at another level violates the Sherman Act. The Icading case, United States v. Aluminum Comnany of America,148 F.

2d 416 (CA 2, 1945), concerned a firm monopolizing aluminum ingot production and selling ingot to firms competing with it in the manufacture of sheet aluminum at such high prices as to prevent their matching Alcoa's price for theet. See also Eastman Kodak Co. v. Southern Photo Materials Co., 273 U.S.

352 (1927), S'ix-Twenty-Nine Productions, Inc. v. Rollins Telecasting, Inc.

265 F.2d 478 (CA 5,1968), Packaged Programs , Inc. v. Westinghouse Broad-casting Co. , 255 F.2d 708 (CA 3,1958) .

2. United States v. E. I. DuPont de Nemours~6 Co., 351 U.S. 377, 391 (1956) defined monopoly (under section 2 of the Sherman Act) as "the power to control prices or exclude competition". Ordinarily, monopoly power may be inferred from a predominant market share, and Duke has an over-whelmingly predominant share in the bulk power market. United States v.

Grinnell Corp., 384 U.S. 563 (1966), American Tobacco Corp. v. United States, 1 328 U.S. 781 (1946) .

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3. E. I. DuPont, supra, holds that the relevant market must be defined in terms of the availability of substitutes for the monopolized product. As ue have stated, Cities now have no substitute for wholesale power and energy.

4. When generation and/or transmission facilities are owned by one party and cannot practicably be duplicated by others--as here--the owner must permit fair access to them. United States v. Otter Tail Power Co., 331 F. Supp. S4 (D.C. Minn. ,1970); United States v. Terminal Railroad Assoc., 224 U.S. 383 (1912). See also Municipal Electric Association of Massachusetts v. Securities and Exchange Commission, 413 F.2d 10S2 (CA DC,1969) . .

S. The litigation threatened or undertaken by Duke to thwart the development of alternative bulk power sources by Cities and others, taken together with its other forms of opposition, may violate the Sherman Act. See Otter Tail, supra; California Motor Trcnsport Co. v. Trucking Unlimited, U.S. , 30 L.2d. 2d 642, 92 S.Ct. (1972).

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VI. REMEDIES PROPOSED

1. To remedy the anticompetitive situation outlined above, Cities propose, first, that any licenses and permits issued herein be so conditioned as to require Duke to sell to Cities a proportionate entitlement share of the output of the subject nuclear facilities. Such share should bear the

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same proportion to Cities' total load as the licensed facilities bear to Duke's. Cities are prepared to pay the full investment costs of their share of plant capacity.

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2.- It is not sufficient for Cities merely to obtain a propor-tionate share of the low-cost nuclear generating resources at issue in this proceeding if they are to escape the tightening grip of Duke's bulk power monopoly. As has been pointed out above, Duke also has a substantial monopoly of transmission in its service territory; in particular, it owns all the transmission facilities connecting one City with another. Thus it w1uld be necessary, if Cities' access to nuclear generation as prayed for herein is to be meaningful, for Duke to supply transmission service (' wheel-ing'), and back-up services.

There are other services, equally necessary to the mitigation of

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the present anticompetitive situation, which Duke should also be required .

to supply. Cities believe that in order to make effective any order of the Atomic Energy Commission seeking to reintroduce competition into this sector-of the wholesale power market, such order should direct Duke to provide these services at its cost, including a reasonable return.

3. These services can be summarily described as follows:

a. ,

Wheeling. Duke should be required to facilitate the-exchange 'of bulk power over its transmission system between or among two or more entities, or between different sections of one entity's system, with which it is interconnected (or which proposes to become interconnected with it), on terms fully compensatory to Duke for the use of its system and any additions or extensions thereto required to provide such wheeling service, all to the extent reasonably feasibke from the functional, techni-cal, and economic standpoints. Duke should undertake to file a Page Fourteen l

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wheeling service tariff, setting forth rates, terms, conditions, and availability for such service, consistent with the above des-cription.

b. Interconnection, Coordination, and Reserve Sharing. Duke should be required to interconnect with and coordinate reserves, through sale and exchange of emergency bulk power and energy, with any entity c,r entities in its serv' ice area engaged or proposing to engage in tulk power supply. The terms therefore should provide for Duke's ecsts, including a reasonable return, and should allow all participants full access to the benefits of reserve coordination.

Duke should commit itself to interconnect at the highest available transmission voltage, where such arrangement is mutually feasible economically. The following principles (established in the Gaines-ville case ) should be recognized as controlling:

(1) A small system's reserve responsibility should be determined on a percentage basis (i.e., a percentage of reserve equal to that which Duke undertakes.to maintain) and not on some form of ' largest unit out' concept.

(2) Emergency power supply is not limited to a fixed amount but will be supplied to the fullest extent available, as long as service to Duke's customers is not impaired.

c. Coordination in planning and construction of facilities. Duke should undertake to purchase bulk power from or sell it to any' other Gainesville Utilities Dept. v. Florida Power Corp., 402 U.S.

515 (1971).

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. .. I entity or entities engaged in or proposing to engage in bulk power supply at its costs (including reasonable return) when said trans-actions would reduce the overall costs of new bulk power supply for Duke or the other participant (s) in the transaction. Specifically, Duke should undertake to coordinate the planning and construction ;f new generation and transmission and associated facilities.

d. Bulk power sales. Duke should be required to sell power in bulk, on an all- or partial-requirements basis, to any entity now engaged in or proposing to engage in retail distribution of electricity (or to any agent or assignee of such entity).

9 August 1972 .

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? } CW -- )ct tally, Tally G Bouknight ' - '

fttorneys for the municipalities .of/

High Point, Lexington,(Monroe, SheBy, Albemarle, Drexel, Granite Falls, Landis, and Lincolnton, all of North

, Carolina .

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CERTIFICATE OF SERVICE I CERTIFY that I have this day served copies of the foregoing document on the following by deposit in the United States mails.

Fayetteville, North Carolina, this 9th day of August,1972.

Walter W. K. Bennett, Esq. Troy B. Conner, Esq.

P. O. Box 185 Reid 6 Priest Pinehurst, North Carolina 28374 1701 K Street, N. W.

Washington, D. C. 20006 Joseph F. Tubridy, Esq.

4100 Cathedral Ave., N. W. Atomic Safety and Licensing Washingtsn, D. C. 20016 Board Panel U. S. Atomic Energy Commission John B. Famakides, Esq. Washington, D. C. 20545 Atomic Safety and Licensing -

Board Panel Wallace E. Brand, Esq.

U. S. Atomic Energy Commission Department of Justice Washington, D. C. 20545 Room 8107, Star Building 1101 Penhsylvania Ave., N. W.

Carl Horn, Esq. Washington, D. C. 20530 President, Duke Power Company Charlotte, North Carolina 28200 Mr. Frank W. Karas Chief, Public Proceedings Branch William H. Grigg, Esq. Office of the Secretary of the Commission Vice President and General, Counsel U. S. Atomic Energy Commission Duke Power Company Washington, D. C. 20545 422 South Church Street Charlotte, North Carolina 28201 Benjamin H. Vogler, Esq.

Joseph Rutberg, Esq.

William Warfield Ross, Esq. U. S. Atomic Energy Commission Wald, Harkrader, 6 Ross Washington, D. C. 20545 1320' Nineteenth Street, N. W.

Washington, D. C. 20036

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Tally, Tally G Bouknighte

" .'.i;torneys and Counsellors at L[w, P.\,0. Drawer 1660 /

Fayetteville, North Carolina 28302 l

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