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Applicants Joint Proposed Findings of Fact & Conclusions of Law Substantiating That No Inconsistent Situation Is Created or Maintained Under Licenses.Certificate of Svc Encl
	ML19319B291
Person / Time
Site:	Davis Besse, Perry
Issue date:	08/30/1976
From:	Bernstein J, Reynolds W, Zahler E; SHAW, PITTMAN, POTTS & TROWBRIDGE
To:	;
References
	NUDOCS 8001150728
	Download: ML19319B291 (212)
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TABLE OF CONTENTS Page I. Findings of Fact . . . . . . . . . . . . . . . . . . 1 10.00 GENERAL BACKGROUND . . . . . . . . . . . . . . 1 r--

20.00 THE COMPETITIVE FRAMEWORK . . . . . . . . . . 4 21.00 Production And Marketing Functions In Tk Electric Utility Industry . . . . . 5 22.00 t snomic And Lecal Barriers To Competition In The Electric Utility Industry . . . . . . . . . . . . . . . . 7 23.00 The Extent Of Competition In The CCCT . . . . . . . . . . . . . . . . . . 14

- 30.00 THE MATTERS IN CONTROVERSY . . . . . . . . . . 23

. 31.00 The Proposed Relevant Markets And Applicants' Inability To Hinder Or Exclude Competition Therein . . . . . . 23 32.00 Applicants' Conduct Provides No Basis For Finding Any " Inconsistent Situation"

<_ Under Section 1 Or Section 2 Of The Sherman Act . . . . . . . . . . . . . . 29

" 33.00 The CAPCO Pool . . . . . . . . . . 29 34.00 Cleveland Electric Illuminating. . 54 m

35.00 Toledo Edison. . . . . . . . . . . 67 36.00 Ohio Edison and Penn Power . . . . 83 r 37.00 Duquesne Light . . . . . . . . . . 128 38.00 No " Inconsistent Situation" Will Be

r. Created Or Maintained By Activities Under These Licenses . . . . . . . . . . 147

'~

II. Conclusions of Law . . . . . . . . . . . . . . . . . 149 10.00

SUMMARY

. . . . . . . . . . . . . . . . . . . 149

_ 20.00 THE LEGAL FRAMEWORK . . . . . . . . . . . . . 151 t,-

.i 30.00 THE MATTERS IN CONTROVERSY . . . . . . . . . . 156 31.00 The Proposed Relevant Markets And Applicants' Inability To Hinder Or Exclude Competition Therein . . . . . . 157

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32.00 Applicents' Conduct Provides No Basis For Finding Any " Inconsistent Situation" Under Section 1 Or Section 2 of The _

Sherman Act . . . . . . . . . . . . . . 177 33.00 The CAPCO Pool . . . . . . . . . . 178

~T 34.00 Cleveland Electric Illuminating. . 182 35.00 Toledo Edisan. . . . . . . . . . . 184 .

36.00 Ohio Edison and Penn Power . . . . 191 37.00 Duquesne Light . . . . . . . . . . 195 g 38.00 No " Inconsistent Situation" 01i11 Be Created Or Maintained By Activities -

Under These Licenses . . . . . . . . . . 210 III. Conclusion . . . . . . . . . . . . . . . . . . . . . 211

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UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION Before the Atomic Safety and Licensing Board

. In the Matter of )

)

THE TOLEDO EDISON COMPANY and )

THE CLEVELAND ELECTRIC ) Docket No. 50-346A ILLUMINATING COMPANY )

(Davis-Besse Nuclear Power Station, )

Unit 1) )

1 THE CLEVELAND ELECTRIC )

ILLUMINATING CO. ET AL. ) Docket Nos. 50-440A (Perry Nuclear Power Plant, ) 50-441A Units 1 and 2) )

)

THE TOLEDO EDISON COMPANY, ET AL. )

(Davis-Besse Nuclear Power Station, ) Docket Nos. 50-500A Units 2 and 3 ) 50-501A APPLICANTS' JOINT PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW u.

I. Findings of Fact r-10.00 GENERAL BACKGROUND

,- 10.01 On August 1, 1969, the Toledo Edison Company

("TECO") and the Cleveland Electric Illuminating Company

~

("CEI") filed with the predecessor agency to the Nuclear Regulatory Commission a joint application for a license

_ to construct and operate Davis-Besse Unit 1, a 906 megawatt

("mw") nuclear generation facility to be located in north-central Ohio on the shores of Lake Erie, approximately 21 miles east of the City of Toledo. [S-151] A construction me

I i

y permit for the facility issued on March 24, 1971 [See Con-struction Permit No. CPPR-80], and major construction work began promptly. On July 6, 1971, the City of Cleveland, -

Ohio (" Cleveland") petitioned to intervene in the Davis-Besse Unit 1 proceeding requesting antitrust review only with respect to alleged anticompetitve conduct by CEI.

NI On July 9, 1971, the Department of Justice ("DOJ"), following an independent investigation into the conduct of TECO and e CEI, issued an advice letter recommending against an anti- -

[36 Fed.

trust hearing. Reg. 17888 (September 4, 1971)]

]

On March 15, 1974, the Intervention Board to which Cleveland's petition had been referred granted the intervention and _

announced that a hearing would be heli on antitrust matters in the Davis-Besse Unit 1 proceeding. (Memorandum and Order dated March 15, 1974; see also Brief at 9-10]

u 10.02 On March 28, 1973, TECO, CEI, Ohio Edison Company (" Ohio Edison"), Pennsylvania Power Company ("Penn Power"), and Duquesne Light Company ("Duquesne") filed a -

joint application to construct and operate Perry Units 1 y

and 2, a nuclear generation facility composed of two 1205 J mw units located near Lake Erie in Lake County, Ohio, some 35 miles northeast of the City of Cleveland. [S-154} DOJ issued an advice letter on December 17, 1973, recommending _

an antitrust review in the Perry proceeding solel'L on the i

basis of activities by CEI within the corporate limits of -

Cleveland. [39 Fed. Reg. 2029 (January 16, 1974)] Inter-

}

J vention petitions by Cleveland and American Municipal Power-s Ohio, Inc. (" AMP-O") also complaining only about activities

_ of CEI were granted by the Intervention Board and the Perry .

proceeding was consolidated with the Davis-Besse Unit 1 proceeding for purposes of the present antitrust inquiry.

[Memcrandum and Order dated March 15, 1974] Subsequently, AMP-O filed on September 12, 1975, a motion for leave to

. withdraw; the motion was granted in an oral ruling during the Sixth Prehearing Conference on September 18, 1975.

~

[Tr. 1183; see also Brief at 11-13]

10.03 On August 9, 1974, the joint application of TECO, CEI, Ohio Edison, Penn Power, and Duquesne for a license to construct and operate Davis-Besse Units 2 and 3, a nuclear generation facility composed of two 906 mw u units located adjacent to Davis-Besse Unit 1, was docketed.

r [S-157] DOJ issued an advice letter on February 14, 1975,

~~

recommending antitrust review in the Davis-Besse Unit 2 m

and 3 proceeding, and for the first time charging Applicants other than CEI with anticompetitive behavior. [40 Fed. Reg.

8395 (February 27, 1975)] Cleveland again filed a petition to intervene, which was granted.on May 6, 1975. By order

~

of the Licensing Board the Davis-Besse Unit 2 and 3 pro-m ceeding was consolidated with the Davis-Besse Unit 1/Perrv proceeding. [ Memorandum and Order of Consolidation dated July 30,1975; see also Brief at 14-17]

W

7

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20.00 THE COMPETITIVE FRAMEWORK 7

20.01 The economic function of competition in the

}.

electric utility industry is to discipline the various market participants to provide electric service skillfully and cheaply. [Penn, Delaney and Honeycutt, Coordination

~

Competition and Regulation in the Electric Utility Industry, NUREG-75/061, at 4 (1975) (hereinaf ter " Coordination, Competition and Regulation"); see also Brief at 108] ,

20.02 This function is satisfied when all electric .,

entities in the applicable area have achieved a course of dealing which enables them to capture the combined benefits of coordinated operation and development. [Hughes 3771.

3878, 3883; see also Brief at 109-12]

20.03 The more typical function of competition acting as a restraint or check on the exercise of market power of any single electric utility has effectively been removed .,

in the electric utility industry by regulatory controls.

i As a result the actual " structure" of the market is not particularly important. [ Coordination, Competition and Regulation at 4; see also Findings of Fact 31.04, 31.06-31.08, 31.14 (hereinafter "F/F"); Conclusions of Law .

31.17-31.23 (hereinaf ter "C/L") ; Brief at 108]

20.04 Competition for its own sake in the electric ,

utility industry ic valueless and increased competition Ji among electric entities can be wasteful and destructive.

[Hughes 3771, 3788; see also Brief at 109-11]

21.00 Production and Marketing Function In the Electric Utility Industry

. . . 21.01 There are three recognized production functions .

in the electric utility industry: generation, transmission

~ .

and distribution. [A-100; A-116; A-128; see also 1 FPC, l

National Power Survey 12.(1964); Coordination, Competition and Regulation at 1; Brief at 113-19]

21.02 The generation function is performed either by

-. planning, constructing and operating one or more electric generating facilities or by entering into contractual arrange-

~

ments with other power supply sources for the purchase of sufficient capacity and energy to meet system demands.

(Meeks, Concentration in the Electric Power Industry: The Impact of Antitrust Policy, 72 Colum. L. Rev. 64, 70-71 l --

(1972) (herei after " Concentration in the Electric Power Industry"); Blief at 114]

Mithin the combined CAPCO (Central Area Power

~

21.03

~

Coordination Group) company territories ("CCCT") the u.

generation function is performed principally by the five

_ Applicants. [ Compare S-158 with C-161 (Mayben) 8, Pandy i -. - 3099, S-44, D-594, D-593, D-590, D-592; see also D-587 (Wein) 122; Brief at 115-18]

21.04 The transmission function, while not necessarily

'~

performed by every electric entity, is performed when bulk en

1

)

i power is moved from a distant generating source to its intended load center. [Firestone 9232-33; Bingham 8154-

}

56; see also Brief at 117-18] _

21.05 The distribution function involves the delivery of electric energy to the ultimate consumer, including any ,

necessary stepping-down from transmission voltage levels to levels useable by the consumer. [ Bingham 8171-77; see also Brief at 118-19] l 1

21.06 The development of the electric power industry '

has been such that one entity may perform all three production functions (in which case the entity is said to be vertically ]

integrated) or an entity may perform less than all three 3

functions relying on another entity to perform the others.

[D-587 (Wein) 52-55; see also F/F 22.01 - 22.04; Brief at 119, 124, 127-28]

21.07 The marketing functions in the electric utility industry take place at two broad levels: the retail level and the wholesale level (Concentration in the Electric Power Industry at 81 & 94; see also Brief at 114]

21.08 The retail function involves the delivery $

3 to an end-user of a reliable source of energy (in virtually all cases firm or uninterruptible power) _at immediately --

useable voltage levels; it necessarily includes the distri-w

't _

t bution function and any asscciated voltage step-downs to subtransmission or distribution levels. (D-587 (Wein) 97-s 98; see also Brief at 119-20]

21.09 The wholesale function is to deliver energy ,

in bulk to electric entitites performing the retail func-

_. tion. Not every electric entity therefore need engage in

(

the wholesale function. [D-587 (Wein) 98; Wein 6625, 6668-

~

69; Binghaa 8171-77; see also Brief at 120-22]

22.00 Economic and Legal Barriers to Competition t,

In the Electric Utility Industry 22.01 There are six basic economic charateristics of the electric utility industry that raise signifi ant

. economic barriers to competition. They are:

(a) the industry is highly capital-intensive,

~

requiring an investment of $4 to $5 for every dollar of annual revenue received as compared

,_ with an investment of less than $1 per dollar L- of annual revenue for most manufacturing industries; (b) the investment is in long-lived plant and L.

equipment requiring long constuction lead-times, advance forecasting and planning, and very often expensive and time-consuming regulatory approvals;

?:1 i:e '. : n - md equipment so constructed are !

\

tied to one particular geographic location and j cannot be moved to serve other locations should customer demands shift;

l l

l (d) the service can be provided only to those customers directly connected to the supplying ~i .

utility, requiring in all cases a continuous electrical and physical path between the producing facilities and consuming facilities; ..

e) the energy cannot be produced until the -

~'

consuming facility registers its demand, and then it must be supplied instantaneously, and without any substantial ability to stockpile or inventory _

the energy; -

(f) the industry is characterized by significant "

economies of scale, especially at the generation ~

and transmission levels.

)

$I

{A-189 (Gerber) 6-7, 10-11; see also 1 FPC, National Power Survey 11 (1964); Brief at 123]

22.02 These economic characteristics give rise to obvious planning efficiencies and significant economies of vertical integration that can be realized only when an electric entity performs all three production functions.

[Hughes 3899-900; A-189 (Gerber) 10-11; Wein 6840, 6843-44; see also Brief at 124-26]

22.03 These same economic characteristico provide economic incentive for the horizontal integration of electric utilities, particularly when the available scale economies i

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l grow much more rapidly than the rate of growth of the industry

as a whole, as was quite often the case in the electric utility industry. In addition, advantages due to load diver-i sity, improved load factors, and location are available to horizontally integrated firms. [D-587 (Wein) 43, Wein s' 6727-28, 66... 2; A-189 (Gerber) 8-10; see also Brief at

(

126-27]

{ 22.04 As a result, vertically and horizontally L

integrated enterprises were the natural course of develop-r-

ment within the electric utility industry [D-587 (Wein) 52-53; A-189 (Gerber) 8-12; see also Brief at 124, 127-28]

~

22.05 A natural monopoly exists in an industry

- "[w] hen one firm can satisfy total market demand at lowest cost, but more than one firm would result in higher total costs * * *." [D-587 (Wein) 43; Wein 6815; see also coordina-tion, Competition and Regulation at 9-10; Brief at 1291 r-

, 22.06 The distribution function is a natural mono-w

(~

poly because the technology in the electric utility industry L. requires a direct- physical connection between customer and supplier and because, due to the characteristics of that interconnection, it is most economic to have just one such ;

c l

tie. [S-207 (Hughes) 33; Hughes 3729, 3788, 3901; Wein '

7247; Kampmeier 5825-26; see also coordination, competition

_ and Regulation at 1, 9, 14; Brief at 130-31]

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22.07 The technical characteristics which sustain the natural monopoly structure for the distribution function 7 i

)-

are equally true for the generation and transmission func-l .

l tions and give rise to " natural market power", but not necessarily natural monoliths, at those levels of organi- y zation in the electric utility industry. [Hughes 3902-03;

~

Wein 6816; see also Brief at 131-34] The geographic area served by the five Applicants is small enough that a single n

firm could feasibly own all the generation and transmission in the CCCT. [Hughes 3831; see also Brief at 133] -

.l

s 22.08 The following constitutional and statutory direc-tives by the State of Ohio act as passive legal restraints on CEI, TECO, Ohio Edison and all non-Applicant Ohio CCCT entities, raising significant barries to competition among such entities:

(a) Article XVIII, Section 6 of the Ohio Constitution by effectively foreclosing a municipal electric system from acquiring in the future any significant quantity of new load outside the ccrporate limits; by i a

barring a municipal system taking its full power requirements as a wholesale customer <

of another utility from selling power out-m side its corporate limits; and by placing I

.j ,

h at. upper limit on the quantity of power a mun . pal electric system may exchange witt. sener utilities in the wholesale or ~

bulk power market. (D-587(Wein) 117-18; Guy 3056; White 9525-26, 9681-83; see also C/L 31.05(a); Brief at i35-36]

(

(b) Section 4933 of the Ohio Revised l Code by affording a municipality the power to prevent unwanted competition for urban i customers it is serving from its own elec-

~

tric system and by allowing a municipality w.

to deprive an electric entity from compet-ing within the corporate limits with the current retail distributor operating with municipal consent. [See A-195 (Milburn)

F 55; see' also C/L 31. 05 (b) ; Brief at 136-37]

L (c) Section 4905.261 of the Ohio Revised Code by precluding retail and wholesale C

m competition among and between investor owned utilities and rural electric coop-E eratives for existing retail and wholesale

'{ customers. [D-587(Wein) 116-17; Wein 6901; see also Tr. 6897-98; C/L 31. 05 (c) ; Brief -

at 137-39]

em

~l 22.09 The statutory restrictions upon electric utility l competition in Pennsylvania are even more rigid than in Ohio. [Wein 6928-29] Since state law definitively estab- ;

lishes specific service territories (Hughes 3673; White -.

9504, 9662; see also C/L 31.02-31.03] there exists no real potential for any form of retail competition either U inside [53 P.S. S47471] or outside [Wein 6928] municipal corporate limits. Moreover, because stata law also limits the condemnation powers of a public utility [66 P.S. .,

S1124), there is no potential for competition at the wholesale level. [See 9821 cf. S-25 through S-28; see o

also Brief at 139-42]

7

.3 22.10 The rates, terms and conditions of all forms of electric service provided by Applicants are regula- -

ted either at the federal, state or local level. [C/L 31.01-31.02, 31.04; see also Brief at 142-45] While the mechanics of rate regulation vary among the agencies having jurisdiction, each follows a similar methodology (Wilson 10997-98] that results in rates being fixed on a cost-to-serve basis and not on a profit-maximizing basis.

l (Wilsen 10998,11008-10; Bingham 8158-66, 8184, 8193-94, J 10180; see also Brief at 145-47] As a result of this

[

J rate regulation no Applicant can ever meet the rate competition of ano"her utility by manipulating its ,

I J

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rates (Wein 6905; Gerber 11490], nor do any of the Applicants design or " redesign" their rate structure in response to the rates being charged by some .

other utility. [Wein 6899-900; 6903-06, 6906: Bingham 8185-86; see also Brief at 248-501 -

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t-i 23.00 The Extent Of Competition In The CCCT 23.01 Generally, there is very little competi- -

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tion in the electric utility industry. [ Coordination, Comoetition and Regulation at 13; Gerber 11476; see F/F ;

22.01-22.10] This situatica prcvails in the CCCT [F/F 23.02-23.19] where the opportunities to compete have .

been effectively foreclosed by economic characteristics that have isolated natural market power in a relatively few vertically and horizontally integrated private utili- 7 3

ties subject to comprehensive statutory and regulatory con- y trols at both the state and federal levels having a direct 3 impact on the manner, type and extent of electric service

[

that can be provided. [A-189 (Gerber) 7]

a. Competition at the retail level 23.02 While interfuel competition was at one time very intense, it is not very significant today, nor partic-I ularly relevant to this proceeding (Gerber 11487; see also j Brief at 151-52] l 1

23.03 Yardstick competition is a form of indirec' I

competition by which performance is measured through a i compa'rison between and among various electric utilities. /

\

(Coordination, Comeetition and Reculation at 20; IIughes

(

, 3676) To be meaningful such comparisons should be among j utilities having reasonably similar characteristics and

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not necessarily among adjacent utilities. [Garber 11489-89; '

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Coordination, Competition and Regulation at 20, 23] As a result yardstick comparisons between a municipal utility und an investor owned utility are not meaningful. [Gerber 11483-84; Hughes 3676] The evidence of record also shows that there is no yardstick competition among investor -

otined utilities in Ohio, Pennsylvania, or the adjacent

- states. [Wein 6902-03; see also Brief at 152-55]

__ 23.04 The competition to attract new loads, i

usually large industrial customers, into a particular

~

service area [Gerber 11487-88; S-207 (Hughes) 36-37; Coordination, Competition and Regulation at 161] is, i

as a practical matter, extremely linited. [Gerber .

11488, 11490; Wein 6903-05] Only one municipal system

.(Cleveland) has sufficient nameplate capacity to compete for, or serve, a large industrial customer [D-587 (Wein) 95], and its actual operating capabilities [Mayben 7650]

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preclude even that. [See also Brief at 155-58]

v 23.05 Direct competition in the fringe area between adjacent utilities [Gerber 11490; S-207(Hughes)

L 36; Hughes 3720-23] is essentially "one-time competition" r to determine which utility is going to serve forever a

'L new customer. [Gerber 11491; Ccordination, Competition

1 1

and Regulation at 15] This necessarily places an upper M

l

~I linit on the amount of competition likely to occur.

[Hughes 3746; see S-85; Guy 3048, 3077] There is de l 4 minimis fringe area competition, if any at all, between ,

CCCT municipal self-generators (except Cleveland) and Applicants (D-587 (Wein) 118; Craig 2910-11; see also 7 Brief at 162] or between CCCT municipal distribution systems and Applicants [Hillwig 2422-23, 2454; Moran I-

)

9908-09, 9590; F/F 22.08; Fleger 8619, 8620, 8653; F/F 22.09; see also Brief at 165-66] There is active -

head-to-head competition in Cleveland between CEI and

~

MELP. [Mozer 3542; Hughes 3723; A-45, p.2; see also Brief at 166-68]

23.06 Given the basic nature of fringe area compe- f 1

titicn and the method of pricing electric service, if I

overzealously promoted, fringe area competition can lead j to discrimination and waste. [ Coordination, Competition g and Regulation at 14-16; Gerber 1157, 11586; Hughes 3875; I

see also Brief at 247]

L 31.14 -FPC regulation over the remaining long-term and r

[ short-term power transactions in the wholesale market p prevents Applicants from setting prices for such trans-L actions or excluding competitien therajn. [ Conclusions of

'I L Law 31.01(a)-(f) ] As a result, Applicants do not have monopoly. power in the short-term support power submarket f'

L or that part of the long-term dependable capacity submarket involving wholesale power purchases. [See A-190(P ce) 32; V

e W

. %pe-wa

..4

1, .

Findings of Fact 31.01; see also Findings of Fact 31.12, Brief at 247-49) 1 j-e I

l 1

1

,l '

l i

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i

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)

i J

32.00 APPLICANTS' CONDUCT PROVIDES NO BASIS FOR FINDING ANY " INCONSISTENT SITUATION" UNDER SECTION 1 OR SECTION 1 OF THE SHERMAN ACT 33.00 THE CAPCO POOL t

33.01 The Applicants executed a Memorandum of Under- -

standing setting "forth the basic understandings reached by and among" the companies as to the formation of the Central Area Power Coordination Group ("CAPCO") on Septem-ber 14, 1967. [S-IS4] To achieve the purposes of the

. Me.norandum of Understanding the Applicants have subsequently L executed the CAPCO Basic Operating Agreement as of January F

1, 1975 [S-202], the CAPCO Transmission Facilities Agree-t ment as of September 14, 1967 [S-185], and the CAPCO admini-

r

,[ stration Agreement as of September 14, 1967. [S-186] The l r., CAPCO Basic Generating Agreement is still being negotiated.

'i lL [A-122 (Firestone) 10; S-205 (Mozer) 18, 23; see also Brief lIL at 253]

r a. Power coolina conceots lL 33.02 Power pools are formed when two or more electric t

systems, whose respective service areas have a geographic i

l I" proximity with one another, become convinced that through 1L<

l pool participation they will achieve cost savings and ser-fi-Vice improvements. [A-121 (Slemmer) 7-8; A-122 (Firestone) n 4; see also Brief at 256]

i 2

e

=

'W

33.03 The growing sophistication of power pools during the 1960's and 1970's represents a logical extension in ,

an evolutionary process that was given strong impetus from the FPC and the national attention that surrounded the 1965

~

Northeast blackout, [A-122 (Firestone) 4-5; A-121 (Slemmer) 20-21; Hughes 3645-46, 3648; see also 1 FPC, National Power Survey (1964); Brief at 257-58] ,

I d'

31.04 The power pool is very fragile; conflicting fac- ,

tors hinder the formation of pools, and once formed these same factors make operation within the pool framework a

]

~)

full-time and difficult task. (Breyer and MacAvoy, Energy ,

Regulation by the Federal Power Commission 111-12 (1974);

]

i cf. Kampmeier 5743-52; see also Brief at 260]

J 33.05 An essential element of the pooling concept is 1

a willingness of the pool participants to surrender some j autpmony of action so that joint planning and operating philosophies, acceptable to all, can be developed. (A-122 (Firestone) 8; A-121 (Slemmer) 14; cf. Williams 10369, 10386- {

J 81; see also Brief at 258-59]

33.06 For a pool to remain viable it is necessary for the pool to establish common objectives and then designate j individual responsibilities which result in establishing ,

individual conditions that maximize mutuality among pool J

participants. [A-122 (Firesto:se) 6-9; Firestone 9221-23; A-121 (Slemmer) 8-12] Mutuality is present if the pool participants can reasonably expect that the benefits one party derives and the responsibilities he undertakes will

_ secrue in similar fashion to all parties. [Id.] In this -

regard mere monetary compensation is no substitute for the .

assurance from each participant that he will continuously t.

plan and operate his system so as to further the common pool objectives and provide mutual assistance to other pool

_ members. [A-122 (Firestone) 6; cf. Slemmer 9152; see also I

L. Brief at 260-63]

r t 33.07 The FPC has identified some of the minimum respon-sibilities of pool membership necesscry to insure mutuality.

[FPC, National Power Survey I-17-4 (1970); Hughes 3817-18; I

Kampmeier 5872-74] The inability of a system to meet these L

_ minimum tesponsibilities is dispositive as to the inappro-

_ priateness of direct pool participation. [F/F 33.06] There t

r are scale-related limitations on the ability of electric systems to meet these responsibilities. [Hughes 3801; see also Brief at 264-66]

~

33.08 Electric systems of a size below that capable of achieving efficient performance by way of pool pa'ticipa-

, tion can receive the full benefits of power pooling through indirect means. [Hughes 3801; Firestone 9430-31; see alst F/F 38.03] These indirect means can vary from bilateral L

_m

lI interconnection agreements providing most if not all the services available in a pool (see S-203; S-204; A-271] to n

" wholesale-retail specialization," i.e., full or partial J l

requirements wholesale contracts. [Hughes 3809; FPC, National -

Power Survey I-17-27 (1970); see also 1 FPC, National Power Survey 273 (1964); Kampmeier 5876-85; Brief at 266-67]

b. CAPCO agreements '

33.09 The various contractual arrangements entered into -

by various power pools exhibit no standard pattern. [A-121 (Slemmer) 16; D-450 (Kampmeier) 10; D-587 (Wein) 102; l J

D-588]

'l J

33.10 While the New England Power Pool ("NEPOOL") Agree-1 ment [D-635] was submitted as an example of power pooling, l without testimony on what the provisions mean, how they 3 were arrived at, how they are implemented, what state law i is and how it impacts on the the agreements, or in what !

l ways the New England experience is appropriate for conducting i

a pool in Ohio and Pennsylvania, no meaningful comparisons .j can be made between CAPCO and NEPOOL. [F/F 33.09; see also Brief at 268-70]

33.11 The CAPCO Pool was formed so that Applicants could J coordinate installation of generation and transmission in 1 J

order to further reliability and take advantage of scale 1

economies. [S-184, p. 1; Fleger 8617; Schaffer 8537; White 9498, 9712-14; Williams 10351-52; A-122 (Firestone) 9; see clso Brief at 269-70] a d

4 33.12 To achieve these goals Applicants engage in a construction program of jointly committed generating units using a one-system planning concept. [S-184, 52.2; Schaffer .

l 8535; A-122 (Firestone) 9-10; S-205 (Mozer) 10-11] Sophis- -

_ ticated probability methods are used to determine total

i capacity needs so tnat dependence on the generating reserves of non-CAPCO entities does not exceed one day per calendar year. [S-184, S4 1; A-122 (Firestone) 1, 12; Schaffer 8535]

Similar probability methods (sometimes referred to as the

- P/N formula) are used to allocate the capacity responsi-

'f -

bility among Applicants "so that each party's contribution I'

to the reserves of the CAPCO Group is directly proportional t

to its potential use of said reserves." [S-184, S4.2; A-i

!rL 122 (rirestone) 21; Schaffer 8535; see also Brief at 270-

r 74]

t

,L 33.13 The five nuclear facilities being licensed in

+

this proceeding are part of a larger 14-facility construc-r tion program implementing the CAPCO planning guidelines, iL

[S-158, question 12; A-122 (Firestone) 13-14; see also Brief at 275]

f' 33.14 Complementing the generation construction program l i L is another joint program, again making use of the one-system

E L concent to construct sufficient transmission facilities to permit carrying out the arrangements described in the l

5, w

l

.L l

];

Memorandum of Understanding. [S-184, S4.3; S-185 S1.01;

].

Schaffer 8550; A-122 (Firestone) 11] While individual _

Applicants are assigned construction obligations for the .

specific f acilities located in its service area (and also -

holds legal title to that facility), each Applicant has en investment responsibility in all transmission facilities paid in the form of a rental sufficient to cover fixed ,

charges and operating expenses allocated on the basis of average peak loads. [S-185, SS2.07, 4.02, 4.06, 6.01, 6.08; ~

Schaffer 8551] It has been agreed that all CAPCO trans-mission will be at 345 kilovolts ("kv") , or higher, and that each Applicant is responsible for adequate transformer ,

capacity to permit integration of its system with CAPCO I transmission. [S-185, SS4.01, 6.05; Schaffer 8578; see ;

also Grief at 275-77]

i 33.15 The CAPCO tranEmission arrangements do not commit one Applicant to wheel power for the benefit of ancther Applicant. (Williams 10390-91; see also F/F 33.14; Brief i

at 277-80] l, 33.16 The CAPCO contracts were designed so as not to ]

conflict with any contractual commitment previously entered l into by an Applicant an' 3 non-CAPCO entity. [S-184, 57.0] "

Any Applicant remains free to enter into new commitments I with a non-CAPCO entity provided the arrangement does not T

conflict with the CAPCO contracts. - [Id.; S-202; SS6.07, ;

w - .- v- r-- g g , -m w, _- ---mm-.- =

g---w- -

-Pr

20.01; Schaffer 3557-58; Williams 10390] Prior to January 1, 1975, Applicants coordit ated their operations by means of the previourly execute. bilateral agreements among the parties [A-122 (Firestone) 15-16; S-205, exh. HMM-4]; fol-

_, lowing that date ths JAPCO Basic Operating Agreement [S- -

202] governs [A-122 (Firestone) 11-12, 16; S-202, SSI.01, 20.01; Firestone 9234-38; see also Brief at 280-82]

,- 33.17 The pricing provisions of the service schedules under which Applicants coordinate their operations'are I premised on mutuality and are inappropriate for pricing transactions where mutuality is not present. [S-202, ser-t vice sch. A, 552.1-2.2 and 3.1-3,.2; Slemmer 9165; Bingham 8268, 8271-74, 8280-81] In addition the inability of an electric entity to pay for service provided by return in

~

L.

kind of like service would undermine the CAPCO pricing principles as reflected in the " banking principle." [S-F

_ 202, service sch. A, SS2.1-1 2 and 3.1-3.2; Schaffer 8562-63, 8585; see also Brief at 283-84]

33.16 Participants in CAPCO are obligated to incur significant planning and decision-making responsibilities '

I including the surrender of some amount of corporate auton-L omy; a willingness to reach final decisions promptly; and )

_ a commitment to participate fully and constructively in

- the CAPCO committee structure. [ Williams 10369-72; S-186; S-214; see also Brief at 285-88]

bem I

w

1 I

33.19 Participants in CAPCO are obligated to incur significant construction respoasibilities including the ~

~-

J construction and operation of je 7tly committed generating 7

and transmission facilities [A-122 (Firestone) 14-15; Schaffer l 8538, 8557, 8561; cf. 10 C.F.R. SS50.40(b), 50.34 (a) (9) , -

50.34 (b) (6) (1) , 50.34 (b) (7) , 50.36 (c) (5) ; see also Brief at 288-89]

. 33.20 Participants in CAPCO are obligated to incur '

significant financial and operating responsibilities in-cluding paying promptly for allocated shares of all CAPCO facilities and adequately maintaining and backing up those -

facilities. [ Williams 10370-73; Schaffer 8541-42; A-122 --

(Firestone) 12; see also Brief at 289-90]

l 33.21 The inability of an electric entity to meet these responsibilities [see F/F 33.18-33.20] would frustrate the ability of the present CAPCO participanta to achieve their commoa objectives and is sufficient business justification for not including such an entity in CAPCO. [F/F 33.04-33.07, 33.17]

c. The CAPCO agreements are not a naked restraint of trade.

33.22 The formation of CAPCO was in harmony with the

. urgings of the FPC throughout the 1960's. [Hughes 3649; -

F/F 33.03, 33.11; cf. D-587 (Wein) 15; see also Brief at 257-581 i

]

- ~ ,

i _

33'.23 The CAPCO requirement of unanimous executive appro-val for all major actions is necessary to protect each pool participant against possibly outrageous demands by other -

participants and to allow.each company to fulfill its fidu-

_ ciary responsibilities and comply with state regulation. '

[Schaffer 8567, 8586, 8608-09; Williams 10358-59; Arthur 8370] The unanimity requirement does not have a re-straining i

impact on trade or impact adversely on the competitive viability of non-CAPCO electric entities. [F/F 33.08, 38.02-

)

38.04; see also Brief at 293-99]

i

' L.

, __ 33.24 The principle that CAPCO capacity should be allo-l

cated among the parties so that each party's contribution to CAPCO reserves is directly proportional to its poten-

~~

tial use of those reserves [S-184, S4.2] is necessary to insure mutuality among the parties and avoid " leaning" or 7

" free riding." [A-121 (Slemmer) 15-19; Slemmer 9014; A-l

-L 122 (Firestone) 8-9, 18-19; Firestone 9445]

r i

" u; 33.25 The CAPCO probability technique (P/N formula)

p implements the principle that each party's contribution to reserves be directly proportional to its potential use 2

of those reserves with the same or a greater degree of

.t accuracy as other methods currently in use. [A-122 (Fire- -

stone) 21-27;'A-123; A-124; A-125; Schaffer 8526; Williams 10360-61; A-121 (Slemmer) 22] As a result it is not unrea-j i

1 sonable or unduly restrictive for the CAPCO companies to allocate capacity responsibility by use of the P/N formula. '

[Id.; Firestone 9445-46; 9448; Mayben 7810] It cannot be determined from the record whether the practical impact of the P/N formula is to require small electric entities .-

to install overly small and uneconomic generating units, but even if that was the case, such an impact is not unrea-t sonable or unduly restrictive since it merely " reflects the engineering fccts-of-life that, all other things being equal, a given amount of capacity from a single unit is less reliable than an equal amount of capacity from a num-ber of units." [A-121 (Slemmer) 24; see also Brief at 300-

~

10]

l 33.26 The P/N formula was the best and most accurate tool available for use by Applicants to allocate capacity !

i responsibility. (F/F 33.24-33.25] Applicants studied other methods for allocating capacity responsibility prior to a adopting the P/N formula, but rejected them because too many relevant factors were ignored, making it unlikely that capacity would be equitably distributed. [ Williams 10362, 10366-67; A-122 (Firestone) 19] In one of those studies

, the P/N formula was applied to a small system modeled after, -

but not exactly simil&r to, the Cleveland municipal system.

~

[C-27; C-28; C-46; C-47] Given the legitimate technical reasons for adoption of the P/li formula, the fact that such m

a study was performed provides no basis to conclude that

.)

,I

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

t

, the'particular technique chosen was selected because it I-l-

impacted adversely on small systems or that the technique was altered so as to produce a more burdensome result on l srall systems. [See Williams 10367-68; C-47] In fact, a study prepared for this hearing by Mr. Firestone shows -

) that the equal percentage of peak load method (one of the 5~

alternative methods considered and rejected by CAPCO) rarely, 2

- if ever, assigns reserve responsibility on an equitable

)i, basis, whereas the P/N formula does result in equitable i r- assignment of reserves. [A-122 (Firectone) 24-27; A-123;

t l' A-125; A-126; see also A-122 (Firestone) 19-20; A-121 (Slemmer) jr a

23-24; Williams 10362; Brief at 311-17]

4

}~ 33.27 The initial CAPCO capacity allocations were not C

j made arbitrarily; some " computer correct" results were r

_ modified during CAPCO negotiations on the basis of Appli-cants' judgment as part of the many compromises made prior to the execution of the Memorandum of Understanding and

~

to overcome as yet unresolved policy uncertainties and severe logistical constraints. [S-184, S2.1 and exh. B; g C-24; C-25; C-49, p. 9; C-50, pp. 8-9; C-44, p. 19; Fire-

, stone 9426-27; Schaffer 8602-03; Williams 10429; see also Brief at 318-21) l r !

u 33.28 On July 6, 1973, Applicants altered one of the

. computational techniques used in the P/N formula from a Ero rata method to an investment responsibility method.

eep

q

~40- !,

]

[D-372; Schaffer 8553-56] That change was made for legiti- '

mate technical reasons and not for the purpose of hindering -

participation in CAPCO by small electric systems. [C-57; C-58; C-41; C-42; D-238; D-284] The change from gro rata :

to investment responsibility may have the effect of requiring -

a new pool member, depending upon the configuration of its system, to be assigned a larger capacity responsibility than would otherwise have been the case; if that is so, it is not unreasonable or unduly restrictive in view of the sound technical reasons supporting the change. [Id.;

q A-124, p. 7; see also Brief at 322-28]

d. CAPCQ was not formed for exclusjonary or predatory purposes. -

33.29 The companies that formed CAPCO were responding to the urgings of the FPC and the national clamor following the 1965 Northeast blackou:. [Schaffer 8547; Whita 9500-01, 9651-52; see also F/F 33.03, 33.11] CAPCO represented

.L no change in the basic structure of the industry [ White 9813), but rather was just another stage in an evolutionary c, prccess that had been ongoing for over half a decade. [A-122 (Firestone) 4-5; see also Brief at 323-30]

33.30 "

k During the negotiations prior to the execution of the Memorandum of Understanding, and because of a very tight Duquesne planning ddadline, no consideration was given to the possible inclusion of other parties to the CAPCO a I

J f'

n w N

Pool. [Fleger 8618-21, 8625-29, 8650-51] there was some limited mention of other potential pool members, including discussion about the feasibility of participation by muni-

~

cipal electric systems, but there is no indication that the CAPCO companies intended to exclude municipal systems regardless of their ability to meaningfully participate ,

in CAPCO or intended to deny to any electric system the ber.efits of power pooling. [Id.; C-49, pp. 5-7; C-50, pp.

~

W, 2-5; C-51, p. 4; C-52; see also D-568 (Lindseth) 27-28; Williams 103625; Brief at 330-37]

l 1-

e. Operation of CAPCO has not imoermissibly restrained c- trade l

L

__ 33.31 Power pools are characteristically composed of a limited number of full members since there is a point at which the effort to accommodate competing individual m

positions to achieve an overall pool benefit becomes too L great. [A-121 (Slemmer) 13; see Brief at 341]

33.32 On December 5, 1967, Pitcairn wrote five similarly-L r worded letters to each of the CAPCO companies requesting discussions.about membership by Pitcairn in CAPCO. S-1 r

through S-5] Duquesne responded to this letter on January 2, 1968, indicating that it believed Pitcairn's membership in CAPCO would be impracticable. [S-6] Even though Duquesne intended that response to be a refusal of Pitcairn's re-quest for discussions [Fleger 8624), Pitcairn did not so W

g

l' y

understand Duquesne's letter since it sent a further let-

~

ter to Duquesne on January 11, 1968, again requesting a

k meeting to discuss in detail the advantages and difficulties raised by Pitcairn's request for menbership in CAPCO. [S- l 11] Duquesne then agreed to meet with Pitcairn's repre-q.

sentatives [S-12], and a meeting was held on February 21, I 1968 to discuss the matter further. [S-17] At the con-

~

clusion of this meeting, Pitcairn's representative indicated he needed to consult with the borough's engineer before meeting with Duquesne again. [Id.; see also A-4; A-5; Lrief q at 344-50] '

33.33 Concurrent with the correspondence between Pit- .;

cairn and Duquesne, Pitcairn also wrote to the other Appli-cants requesting discussions about CAPCO Pool membership.

[S-2 ; S-7 ; A-56 ; A-57; A-58; S-5 ; S-10 ; A-59 ; A-60 ; McCabe 4230; S-3; S-4; S-9; A-52; A-53] Though each Applicant wrote Pitcairn stating that they were willing to discuss u CAPCO membership, Pitcairn failed to follow up with fur-ther discussions, stating instead that it would be most beneficial if the discussions with Duquesne were first f, completed. [Id.; see also Brief at 351-52]

33.34 contrary to its stated intentions Pitcairn made no further effort to communicate with Duquesne or any other _.

Applicant about CAPCO. The sequence and timing of Pircairn's l

statements to the various Applicants indicates that upon i

1

t deliberation, Fitcairn saw the merit of Duquesne's posi-tion and chose to spend its time on more productive endea-vors. [F/F 33.32-33.33, 37.44-37.45; S-17, pp. 5-o; see .

also Brief at 352-53]

~

33/35 The Applicants neither individually nor collec-tively boycotted Pitcairn. [F/F 33.32-33.34; see also C/L

, 33.05]

33.36 Duquesne studied the feasibility of Pitcairn's 4

i participation in CAPCO [Fleger 8623-24; Dempler 8891, 8907- !

L 10, 8913-14, 8944] and reasonably concluded that partici-

~

pation by Pitcairn would create complications and diffi-L culties without any compensating advantages. [1-6; Fleger

, 8623-24, 8637; Dempler 8805; S-17, pp. 3-6; see also Brief

. P.

at 354-57]

w 33.37 The addition of Pitcairn to the CAPCO Pool would

, r t have contributed no benefit to the existing pool partici-

- r pants. [Wein 7129] This is so for the following reasons:

r (a) The availability of Pitcairn's installed capacity would not have enabled the CAPCO

~~

companies to reduce their installed reserve requirements [Dempler 8668-69];

' (, (b) the availability of Pitcairn's installed capacity would not have enabled the CAPCO companies to reduce their operating reserve requirements [Dempler 8671-74; cf. 8838];

N 1

l)

(c) the availability of Pitcairn's installed capacity would not have enabled the CAPCO companies to reduce their maintenance

~l

, resetve requirements [Dempler 8677);

(d) Pitcairn's generating costs were so high "

, [A-3, pp. 7 and 14] that it would have been uneconomic tor the CAPCO companies to purchase energy from Pitcairn. [Dempler ,_

8684; McCabe 1832] J 33.38 Pitcairn did not have sufficient resources to .-

provide Duquesne with dead-start capability [Dempler 8681- q 82; cr. Williams 10417]; in any event Duquesne already pos- I sessed generation which could be started from a dead-out.

i

[Dempler 8679]

1 33.39 While the record does not indicate that an alter-nate source of generation in the Monroeville area was neces-3 sary, any ability Pitcairn had to supply such power was valueless since Duquesne would be able to repair any prob- ?

lem in the Monroeville area more quickly than it could ac-

.i complish the switching necessary to transmit Pitcairn power into the area. [Dempler 8683]

33.40 Pitcairn's participation in CAPCO also would have f

. complicated and adversely impacted on the CAPCO decision-I making process [A-121 (Slemmer) 12-13; Dempler 8924; cf. .1 Williams 10384-87]; would have resulted in significant and

[

wasteful expense associated with the necessary extra-high voltage interconnection [Dempler 8677-78; 8933; 8939; Fleger 8642-43]; and would have required the alteration of many CAPCO operating procedures to accommodate an entity as small as Pitcairn. [Dempler 8924-28] These costs confirm the belief of the NRC Staff's expert witness that addition of a system the size of Pitcairn would most probably result in costs that exceed the benefits. [Hughes 3807-08; see also Brief at 358-61]

~~

33.41 Thus, Pitcairn would neither have been able to L_

meet the minimum pool requirements necessary to assure

, mutuality nor satisfy its obligations under the CAPCO con-tracts (Compare F/F 33.36-33.39 with 33.04-33.07 and 33.17-33.20], while at the same time it would have caused the

[ CAPCO pool participants to incur increased costs. [F/F L

33.40] In these circumstances, even if the Applicants, r

l. [_ either individually or collectively, had boycotted Pitcairn, r- such action would have been reasonable. [F/F 33.21]

,. 33.42 On April 4, 1973, Cleveland wrote to CD request-

- ing admission to CAPCO. [D-181] One week later Cleveland P

again wrote to CEI specifically requesting participation in the Perry nuclear facilities. [D-182] CEI responded on April 17, 1973, suggesting that a meeting be held to

. 1 discuss both requests. [D-183] Simultaneously. CEI ad- i vised the other CAPCO companies of Cleveland's requests

wmit

1 and proposed that the matter be discussed at the April 27, 1973 meeting of the CAPCO Executive Committee. [D-97] n At that meeting CEI explained the correspondence exchanged between itself and Cleveland, and commented on the status of the meeting suggested in its response. [D-98, p. 9] _

These facts indicate that CEI, and all the other CAPCO ,

companies, were acting unilaterally throughout this period. -

[See also Brief at 361-62]

33.43 On August 3, 1973, Cleveland wrote to all the Applicants enclosing a copy of its " Proposal for Member-ship in the Central Area Power Coordination Group and Par-ticipation in Nuclear Units." [D-185] The proposal sub- ]

mitted by Cleveland was inherently self-contradictory.

)

[ Compare D-185 with F/F 33.12-33.17; see Williams 10373- ')

74; D-134; see also Brief at 363-65]

33.44 Since Cleveland's August 3 letter had invited each Applicant to participate in meetings on Cleveland's proposal [see D-185], CEI contacted the other companies; the essense of those informal discussions was that "some-body ought to go to Cleveland Muny and talk to them about >

[their proposal], because we are not sure we understand a

everything that is in the letter. The logical somebody was CEI . . . . [ Williams 10404-05] These thoughts were P+4 communicated to Cleveland [A-25), and a meeting between

- a w q

representatives of Cleveland and CEI was held on October 25, 1973. [D-291, p. 8] At this meeting Cleveland claimed that its overriding interest was to participate in CAPCO as a full member. [D-291, p. 9; but see F/F 33.54] CEI was unable to respond fully to Cleveland since it could -

not speak for the other CAPCO companies. [D-291, p. 11]

It was agreed, therefore, that another meeting would be held, at which time CEI and the other CAPCO companies would respond to Cleveland's request. [D-291, p. 14; see also Brief at 363, 365-66]

t 33.45 In order to respond to Cleveland, CEI suggested a meeting of the CAPCO companies. [D-103] The minutes of the Executive Committee meeting held on December 7, 1973, show that Cleveland's request was discuased, but that each

~

company left to formulate its individual position on the matter and communicate that position to CEI so that Cleve-L land could be informed of the individual views of the re-r spective companies. [D-104; Williams 10405; see also Brief at 366-67}

33.46 Following the December 7 meeting, TECO communi-cated its position to CEI; while TECO took no firm position

~

on Cleveland's request, it believed that a way could be

~

found to accommodate Cleveland by some power purchase ar-rangement with CEI. [D-581 (Williamson) 17-18; Williams 10406; see also Brief at 367-68]

w k

q.

33.47 Ohio Edison also communicated its response to Cleveland through CEI; Claveland's inconsistent requests '

indicated to Ohio Edison that Cleveland's desire wes for y i

. participation in large scale nuclear units, which was some-thing best handled on a bilateral basis between CEI and Cleveland. [ White 9514-16; C-61; Williams 10406; see also Brief at 368]

33.48 Duquesne, however, chose not to communicate its position through CEI, but instead wrote directly to Cleve-

. .I land on December 10, 1973 [D-187; Williams 10406]; that 3 letter was a unilateral action on the part of Duquesne. -)

~

(Arthur 8346, 8392] As expressed in the December 10 letter, Duquesne did not believe that Cleveland would be a workable addition to CAPCO and would present serious obstacles to l-effective pool operation because its characteristics were -)-

4 so dissimilar from the other CAPCO companies. [D-187; }

.}

Arthur 8378-79, 8382-83; cf. F/F 33.07] The letter, how-ever, was not intended by Duquesne as "a final, definitive refusal;" Duquesne fully expected Cleveland to respond.

L

[ Arthur 8347, 8360-61; see also Brief at 369-70] I 1

33.49 on December 13, 1973, CEI and Cleveland met to ..

, discuss the question of membership further. At that time !

CEI presented a counterproposal to Cleveland offering par- ~

ticipation in the specified nuclear facilities, and in the requested amounts; other forms of coordination were also I

l ,

L l

-s ,

made available to Cleveland. [D-188; see D-291] CEI's counterprooosal offered greater advantages (and fewer dis-advantages) than Cleveland would have received from CAPCO l membership; the full benefits of coordinated operation and developmert were made available while avoiding the disad-ventages pool membership would present. [F/F 33.51, 34.23; see also F/F 33.08; Brief at 371-73]

33.50 Neither CEI nor any other Applicant boycotted P Cleveland. [F/F 33.42-33.49; see also C/L 33.06]

L 33.51 The addition of Cleveland to CAPCO was not in the best interest of either Cleveland or CAPCO for the following reasons:

~

(a) adding Cleveland as a member of CAPCO would make .

it more difficult to resolve questions, partic-1r

}I ularly since Cleveland's economic objectives and cost structures are different than those of the present CAF00 participants [ Williams 10382];

(b) any fixed-charge rate advantage Cleveland might theoretically bring to CAPCO would be lost to

,_ the pool (and to Cleveland) due to the relatively insignificant size of the Cleveland system [Wil-llams 10382-83];

9 m

4 4

i l 'l d

, (c) due to CAPCO's complexity it would be difficult _

even to agree on Cleveland's inpct data for one- !

system planning; an issue that is likely to be ~)

).

particularly troublesome in view of the " unique" eA track-record of Cleveland's largest unit [ Williams 10385-86];

(d) because of the significant differences in J size, location and financing structure between Cleveland and the present CAPCO participants, if CAPCO one-system planning did include Clevea land, the results might not be in Cleveland's -

best interest, making CAPCO decision making much -

more difficult (Williams 10384-85];

}-

1 (e) if the one-system plan was not in Cleveland's best interest, one likely consequence would be j I

an unwillingness of Cleveland to go forward, thereby stymieing pool action and degrading area- '

wide reliability (Williams 10386-87];

}

J (f) given the extraordinarily long lead-time to con-struct generating facilities, it is advantageous ;

to CAPCO to delay reaching a decision to the last minute and then, when the last minute comes, acting very quickly. [ Williams 10400-01] Cleve-land would have great difficulty doing this [Wil-

}

11ams 10402-03], further impacting on the ability _i of CAPCO to add capacity and insure reliability I

[ Williams 10401-02];

I a

.~ . .

i (g) because Cleveland's request for membership in CAPCO was inconsistent with the specific requests for access contained in that proposal (e.g.,

participation sought only in nuclear facilities and not coal-fired units [F/F 33.43]), CAPCG '

would not be able to take advantage of whatever scale benefits the addition of Cleveland would create when constructing coal-fired units [Wil-llams 10374-75] or oil-fired combustion turbines.

[ Williams 10381]

i~

33.52 At the time Cleveland sought memberrhip in CAPCO, r-and in many respects today, it neither had the facilities necessary to meet its responsibilities in CAPCO nor had shown a capability to work together with the CAPCO companies.

~

This is true for the following reasons:

r t

(a) within the past five years Cleveland never has had sufficient generating facilities to meet its r

l_ own load, let alone maintain adequate reserves

[A-19 through A-23; A-134; A-136; A-207; Mayben i.

7645-56; Hinchee 2827, 2829-33];

~

(b) the mismanagement and incompetence that led to Cleveland's sorry state of affairs is so egregious .

as to preclude the CAPCO companies from relying on Cleveland for mutual assistance in operating .

and planning their systems [A-207; A-208; A-209; A-210; A-211; see also A-159; A-160; A-200] ;

w

w 9

(c) Cleveland similarly lacks adequate and competently-1, trained personnel to participate in CAPCO's com- j.

mittee structure [A-007; A-208; A-209; A-210; A-211]; ' ' '

(d) at the time of its request, Cleveland was not 1 interconnected with CEI or with any other CAPCO participant, and until an operating interconnec- .

tion was put into service, Cleveland's membership ..

in CAPCO was, of course, meaningless [ Williams -

~

10353, 10365];

(e) Cleveland never has been, nor is today, able to

'?

meet the financial commitments that membership j in CAPCO entail, even though CEI has repeatedly sought such assurances. [A-23; A-135; A-140; #

A-211; A-213]

l 1

33.53 In these circumstances, even if the Applicants,

.L either individually or collectively, had boycotted Cleve~

land, such action would have been reasonable. [ Compare j 34.23, 33.49, 33.51-33.52 with 33.04-33.07, 33.17, 33.18-l 33.21; see also Brief at 373-76] ~

33.54 Cleveland has never had a real interest in full '

CAPCO membership as evidenced by its self-contradictory proposal. [F/F 33.41] The request for z.embership was a ~#

sham, only made as a negotiating ploy to enhance its bar-

]

1

i

,, 1 gaining position vis-a-vis CEI. [C-168; Kudukis 12727-32; 12742-44, 12753, 12755; Gaul 12432-35; see also Brief at 376-84] Actions taken by Cleveland in less than good faith

. render any response by CEI, or the other Applicants, rea- '

sonable.

N k

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1 1

1 34.00 CLEVELAND ELECTRIC ILLUMINATING m,

a. General Background I' 7

34.01 Three types of electric utility systems operate $.

in Ohio: (a) investor-owned public utilities, (b) munici- Y pal systems, and (c) rural electric cooperatives. (S-133 (Guy), 5]

34.02 Four investor-owned utilities operate in the E i-northern half of Ohio. These are the Cleveland Electric Illuminating Company ("CE" 3hio Edison Company, Ohio Power Company and Toledo Edison Company. Another investor- 3 owned utility, Pennsylvania Electric Company, is located "

adjacent to CEI in Pennsylvania. CEI's service area is located in the northeastern portion of Ohio. [A-111]

1 j

34.03 The service territory of CEI is adjacent to that of Pennsylvania Electric Company and of Ohio Edison I 3

Company.

l' 34.04 There are only two municipal electric systems located within the service area of CEI: Cleveland MELP _

and Painesville. There are no rural electric cooperatives )

located within CEI's service area. [A-lll] Both munici- ~

pal systems distribute electric power to retail customers

. f and both also own generation facilities.

}

l m

i f

h o

__ '34.05 There has been neither entry nor departure by municipal utilities, rural electric cooperatives, or private I~ .-

utilities in CEI's service area since September, 1965, the period relevant to these proceedings. .-

34.06 CEI is vertically integrated from generation through delivery of electric energy. It is CEI's policy to

_ generate in its own facilities the electric energy needed for its sales. CEI's purchases of bulk power f. rom other utilities ,

r are only incidental to its own generation, made for reasons

[. '

of daily economy. There is no competition for buix power

. n.

requirements of CEI. [See A-110; A-111; Bingham 8151, 8192-94]

~

34.07 Painesville has generated all of its electric

(,

energy requirements. It has not purchased electric power

.I l( from CEI or from any other utility. CEI and Painesville

r have agreed to construct and operate a 138 kV synchronous il' ~

interconnection, pursuant to uhich the parties may enter into l[~ transactions for the purchase and sale of short term and limited term power, and the exchange of emergency, maintenance

- I li, and economy intercharge power. [S-140; Hauser 10602]

.[~ Painesville has not requested either CEI or any other utility

~

to provide it with firm, long-term wholesale power, either on 3

., a full or partial requirements basis.

m 34.08 Cleveland MELP has generated a decreasing per-a centage of its electric energy requirements on .i ts own system.

,_ Between February, 1970 and July, 1974 approximately 30% of

l

'I MELP's load (25 mw) was carried by CEI through a " load trans- _y fer arrangement" at 11 kV. Beginning July, 1974 approximately 50% of MELP's load (40 mw) was carried by CEI by means of ~

this 11 kV load transfer service and a non-synchronous 69 kV interconnection. The 11 kV service was provided by CEI under contract rates, terms and conditions agreed to by both .

parties [A-198] and approved by the Federal Power Commission (FPC). The 69 kV service was provided by an order of the FPC, ]

)

setting forth rates, terms and conditions which were accepted and agreed to by the parties. [A-19] In accordance with the Order of the FPC dated January 11, 1973, MELP and CEI ,

have entered into a permanent, synchronous 138 kV intercon-nection; the rates, terms and conditions of this contract i have been approved by FPC which has kept this matter under

)

continuing review and surveillance. [A-202; A-134; Hauser !

10555] CEI now provides MELP with firm wholesale power under a long term contract under which approximately 65-85% of -

MELP's requirements are supplied by CEI. [A-271] l

..i' 34.09 CEI has never been a party to any agreement with another utility as to division or allocation of terri- I Il tory. It has no contracts which restrict or attempt to re- j' strict others from providing retail service in any designated service area. --

)

34.10 CEI's retail sales are made at uniform, non- .!;

discriminatory rates, terms and conditions throughout CEI's i

t I

.4

_ service area, both within and without the boundaries of incorporated municipalities. [ Bingham 10193-194] The PUCO

~

has primary jurisdiction over retail rates, terms and condi-tions in areas within the boundaries of incorporated munici- -

e palities and also within municipal boundaries where the

_. municipality and CEI have not entered into a rate ordinance contract. [Binham 10101] An incorporated municipality has

!~ authority to establish rates for service by an investor-owned

k. .

utility within municipal boundaries [ Bingham 10191]; the t

(, investor-owned utility in such case can either accept such rate or appeal tc the PUCO. [ Bingham 10194]

34.11 The City of Cleveland is presently exercising its L rate fixing power over rates of CEI [A-141] and has exercised this power in the past. [ Bingham 10192]

iw

r. 34.12 The Painesville electric system provides 100%

e of the electric service to retail customers located within r

the boundaries of the municipality. CEI does not compete with Painesville for retail customers located in that municipality.

, There is de minimis house-by-house competition in the area r- immediately adjacent to but outside of the Painesville s

boundaries.

34.13- Cleveland MELP competes at retail with CEI on .

a street-by-street basis within the City of Cleveland. CEI serves approximately 80% of the customers within the City.

ww

q.

T t

e The number of electric customers served by CEI in the City ,

dropped significantly between 1966 and 1975--from 192,896 I' in 1966 to 176,312 in 1975; MELP similarly lost customers during this period, going from 48,656 customers in 1966 to 40,615 in 1974. The share of residential retail market of .

CEI measured by MWA (megawatt-hours) sales in the City of -)

Cleveland has stayed roughly the same between 1966 (81.9%) "{.

and 1975 (81.5%), as has CEI's share of the retail market

][ >

measured by dollars of revenue (83.8% in 1966; 83.2% in 1975).

[A-132, p. 2] The market shares of CEI and MELP in the City j; of Cleveland as related to all electric customers (industrial and commercial as well as residential) between 1966 and 1975 ^

similarly show only relatively small changes over the period.

f

[A-132, P. 3] There is de minimis house-to-house competi-I-

tion in the area immediately adjacent to but outside of the _ .! :

City of Cleveland boundarios.

34.14 There is no competition in the retail product .

market between CEI and Painesville. There is a broad range -

cf competition on a street-by-street basis in the retail j product market between CEI and Cleveland MELP. [Hinchee 2504; Tr. 5838]

. ~

34.15 There is no evidence that CEI's activities in

. the retail market have been in any way unfair, discrimi'natory, ,

illegal, or otherwise inconsistent with the antitrust laws or I i

the policies underlying those laws. )

i a

34.16 CEI has no full requirements wholesale customers in its service area. Until July of 1976, CEI had no partial requirements wholesale customers in its service area; CEI -

~

entered into a firm power sale contract for the supply of 70 MW of power to MELP on June 30, 1976. [A-271] The rates, terms, and conditions of this contract have been filed with and are regulated by the FPC and there is no evidence that u

any provisions therein are anticompetitive in their effect or f_ intent.

34.17 There is no evidence that CEI has refused any request by MELP to provide wholesale power to MELP either

(. on a full or partial requirements basis, r 7.-

(, _ 34.18 There is no evidence that CEI has refused any r request by Painesville to provide wholesale power to Paines- ,

ville either on a full or partial requirements basis.

r L 34.19 CEI is interconnected with Ohio Edison, Ohio Power Company, Pennsylvania Electric Company (and the PJM i

pool), Cleveland MELP and, upon completion of construction,

\(

lv, the City of Painesville. [ Bingham 8202-03; D-205 l

p. 32;

, S-140; S-204] '

L -

34.20 The rates, terms and conditions of these inter-l;_ connection agreements, including the CAPCO transmission and operating arrangements, have been filed with,and are subject II M'

9 1

l to,the regulatory control of the FPC. [S-173; S-174; S-176; S-180; S-184]

34.21 There is no evidence that CEI's coordination policies as set forth in its interconnection agreements con-tain any restrictive or otherwise anticompetitive terms or ]

\

conditions, or are in any way inconsistent with the anti-m trust laws or the policies underlying those laws. [D-559;

}

pp. 184-185]

'J,

b. Absence of Monopoly Power

..I 34.22 All electric entities within CEI's service area are receiving the benefits of coordinated operations. [S-204; l-3 A-271; S-203; Hauser 10594, 10602; Pandy 3157-58; D-177; A-75; 3 A-76; A-78; A-79; A-80, p. 3; A-83; A-84; A-86; A-96; A-97]

, CEI is not exercising any monopoly power against these enti-

. ties. There is no reasonable probability that it will, or

.can, do so in'the future. [Id.; 16 U.S.C. l S824d (c) ] a 34.23 CEI's offers of access in nuclear generation a

, go beyond what is necessary to remove any possible advantage

, CEI may have in generation and trancmission and prevent CEI

.f from exercising any monopoly power it might have. [A-44; ,

D-192; Hauser 10505-600; A-138; Hauser 10528 & 10583; Williams

~

10388; Mayben 7782, 7792, 7797; A-190 (Pace) 24-25; Williams 10388, 10397-99; See also Conclusions of Law 31.22, 31.23] s I

e s

1 34.24 CEI has made available to Cleveland and Paines-ville transmission services that permit those two entities to coordinate with whomever they desire. [A-97; Hauser .

10595; A-75; Williams 10388-389; Hauser 10491-492, 10592, 10595] CEI has done this even though euch arrangements are r

not typical in the industry and even though CEI does not have r- such arrangements available to it. [Id.; Hauser 10390-391]

I~

Although Cleveland has never asked for " wheeling out" service

L [Brief at n. 232), CEI has also made that service available.

[Hauser 10591, 19714]

34.25

- It is feasible for Cleveland to construct a

( transmission facility from its Lake Road generating plant to 7- any one of four interconnection points with utilities other than CEI. It has been feasible for Cleveland to do this for

[ at least the past ten years. [A-162 (Caruso) ; Caruso 10936-37; 10973-975]

1 p CEI's transmission facilities are not an L " essential resource." [Id.; See also Findings of Fact i -

34.08, 34.30-34.39]

t 34.26 CEI has no exercisable monopoly power, and L- there is no reasonable probability that it will obtain such

(

power in the future. [ Conclusions of Law 31.21-31.23; L

Findings of Fact 31.11-31.14, 34.22-34.25; A-20, pp. 16-17]

-- The Record does not allow a finding that any such power, even if it existed, has ever been exercised. [See, e.g., Findings

)

I of Fact 34.14]

~l i

c. Absence of Predatory or Anticompetitive Conduct or Intent. 1 34.27 CEI never entered into an agreement with Ohio Edison which limited or restricted competition between the

~)

two companies. [Brief at n.238] ,j (i) City of Clevland.

34.28

CEI had no formal company objective to eliminate l

)

Cleveland MELP. [D-509; D-510; S-143; A-20, p. 5; D-559 (Besse) 184-85] Any alleged study by CEI of acquisition was normal and reasonable business practice and was in response ,

l to public discussion. [D-296; D-297; D-298; Hauser 10622-24]

When Cleveland MELP came under public attack during its m

operating difficulties, CEI did not join in, or strengthen, those attacks. [A-20, p. 15] _,!

l 34.29 Cleveland MELP's past inability to furnish reliable, dependable service to its own customers has been ,

I due to incompetent management and inefficient operations. '

[A- 20, p. 16-17 ; A-21; A-207; A-13 6 ; A-210 ; A-208 ; A-20 9 ; l A-211]

34.30 CEI did not refuse to deal with Cleveland.

]

It continually offered to interconnect with MELP on reasonable terms. [S-204; S-271; D-293; D-295; D-296; D-298; D-299; A-20, p. 15] CEI did not refuse a request in July, 1966 by Cleveland for an interconnection. [Besse 12276-79] Cleveland i

e.

L-it

(~

~

made_no request of CEI tc interconnect with CEI prior to 1969.

, Early offers by CEI to interconnect with Cleveland were -

rejected by Cleveland because of its-desire to remain self-

~~

sufficient and independent of CEI. [A-20, p. 15].

r 34.31 Any reluctance by CEI in 1969 to interconnect in parallel on a permanent basis with Clevland was reasonable.

[C-128, p. 3]

i 34.32 The 11 kV load transfer service desired by L

Cleveland was an appropriate response to the problem Cleveland l u faced and was implemented at its suggestion. [Hauser 10539,

-- 10541; A-198] The arran7 ment and rates for this service were filed and accepted by the FPC. [A-202; A-21] At this f

u time, CEI also committed itself to enter into a permanent, l_ parallel interconnection with Cleveland. [A-198; Hauser l: -

lh_ 10539-40, 10564; S-195]

l F

g 34.33 Implementation of the 11 kV load transfer t-service was a reasonable solution to the situation facing C

Cleveland at the time the service was begun [Hauser 10539,

(( 10541], and the FPC ordered that it be continued. [A-19,

(.

p. 7; A-202; Hauser 10554]

c '

l 34.34 CEI operated the 11 kV (and subsequent 69 kV) l load transfer service in a reasonable, responsible manner. -

l Necessary interruptions in service while the load transfer

~

I

~& e w- wm

(:

7 was_being connected or disconnected were infrequent and of short duration. They were consistent with the contemplation of the parties and not unreasonable. [A-200 ; A- 15 9 ; A-160]

Given the outages Cleveland normally experienced, they ]-

could have had no adverse effect on competition. [A-200; ..

A-159; A-160] CEI never refused to provide the service '

except when it, itself, was short of power. [Hauser 10548, 7

)

10898] Cleveland could have used this service to enable it to correct its operating deficiencies and generating problems.

[Hauser 10552, 10898, 10544, 10884] Cleveland failed to do this because of its own mismanagement. [Id.; A-207, p. II-16] I

. ..\

34.35 Any delay in the installation of a permanent ;

interconnection after implementation of the load transfer service is attributable to Clevland. [Hauser 10541, 10564-65; A-196; A-199; D-336; A-200; D-19.'; Hauser 10573-74; A-65; A-66; A-67; A-69; A-70; Hauser 1057E-79; A-152] f CEI has a continually urged Cleveland to complete construction necessary to implement an interconnection. [A-65; A-67; A-69; A-70; A-143; A-144]

.a

)

~

a4.3t Any hesitancy or reluctance by CEI to negotiate j J

. a 138 N.V interconnection was reasonable because of Cleveland's fail:ro to pay substantial amounts of money owing by it to _

i CEI tor electric service. [Hauser 10565, 10614; A-135, -

{;j exh.C: A-23; A-212] l l

i J

34.37 The 69 kV interconnection was not installed as a result of any anticompetitive action by CEI. [A-19, p. 6]

r-Any delay in the installation of this interconnection is at- -

't tributable to Cleveland. [Hauser 10570-71; A-98]

1 34.38 CEI did not seek to prevent installation of a permanent interconnection and did not deivse a three-phase

!I t program in order to maximize the burdens on Cleveland. [A-20,

, p. 15; Findings of Fact 34.30-34.37; See also A-202; A-21;

//~

L. Bingham 10197; Hauser 10580; A-150; A-153]

34.39 CEI has offered Cleveland access to its nuclear i'

units. [D-192] Any delay in provision of access is attributable L.

to Cleveland. [A-64 through A-70; D-315; A-72; A-4 3; Hauser 10581; Hauser 10587]

L 34.40 CEI has refused to wheel 30 mw of hydroelectric r- power from the Power Authority of the State of New York ("PASNY")

L.

to Cleveland. [S-70] It is not clear from this record whether

,r

}i

. Cleveland would have been allocated the power had CEI agreed to

!r l

wheel [see C-164; C-167], or if allocated the power, when it L actually would have been available for use in Ohio. [A-191, item

4, p. 2] Even if CEI's refusal to wheel precluded Cleveland's e

access to PASNY power, such conduct had no adverse impact on i

{ Cleveland's competitive position since Cleveland could have W

constructed its own 138 kv line to receive the PASNY power [C-162 '

L (Caruso) 13-14, 18, 20-21; F/F 34.25], and becuase alternative sources of bulk pcwer were clways available to Cleveland, either i~

from CEI [F.F 34.16-34.17, 34.39] or from non-CEI sources pursuant j, to CEI's wheeling policy. [F/F 34.41] CEI's refusal to whe 1 PASNY power did not deny to Cleveland any benefit CEI derives e

from its transmission network.

34.41~ ]

CEI has not refused to wheel power to Cleveland 2 MELP from the alleged available resources of Richmond, Indiana '

ar.d from Buckeye Power. CEI has offered to wheel bulk power for Cleveland MELP from any source from which CEI would have ,

access on an equal basis with MELP. [A-75; Hauser 10388-389, m

n 10591-592, 10595] u (ii) City of Painesville. "I a

34.42 CEI did not refuse to interconnect with Painesville.

CEI offered to do so as early as 1964 or 1965. [A-195 (Milburn) 10] Painesville's electric staff and consultants were opposed -

to an interconnection. [A-195 (Milburn) 10-11, 27, 34, 68] '

34.43 CEI is not responsible for delay in the instal-lation of an interconnection with Painesville. [A-195 (Milburn)

]

27; A-196]

]

34.44 CEI. lid not propose, or participate in, any -

anticompetitive transfer of customers with Painesville. [A-195 -

(Milburn) 32, 33]

34.45 The evidence does not support a finding that CEI refused to wheel for Painesville. CEI has offered to wheel power for Painesville.

1 34.46 CEI respcaded in good faith to all of Painesville's ~

inquiries regarding access to nuclear power. [Hauser 10595-96, !

)

10598, 10598-601; A-43; S-136b; A-195 (Milburn) 21, 21-22, 23;

. Pandy 3160; A-137; A-192; A-139] .

g.

.3 J

6 35.00 TOLEDO EDISON

a. Accuisitions

r-

,L 35.01 The Toledo Edison Company has never implemented a policy designed to acquire all of the smaller electric entities located within its general area. [D-583 (Moran)

~.c l 3-7] Although it has since 1965 purchased the

P facilities of two small municipalities at their request k -- Waterville (1968) and Liberty Center (1974) -- there is no evidence that the purpose or effect of these acquisitions t l' was anticompetitive.

r

.'- 35.02 There is no evidence that any electric entity

~

1 was unable to continue in the business of producing and/or distrDautdag electric energy due to any act or omission T

of Toledo Edison Company.

35.03 The two municipalities which have sold their T electric facilities to Toledo Edison since 1965 did so be-L cause their systems were severely rundown, outmoded, inefficient, J' and, si.nce they were faced with competing uses for the i

limited funds available, could not economically consider rehabilitation of their systems. [D-577 (Schwalbert) 13, 16, 19; D-579 (Kozak) 26-27; D-582 (Cloer) 34-35; D-541, L attach-2, p. 3; A-189 (Gerber) 21-22; Gerber 11526-27, 11617,

~=

11618] With respect to both of these acquisitions, the Toledo 1

1 m

l .

I

t

)

, l~

Edison Company submitted a proposal only after it had been ,_3

., approached by the municipality and formally requested to do so and, moreover, an election was held in which these acquisitions were directly approved by a majority of the m

municipal voters. [D-577 (Schwalbert) 17; D-582 (Cloer) .j 34-35]

. e J.

35.04 Toledo Edison did not do anything to place the Village of Liberty Center in a posture where it was required >

to sell its system. The system was severely rundown and 1 uneconomical and the Village approached Toldeo Edison to ~

buy the system in order to gain reliable service. [F/F 35.03; l D-139a]

\

d 35.05 While the Village of Waterville may have been interested in some form of interconnection with the Toledo _

Edison Company, the Toledo Edison Company was never offi-

)

i cially requested to sell wholesale power to the village of J:

Waterville, nor did it ever indicate any unwillingness to do so except in the limited context of standby or emergency power, the provision of which was considered undesirable not j, only by Toledo Edison (for economic reasons unrelated to ,

the purchase of the municipal system), but also by several

-l City Council members. (D-615] I 35.06 Waterville would not have continued in the busi- }i ness of producing and distributing electric energy if it I'

-. r had been purchasing power from another electric entity.

[Gerber 11499-503, 11616] .

, , ~

i t-35.07

'_ There is no evidence that Waterville sold its -

t electric facilities as a result of any act or omission on r the part of Toledo Edison, and the acquisition thereof was not anticompetitive or otherwise unreasonable. [F/F 35.01-35.03, 35.05, 35.06]

L p 35.08 Toledo Edison achieved its present posture through natural growth and not pursuant to a predatory intent.

[F/F ?5.01-35.07]

~

35.09 Toledo Edison's acquisition policies did not have any adverse effect on competition.

r-35.10 Toledo Edison's acquisition policies were not precipitated by or accomplished pursuant to any monopolistic intent.

=r

L 35.11 Toledo Edison does not possess monopoly power

(

t nor. is there any reasonable probability that Toledo Edison will acquire monopoly power in the future. (See C/L 35.01]

35.12 There is no evidence that Toledo Edison followed

!r I

u. any course of conduct designed to coerce or otherwise place l any municipality in a position of having to sell its system.

35.13 The municipal systems purchased by Toledo Edison were not viable competitors since they were severely rundown 1

% ~

and unable to provide adequate service to their customers (F/F 35.03]; accordingly, the acquisitions of these systems , .

by Toledo Edison did not have any effect upon past or poten-tial competition. '

b. Napoleon 35.14 Toledo Edison did not refuse to consider jointly &

owning or operating large scale generating units with the City of Napoleon, Ohio, or any other electric entity. Toledo , ,

Edison assured Mr. Dorsey that it was seriously interested in participating with the City of Napoleon in its proposal to construct a new refuse-fueled power plant. [Moran 9858- .

60, 10156; D-151; D-582 (Cloer) 60, 62; A-253; A-254; Smart 10156; and see A-44] Toledo Edison also indicated its interest in engaging in such arrangements with AMP-0.

(A-131] Consequently it has not deprived any municipality -

of the advantages of joint ownership of large scale facilities. 1 J

35.15 Toledo Edison did not refuse to provide a delivery ;

point from which Buckeye power could be wheeled to the City of Napoleon, but rather specifically indicated its willing-ness to do so if requested to do so by the Tricounty Rural l

Electric Cooperative. [Moran 9851-53, 9926, 9942, 10067-77; J S-128; S-124; A-252; Dorsey 5260-61; and see D-148; D-301]

35.lC While Toledo Edison insisted upon the statutorily j 3

required disconnection period prior to wheeling Buckeye l

/

dr r- power, the City of Napoleon upon renegotiation of a new contract with Toledo Edison unilaterally decided not to L

purchase power from Buckeye and has not considered doing so since that time. [D-309; A-91; A-92; Dorsey 5274-75, 5292, '

( 5294, 5297; Moran 9945]

i' r 35.17 Toledo Edison did not refuse to operate in con-tinuous synchronism should Napoleon enter into a contract i

with Tricounty but rather expressed its willingness to so

[' operate when requested to do so by Tricounty [Moran 9848-s r

49, 9854, 10030-31, 10069, 10076, 10079, 10091-92; A-251; u A-252; S-128; S-129]

( 35.18 Toledo Edison's stated concern over operating in continuous synchronism with Napoleon after Napoleon en-L tered into a contract with-Tricounty was based upon legiti-F mate operational concerns and did not evidence any anti-

,L competitive intent nor did it have any anticompetitive effect.

'I L

c. Buckeye Agreement

('

b 35.19 Toledo Edison is a party to the Buckeye arrange-ment under which power generated at Buckeye's Cardinal station is wheeled to its member cooperatives over tha power lines p '.

L of the intermediate investor-owned utilities thereby avoid-ing the economically wasteful and unnecessary duplication of transmission facilities. [S-188]

35.20 Certain of the provisions contained in the Buckeye

~'

agreement, and specifically the 90-day disconnect provision,

.l were submitted for clearance under the Department of Justice's 7

, business review procedure prior to inclusion in the agree- j ment, and a-letter of clearance was issued by the Department of Justice on December 19, 1967. [A-248; A-289]

35.21 There is no evidence of any subsequent develop-ments or changes in circumstances which would in any way 7

.3 ,

alter or otherwise render invalid any premise upon which said letter of clearance was founded.

35.22 The Toledo Edison Company has engaged in the 7 wheeling transactions in accordance with the Buckeye Agree-

')

4 ment and all the terms and provisions thereof, and there is .)

no evidence that Toledo Edison has applied or implemented q said agreement in a manner which is anticompetitive or unrea-sonable in purpose or effect.

35.23 There is no evidence that the Buckeye Agreement,

1 or any provision-thereof, eliminated Buckeye power as a practical alternative source of bulk power for either Bryan ]. 1 1

( or Napoleon, Ohio. )l l '1 i "I 35.24 Buckeye is not a realistic alternative source !

lI l

of power in the CCCT. (See F/F 23.18] J l -

35.25 The 90-day disconnect provision in the Buckeye _

contract' serves to minimize any uneconomical or unnecessary ,

l duplication of facilities and satisfies other reasonable i

.t

business objectives. [A-284, p. 6, subpara 2; S-188, 1 11,

, p. 3]

1 35.26 The 90-day disconnect provision in the Buckeye '

contract is provided for by state law and applies to both r retail and wholesale customers. [R.C. S 4905.261; Shopping l

Centers Association v P.U.C.O., 3 Ohio St. 2d 1, 208 N.E.

r-e 2d 923 (1965); see also Mohawk Utilities, Inc. v P.U.C.O.,

37 Ohio St. 2d 47, 307 N.E. 2d 201 (1974)]

(1

d. Bowling Green

,~

L.

35.27 On June 2, 1972, representatives from AMP-O and Toledo Edison met to discuss (1) the feasibility of

_, Toledo Edison wheeling power for AMP-O's members (which b include the City ri Bowling Green), and (2) the feasibility

_I of negotiating a single uniform rate under which AMP-O's

'L members could purchase power at wholesale from Toledo Edison.

p t [Hillwig 2386-89; Moran 9890; A-17] Toledo Edison was not, however, asked to specifically wheel power to Bowling Green.

b [Moran 10015] Moreover, it indicated to Mr. Hillwig and other AMP-O representatives that Toledo Edison would seriously study and evaluate the matters discussed at this meeting.

~L [Hillwig 2452; Moran 10028; A-17]

tr

.[ 35.28 Toledo Edison communicated its position with

~

q respect to the matters discussed at the June 2, 1972 meet-ing [Hillwig 2453; S-50], specifically setting forth the

i q

t reasons why a single uniform contract would be impractical; ,l which reasons, as Mr. Hillwig acknowledged, are legitimate.

_r

[Hillwig 2389; S-50]

.m 35.29 Toledo Edison expressed its willingness to dis- ,S cuss further the possibility of other avenues of cooperation -

[S-50] and informed AMP-O tPat it was willing to partici-pate with AMP-O "* *

in the generation, wheeling ~ accept- l J

ing and delivering bulk power * * *." [A-131; see also . . .

Moran 9891, 10071] To date, AMP-O has never responded to J Toledo Edison's proposals. [Moran 9895-95]

35.30 Toledo Edison did not refuse to wheel power to -

Bowling Green and other municipalities at a meeting held -

in August 1975. Instead, the Toledo Edison Company again ] >

indicated its willingness to engage in wheeling transactions and, moreover, specifically agreed to meet "* *

and nego- j tiate with them in good faith possible wheeling rates at their request." [ Smart 10114; see also Smart 10105, 10114, '

10121-22'; 10153, 10158] However, to data, no such request has materialized. [ Smart 10114]

}

J 35.31 The transmission by Toledo Edison of power over a 69kv line owned by the City of Bowling Green, Ohio, pur- ,

suant to an oral understanding or agreement under which l

Bowling Green has and does receive full and fair compensation d in the form of a substantially lower monthly power bill i

~J from Toledo Edison, is neither unreasonable nor anticompetitive.

[Moran 9887-90, 10049-52, 10085-86]

35.32 It has always been the corporate policy of the t

r Toledo Edison Company to consider and/or engage in any -

[ wheeling transaction with any electric entity when the r arrangement provides a fair rate of return to Toledo i

Edison: *

if there is an oppor nity for wheeling,

[ Toledo Edison] would be very willing to participate in it, if it could be to the profit of the Company." [Moran 9851,

l. 9943, 9853; D-581 (Williamson) 58, 66-67; D-583 (Moran) 6;

'~

Smart 10105, 10121-22] There is no evidence with regard L.

to either the company's policy, or its practices in imple-t menting this policy, that Toledo Edison has engaged in

, conduct, the purpose or effect of which is anticompetitive L- or in any way unreasonable. Indeed, Toledo Edison's position f' is entirely reasonable. [ Smart 10100-02, 10107-08; Moran L

9853, 10016-18, 10071]

r L'

e. Municipal Contracts 35.33 The inclusion in certain of Toledo Edison's f municipal wholesale contracts of provisions which, if

1. l actually enforced, could limit both it and the contracting

] municipalities fro.n distributing power under certain cir-r cumstances was a legitimate and reasonable attempt to pro-J'" vide a semblance of order in the development of customer

(; loads on the respective systems. [Moran 9977; D-583 (Moran) l

t.

80; A-189 (Gerber) 6; Gerber 1603-04]

l l~

l

i 35.34 None of Toledo Edison's municipal customers ]

i' opposed the original inclusion of such provisions, and at least one municipal wholesale _ customer, Bowling Green, expressly indicated an interest in having such a provision . -

) included in its power supply contract. (Moran 9866, 9976] -

35.35 During the period (1967-72) when this provision i

(Paragraph 8) was contained in Bowling Green's wholesale ]

)

contract, it was never invoked by either party. (Hillwig 2421-23; Moran 9884-86, 9908-09] Likewise, this provision j has never been invoked where it is contained in bilateral contracts with other municipalities, and these municipalities -

have been similarly unaffected by the inclusion of such a provision. [Moran 9909]

35.36 The activity of new retail customers moving into the border areas between Toledo Edison and its municipal wholesale customers has been de minimis and new wholesale business has been nonexistent. (Moran 9905) i T

35.37 Paragraph 8 is less restrictive than the state j constitutional limitation on a municipality's ability to )

. distribute electric energy outside its corporate limits. J

[see Chio Constitution, Article XVIII, Section 6; Guy 3506-07]

35.38 Pursuant to the applicable FPC tariff (A-42], j J

under which most of Toledo Edison's municipal wholesale customers are presently purchasing bulk power from Toledo j Edison [A-35 through A-41, A-259; A-260], neither the w -, , - - g w -

--w-w- -- -

~

Toledo Edison Company nor its municipal wholesale customers are subject to any territorial provisions. [Moran 9882-831 -

t

.t 35.39 In December 1976, when the present wholesale con- -

.I j tract with Genoa, Ohio expires, all of Toledo Edison's municipal wholesale customers will be served pursuant to this tariff, and, moreover, there is neither reasonable

~

expectation nor even any remote possibility that the contract t.

provisions in question would at some future date be incor-porated into Toledo Edison's FPC rate tariffs.

i 35.40 Paragraph 8 did not serve to enhance Toledo l, Edison's market position with respect to any municipal whole-i[ sale customer whose contract contained this provision.

!r

L f. Territorial Agreements 35.41 The Toledo Edison Company has never been party

_ to any agreement or understanding with Consumers Power

L- Company of Michigan for the purpose of allocating or other-

p wise limiting the service areas of either company. [D-576 L

(Keck) 145-146, 151-152; D-277 (Schwalbert) 69-71; D-581 l~

~

(Williamson) 50; Moran (9903); Consumer Power Co., supra, NRCI 75/7 at 89]

ib

.r 35.42 Although the Toledo Edison Company has on occa-L sion declined to provide electric service to a portion of the distribution system of the Southeastern Michigan Electric Cooperative (hereir.af ter " Southeastern") located in the

i

).

{

State of Michigan, its decision in each instance was completely i unilateral, fully supported by valid economic and engineer-ing considerations, and was without any anticompetitive i]1 purpose or effect. [D-576 (Keck) 206; F/F 35.41, 35.43] I 35.43 The Toledo Edison Company's unilateral decision not to provide electric service to the Michigan portion m

of Southeastern's distribution system in 1965-1966 was pre- J dicated solely upon its desire to avoid for as long as possible any business transactions which would subject it to the jurisdiction of the FPC. [Moran 9899-9902; D-576 (Keck) 143, 146, 149] Until Toledo Edison energized a 345kv

')'

transmission line interconnecting it with the Detroit Edison Company in 1970 [Moran 9903, 9906; see D-10S (8)] , ,

Toledo Edison had operated strictly as an intrastate electric utility and had in fact taken affirmative prior action (such

]

as the sale of its Michigan properties) upon the creation of the FPC [Moran 9899, 9901} to insure that it had no elec- _

f trical connections from which it could either obtain power ;

e

~

from, or provide power to, any entity located in the State of Michigan. [Moran 9906]

~

35.44 In 1971,'the Toledo Edison Company unilaterally !

declined to provide electric service to the Michigan portion of Southeastern's distribution system due to serious economic j and engineering concerns. According to studies undertaken i by the Toledo Edison Company [Moran 9984, 9985, 9986, 10086-87; D-579 (Kozak) 5, 45-47, 49-50] (the results of which }

J

_79 i-were communicated to representatives of Southeastern (Moran

_ 9984, 10090]), the addition of Southeastern's load at that -

I time _would have placed in serious jeopardy the reliability I of a significant portion of Toledo Edison's system. (Moran b

9984,*10086-87) In order for Toledo Edison to provide lr j service to Southeastern in 1971, it would have been necessary i for Toledo Edison to rebuild prematurely a significant L

portion of its transmission network years in advance of its I

scheduled plans at costs that were prohibitive. [D-579 L

(Kozak) 45-47]

35.45 Since 1971, the Toledo Edison Company has, pur-

[ suant to its scheduled construction program and long-range

, financial planning, rebuilt a portion of its transmission E-. network from which it can now feasibly and safely provide lf' power to the Michigan portion of Southeastern's system (L

without impairing the reliability of its system, so that tr-l'g the Toledo Edison Company is in fact presently committed

! I, to provide direct wholesale service as requested. [Moran

!L 9905, 9912; A-255; A-256; A-257; D-580 (Bosch) 21-24; D-581 (Williamson) 46, 66-67]

9 it 35.46 Toledo Edison's present commitment to provide

\; '

l electric service to the Michigan portion of Southeastern's l dis ribucisa sys;am was 'ar . _aaction to the present pro-ceedings, but pather reflects Toledo Edison's corporate policy of separately considering all bona fide business trans-actions on_ their individual taerits and to provide service W

l I

.~

where it can be economically supplied. [D-581 (Williamson) ] I 43-48, 66-67; F/F 35.41-35.45] _

35.47 The Toledo Edison Company has never had any T

agreement or understanding with Ohio Power Company which .

prevented either company from (1) serving in the same fran- ;,

chise town, or (2) serving customers located in the geographic N area served by the other. [D-579 (Kozak) 68; D-581 (Williamson) '

50; Moran 8904-05}

35.48 From 1965 to the present, there has been active ,

competition for new electric loads in one particular fringe area between the Toledo Edison Company and Ohio Power Company.

[Moran 9910-11, 10069]

35.49 To the extent that the Toledo Edison Company and Ohio Edison Company undertook to dedine their respective

]

geographic service areas in a manner calculated solely to I'

allow retail curiomers located in the fringe areas to obtain the most economic and efficient service available, any such arrangement, understanding, or agreement had no impact upon _?.

the ability of any 1.ectric entity to engage in bulk power }

transactions or to achieve the benefits of coordinated

)

operation and development with either Toledo Edison or any j other electric entity.

i J

35.50 Toledo Edison presently has no arrangement, under-standing or agreement with Ohio Edison Company which in j purpose or_effect establishes exclusive service areas. }

j

~~

[D-581 (Williamson) 50; Moran 9904-05]

t

[' 35.51 While there is very limited opportunity for competition in the fringe area between the Toledo Edison f-( Company and Ohio Edison Company because it is either r marshland or thinly populated with few new consumers moving

}

into the area [Moran 9911], there is active competition

~

between the two companies in this area for any new loads r where it is economically feasible for each company to pro-

i. vide s,ervice. [D-583 (Moran) 25-26]

n-

, g. Price Squeeze i

35.52 The relationship between the rates applicable

_ to Toledo Edison's municipal wholesale customers and the

- rates applicable to large retail industrial customers are neither anticompetitive nor otherwise unreasonable, and there is no evidence that the municipalities whien purchase t

wholesale power from the Toledo Edison Company have in fact been unable to compete successfully for large retail indus-L trial customers. Indeed, it is manifest from the record that Toledo Edison's retail rates have been and continue i

x.

to be appreciably higher than the rates charged 'a comparable I

classes of customers by municipalities who purchase whole- -

sale power from the Toledo Edison Company. [Hillwig 2431; Dorsey 5253-56; D-155; D-166; D-552; D-583 (Moran) 57; A-249]

- 35.53 There is no evidence to show that Toledo Edison ,

! has ever-formulated or charged rates for the supply of I

i 1

Ji t

electrical energy in any manner which was intended for, or 3

.. which had the purpose of, creating an anticompetitive situation.

9 a

.4 s

-4 er .

4 3

)

. .I J

f Y

d

)

J J

J 4

3',

I

- 36.00 OHIO EDISON'AND PENN POWER

_ 36.01 Ohio Edison Company and its subsidiary Pennsyl- -

i

!4 vania Power Company form an investor-owned electric utility r serving customers in Ohio and Western Pennsylvania with I

a mature well-integrated generations, transmission and distribution system which long antedates the instant appli-

_ cation. [ White 9495; Firestone 11171-94; A-172]

36.02 All of the outstanding common stock of Pennsyl-vania Power is ovned by Ohio Edison. [ White 9495] The r

state laws of Pennsylvania and Ohio require that electric utility service be provided by domestic corporations, and

{ as a result, Ohio Edison and Pennsylvania Power have separate corporate identities. [ White 9496, 9650] As a consequence I

L of Ohio Edison's ownership of Pennsylvania Power, both com-panies are subject to the jurisdiction of the Securities

[ and Exchange Commission pursuant to the Public Utility Holding Company Act of 1935. [A-214; White 9495-96; see 1

also 9502-03, 9588]

L I

36.03 There are numerous interconnections between Ohio ii

u Edison and Pennsylvania Power and for all practical purposes the electrical systems of the two companies are operated

[ White 9495; A-214; A-172; Firestone, as a single system. .

11192]

L

r l-36.04 The policies and practices of Ohio Edison and Pennsylvania Power are substantially identical to the ex- -

., tent that they are not required to be different by the laws of Ohio and Pennsylvania. [ White 9650]

~1l

.) :

36.05 The rates chargede the service provided and sub-stantially all of the operations of Ohio Edison and Penn-sylvania Power are pervasively regulated at the state and '

.J federal level. [ White 9501; Wilson 10997-98]

36.06 i Neither Ohio Edison nor Pennsylvania Power own any portion of Davis-Besse Unit 1.

36.07 The Ohio Edison and Pennsylvania Power shares I of the Davis-Besse Units 2 & 3 and Perry Units 1 & 2 are

part of a construction program designed to meet the com-panies' expscted load growth. [Firestone 11183-86]

j 36.08 The only transmission facility which will have been built by Ohio Edison and Pennsylvania Power in con- '

junction with, or in contemplation of, the Davis-Besse units i is a single 345 kV transmission line originating near West Lorain, Ohio. No transmission facilities have been con- !

- J structed specifically in connection with the Perry units. )

[Firestone 11186, 11190] J 1

36.09_ Ohio Edison and Pennsylvania Power have approxi- -

.mately 5,061 miles of 345 and 138 kv transu'ssion lines.

, - _ - ,.,_-.-.--p_, ,, -.---n, 7,.-.- _-

,,, , ,.,, , ., -- _ y __. 7 -

85-

~

_ [Firestone 11185} Thus, at the time the plant begins op-eration, only a small amount of the companies' entire high-voltage transmission system will have been designed or built l'

as a part of the Davis-Besse and Perry projects. .

F I

36.10 The entire electric output of the companies' shares of these units is required to serve the requirements of their current customers. [Firestone 11248, 11267-68, 11281-F L. 83, 11286-87]

36.11 There is no evidence that sny system in the Ohio

- Edison service area has applied for participation in the i-CAPCO Pool and the evidence indicates that they have no desire to do so. [Mayben 12579; White 9516-17]

,L 36.12 There is no evidence that any electric entity in the Ohio Edison-Pennsylvania Power service area expressed to the companies an interest in, or desire for, ownership

, interest or any other form of direct participation in these a units either at or before the time the units were sized by the CAPCO group.

~

- 36.13 There is no evidence that there has ever been a specific request for access to nuclear generation by any .

electrical entity in the Ohio Edison-Pennsylvania Power

~

service area.

a. Current municipal wholesale power contracts 36.14 There is no evidence that Ohio Edison has refused

.-w + - - 4 - e m.. am s.,-w'- , .e- -

- - v w- - y-

l 1

to provide wholesale service to any electric system in its ,

I service area which has requested it.

~~

36.15 Rates, terms and conditions at which Ohio Edison offers wholesale service are filed with and regulated by ~h

~

the Federal Power Commission. [ Wilson 11040-42; White 9502, 9655-56] There is r.o evidence that the company has violated or deviated from these' rates, terms and conditions for any .,

purpose.

36.16 The ccmpany presently engages in wholesale trans-actions with 21 municipal systems in or adjacent to its service system. These transactions are governed by whole-sale contracts filed with and approved by the Federal Power Commission. [D-44 through D-64; A-6a; White 9655-56] .

36.17 Recent wholesale power contracts between Ohio Edison and its municipal wholesale customers are reasonable _j and in no way limit competition between Ohio Edison and ;

the municipalities it serves. [D-44 through D-64; A-6a; see F/F 36.18-36.23] :

1 36.18 There is no evidence that any terms and condi-tions contained in the company's wholesale power contracts

. are anticompetitive in their intent or effect. i 36.19 The ten-year term of service included in current

]

Ohio Edison contracts with its municipalities is reason-i b

i 1

,~

- able and appropriate for a firm power supply of this type.

[ White 9510, 9518-19; Mayben 7807; Kampmeier 5827; S-183;

~ '

S-219; S-221]

1

~

36.20 The planning necessary to supply a load [ White 9510], the need for the Company to recover its substantial investment in the facilities built to supply the load, and

- the long-term nature of the securities issued by the com-

,i L pany to pay for those facilites dictate a long-term arrange-I ment for municipal wholesale contracts. [ White 9519, 9715]

L 36.21 Long-term power supply contracts are standard industry practices [Kampmeier 5827-28; see also A-189 (Gerber) -

10-11], as is evidenced by the 35-year term of the contracts underlying the Buckeye Power arrangement. [S-188; S-190; L. see also D-4891 I

36.22 There is no evidence that Ohio Edison ever re-p fused a request by a municipality for a wholesale contract term shorter than ten years. [ White 9522] In the one incident where a municipality served at wholesale by Ohio Edison contemplated a switch to a different power s'upply I

L (self generation) during the term of the contract, the company agreed to a modification of the ten-year term.

[ White 9520-21] .

.- 36.23 There is no evidence as to what relationship, if any, exists between Ohio Edison's wholesale powcr con-

%M

l tracts and the company's proposed activities under the .

licenses sought in this proceeding. __

b. Capacity limitations 36.24 Provisions included in various wholesale power contracts which concern the amount of capacity a particu-lar municipal customer can take are based upon sound en-gineering and planning principles, and such provisions have ;

not been included with an anticompetitive intent and have -

not had an anticompetitive effect. [Firestone 11196, 11203, 11319; White 9574, 9732]

36.25 An electric utility is not required to write an ;

open-ended contract for each of its wholesale customers.

Requiring a utility to undertake this responsibility would destroy the concept of reserves and would make planning for the future needs of the system an impossible task. -

[Firestone 11195-97; White 9572-75] l

.]

36.26 A limitation on the capacity that a customer can

~

take under a contract for electric power is essentially I

a notice provision. (Firestone 11196; White 9573-74, 9732] i

, a If the customer needs or desires capacity in excess of the amount of power he normally would take, his ability to --

attempt to do so without consulting with or obtaining per-

~

mission from the power supplier could have dire consequences either in terms of an overloaded line or insufficient capa-l city when the increased load is supplied. Either situation

,i could cause an extended outage for other customers of the electric utility. [ Bingham 8219-22, 8241-44, 8246-47, 8262-

'- ~

65; Firestone 11196; White 9573-74]

36.27 Substantial strengthening of power supply facili-ties is required to meet increased loads. This requires additional transmission facilities, additional generating capacity and construction of additienal facilities. The I

L construction of additional facilit!.es involves lead time to devise a plan to be undertaken, to acquire the equip-i ment that is necessary for the construction, and then to actually construct the necessary facilities. [Firestone 11196; White 9573-74]

36.28 Capacity limitations are not for the purpose of keeping potential competitors from gaining capacity neces-

, p. sary to compete for Ohio Edison customers. [Firestone i

11197; White 9574] This is evidenced by the fact that ca- l pacity limitations are included in retail industrial con-tracts as well as some recent municipal contracts. [ Fire-l L stone 11195; White 9560]

36.29 There is no evidence that any municipal electric system was prevented from growth by a capacity limitation -

1 provision. Nor has there been any showing that a munici-pality wished to change such a provision and was unreason-ably denied by Ohio Edison.

,.a

_ . - . y

4 1 i 9

36.30 The limitations included in specific Ohio Edison l contracts are reasonable and based upon limiting factors q such as the capability of a particular line or substation, I and general system-wide reliability considerations. [ Fire-t stone 11203, 11319; A-269, pp. 2-3 (Burgess letter 1/30/76)]

7 l

36.31 The capacity provision included in the recently signed Niles and Newton Falls contracts was the result of negotiation between the parties and provides for their legitimate concerns. [A-231; A-268;A-269] Ohio Edison's '

positions throughout the negotiations were reasonable in 'l 3

trying-to secure adequate notice prior to demand for extra unplanned capacity. [Firestone 11199-200; A-269]

36.32 The amount of service to be received by Niles was dependent in part on the capability of the lines sup-1 plying the area around Niles. [A-269, pp. 2-3] l 26.33 As a result of the concerns raised by Burgess j I

in his letter of January 30, 1976 [A-269], Ohio Edison under-took a study to. determine the possibility of providing greater capacity to Niles, and the contract provision was

} amended in a fashion agreeable to both parties. [Craig i

2917; A-268; A-269; S-216] ,1 36.34 Newton Falls initially sought approximately 2,500 ]

kva, and later sought 4,000 kva. The transformer Newton Falls contemplated initially had a capacity of only 5,000 l "l

l i

kva and Ohio Edison at that time proposed a contract with a 5,000 kva capacity limitation. Because of enhanced cooling

~ '

provided by electric fans, the capability of the transformer ultimately purchased was 6,250 kva, and Ohio Edison at that point proposed a contractual limitation of 6,250 kva.

[Firestone 11199-201]

_. 36.35 If Newton Falls ever wishes to obtain capacity -

in excess of 6,250 kva, Ohio Edison will serve that load

~

so long as it rece!ves the notice which Newton Falls has agreed to give the company and which is necessary for the company to properly plan that additional load. (Firestone 11203; A-231]

36.36 There is no evidence as to what relationship, i_ if any, exists between the capacity limitation provisions jr and the company's proposed activities under the licenses

~

sought in this proceeding.

c. , Earlier municipal wholesale contracts

_ 36.37 Municipal wholesale power contract provisions in force prior to September 1, 1972, containing the agree-ment of the parties that, without the consent of the others, ,

each weald provide services only in certain areas and to -

certain customers are no longer in effect. [Lyren 2150; tihite 9531-34; A-6a; A-7; A-8; A-10]

t

i 36.38 These provisions were included in the municipal

]

contracts by the mutual agreement of the parties, eact _

. believing that it was in its own best interests. [ White 9523-25; D-44 through D-64] In addition, Ohio Edison be- "

lieved that these provisions were in the public interest to the extent that they would eliminate, or at least very substantially reduce, the possibility of a wasteful dupli-7 cation of facilities. [ White 9524] el 36.39 No anticompetitive motive is revealed in the tone of the vast majority of requests frawed in accordance with -

these contract previsions or the responses to those requests. ~{

The operation of these provisiens normally resulted in the most logical party serving the customer., [D-406-14/Niles; D-441-42/Hubbard; D-449, D-456-61/Wadsworth; D-481-85/Cuya- .

hoga Falls; A-215]

l 36.40 These provisions had a de minimis effect on the small degree of competition for customers which might other- "

wise have occurred. [ White 9719-20, 9537; Lyren 2142, 2164]

36.41 As a result of Ohio' Edison's growing sensitivity '

i to the application of the antitrust laws to the electric utility industry, in 1972 the company proposed [ White 9531-34, 9667-71; A-10; A-ll) and the municipalities agreed

[Lyren 2142; A-6a; A-7) to the deletion of these provisions. a

! 36.42 Since the removal ~of these provisions from the

(

l municipal contracts, there has not been any significant

. - - - , , , . , - ~ , - - , -----,,+-,.n .w- --

v- -*

~

}

,_ l increase in competition for new or existing customers.

[ White 9527, 9719-20]

36.43 There is no evidence as to what relationship,

[ if any, exists between these earlier contract provisions and the company's proposed activities under the licenses sought in these proceedings.

l d. Financing of new transmission facilities 36.44 There is no evidence that financial proposals made by Ohio Edison to customers contemplating high vol-tage service have been anticompetitive in their intent or effect.

-L.

. 36.45 Ohio Edison has been subject to a " financial

'i

u- crunch." These difficulties are but a part of the tight financial situation investor-owned utilities are generally

~~

f h facing and provide the context in which financial propo-

[, sals must be viewed. [S-77; White 9567]

I 36.46 The financ~.a1 difficu?. ties of Ohio Edison put the company in a situation where it could not realistically L_ have been expected to bear the cost of extending its fa-

. -cilities to Newton Falls or Niles. [ White 9567, 9571]

36.47 Ohio Edison favored the prepayment deposit con-cept under which Newton Falls would have advanced the capi-tal cost for the required line and depending on usage, m.

-6 l

~1 the entire amount would be refunded to the city over a five I year period. [S-81; Craig 2878]

36.48 The prepayment deposit could have been financed ,

by municipal bonds. [S-76; S-79] This plan would have '

been acceptable to Newton Falls had it not been for the advice of their bond counsel. [Craig 2879; White 9572; 3

S-79] }

36.49 Newton Falls was initially unwilling to build and finance the lina. This was what Ohio Edison had sug- _

gested as an alternative if Newton Falls could not move forward with the prepayment deposit idea. [S-81] Newton (,

Falls later adopted this suggestion [Craig 2968; A-33), '

has decided to build the line, and has taken steps to imple-ment that decision. [A-32; A-33; A-34; Craig 2968; White ..

9568, 9571] -

36.50 This arrangement represented a compromise which both parties ultimately found acceptable and which permit-ted the large cost of this new line to be borne by those '-

who would most benefit, the citizens of Newton Falls. [F/F 36.44-36.49]

36.51 Due to the " financial crunch," Niles was also asked to initially bear the cost of an extension of facili-ties to provide the new service they sought by including ,

the prepayment deposit. I

[ White 9567-68; S-217] Niles '

i-l

> _ 4 has accepted the language of this provision in its latest .

contract and both parties are prepared to move forward with such a prepayment. [S-268]

36.52 There is no evidence that the prepayment provi-sion was not acceptable to Niles from the very first. Such a provision represents an attempt by the company to allocate '

_. the cost of a facility to those customers who will most i

~

benefit from it. [F/F 36.44-36.46, 36.51]

I_

L. 36.53 Ohio Edison acted in good faith in its dealings with Orrville concerning a permanent interconnection.

[Firestone 11205, 11209-32; A-174; A-175; A-176; A-235 through A-239]

{ 36.54 The Ohio Edison prop' ) #ar a looped intercon-nection rather than a T-tap wao dictated by technical con-

[ siderations. [Firestone 11211, 11215, 11220 ; A-176] ;

- I

[ 26.55 The loop plan led to a situation wherein higher l costs would be borne by Orrville to receive' power from the 1 I_ '

' Ohio Edison system than from Ohio Power. [ Lewis 7960] I This

=r additional cost was the primary reason that Orrville con-1 et tracted with Ohio Power rather than Ohio Edison. [A-183; J A-184] -

36.56 Ohio Edison was willing to establish a temporary interconnection with Orrville even after it knew Orrville m

+

,r Il had contracted with Ohio Power for the permanent intercon-

]

nection. [ Lewis 11396-97; Firestone 11201-11; A-130; A-185] l

., a e

36.57 There is no evidence as to what relationship, if any, exists between O. , Edison's negotiations for an interconnection with Orrville and the company's activities under the licenses sought herein.

36.58 There is no evidence as to what relationship, -

if any, exists between Ohio Edison's financial proposals concerning the extension of new service and the company's proposed activities under the licenses sought in this pro-ceeding. 1

e. Price scueeze 36.59 There is no evidence that Ohio Edison has a policy of attempting to eliminate the ability of municipal elec-tric systems to compete for industrial customers.

l 36.60 Ohio Edison has not imposed a price squeeze upon j the municipal electric systems it serves at wholesale.

[ Wilson 11057-58; A-167; A-168] --

36.61 No price squeeze can be said to exist by virtue -

of the rates charged to Ohio Edison's wholesale customer 7 and those charged to its retail industrial customers. [Wein 6663-6:, Wilson 10097-98, 11003-04, 11045]

r

_g7_

36.62 Ohio Edison does not set rates; it proposes rates to the appropriate regulatory agency. This is accomplished '

at the retail level primarily by the Public Utilities Com-

{ mission of Ohio ("PUCO") . Ohio's home rule statute per-mits manicipalities who wish to do so to set retail rates within their boundaries. A number of communities served

_ by Ohio Edison do this. [ Wilson 10997; White 9501] At I -

the wholesale level rates are fixed by the FPC. [ Wilson

[- 10997; White 9502] To the extent that Ohio Edison proposes L

rates to these agencies, those rates are based on cost of L service and a reasonable rate of return. [ Wilson 10997-

_ 99, 11003-04, 11032, 11045]

36.63 Ohio Edison's rates are not in any way designed to limit the competitive ability of the municipalities.

{L Ohio Edison does not even look to its wholesale rate in designing its retail rates. [ White 9635; Wilson 11045]

No structural price squeeze can be seid to exist in light of the fact that municipalities can compete for industrial i

custorers. [ Wilson 11045, 11049 11057-78; A-167; A-168]

r

[ 36.64 Ohio Edison makes o detal ed T.asentation of what it believes to be a fair rate for - p rticular service.

t This is done at the PUCO for most retail rates [ Wilson 11004- -

a 06] and at the FPC for wholesale rates. [ Wilson 11040-42]

However, Ohio Edison must abide by the decision of the regulatory agency as to what rate it may actually charge.

[ Wilson 11001-02]

36.65 At the retail level a public hearing is manda- l' tory if a rate increase is proposed. [ Wilson 11010-11, White 9649] Ohio law requires that the PUCO shall fix and determine a just and reasonable rate for retail service.

.i

[ White 9647]

36.66 PUCO does not merely " rubber stamp" Ohio Edison's e

application for rate increases, but rather effectively regulates retail rates by examining the proposed rate of return, the rate base, fuel and tax adjustment clauses and similar rate matters and often refuses to accept Ohio Edi-son's proposals on these matters. [ Wilson 11007-08, 11098-100; A-163; A-164; A-165] Nor does the PUCO automatically ,

accept its own staff's opinions. [ Wilson 11025-28; A-163; A-164; A-165]

36.67 In seeking a rate change in the company's whole-sale rates, the company must make a detailed cost of ser-vise and rate of return presentation to the FPC. Whether by conducting a hearing anc reaching a decision thereon or by way of approving a settle.ent reached by the parties,

, the FPC exercises independent action in determining the apprcpriate level that the company can charge at wholesale.

} [ Wilson 11002, 11040-42; White 9656-59] I l

36.68 If either the FPC or PUCO set both rates, muni- '

cipal wholesale rates would be higher than industrial rates l W

I for the same level of service. [ Wilson 11046] This is due to the fact that the cost of serving Ohio Edison's muni-cipal customers is higher than the cost of cervicing Ohio Edison's retail industrial customers because municipalities hate a greater contribution to Ohio Edison's system peak.

~

[ Wilson 11046-65]

~

36.69 One cannot determine on the face of the whole-t sale and industrial rates whether or not it is economically

' F" possible for a municipality to compete with Ohio Edison

_ for a given industrial customer [ Wilson 11058); one has L to look at how the new load impacts on the municipality's

[c peak load and its billing demand. [ Wilson 11059; A-167;

?.-168]

r 36.70 Municipalities can profitably compete for indus-f~

' L.

trial customers in the Ohio Edison area. [ Wilson 11057-78; A-167; A-168] The effects of acquiring an industrial

L. customer are unifornly beneficial to municipal electric r systems, even in the extremely unlikely ~ event that an in-dustrial customer which a municipality chooses to serve

.c has a 100% contribution to the municipality's peak load.

[ Wilson 11073]

.g-36.71 The rates paid by customers of municipal elec-

._ tric systems are set by the municipality and not by any state or federal agency. [Craig 2916; Lyren 1943-44; Urian 4993-94]

l 1

~

-100-n 36.72 Studies demonstrate that using the current rate j levels charged to the municipalities and the proposed rate _

31 (which represents Ohio Edison's most recent estimate J' of its actual cost to serve retail industrial customers)

~

there is a substantial revenue margin which would permit most, if not all, municipalities served by Ohio Edison to profitably serve actual industrial customers. A small -

municipal electric distribution system could acquire an

~

industrial customer with a load as large as its own and there would still be a revenue margin. [ Wilson 11073; A-167; A-168]

36.73 There is no evidence as to what relationship, if any, exists between the regulated rates charged by Ohio Edison and the company's proposed activities under the .

licenses sought in this proceeding.

f. High voltage service 36.74 There is no evidence that Ohio Edison has ever refused a request by a municipality for service at 138 kv. J 3

[ White 9575-78]

36.75 Specific requests by municipal customers for cost information for 138 kv service have always been responded -

to by Ohio Edison. [ White 9576-78; D-415 through D-421] I J

a

i

-101-

_. 36.76 Ohio Edison's unwillingnass to file a rate for e

service at 138 kv with the FPC was based upon a good faith belief that in doing so it would be violating Section 35.3 of the FPC Rules of Practice and was not based upon an anti- -

competitive intent nor did it have an effect upon the ability

,_ of the municipalities to compete for industrial customers.

(

[ White 9735-36]

e

36.77 Municipalities have nnown for at least ten years that 138 kv service would be available when they requested it and they have had a formula with which they could work for estimating purposes. [ White 9578]

l~ 36.78 Ohio Edison gave interested cities ;;ry indica-1 ._

,e tion short of filing as to what the 138 kv rate would be, but did not want to be committed to a specific rate long r in advance of the time service would be taken under the

-- rate. [ White 9576-78; D-415 through D-421]

r a- 36.79 Although Ohio Edison was unprepared to file a

{ rate for 138 kv service because facilities were inadequate

~

t and no municipal customer was then taking service at that

.r jg voltage, Ohio Edison was prepared to employ its 5% indus-

,, trial discount for estimating purposes. Ohio Edison agreed '

to study the question of an appropriate rate for 138 kv service and design such a rate in light of conditions as they existed at the time service was to be taken. [ White

_ 9576-77; D-417; D-421]

l

),

1

-102- {'

37.80 Until it became apparent in the spring of 1975 1 that Niles would be taking service at 138 kv in the fore- ~

~-

seeable future (D-417; D-420], Ohio Edison was not confronted with a situation in which the characteristics of the facili- -

ties and method of delivery of 138 kv service were known.

?

Since it was filing another complete rate case at that time, '

it filed a 138 kV rate. The company believed that at least 7

one of its customers would take service at 138 kv during -

the term of the rate. [ Wilson 11043]

There is no evidence as to what relationship,

^

36.81

~

if any, exists between Ohio Edison's conduct in connection with its unwillingness to file a rate for service for 138 kv and the company's proposed activities under the licenses sought in this proceeding.

g. Acquisitions .

36.82 Ohio Edison's acquisition of the municipal elec- ,;

tric systems of Norwalk, Hiram and Lowellville did not have an anticompetitive effect and was not based upon an anti-competitive intent. Rather those acquisitions resulted from the requests of these municipalities [A-216; A-219,

p. 8; A-221, p. 91 and occurred only after approval by the _

Securities and Exchange Commission. [A-218, p. 2; A-220, l

p. 6; A-223, p. 2) 1 l

-103-36.83 There is no evidence that Ohio Edison has a policy

_ of actively seeking to acquire municipal electric systems. -

!! The' company's policy is to respond to any municipality 7 sincerely expressing a desire to sell its electric system.

[ White 9538-42]

36.84 If a municipality expresses an interest in selling j its municipal system: (a) Ohio Edison suggests that the town council adopt a resolution allowing Ohio Edison to r

h inventory the system and to suggest a price [ White 9538];

>r (b) if the town council passes such a resolution, Ohio i

Edison studies the system and communicates a price to the I

L.

town council [ White 9539]; (c) if the town council decides to go forward, Ohio Edison suggests that they pass an ordi-L ance offering the facilities for sale and permitting com-r petitive bidding [ White 9540]; (d) if Ohio Edison's bid

.I I" is highest and best, Ohio Edison would then make a sales

.y agreement with the city [ White 9540]; (e) this agreement

. must then be approved by the SEC under the Holding Company b Act. [ White 9R40]

'l 36.85 The steps outlined above were followed in each of these acquisitions. [ White 9541] In each instance Ohio

~

Edison did not initiate the study of the acquisition ques-T tion. [ White 9542]

36.86 The SEC found that the Onio Edison acquisitions of the electric systems of Norwalk and Lowellville were

- . . . ,y..

3.

-104- l-in the public intarest. [A-218; A-223] This determination was reached without a hearing although notice was given --

for a hearing to any interested party. [A-218; A-222; A-223] No one requested a hearing in these cases. [ White a

9700] ..

36.87 There was intervention in the Hiram case and a hearing was held. The SEC found that Ohio Edison's acquisi- _

tion of the Hiram electric system was in the public interest. ,

[A-220] -

36.88 Ohio Edison's refusal in 1970 to bid for the steam ,

generation then owned by Norwalk was not based upon any anticompetitive scheme of the company to acquire Norwalk's distribution system in order to eliminate Norwalk's ability to compete with Ohio Edison at retail. [ White 9542-44]

36.89 It was reasonable for Ohio Edison not to wish to acquire steam generating units, except under certain a, l conditions. [Tr. 6191-92; White 9543-44, 9696-97]

g

.J 36.90 Discussions of tne sale of the system were initi-

. ated by people at Norwalk. [ White 9698] Further, the <

Norwalk system was a failing system which the townspeople

~

decided was best to sell. [A-221, p. 9;. A-240]

l 36.91 Ohio Edison was willing to purchase certain gene-rating facilities from Norwalk whether or not Norwalk was

.y , , - - - - - - _ . ,y ._.9._~, , - - -, e -

w-

f

_ -105-willing to sell its distribution system. (D-422] Ohio Edison had no use for the steam generators. [ White 9543-r 44, see also 9696-97] The company recognized, however, '

4 1

that if Norwalk chose'to sell its distribution system, Nor- ,

~

walk would have no use for the steam units and therefore

_ the sale of those units would have to be part of an overall

, ; purchase of the system. If the city sold its whole system j- it would wish to sell its generation as well. [ White 9543-

44]

. r L 36.92 The Norwalk generating plant was not dependable

[ capacity for long-term future needs, but could serve the

<t.

immediate needs of the area. Steam generation units of this type could only be used in place. [A-240; see also i

r White 9542-44]

)(

L.

i

r 36.93 Officials of Hiram College initiated the conver-

$ b. sations on sale of the Hiram system. [ White 9697-99]

jC i g 36.94 Hiram considered several alternatives as colutions

!r il to the problems raised by the status and conditions of its t'

electrical system and asked Ohio Edison to study these al-

!I ternatives. [ White 9699; A-241] All three methods of ser-JL vice were studied by the company and the company stated -

I[

that Hiram would obtain benefits by following any of the j, three alternatives. [A-242]

l

' m, 6

t h gy, , , ,. , , - - - - _.--,---n , , _- - . y e- , c.-. ,4

.-{

1

-106- i 7

36.95 Lowellville initiated the discussion on the sale {

. of its system and Ohio Edison secured all necessary govern-mental approvals for the acquisition. [ White 9541-42, 9697-99] 7 J

36.96 There is no evidence as to what relationship, if any, exists between Ohio Edison's conduct in connection with its acquisitions of the Hiram, Norwalk, and Lowell-

]

ville municipal electric systems and the company's proposed ,

activities under the licenses sought herein. -

h. Wheeling _;

36.97 Apart from the Buckeye arrangement, Ohio Edison has never been requested to wheel a specific block of power,

}

and h:s not refused to do so. [ White 9607, 9725-26] 3 36.98 On June 11, 1973, representations of Ohio Edison .j and the City of Orrville met for the purpose of discussing a possible interconnection between those entities. [ White 9579-80, 9635-37; Firestone 11204-09; Lewis 11338-39] The discussions that took place at that meeting were limited to the proposed interconnection. Orrville did not request that Ohio Edison wheel power on the city's behalf and Ohio l Edison did not refuse to do so. [Nhite 9579-80, 9635-37; Firestone 11204-09: A-127; A-174; A-175; A-180]

i i

J

- -107-r- 36.99 There is no evidence that Orrville ever made a specific request to Ohio Edison to wheel power on the city's -

c-behalf. There is no evidence that Orrville ever had avail-

_ able to it a specific block of power which it could utilize '

only by optaining access to Ohio Edison's transmission system.

.t s

36.100 The City of Orrville's agreement and proposed interconnection with Ohio Power established that Orrville did not need access to Ohio Edison's transmission system C.

r-in order to obtain an alternative bulk power supply. [A-4

,L 186] ,

36.101 Ohio Edison has never refused to wheel power on 7

behalf of WCOE or any of its members. [ White 9593, 9603]

iL 36.102 The question contained in the Stout letter dated r,

i- August 11, 1972 [S-30] asking "would Ohio Edison be willing

.- to wheel power from generating sources outside its control area to each of the municipal wholesale customers connected l to the Ohio Edison system?" was in effect asking Ohio Edison whether the company considered itself a common carrier.

L [ White 9639-41, 9704, 9809-10]

lL 36.103 Ohio Edison is not a common carrier of electricity.

r For the company to have responded in a positive way to a general wheeling _ inquiry such as that made in S-30 would

+

l i

-108-

{

q

, have been imprudent to the extent that such a response might I have ultimately bound the company to a position detrimental to its customers and stockholders. (White 9611, 9639-41, 9704, 9809-10]

36.104 without any specification as to the identity or I size of the outside power source, where it would be intro- _

duced into the Ohio Edison system or what the points of -

dalivery would be, and without any indication as to the duration of the wheeling transaction, there is simply no way for the company to determine whether any given wheeling transaction will be of benefit to the company. [ White 9604-05, 9640-41] Neither WCOE nor any of its members has at .

any time made a request of the company for a wheeling trans- 't i

action and specified any of the above variables necessary before Ohio Edison could formulate a response to a wheeling -

request. [ White 9610-12]

36.105 At a meeting held on October 7, 1974, between representatives of WCOE and Ohio Edison for the purpose -

of conducting discussions contemplated by the parties' l

settlement agreement at the FPC in 1972, Ohio Edison prop-erly refused to discuss third party wheeling because third f

.a

. party wheeling "was not part of the agreement nor was it f

contemplated by that agreement." [ White 9600] j i

-109-36.106 In 1972 Ohio Edison and WCOE agreed to jointly study a possible new bulk power supply relationship between '

the parties in the form of a partnership arrangement which .

~

would enable the WCOE members to take advantage of their ability to raise capital at lower interest rates than the

.l ,

company by having WCOE participate in Ohio Edison genera-tion or for Ohio Edison and WCOE to jointly engage in a project similar to the Buckeye arrangement between Ohio F Power and the Ohio cooperatives. [ White 9596-97; A-7]

~

36.107 Prior to the first meeting between the parties t.

pursuant to the settlement agreement, Ohio Edison received

{ the Duncan letter and attachment dated June 18, 1974 [S-31; S-32] which included third party wheeling as a matter L to be considered. [ White 9598]

}. 36.108 At the meeting held on October 7, 1974 between r

the parties, Ohio Edison did not refuse to wheel for WCOE but rather refused to discuss wheeling pursuant to the e.

settlement agreement believing that it was inconsistent r with the partnership arrangement contemplated by that agree-L ment and that it would further complicate an already diffi-cult task of the parties moving forward to establish a new bulk power supply relationship. [ White 9599-9600; Lyren r

1918-19]

O

+

W m

l, '

~1 :

-110-

, 36.109 When WCOE evidenced concern over the need for ]

access to transmission in order to obtain access to the ~

\

company's generation, Ohio Edison stated that access to the company's transmission system was clearly contemplated .

by the settlement ~ agreement and was open for discussion in that context and that the company contemplated providing

~

transmission service from particular generating units to the WCOE members' points of delivery. WCOE indicated that such access to transmission would give them all that they needed in order to work towards the new bulk power supply -

relationship with Ohio Edison. [ White 9601-02] ~

I 36 110 At the August 1, 1975 meeting between WCOE and )

Ohio Edison the subject of third party wheeling was raised

]

but representatives of WCOE stated that third party wheeling was not necessary in order for the recommended WCOE proposal to be carried out. [ White 9600-02, 9630; A-178]

l 36.111 At the conclusion of the August 1, 1975 meeting, Ohio Edison indicated that if it received a specific re- .

quest for third party wheeling, it would consider it. 3 1

[ White 9630-31, see also 9701-G2; Wilson 11086] "

l 36.112 There is no evilence that WCOE or any of its mem- J bers ever made a specific proposal for delivery of power to it from sources outside the Ohio Edison area.

d

r

-111-36.113 There is no evidence that WCOE or any of its mem-bers was ever considered as a purchaser by any bulk power r

supplier outside the Ohio Edison area. .

- 36.114 There is no evidence that WCOE or any of its mem- '

4 bers evtc had a source cf power outside the Ohio Edison area available to it.

36.115 There is no evidence that WCOE or any of its mem-bers seriously investigated any sources of supply outside r

j, the Ohio Edison area.

36.116 There is no evidence that the policies and prac-e tices of the company with regard to providing access to

.L. its transmission system for purposes of third party wheeling ri transactions had hindered the ability of any other electric i

entity to compete.

9 L 36.117 There is no evidence as to what relationship, C

' L.

if any, exists between the policies and practices of the company with regard to providing access to its transmis-r

[ sion system for purposes of third party wheeling transac- '

r. tions and the company's proposed activities under the li-censes sought in this proceeding.

t

- 1. WCOE necotiations r

,_ 36.118 In 1972 Ohio Edison and WCOE, as part of the settlement of the proceeding before the FPC concerning the

---_m _ - _- _ __.__ -_ _ _

7

-112- }

company's wholesale rate, agreed that the parties would engage in negotiations in an attempt to work towards a new ,

' l~

bulk power supply relationship in the form of the partner-

~

ship arrangement which would work to the parties' mutual advantage. [ White 9593-97; Mayben 12517; S-44]

36.119 From October 1974 through August 1975, the com-pany engaged in good faith negotiations with WCOE in order to achieve the goals contemplated by the 1972 agreement _

between the parties. [ White 9786, see also 9599-600; Mayben -

12519-22, 12548-49] During the course of those negotiations

~

nuclear participation was never discussed in is-iation.

~1 (Cheeseman 12214] Significantly, the Beck report makes i only. passing mention of nuclear generation, and made no comparison of the possible advantages of nuclear power vis- J a-vis other forms of generation. [S-44]

36.120 Throughout the negotiations, Ohio Edison did not i i

place restrictions upon what WCOE or any of its members could study within or outside the context of the parties'

]

1972 agreement. [ White 978,3]

. J 36.121 Ohio Edison, as would be expected in any negotia-tion, made proposals and evidenced concern which the com- ..

pany had as to certain courses of action that might impact ;

a' i1 on the company's ability to perform under already exisiting obligations and possibly not work to the company's advan- !

a tage as was contemplated by the settlement agreement.

(White 9620-22;- Firestone 11268, 11282-83] j

-113-y 36.122 Throughout the negotiations the company did not refuse to consider any proposal made by WCOE, rather WCOE made only one proposal, which the company agreed to in prin-ciple and indicated a willingness to implement [Lyren 1992, -

2295; White 9628; Wilson 11147]

9 36.123 Ohio Edison never restricted WCOE participation

_. in specific generating units in the form of a 50 megawatt b or 10% limitation. (Cheeseman 12168, see also 12151; S-r~

44] The company made separate proposals involving such l.

amounts and percentages and both proposals were rejected by WCOE. [S-44; see especially Firestone's letters of 2/28/76 and 6/17/75 attached thereto) The proposals that t

were made by the company in no way ;estricted WCOE from

F considering other alternatives. [ White 9620; Firestone L

11243-49]

,i

'l' 36.124 The company did not reject or preclude WCOE from studying the possibility of WCOE or any of its members par-

L ticipating in existing Ohio Edison generation. [S-44, see

L. especially p. VII 1-2]

b 36.125 Ohio Edison did not dictate which units WCOE

r could participate in but evidenced the concern that, should f'

WCOE take too large of a share out of certain of its gene-

rating units, it might impair Ohio Edison's ability to per-form its generation responsibilities under CAPCO. [ White 7620-22; Firestone 11268]

-114- ;

l 1 .. 36.126 During the negotiations, Ohio Edison did not pre- I clude the possibility of WCOE obtaining generating capacity 7:

1 from Ohio Edison in excess of WCOE's own requirements.

[S-44] Rather, Ohio Edison evidenced its concern as to how its ability to meet its CAPCO responsibilities and -

reliability generally might be impaired if WCOE were per-mitted to take capacity from already planned and committed units and export such capacity outside of the CCCT. [ Fire- _

stone 11248, 11267-68, 11282-83, 11286-87]

36.127 R. W. Beck and Associates, the consulting engi- l J

neers for WCOE, prepared an independent study [S-44], in-

.}

cluding seven alternatives which WCOE might propose to Ohio J Edison as the plan to be jointly studied by the parties. l The Beck Study concluded that one of the alternatives was the most advantageous to WCOE and should be proposed to Ohio Edison. [S-44, p. VII l-2]

l J'

36.128 The plan recommended by the Beck Study called for " prepayment of power purchases" by WCOE which enabled .

WCOE to participate in all Ohio Edison existing and planned y generation and transmission. [S-44, p. VII 1-2] J 36.129 The Beck study concluded that the recommended -

prepayment plan was: ;

" expected to insure the WCOE members a reliable source of power at cost which permits full utilization of ,

the municipals' tax exempt status and not-for-profit l J

-115-principles to the mutual benefit of the WCOE and the Company and provide WCOE an opportunity to exercise greater control over future power supply decisions -

and costs." [S-44, p. VII l-2; Firestone 11298-99, 11303-04]

36.130 A meeting was held on August 1, 1975 between repre-sentatives of Ohio Edison and WCOE to consider an outstanding I

proposal of Ohio Edison and the Beck report.

36.131 At the August 1, 1975 meeting, the Beck report's recommended prepayment plan was stated by WCOE to be its t

proposal for moving forward to the contemplated next stage r-of the negotiations. [A-178]

-t 36.132 Ohio Edison agreed in principle with the prepay-ment concept and to moving forward to the next stage of

F

- t the negotiations contemplated by the settlement agreement at the FPC. [Lyren 1992, 2295; White 9628; Wilson 11147]

'. lr.

,, 36.133 At the conclusion of the August 1, 1975 meeting, l L it was suggested that a memorandum of understanding or 1 r letter of intent be prepared evidencing the agreement of

' L.

the parties to move forward on the prepayment plan [A-178],

r

.L and Ohio Edison agreed. (White 9631]

36.134 Mr. Duncan, counsel for WCOE, L;.eed to draft -

-r the letter of intent [ White 9631; A-178;.A-16], but no draft u_ of such letter wa ever received by the company. [A-16]

'T

-116- y

. 36.135 The failure of Duncan to draft a letter of intent is the basic impediment to the parties moving forward with '

the joint study and implementation of the prepayment plan.

(White 9632; Firestone 11262; Wilson 11048, 11142]

36.136 The failure of WCOE to propose any other alter-

}

native since the August 1, 1975 meeting, its orders to Beck to cease any further activity on the project, the uncer- .

tainty of its financing [Mayben 12546; Firestone 11272-76],

and the inability of the members of WCOE co agree internally among themselves as to what they want [A-178] establishes that it is WCOE rather than Ohio Edison which is responsible for the failure of the parties to have conducted any further negotiations after August 1, 1975 or to establish the new bulk power supply relationship between the parties contem-plated by their 1972 agreement.

36.137 There is no evidence as to what relationship, if any, exists between the company's negotiations with WCOE pursuant to the parties' agreement in 1972 and the company's proposed activities under the licenses sought herein.

l J

j. Dealings with cooperatives m

36.138 Prior to 1970, Ohio Edison served seven rural I

electric distribution cooperatives at wholescle pursuant j to contracts filed 'ith and approved by the Federal Power i

Commission. [D-l! through D-23] "

?

J

-117-36.139 In 1968 Ohio Edison entered into the Ohio Edison-Ohio Power buy / sell agreement which permitted the seven ~

rural electric distribution cooperatives located in Ohio Edison's area to switch their bulk power supply from the

~

company to Buckeye Power, Inc. [ White 9554-55, 9726-28; S-190]

l 1

1 36.140 Pursuant to Section 4905.261 of the Revised Codc I I

r of Ohio, i.e., the " anti-pirating statute," and the approval 1 l

[ obtained from DOJ [A-248], included in the Ohio Edison-Ohio l Power buy / sell agreement is a provision which prohibits !

the distribution cooperatives in Ohio Edison's area from L

taking power under the Ohio Edison agreement and reselling r

that power to municipal wholesale customers of Ohio Edison.

s. .

36.141 DOJ's approval of the section in the Ohio Edison-Ohio Power buy / sell agreement precluding resale by distri-bution cooperatives to municip 1 customers of Ohio Edison was based upon the legal opinion that Ohio's anti-pirating l statute applied to wholesale as well as retail sales. [A-

't 248] DOJ reserved its rights to question the Ohio Edison-L, Ohio Power arrangement if Ohio's anti-pirating statute was construed otherwise. [A-248] To date, no court has ever construed Ohio'a anti-pirating statute as being limited .

l to retail sales.

l l

i

-118- I, 36.142 There is no evidence that either Buckeye, any j distribution cooperative or any municipality located in -

Ohio Edison's area ever requested the company to waive its rights under the Ohio Edison-Ohio Power buy / sell agreement to allow a distribution cooperative to serve a municipality _

served by Ohio Edison. Nor is there any evidence that the company would have refused such a request if one had been -

made.

36.143 Ohio Edison refused to sign the Buckeye Power delivery agreement and negotiated for the Ohio Edison-Ohio l J

Power buy / sell agreement because it believed that the power delivery agreement provided insufficient compensation for the contemplated use of the company's transmission facili -

4 ties and that the buy /. sell agreement had a far less adverse ~

impact on the revenues of the company than did the power delivery agreement. (White 9726-27; D-573 (Fredrickson)

p. 114, cf. Smart 10165) ;

f 36.144 Ohio Edison's refusal to sign the power delivery agreement did not preclude the _17tribution cooperatives 1

in its area from obtaining transmission service to permit J them to obtain a new bulk power supply. [S-190]

36.145 There is no evidence that Ohio Edison's refusal y t

to sign the power delivery agreement has in any way hindered the ability of other electric entities to compete.

}

J

-119-

[ 36.146 There is no evidence as to what relationship, t

if any, exists between Ohio Edison's involvement in the -

l Buckeye arrangement and the company's proposed activities

~

under the licenses sought herein.

36.147 There is no agreement between Ohio Edison and Ohio Power that, should Buckeye be dissolved, the rural elec-

[ tric distribution cooperatives purchasing Buckeye generated power would become Ohio Edison customers again. [ White r

[ 9557-58; D-573 (Fredrickson) 224-25]

3G.148 The November 11, 1965 Fredrickson memorandum does not establish an agreement between Ohio Edison and Ohio I^

( Power but merely reflects a consensus of opinion by two Ohio Power representatives as to what might occur if Buckeye failed. [D-490; D-573 (Fredrickson) 224-25]

F t-36.149 There is no evidence that Ohio Edison and Ohio

[ Power had or have any agreement involving a division of L

territory for service to wholesale customers. This is evi-denced by the consummation of the Buckeye ~ arrangement at

,. a time when these agreements were said to be in effect.

L 36.150 Ohio Edison did not unreasonably delay the rural b electric distribution cooperatives in its service area from r changing their bulk power supply from Ohio Edison to Buckeye.

" 1

[D-17 through D-23, see especially letters of 12/21/66, l 1

6/29/67, 12/6/67, 5/17/68]

w

-120- I 36.151 The wholesale power contracts between Ohio Edison '

and the rural electric distribution cooperatives located -

in its area were for ten-year terms with automatic five-year renewal provisions unless the contract was cancelled on two-years' notice. [Id.]

36.152 From 1966 to 1968 the seven rural electric dis-

~

tribution cooperatives located in Ohio Edison's area re- l

)

quested Ohio Edison on four separate occasions to extend ,

i the time for the distribution cooperatives to give two years '

notice of cancellation and thus prevent the operation of ~l the contract's five-year renewal provision from taking ef-J fect. [Id.] Ohio Edison, rather than insisting upon its contractual rights, granted all the distribution coopera-tives the right to extend the time for the giving of the 2 two-year notice provision under the contract on all four i J

separate occasions when such requests were made.

36.153 There is no evidence that any of the cooperatives in Ohio Edison's area requested Ohio Edison to waive the

~

two-year cancellation provision under the wholesale power ,

contracts.

36.154 There is no evidence as to what relationship, !

if any, exists between Ohio Edison's earlier wholesale power contracts or its conduct in connection thereunder and the "

company's proposed activities under the licenses sought !

d I herein.

J l

a

~

-121-

k. Territorial agreements 36.155 There are no territorial agreements in effect today between Ohio Edison and any other electric entity.

[ White 9536]

36.156 There is no evidence of any agreement between

!_ Ohio Edison and any other electric entity concerning ser-vice to wholesale customers, and the absence of any such

.r I

agreement is evidenced by the competition between Ohio Edison and Ohio Power for service to the City of Orrville.

[Firestone 11210-11; Lewis 7973; A-182; A-186]

.; 36.157 To the extent that there is evidence of terri-

L O torial agreements between Ohio Edison and other electric 4 r entities prior to 1973, there is no evidence that they en-r compassed anything more than understandings involving re-J- tail competition in the fringe areas between Ohio Edison

!I and such other entities and were for the purpose of having

,L

~

service extended to new customers in those fringe areas 4

L. by the electric entity which could most economically serve.

[ White 9751]

i L

36.158 There is no evidence that such agreements or

!L understandings that may have existed at one time in any

].L way inhibited the ability of any other electric entity to engage in bulk power transactions or to achieve the bene-fits of coordinated operation t

-122- -

i 36.159 To the extent that such agreements existed at ,

, one time, no inference of a present anticompetitive intent #

can be inferred since the company unilaterally determined to discontinue any such agreement after it became apparent 7

that the electric utility industry was subject to the anti- j trust laws. [ White 9531-32] -

36.160 There is no evidence of the relationship, if any, that exists between these earlier territorial agreements -

and the company's proposed activities under the licenses sought herein.

l. Penn Power's dealincs with municipalities ~

36.161 There is no evidence that Pennsylvania Power has refused to provide wholesale service to any electric sys-tem in its service area requesting it.

36.162 Rates, terms and conditions at which Pennsylvania ~

Power offers wholesale service are filed with and regula-ted by the Federal Power Commission, and there is no evi-1 dence that the company has violated or deviated from them I for any purpose. [ White 9501, 9662-63] 1 36.163 The company presently engages in wholesale trans- ,

- I l actions with five municipal systems in its service area. '

I .

These transactions are governed by wholesale contracts filed L with and approved by the Federal Power Commission. [D-67 i

I' through D-71]

-123-36.164 There is no evidence that recent wholesale power contracts between Pennsylvania Power and its municipal -

wholesale customers are unreasonable or have had any effect on competition in Pennsylvania. .

36.165 Under Pennsylvania law, a municipality has the exclusive right to serve all customers within the munici-

~

pality's boundaries [ Urian 5008], and to the extent that private electric utilities provide service within a Penn-slyvania municipality, it must obtain approval from the

_ municipality. [ Urian 4983-841 36.166 Under Pennsylvania law, electric service provided outside of a municipality's boundaries must be pursuant

'r-to certificates issued by the Pennsylvania Public Utility Commission authorizing an electric entity the exclusive right to serve in designated areas. (White 9504, 9662, 9821; Urain 4998] Thus, there is no meaningful competition

_ in Pennsylvania.

m. Customer allocation 36.167 Certain recent wholesale municipal contracts

. i included a provision that each party, during the term of

L the contract, would not serve the other's existing custo- .

mers without the consent of the other party. [D-67 through l

~

D-71]

%. h l

-124- 1 l-36.168 There is no evidence that the provisions were -

enforced. In addition, such provisions were consonant with '

the state law of Pennsylvania. [ White 9504, 9662] l->

36.169 The record does not reflect that those provisions ]

.j had any substantial importance in the relationship between _

Pennsylvania Power and its municipalities. When the issue of the possible impropriety of these provisions was raised, q Pennsylvania Power unilaterally eliminated them from pro- J posals for future wholesale service. [A-243 through A-247] l J

36.170, A letter agreement dated June 30, 1966 [D-71] ~

provided that the Borough of Ellwood City could at its discretion serve' residential and commercial customers.

The Borough has now requested to serve certain of these .

{

custoners and has received Pennsylvania Power's coopera- J tion in its efforts to do so. [A-87; A-88; A-89; Urain

~

5013]

36.171 There is no evidence as to what relationship, -

if any, exists between the customer allocation provisions l J

in the Pennsylvania Power wholesale power contracts and 1

the letter agreement of June 30, 1966 and Pennsylvania j Power's proposed activities under the licenses sought in j this proceeding.

M m@

- --. m

-125-

~

n. Competition for industrial customers i

- 36.172 Pennsylvania Power does not have a policy of re-

~

stricting competition, if any, between municipal electric ..

systems and itself for industrial customers. To the extent that Pennsylvania Power serves industrial customers inside any municipality, it does so at the pleasure of that munici-r pality. [ Urian 5008]

l 7_

o. Refusal to sell Grove City partial recuirements i

L~

36.173 Pennsylvania Power did not refuse a request by Grove City in 1966 for partial requirements service. [F/F l

36.174-36.176]

!L

.- 36.174 Discussions between Pennsylvania Power and Grove City concerning partial power requirements "were prelimi-nary" and were among a number of topics being discussed in the 1965-1966 time frame. [ Allen 4784] From an econo-

. r-L mic standpoint, it was in Grove City's best interests not

n to take partial requirements power. (Allen 4786-87; see

!L also 4791]

-. 36.175 There is no evidence that Grove City ever selected

this option, ever seriously and specifically requested this service, or that Pennsylvania Power ever refused to do anything it was requested.

5 i-P r "

m

-126-l 36.176 There is no evidence as to what relationship,

] 4 if any, exists between Pennsylvania Power's discussions

.. with Grove City involving partial requirements service and Pennsylvania Power's proposed activities under the licenses :

sought herein.

l'

p. Refusal to file rate for high voltage service 1 36.177 There was no evidence that Pennsylvania Power ever refused a request to provide service at 69 kv. -

36.178 Pennsylvania Power's refusal to file a rate with the Federal Power Commission was not anticompetitive in -

effect or intent but rather was based upon the company's !

belief that it would be violative of Section 35.3 of the i

FPC Rules of Practice. [See also F/F 36.76] 1 l

36.179 The question of whether Pennsylvania Power should file a rate for 69 kv service was fully litigated at the FPC in Docket No. E-8159. [D-626; D-627] The presiding _,

administrative law judge concluded that while Ellwood City was entitled to information by which a high voltage dis-count rate could be established, Pennsylvania Power would not actually have to file a rate pursuant to the formula until 45 days before a municipality was prepared to take _

service. c This resolution of the ~ontroversy was upheld I

by the full Commission. (D-627; Urian 4980, 5004]

! I, j

< a.

i

-127-36.180 Essentially the same cost information which was available to the municipalities after the decision had been -

available before the hearing. [Luxenberg 6429] No muni-cipality has yet given Pennsylvania Power notice of being ready to take this service and it has not as yet been re-

"~

quired to file such a rate. [ Urian 4980, 5004]

l 36.181 There is no evidence of what relationship, if L.

any, exists between Pennsylvania Power's refusal to file I

t a rate for service at 69 kv with the FPC, and Pennsylvania Power's proposed activities unde'r the licenses sought herein.

1 p.

' M e W' 4

I h

,I

- . j I

- i l

L. '

l i'

e

' t m

n em

+=w

l.

-128- l' 37.00 DUQUESNE LIGHT

a. General Description 37.01 Duquesne Light Company ("Duquesne") is an investor-owned public utilit** providing electric service in Allegheny and Beaver Counties, including the City of Pittsburgh, in southwestern Pennsylvania. [S-157, Appendix N, pp. 2-3; q A-119; Dempler 8832] Its service area is approximately 800 square miles and has a population of approximately 1,600,000. [S-157, Appendix N, p. 31

!t 37,02 As of December 31, 1968, Duquesne provided electric service to 504,100 customers. [S-157, Appendix N, p. 261 As of December 31, 1973, it provided service to 521,231 l

customers. Ltd . ] 24 37.03 Duquesne's generation, transmission and distri-bution system constitutes a mature, highly integrated electric system which long antedates the instant applications. [S-157, Appendix N; S-162; S-163; D-638; A-ll6; A-119; Dempler 8822-8841]

I J

37.04 Duquesne maintains a transmission system which

. operates at 345 Kilovolts (Kv), 138 Kv, and, to a lesser _

extent, 69 Kv. [Dempler 8822-8841; A-119] Duquesne has operated lines at 345 KV since 1970. [Dempler 3831] Duquense -"

maintains a transmission interconnection with West Penn j Power Company, Ohio Power Company, Ohio Edison Company and i

Pennsylvania Power Company. (A-119] _j

l i

~

-129-37.05 As of December 31, 1968, Duquesne had an installed

-. generating capability of 1,778 megawatts (:mw) . IS-157, ~

Appendix N, p. 27] It experienced a peak load of 1691 mw in 1968. (S-157, Appendix N, p. 27] During this time it had generating capacity available from six generating stations to meet peak load. The generating capability of these stations ranged in size from 52 mw to 400 mw. [Dempler

t. 8706-8708, 8711 (22-24)] Five of these stations had a r capability of more than 200 mw. [Dempler 8707] Although Duquesne had a 5 mw unit on its systen which operated during the winter as part of a steam heating system, the unit was not normally available during periods of peak load, and a it was in the process of being retired. IDempler 8736, r 8890].

. L.

p 37.06 As of December 31, 1973 Duquesne had an installed generating capability of 2620 mw. Its peak load in 1973 I was 2296 mw. [S-127, Appendix N, p. 27]

-L_

37.07 There is no public power agency, rural electric cooperative, or other electric entity furnishing electric service to the public in Duquesne's service area. The Borough of Pitcairn, which is a small. encl' ave in Duquesne's service

L area, provides electric service to residents of the Borough. .

_ 37.08 The Borough of Pitcairn ("Pitcairn") is a very small municipality in Pennsylvania with a geographic area of about half a square mile. [McCabe 4186 (23-25)1 Its

I l

-130- !

population has declined slightly or been static in the past decade (1965-1975) and now is slightly under 5,000. [McCabe 4187 (4-9), 1552 (7-8)] Its tax base also has not increased _

significantly over the years. [McCabe 4187 (14-18)]

37.09 The Borough of Pitcairn presently operates a small municipal electric distr ibution system. It provides electric -,

service to Borough residents. [McCabe 1554 (16-20), 1555 (8-11)] There is no evidence that it provides electric ser-vice outside its municipal limits. Because of the nature of Pennsylvania law, it can be inferred that the Borough does not serve outside its municipal limits. [See Conclu- ,

I sion of Law 37.01] It has had very few commercial custo_.ers '

and no industrial customers [McCabe 1554 (21-24)]. -

37.10 In 1968 Pitcairn operated 5 small diesel genera-ting units. [McCabe 1554 (17-20)]. This generating plant had a nominal net capability of only 3 mw. [ App. 3, p.

1]. The units ranged in size from 1.3 mw to 0.3 mw. l

[Dempler '

l 8677 (1-3)]. !

37.11 In 1968 the Pitcairn operated its municipal electric j I) '

. system at a voltage of 2.4 Kv. It now operates the system at a voltage of 4.16 Kv.

J;i

[McCabe 1722 (11-13]. I 37.12 During the period of 1967-68, the Pitcairn system

4 had a peak load of.1.7 mw. [McCabe 1579 (19-21)]. j

+

-131-37.13 Pitcairn presently operates its electric system only as a dis,tribution system. It is a full requirements customer of Duquesne. It owns no generating facilities

_ - whatsoever. It ceased generating electricity on or about January 5, 1972. [McCabe 1555 (4-11); S-22; S-23; A-48; A-491 37.14 Pitcairn has been receiving bulk power for resale from Duquesne since 1970. IMcCabe 4168 (19-24 ) ; S-21, p.2 i

t_

15]. On October 13, 1971 Duquesne and Pitcairn entered into an agreement, retroactive to 1970, which set the price for the sale and purchase of bulk power for resale. This agreement was filed with the Federal Power Commission as

~

a tariff under the Federal Power Act. Since that date

.r u .Duquesne has supplied Pitcairn with bulk power for resale under that tariff agreement. [McCabe 1659 (3-20); McCabe u 1741 (9-25) - 1742 (1-4); A-49].

m. 37.15 The Borough of Aspinwall ("Aspinwall") is a very I small municipality in Pennsylvania. In 1966 it had a popula-tion of about 3,700 people. [A-120, p.ll.

~

L 37.16 In 1966 Aspinwall operated a municipal electric l l system. It provided electric service to approximately 1200-

, 1300 customers in the Borough, most of whom were residential customers. [A-120, p. 6; A-263]. It was experiencing peak loads of approximately 1.4-1.5 mw. [A-120 pp. 20-22; A-263 p. 1].

] -

-132-37.17 Aspinwall operated its municipal electric system at 2.3 kv, the voltage of its distribution system. The distribution system had received little maintenance and _

it did not meet modern standards. It was inefficient and -

experienced power losses. [A-120, p. 51 -

37.18 In 1966 Aspinwall satisfied the needs of its -

electric customers with electric energy generated at its own plant. This plant was comprised of four generating units. Three of these units were dual fuel engine driven generators with a capability of 0.550 mw. [A-120, p. 41 The fourth was a gas engine driven generator with a capa- .

bility of 1.0 mw. However, this unit, which was purchased '

second-hand, could not be used for constant service. It could only be used as a stand-by unit. [A-120, pp. 4, 20-22]. All of these units had been manufactured in the 1940's

[A-120, p. 4]

37.19 Aspinwall sold its electric distribution system i

to Duquesne under an agreement dated October 12, 1966.

i 1

[A-263, p. 2]. This transaction was reviewed and approved bv the Pennsylvania Public Utility Commission ("PaPUC")

and by the Federal Power Commission ("FPC"). [A-262; A-

.]

263]. It was possible for parties to object to this trans-action before these agencies and, indeed, such objections "

were heard by them. [A-262, A-263}. The FPC approved the I

i

-133-

, transaction in June,-1967. The acquisition was consummated

.sometime thereafter. Aspinwall continued to operate its i municipal electric system until such consummation. [A-2631.

l

b. Absence of Comoetition in Pennsylvania

, 37.20 As a result of barriers to competition imposed

-~

by law and by the economic characteristics of the industry,

~

there is not, and cannot be, any significant actual or L potential competition for customers in Pennsylvania between Duquesne and other electric entities furnishing electric service. [ Findings of Fact 22.01 .10, 37.21-37.30; see Brief at 107-134, 138-141, 141-142, 142-149, 149-169, 169-196].

r (i) Legal Barriers to Competition 37.21 Pennsylvania has established a. scheme of specific and exclusive service territories wherein electric service r

is to be provided by a single electric entity. [Hughes

~

3673 (3-5) ; White 9504 (9-11), 9662 (5-14); see Conclusions of Law 37.01-37.03]. This is true for public entities as well as investor-owned utilities. [ Conclusions of Law 31.02, 31.03, 37.011.- There cannot be any competition in Penn-F- sylvania for customers. [See also Findings of Fact 37.23 37.29]

37.22 Pennsylvania law requires that Duquesne's rates be just, reasonable and non-discriminatory. (See Conclu-sions of Law 37.01, 37.06]. Pennsylvania law ~also requires

+ - ._ .c--ie-- N

~

7

-134-i that all of Duquesne's retail rates be filed with the PaPUC. - "

[See Conclusion of Law 37.01). These considerations, com-bined with the rate regulation performed by the PaPUC, make it impossible for Duquesne ever to meet " rate competition" [

of another utility by manipulating its rates to win a new customer. [Wein 6905 (3-4) ; Corber 11149 (19-22)l. Further- '

more, because of these legal requirements, any rate " redesign" ~

undertaken by Duquesne to attract new customers would have such a severe impact on its overall rate structure that such action or conduct is impossible. [Wein 6899 (11-25) 6906 (15-24)]. Thus, there can be no competition for new -

customers.

37.23 Pennsylvania law practically eliminates the ability of municipalities already served by electric utilities to enter the electric business. Such municipalities do not provide a source of potential retail competition. [ Conclusions of Law 37.01, 31.02, 31.031. l a

(ii) Economic Barriers to Competition -

37.24 The economic characteristics of the electric

. ~

utility industry result in a " basic natural monoply structure" _ ,

in the industry. [A-189 (Gerber) 6 (19-26), 7 (5-21), 10- 2 l

11 (20-26 & 1-2), 23 (18-20)]. Because the electric utility

. industry has these natural monoply characteristics, direct ccmpetition resulting in duplication of facilities to serve k new customers or solicitation of other systems' existing 4

customers is wasteful and undesirable. This is true at -

.n._, -- -

1

-135-the distribution level. [Hughes 3729 (10-20), 3788 (11-

_ ,_ 17), 3901 (4-6; S-207 (Hughes) 33; Wein 7247 (21-23); Kampmeier '

5825-26 (25 & 1-2); A-207, p. 11-18]. It is also true at the generation and transmission levels [Hughes 3903 (8-24)],

and compbtition at these levels is also not economically i

or socially desirable. [Hughes 3902, Wein 6856 (2-10)]

There can be no economically meaningful competition.

L.

(iii) Extent of Competition t

37.25 Duquesne has never faced competition for customers- This-finding maybe inferred from the absence of any evidence that Duquesne has ever competed for customers and from the economic and legal characteristics of the industry.

m

_ 37.26 There is no yardstick competition among Duquesne and other investor-owned utilities or other electric entities.

This finding may be inferred from the absence of any evidence L.

that there is such competition with respect to Duquesne.

~'

37.27 Municipal electric systems, even if they were a

adjacent to Duquesne, are not a source of yardstick competi-tion for Duquesne because their tax, financial and other characteristics are so dissimilar from those of Duquesne.

[Gerber 11488-89 (25 & 1-5), 11484 (10-13), 11483-84 (24-

~

25 & 1-7); Hughes 3676 (19-24); A 190 (Pace) 17-18 (19-26

& 1-21); Compare Findings of Fact 37.01-37.06 with Findings

, of Fact 37.08-37.13, 37.15-37.19]. Furthermore, there can be no competition between Duquesne and Pennsylvania munici-

1

,1

-136- l' i

palities, yardstick or otherwise, because of the unreculated '

monoply power po.csessed by such municipalitites [See Conclusion -

of Law 37.01(c) ] and because of the regulation to which Duquesne is subject. [See Conclusions of Law 37.01-37.03, 37.07, 37.08] _

37.28 The Aspinwall and Pitcairn municipal electric systems could not have been competitors of Duquesne because of their size and because of other reasons. [ Findings of Fact 37.01-37.18, 37.20-37.24, 37.40, 37.561 ~

i -

37.29 The absence and impossiblity of any competition -

between Duquesne and municipal electric systems is demon-strated by Pitcairn's failure to lower its price for electri- '

city when it began receiving cheaper, bulk power for resale from Duquesne in 1970. (McCabe 4204 (8-12, 24-25), 4207]. 3 l

4 37.30 There is no evidence in this Record that Duquesne has ever faced competition from other electric utilities to attract _,

new loads. There are_very few firms which have energy costs significant enough to affect locational decision. [Wein l

6904 (14-18), Gerber 11488 (12-20)]. The outside possibility of attracting a new load would have no effect on the rate level or rate design of a utility likely to get the new -

load. [Wein 6903-04 (22-25 & 1-3)l. Thus, there is no

~

such competition for new loads and it is irrelevant to this I

l proceeding. [Woin 6904 (8-25) - 6908 (1-11)]. a j .

t

-137-c.Duquesne's Lack of Monopoly Power

~=

37.31 Monopoly power in a market is the power to control

_- prices in, or exclude competition from, that market. [See Conclusion of Law 37.05; Brief at 67-87]

37.32 Duquesne has no monopoly power, and cannot monopolize, for in Pennsylvania there is no competition for it to exclude.

[ Findings of Fact 37.20-37.30] Assuming arguendo that competi-I' tion is possible in Pennsylvania, despite legal and economic

- barriers thereto, Duquesne's rates and conditions of service are regulated by state and federal law and regulatory autho-rities so that it has no power to control prices or exclude

~

such competition. Therefore, Duquesne has had no monoply power and there is no reasonable probability that it will acquire monopoly power in the future. [See Conclusions F

L of Law 37.04-37.08; Findings of Fact 37.19-37.30; Brief at 67-87].

L.

, 37.33 Unlike other industries, the electric utility

~1 industry is subject to comprehensive regulation and other

.[

. c:

economic and legal barriers to entry and competition so that the existence of monoply power cannot be inferred from

_ a firm's statistical concentration in a given area. [See

r. ' Conclusion of Law 37.04, 37.01-37.03). Duquesne lacks monopoly power because regulation by the PaPUC and FPC of m

rates and service preclude it from controlling prices [See o

. ~

q l

-138-

{-

Conclusions of Law 37.04-37.08] and because the FPC authority under the Federal Power Act to order it to provide inter- r connections and or service for resale precludes it from r,

excluding competition. [See Conclusions of Law 37.04-37.06, l ld 37.08).

F i

d. Duquesne's Relations with the Borough of Ellwood City 37.34 The Borough of Ellwood City ("Ellwood City") is G r

located outside Duquesne's service area [S-85, A-119),

{

and Duquesne was not authorized to provide retail electric ,

j service in Ellwood City. [See Conclusion of Law 37.01; t Finding of Fact 37.211 *-

37.35 Luxenberg's oral inquiry about bulk power for

' resale from Duquesne was a frivolous and unauthorized in- - -

quiry. It d.' not constitute a request by Ellwood City. '

. .k (Luxenberg 6403-6405, 6406 (5-7), 6413-6418]. The response made by Duquesne employees to Luxenberg's inquiry does not '!y constitute a refusal by Duquesn[. ILuxenberg 6405 (12-76),

6413-6418].

37.36 Since Duquesne's closest facilities were 11-12 .u

, miles from Ellwood City, it could not provide wholesale

~

service to Ellwood City. [A-119, Luxenberg 6413 (2-3)].

l Thus, it was reasonable for Duquesne to refuse any such 1 -

alleged request.

4 m .

-139-37.37 Since Duquesne could not serve at retail in Ellwood City, a refusal by it to sell wholesale power to Ellwood City was not anticompetitive conduct. [See Conclusions of Law 37.01, 37.04, 37.09) Since Ellwood City was then, and is now, receiving wholesale energy from Pennsylvania

[ Power Company under a full requirements contract tiled as t

a tariff with the FPC [D-71, S-106), a refusal by Duquesne to sell wholesale power to Ellwood City was not anticom-

- petitive conduct. [See Conclusions of Law 37.04, 37.05)

L

e. Duquesne's Relations with the Borough of Aspinwall 4.

37.38 Aspinwall had been considering the sale of its r

[ electric system as early as Fall, 1965. [A-265; Sedlak 12309 (6-7), 12312 (4-13) ; Flynn 12311 (12-15, 21-24)].

This was before it approached Duquesne about wholesale

[ service, formally or informally. [D-168, D-170]. Aspinwall r had only a single substantial communication with Duquesne L about the purchase of wholesale service, [D-170, D-173, r D-174). (A reference in a memo made after this communica-tion to wholesale service represented nothing more than

{ a " pro forma" confirmation of the. previous interchange.

[D-201).) After this communication, Aspinwall did not

('

[ . l pursue the matter further but, instead, began negotiations l t

I for the sale of its distribution system. [D-175, p. 118553; D-176, p. 118549; D-199, p. 118547). Duquesne's response e

to Aspinwall's inquiry satisfied Aspinwall. [D-201, p.

118545). Aspinwall never petitioned the PaPUC or FPC for 1

a

+

-140- 1 i

wholesale service. (This is inferred from the fact that l'

. l-there is no evidence of any such petitions) Duquesne never _

refused to wheel power on behalf of Aspinwall. (This is -

inferred from the fact that there is no evidence that Duquesne

.-] .

was ever asked to wheel power or refused to wheel power.)

37.39 Aspinwall did not seriously solicit or desire wholesale service. At most, Aspinwall desired either to

~

purchase wholesale service or to sell its system as alterna-T tive courses of action. It decided unilaterally that sale ,

of its system was a more desirable alternative to it than -

purchase of such service. [ Findings of Fact 37.19, 37.38] "

m 37.40 Aspinwall's system was failing. It sold its system because of the deterioration of the system resulting from its own physical and fiscal mismanagement. It did ~

not sell the system because of any alleged refusal by Duquesne f

to sell wholesale power to it. [A-120; Flynn 12327-328i Sedlak 12325-327; A-189 (Gerber) 21-22; Gerber 11616-618, -

11622-623]. <

l 37.41 Duquesne had no predatory scheme to deprive Aspinwall i of wholesale power in order to force it out of business. "

[ Findings of Fact 37.48-37.52].

l Duquesne's Relations with the Borough of Pitcairn

,Concerning Wholesale Service j

{

i 37.42 In 1966 a single Pitcairn councilman asked to J

-141-discuss with Duquesne wholesale service or an interconnection or pooling arrangement. [D-239]. Although this cou".cilman l

expressed a personal preference for wholesale service, this preference did not represent a request by Pitcairn or, in-deed, by other Pitcairn officials or agents. [D-242, D-244, D-245, D-238]. Pitcairn did not make any request for i

r wholesale service or for an interconnection or pooling arrange-ment at that time. Insofar as it then asked Duquesne for

[ anything, it asked Duquesne to purchase the municipal electric system. [D-238, D-242, D-244, D-245]. In fact, Pitcairn made an explicit decision not to try to obtain wholesale service. [D-244, pp. 105111-12; D-245, p. 105107].

(. .

_ 37.43 In November 1967, Pitcairn asked Duquesne to i supply emergency, or back-up service. [D-1]. In response to this request, Duquesne and Pitcairn engaged in a number

' r of oral and written communications. [S-13; A-ll4; S-18; l L McCabe 1619; A-ll5; McCabe 1623, 1627, 1644, 1654-55; A-116; S-16; D-2].

,_, 37.44 Although the terms of Pitcairn's request were,

{- at times, imprecise, it is evident, from the requests, from l r' the problems which Pitcairn felt it faced, from the nego- l d

, tiating posture it adopted before Duquesne, and from the

~ recommendations it was receiving from its consultants, that its request was directed to obtaining emergency, or back-up, service rather than bulk or base-load power for resale

-w

I:

-142-1 to replace its generating facilities. [D-1; A-ll4; McCabe 1634 (4-16), 1824-26; A-3, pp. 14-16; McCabe 1641-42 (25 7.

& 1-15), 1719 (12-22), 4202-03 (21-25 & 1-2); S-17, pp. -

}-

1, 5 ] . Pitcairh's engineering consultant explicitly coun- -

seled Pitcairn not to purchase bulk power for resale. [A- ' -

3, p. 141.

37.45 Duquesne reasonably believed that Pitcairn offered 1 j

no basis upon which it could interconnect with Duquesne.

]

[S-16; Dempler 8679, 8684, 8798, McCabe 1832; Findings of j Fact 33.31-33.41] Duquesne repeatedly offered to supply Pitcairn with emergency service for resale under Rate M of its tariff filed with the PaPUC. [S-13, S-18, S-16, j McCabe 1826 (9-13, 23-24) ] . Such service satisfied Pitcairn's request and needs. [McCabe 1642 (1-5, 4202-03 (21-25 &

f 1-27) ; See alia Findings of Fact 37.43] Pitcairn itself i

treated this offer as responsive to its request and kept -

it under consideration. Thus, Duquesne did not refuse to

-c deal with Pitcairn. [Id. ; A-ll4; D-2] Duquesne never refused to wheel power on behalf of Pitcairn. (This is ]

inferred from the fact that there is no evidence t'a- r <uch a request was ever made or refused.) Duquesne had att :S *-

datory scheme to deprive Pitcairn of wholesale power la ,j order to force it out of business. (McCabe 4168; Findings of Fact 37.48-37.52]. -

J u

t

-143-37.46 At most, Pitcairn's objections to emergency ser-

. vice under Rate M went only to the price. [D-2, McCabe i

1826 (9-20)].

, 37.47 The Record does not establish that the price charged under Rate M was unreasonable. [Gilfillan 8486 (6-14), 8474 (1-8); D-255; Fleger 8648-49 (14-25 & 1-2),

8798 (2-7 & 21-23]

g. Duquesne's Policies and Practices Generally f Concerning Wholesale Service 37.48 In 1966-68 Duquesne declined to sell bulk or

, base-load power for resale because it believed it had no authority to do so, because it believed that Pennsylvania

'[ law prevented it from doing so, because it believed that a

good economic practice prohibited it from doing so, and because it was not engaged in that line of business and

, not because of any anticompetitive purpose. [Fleger 8632-L 33 (21-25 & 1-25) ; Gilfillan 8422 (10-14), 8422-23 (23-25

~

& 1-4), 8425 (5-13), 8426-29; A-264; S-211, p. 118386; D-t 255; D-169; Gilfillan 8422 (3-9), 8433-34, 8444-45, 8503].

Any request by Aspinwall or Pitcairn for wholesale service was a request that Duquesne engage in a new line of business.

'[ [Fleger 8632-33 (21-25 & 1-25); Gilfillan 8426 (7-9)].

, . In the context of the regulatory framework, these beliefs and attitudes towards sale of bulk or base-load power for resale were reasonable. Moreover, even if its beliefs about

I

-144-

-) ,

l' the state of the la'w or the requirements of good economic ~1

. ,l practice were incorrect, Duquesne had no power to exclude

" competition" by refucing to provide wholesale service since n

{

the appropriate regulatory agency could have ordered it _

to provide such service. [See Conclusions of Law 37.04-37.08; Findings of Fact 37.31-37.33]. Duquesne's policies ~

or practices concerning sale of wholesale power had no 7

adverse effect on competition. [ Findings of Fact 37.19, j 37.20-37.30, 37.31-37.33; Conclusions of Law 37.01-37.06].

37.49 Duquesne never had a scheme to acquire municipal ,

electric systems. Its policy was that it refused to discuss acquisition unless formally asked by the municipality. !

[D-238]. It became interested in purchasing municipal electric facilities only after representatives of these f

municipalities expressed an interest in the sale of these facil1 Lies. [D-168, D-238, D-244]. Duquesne's policy was .

merely that it would be interested in acquiring such systems only if the projected revenues, when compared with the price, allowed for a rate of return consistent with that earned on the, rest of the system. [D-168; D-321, p. 11 There is no evide.nce that Duquesne ever tried to " steal" k a

cuctomers, ever engaged in any " sham" litigation, or ever undertook any other predatory action designed to " force" ,

~'

municipal electric systems out of business. Indeed, Duquesne J

I voluntarily provided emergency service to Pitcairn when

}

it had a demonstrated need for such service. [McCabe 41681 ;

)

J

-145-i~

There is no evidence that Duquesne ever refused to " wheel"

~

power on behalf of a municipality.

37.50 Duquesne had in its tariff filed with PaPUC a rule, Rule 18, which prohibited it from selling bulk power for resale. [Gilfillan 8422-23] It was specifically re-

_ viewed and approved by '.he PaPUC. The basis for this approval by the PaPUC coincided with Duquesne's beliefs about the requirements of good economic practice.

g [A-244, See Finding i.

of Fact 37.48].

37.51 Duquesne has not made any inquiries to any munici-pality about acquisition of its electric systems since t968.

[McCabe 1690]. Duquesne has no corporate goal of acquisi-tion of municipal electric systems.

r-37.52 Duquesne presently sells bulk power for resale

.)

to the only municipality which desires it (Pitcairn).

[ Findings of Fact 37.13-37.14] Termination of this service

'F is not proposed by Duquesne and is not a likelihood.[McCabe 1659]. Duquesne's relations with its wholesale customer i

have been cordial and have involved no working difficulties.

[McCabe 1741-42]. Duquesne's attitude in 1966-68 towards sale of bulk power for resale was based on a state of the law which it recognizes has since changed. [Fleger 8633 J. .

, (2-25), 8635-36; Gilfillan 8433-34, 8444-45]. Consequently, ,

, no finding can be made that Duquesne will not continue to l

l I

h

-146- I provide such wholesale service to municipal systems in the ;

future. Further, Duquesne.has offered access to its share .;_

l of the nuclear units to be licensed in this proceeding.

[A-44] Thus, there is no nexus between Duquesne's previous !

alleged refusals to sell wholesale power and the activities I

under the nuclear plants to be licensed in this proceeding. l

~1

.}

.I W

s a

,w I

j J i

J

! i

.]

i

-147-r i

38.00 NO " INCONSISTENT SITUATION" WILL BE CREATED OR MAINTAINED BY ACTIVITIES UNDER THESE LICENSES.

38.01 With the single exception of Cleveland's request for access to nuclear generation (which request was granted

~

[ Findings of Fact 34.23]) there is no evidence as to what

_ relationship: if eny, exists between the situation alleged to i

be inconsistent with the antitrust laws and the Applicants' l

proposed activities under the licenses sought in this pro-4 ceeding.

l-30.02 Applicants have adopted an affirmative policy of

~

affording requesting electric entities in their respective service areas access to the facilities being licensed in reasonable amounts and on terms and conditions which provide

.- for adequate transmission to deliver the nuclear power or L furnish back-up support when the nuclear units are down.

I [A-44, see generally A-190 (Pace) 21-26) Applicants have indicated a willingness to have attached as conditions on the nuclear licenses their affirmative policy statements, even

- upon a finding of no " inconsistent situation" within the meaning of Section 105c. [Tr. 8335-36] j r 1 1

L. 38.03- Non-Applicant CCCT entitites who choose to take wholesale power from Applicants pursuant to FPC approved L

rates receive their power at Applicants' systemwide average embedded costs. [A-190 (Pace) 10] In this manner, wholesale

' m6e

,m-', .w,a g We +

4

- ~'*M 4

l

-148-

~

\

power transactions provide access to the bener'its of nuclear

}

generation. [Id.] cach access to the benefits of nuclear _

generation is now a cheaper form of access than direct '

participation in the nuclear facilities. [Hughes 3660-61; '

Kampmeier 6042-44] In such circumstances the installation of

~

nuclear generation does not maintain any hypothetically

, postulated " inconsistent situation." The availability of the 1

wholesale power option to existing electric entities pre- I cludes a finding of maintenance. [A-190 (Pace) 7, 10-11, ~

14, 17-18]

38.04 Given a municipal or cooperative system's lower '

cost of money, due to both tax and financing advantages con- '

ferred on such electric entities, a single or small group of such systems may well be able to build a small coal-fired plant in Ohio or Pennsylvania and get power at a total cost equal to, or closely approximating, the cost of power ~

Applicants will get from the nuclear facilities being licensed. [Gerber 11563; see Kampmeier 5894-921] The availability of that optien precludes a finding that the licensing of these nucelar facilities will permit Applicants 3

'] ,-

to maintain any " inconsistent situation."

38.05 The issuance of unconditioned licenses to these "

l Applicants will not create (see A-44] or maintain [see Findings l J

of Fact 38.02-38.04] any situation inconsistent with the antitrust laws.

, - w -

-149-

~

II. CONCLUSIONS OF LAW 10.00

SUMMARY

10.01 The activities of TECO under the Davis-Besse Unit 1 operating license, Perry Units 1 and 2 construction permits, and Davis-Besse Units 2 and 3 construction permits will not create or maintain a situation inconsistent with the anti-trust laws.

'l_

o

_ 10.02 The activities of CEI under the Davis-Besse Unit 1 L operating license, Perry Units 1 and 2 construction permits, l

and Davis-Besse Units 2 and 3 construction permits will not s

create or maintain a situation inconsistent with the anti-trust laws. I 10.03 The activities of Ohio Edison under the Perry Units m

1 and 2 construction permits and Davjs-Besse Units 2 and 3

.t

~'

,_ construction permits will not create or maintain a situation j r inconsistent with the antitrust laws.

L.

1

._ 10.04 The activities of Penn Power under the Perry Units I k

1 and 2 construction permits and Davis-Besse Units 2 and 3 I' construction permits will not create a situatioI inconsis-IL .

tent with the antitrust laws.

H. , .

10.05 The activities of Duquesne under the Perry Units

. 1 and 2 construction permits and Davis-Besse Units 2 and 3 e .

i.

4

-150-l

~1 construction permits will not create a situation inconsis- g.

tent with the antitrust laws.

7 10.06 There are five separate Applicants to these con-solidated proceedings and, with respect to the individual conduct of each Applicant in its respective service area, -,

separate findings of fact and conclusions of law are required.

l

.J

wq aun l

W W

J

\

.a

.4 l

t

.J l

1

.J

. . - . _~ .

-151-20.00 THE LEGAL FRAMEWORK 20.01 The " situation inconsistent" language in Section I

105c embraces no more than the incipiency concept embodied in the " tend to" lang age of Section 5 of the Federal Trade Commission Act (15 U.S.C. 545). That yardstick, as hereto-

- fore appied in other judicial and Federal Trade Commission

("FTC") proceedings [see, e.g., Heater v. FTC, 503 F.2d t

321, 323 (9th Cire. 1974)], marks the outer limits of the

" reasonable probability" standard articulated by Congress

[3 U.S. Cong. & Admin. News at 4994 (1970)] for measuring what licensed activities run afoul of the Section 105c proscription. [See 3 U.S. Cong. & Admin. News at 4991-92, 4994-95 (1970); Hearings on Prelicensing Antitrust Review of u

- Nuclear Power Plants Before the Joint Committe On Atomic Energy, 91st Cong., 1st Sess., pt. 1 at 39, 89-90, 122 i

(1970); 100 Cong. Rec. 11905-06 (1954); see also Brief at

L 18-20]

20.02 Only inconsistent situations which will be created 1

or maintained by " activities under the license" need bc scrutinized. [See 42 U.S.C. S2135(c)] This means that t-L

" alleged anticompetitive practices--however serious--which have no substantial connection with the nuclear facility, are beyond the scope of antitrust review under the Atomic

+

i Encergy Act." [ Louisiana Power & Light Co. (Waterford Steam W #

w

. ~. - .. -

-152-n Electric Generating Station, Unit 3) , CLI-73-25, 6 A.E.'C.

~}'

619, 621 (September 28, 1973) (hereinafter "Waterford II")) '

To meet this standard it is necessary that "the question of ..

nexus * *

be resolved as to es.ch alleged anticompetitive _

practice." (Consumers Power Co. (Midland Plant, Units 1 and t 2), LBP-75-39, NRCI-75/7, 29, 51 (July 18, 1975)] Mere proof r of the truism that power from the licensed facilities "will i

be commingled" with power from other generating facilities of j these Applicants and used on that basis, is not sufficient to meet the Commission's " nexus" requirement.

l

[Waterford J II at 621]

~

20.03 In referring to the policies underlying the anti- a trust laws, Congress intended this Commission to recognize that competition is not a national policy in regulated 1 J

industries such as the electric utility industry. [FPC t v. RCA Communications, Inc., 346 U.S. 86, 92 (1953); _

Hawaiian Telephone Co. v. FCC, 498 F.2d 771,777 (D.C. Cir.

i 1974); Northern Natural Gas Co. v. FPC, 399 F.2d 755, 959 -

(D.C. Cir 1968); California v. FPC, 296 F.2d 348, T33 (D.C. Cir. 1961), rev'd on other crounds, 369 U.S. 482 (1962);

Pennsylvania Water & Power Co. v. FPC, 193 F.2d 230, 234 k a

~(D.C.-Cir. 1951'), aff'd, 343 U.S. 414 (1952); see also '

I 3rief at 52-58, 60-66, 108-11, 201-07]

I

.20.04 Section 5 of the FTC Act s:1pplements Section 1 of J the Sherman Act only in those situatioas involving a l

J L

~

-153-challenged practice which does not constitute a conventional

~

Section 1 violation but is analogous thereto and can be shown to offend the policy underlying that antitrust provision.

1

[See Atlantic Refining Co. v. FTC, 381 U.S. 357 (1965); FTC

v. Texaco, Inc., 393 U.S. 223 (1968); see also Brief at 20-23]

20.05 To establish an inconsistency with Section 1 of the

[ Serman Act it is necessary to prove: (a) the existence of L. .

concerted action, generally defined as "an agreement between

[ the parties, but the agreement can be tacit as well as express" [ Theatre Enterprises,v. Paramount Film _ Distributing Corp., 346 U.S. 537 (1954)] and ( i .' a restraint of trade by

~

virtue of such action which can be shown to be unreasonable.

L

[ Northern Pacific Ry. v. United States, 356 U.S. 1, 5 (1958);

{ see-also Brief at 25-66]

r

{ 20.06 Section 5 of the FTC Act supplements Section 2 of

, the Sherman Act, if at all, only by altering the " dangerous L probability" standard for attempted monopoly to " reasonable

[ Compare American Tobacco Co. v. United States, probability."

328 U.S. 781, 785 (1946) with 3 U.S. Code Cong. & Admin.

r-

{ News at 4994 (1970); see also Brief at 23-24] ,

L.

20.07 To establish an inconsistency with Section 2 of 1

the Sherman Act it is necessary to prove the following elements:

..rA

. -=,*=wem--e l

4 i

-154-(a) for monoplization--possession of monopoly i i

~~ '

power in the relevant market and exercise of that power in a manner that permits the ,

inference of a general intent and purpose to do so [ United States v. Grinnell, 384 U.S.

563, 570-71 (1966); United States v. Griffith, 334 U.S. 100, 105 (1948)];

(b) for attempt to monopolize--a specific intent to monopolize the relevant market and _

sufficient market power to have a reasonable probability of success [ Times-Picayune v. i

~

United States, 345 U.S. 594, 626 (1953);

American Tobacco Co. v. United States, 328 U.S.

781, 784 (194 6) ] ;

(c) for conspiracy to monopolize--the -

existence of a combination or conspiracy ')

and a specific intent to acquire or maintain the power to exclude competition. [Conclu- _

sions of Law 20.06; American Tobacco Co. v.

United States, 328 U.S. 781, 809 (1946)] -

see also Brief at 207-8]

1.

'L h

ee-.

4 n

L.

e-o t~

! L.

b.

t

,-+

iL.

- t Le o l 1

l l

- L.

9 g7-

-156-30.00 THE MATTERS IN CONTROVERSY ,

30.01 Pursuant to Section 2.732 of the Commission's Rules ~

of Practice (10 C.F.R. 52.732), the NRC Staff, DOJ, and 7

Cleveland bear the burden of proof in this proceeding. (See j e.g., Consumers Power Co. (Midland Plant, Units 1 and 2),

LBP-75-39, NRCI-75/7, 29,45 (July 18, 1975); see also Brief at 209-14] This requires those parties to establish by a pre- 7 j

ponderance of the evidence that: (a) Applicants have an ability 7

to hinder or exclude competition in any properly defined market; j (b) Applicants have exercised that ability with the requisite

-)

wrongful intent; and (c) a meaningful nexus exists between the I

" inconsistent situation" demonstrated and the " activities under l the [ nuclear] license."

)

.b 1

.l t

i

}

J J

J

i

-157-

- 31.00 THE PROPOSED MARKETS AND APPLICANTS' INABILITY TO l HINDER OR EXCLUDE COMPETITION THEREIN.

a. The Statutory and Regulatory Framework.

r' -

31.01 All of the Applicants are subject to the following t

L regulation and control of their activities by the Federal Power Commission under the Federal Power Act:

_ (a) By law, the rates, terms and conditions t.

of Applicants' wholesale and interchange

{ transactions are subject to the regulatory L

jurisdiction of the Federal Power Commission and must be reasonable, uniform and nondis-

_ criminatory. [16 U.S.C. S824d]

L (b) By law, the reasonableness of these rates,

,p terms and conditions of service is subject to e

review whenever a proposed change is submitted to the FPC, or at any other time either upon the FPC's own initiative or upon the complaint L

of any interested party and the FPC may fix

[' the rate. [16 U.S.C. SS824d, 824c) 7, (c) In its exercise of its regulatory power y over rates and service, the FPC must take account of antitrust considerations. [ City of Huntingburg, Ind. v. F.P.C., 498 F.2d 778 J

(D.C. Cir. 1974); F.P.C. v. Conway Corp., l n

w O

7 t

-158- i n

1:

96 S. Ct. 1999 (1976); Pacific Gas & Electric .

Co., 51 F.P.C. 1030, (1974); Gulf States J' Utilities Co. v. F.P.C., 411 U.S. 747 (1973)]. ]

(d) By law and FPC regulation, Applicants' wholesale rates are established at the lowest . . .

possible levels consistent with maintaining -

their financial integrity and the rates may

~'

not be set at levels which will maximize profits. [Bluefield Waters Works and Improve-Co. v. Public Service Commission of W. Va., jl 262 U.S. 679 (1923); F.P.C. v. Hope Natural -

Gas Co., 320 U.S. 591, 605 (1944)] -

(e) By law, the Federal Power Commission may ]

i compel any Applicant to provide wholesale i-service to another system where it is in the .j public interest and not unduly burdensome.

[16 U.S.C. S824a(b); Florida Power Corp. v. -

! F.P.C., 425 F.2d 196, 201-203 (5th Cir. 1970), }

J

reversed on other crounds sub nom. Gainesville Utilities. Dept. v. Florida Power Corp., 402 U.S.

I i 515 (1971)] 4 l

l (f) The Commission may order any Applicant to -

j coordinate operations with another electric ,f' l

l supplier on reasonable terms'. [16 U.S.C.

I l SS24a(b); Gainesville Utilities Dept. v. J Florida Power Corp., supra.]

i L . - ' __ . _ _ _ . _ _ _ _ _ ~

I

-159-

~

(g) By law, before any Applicant may acquire another public utility system, the Federal Power Commission must find the acquisition to be in the public interest and in doing so I' must take account of' possible anticompetitive i

_ consequences of the acquisition. [16 U.S.C.

![ 5824b; Citizens for Allegan County, Inc. v.

r F.P.C., 414 F.2d 1123 (D.C. Cir. 19 69) ; Gulf States Utilities Co. v. F.P.C., 411 U.S. 747 (1973); commonwealth Edison Co., 36 F.2d 16

- (7th Cir. 1968), cert. denied, 393 U.S. 953 i

< (1973)] !

l 31.02 Applicants Duquesne and Penn Power are subject to 1

the following regulation and control of their activities by the Pe.PUC under Pennsylvania law:

{

(a) Duquesne and Penn Power must obtain

.c approval from the PaPUC before they may g , "begin to offer, enter, furnish or supply i l

,- service within [ Pennsylvania]." [66 P.S.

S1121] Pennsylvania law establishes specific,

I exclusive service areas for electric entities.

!L

[Id.; 15 P.S. 3277 et seq.]

1 (b) Duquesne and Penn Power must obtain t

approval from the PaPUC before they may "begin to offer, render, furnish or supply service of W

5

-160- ;

t a different nature or to a different terri-tory." (emphasis added) [66 P.S. Sil22(a)] ,

(c) Duquesne and Penn Power must obtain -

approval from the PaPUC before they may

" abandon or surrender, in whole or in part, 7 any service," except upon discontinuance of service upon nonpayment of a bill or upon request of a patron. [66 P.S. S1122 (b)] q (d) Duquesne and Penn Power may not dis- J criminate unreasonably within or among classes '

of customers as to rates and types of service.

[66 P.S. SS1144, 1172]

]

(f) Duquesne and Penn Power, and a munici- q.

4 pal electric utility serving outside its municipal limits, must file a tariff with the l-

.]

PaPUC setting forth its rates and services.

The utility must provide service in conformity _

with this tariff and may not deviate from it.

The rates and services contained in the tariff ~

are' subject to the review and approval of the PaPUC. [66 P.S. 551142, 1143, 1145, 1149, 1

1176, 1182, 1183] ,j (g) By law, Duquesne and Penn Power must ,

i serve all persons who request service within d

their service areas. The rates and conditions I

J

(

J

-161-of that service are subject to the regulatory

~

jurisdiction of the PaPUC and must be reason-r.

able, uniform and nondiscriminatory. [66 P.S. SS 1141,1144, 1171, 1172] In particu-lar, Duquesne and Penn Power may not establish

[

or maintatn "any unreasonable difference as i

to rates between classes of .=ervice." [66 r

P.S. S1144] In addition, they may not

establish or maintain "any unreasonable difference as to service ... between classes of u

service." [66 P.S. 51172]

(h) By law, the reasonableness of Duquesne's s

rates and of its conditions and types of ser-vice is subject to review whenever a proposed change is submitted to the PaPUC, or at any L

other time upon either the Pa?UC's own I

L initiative or upon the complaint of any interested party. The PaPUC has effective r

L control of the rates and service offered by 7 Duquesne and Penn Power. [66 P.S. SS 1148, L

1149, 1182, 1183)

I L. -

(i) By law, all contracts between public

< . utilities and municipalities, except contracts for the provision of service at the regularly

, filed and published tariff rates, must be filed with the PaPUC and are subject to specific i

q i -

~

-162- i 7

8 and individual review by the PaPUC. [66 P.S. '"

S1351] Such contracts are unenforceable if they are not so filed. [ Carnegie Natural Gas ,

v. Allegheny County, 406 Pa. 134 (1962)]

(j) l By law, all acquisitions of a municipal 'j electric system by an electric public utility '

must be approved by the PaPUC. The PaPUC may not approve such an acquisition unless it

]

finds or determines that the acquisition is _

"necessary or proper for the service, accom- -

modation, convenience, or safety of the public" ^

~

and it may impose such conditions on such approval as it deems to be "just and reasonable."

(66 P.S. SS1122, 1123]

31.03

.I The following provisions of Pennsylvania law are also relevant to this proceeding: .

(a) A borough operating a municipal electric system has absolute monopoly power to control ~

prices and exclude competition with respect to

. electric service within its municipal boundaries.

[53 P.S. S47471] Its rates and service within ,)

its boundaries are totally unregulated by the >

-l PaPUC. [66 P.S. SS 1141, 1171] "

(b) A municipal corporation must obtain a I J

certificate of public convenience from the

)

9 -163-PaPUC before it may furnish electric service outside its corporate limits. [66 P.S.

i 51122(g)] Its rates and service outside its corporate limits are regulated by the PaPUC.

[66 P.S. SS 1141, 1171]

[ (c) A municipal corporation whose residents 4

r are already served by an electric public

utility may not acquire by condemnation the facilities of such utility, and supplant the L service provided by such utility within the municipal limits with its own, unless it can be shown that such utility has been indifferent

to, or neglectful of, its public obligations or that its service has been indadequate, j '- unreasonable or fundamentally defective.

[' [ Metropolitan Edison Company v. P.S.C., 127 L

Pa. Super. 11, 191 A. 678 (1937); 66 P.S.

F

L Sil22(c)]

,,, (d) A borough must obtain voter approval before it may increase its borough indebted-

,P L ness for the purpose of " construct [ing) an o

electric light plant" or "purchas[ing] the j

property of any person, co-partnership, or electric-light plant." [53 P.S. S47471]

h@

4

-164-i 31.04 Applicants Ohio Edison, TECO and CEI are subject to .,

the following regulation and control of their activities by - '

I the P.U.C.O. under Ohio law:

(a) Each of them is required by Ohio law to file with the P.U.C.O. a tariff listing all rates and service provisions. [R.C. S4905.30]

l They may not exact a rate or render a service I different from that specified in the tariff. '

I

[R.C. 54905.32] The P.U.C.O. is required to

~

fix the just and reasonab1e rate if it finds that a filed rate violates the statutory -

i standard. [R.C. S4904.15] Thereafter, the -

utility may not change or modify the rate or

]

service except on further order of the P.U.C.O.

[Id.] f (b) Each municipality in which these utilities provide service has the right and power to fix by ordinance the rate at which the utility providos service to the municipality and its .

inhabitants. [R.C. S4904.23] If there is no -

agreement by the utility to the rate specified I

in the ordinance, or if no ordinance is passed -

upon cancellation of a previous ordinance, the ,

I aopropriate rate is determined Li the P.U.C.O.

t

( :1. C . 554909.34 .39] j I

J

r -165-(c) Each utility is required to furnish i

necessary and adequate service and facilities and may not demand any unjust or unreasonable charge for the service provided. [R.C.

r S4905.22] They may not discriminate in the rates charged and services provided. [R.C.

{ S4905.15]

(d) A utility may not change a rate, except to decrease it, until the P.U.C.O. determines c that it is just and reasonable.

I [R.C.

S4907.17] Except for proposed rate decreases, 4

the P.U.C.O. must make an investigation, issue i

a report, and hold hearings with respect to

. L. applications for changes in rates and services.

[R.C. S4909.18 .19]

L 31.05 In addition, the following provisions of Ohio law L

are relevant to this proceeding:

[^ (a) An Ohio municipality may sell only "sur-

~

t plus" energy outside its municipal corporate l boundaries. The amount of such energy it sells may be no more than 50% of the Kilowatt hours it has sold within its corporate limits.

L-

[ Ohio Constitution, Article XVIII, Section 6]

A municipal electric system which takes its

_. full requirements from another utility as a w

ho .

LA--

-166-wholesale municipal customer is prohibited by ,

this constitutional provision from operating -

l beyond its corporate limits. [ Guy 3056 (1.-

_ g 25), 3057 (1-4); White 9525-26, 9681 83]

(b) Ohio municipalities have absolute power to preclude a utility from placing any faci-7 lity used for distribution or transmission of .

electricity within the corporate limits. [R.C. l S4922.16; See also R.C. SS 4933.03, 4933.13]

l' l

(c) Ohio law requires a customer which is j taking power from one utility to disconnect _

.1 from that utility for 90 days before it may 3 take service from another utility. This pro-

]

vision applies where the utilities involved are investor-owned utilities or rural electric cooperatives. It applies to retail and whole-sale customers. [R.C. 4905.261; Wein 6898 -

(7-12, 18-21); Shoppine Centers Association v.

P.U.C.O., 3 Ohio St. 2d 1, 208 N.E. 2d 923 (1965); see also Mohawk Utilities, Inc. v. j P.U.C.O., 37 Ohio St. 2d 47, 307 N.E.2d 261 ,

(1974)] '

(d) An Ohio murc;Tpaiity can condemn all of 1; I,

the facilitass M n inventor-owned utility l used to sersc muncipal 'nhabitants: it does l'

j l

not need P.U.C.O. approval to accomplish such 1

,i 1l

-167-condemnation. [ Ohio Constitution, Article XVIII, Section 4; R.C. 5743.34] In addition, c- ..

an Ohio municipality can annex outlying areas and replace an investor-owned utility providing service in that area by use of its condemnation powers. [R.C. SS 709.01 et seq.]

31.06 In addition, the following federal regulatory and

. r" statutory requirements and provisions are relevant to this i

proceeding:

r-l i

< (a) Issuance of securities by a utility may, in certain circumstances, be permitted only 4-after the FPC has found that the object of the r

issue is compatible with the public interest.

L

[16 U.S.C. SS24c(a)] Anticompetitive effects must be considered in making this determina-r_ tion. [See,e.g., Municipal Electric Associa-L tion of Massachusetts v. S.E.C., 413 F.2d l

{~

1052 (D.C. Cir. 1969)]

(b) Certain acquisitions by Ohio Edison must r

be approved by the S.E.C. [15 U.S.2. SS 79 i,

- 79 j]

(c) The Rural Electrification Act effectively prohibits REA funded cooperatives from initiating service to communities with a population greater than 1500 people or to areas served by another supplier. [7 U.S.C. SS 904, 913]

h

-168- )

)

b. Market Definition --

' ' i<

31.07 In order to sustain the charge that Applicants .

have committed tha offensa of monopolization, it must be . .

established that they have monopolized one or more " relevant market [s]." (United States v. Grinnell Corp., 388 U.S.

563, .570-71 (1966)]. For antitrust purposes, relevant markets are defined in terms of the products sold within a market and the geographic area in which such products are !

J exchanged. Both the specification of the product and the area _

(

must reflect the " commercial rea'.ities" and " pattern of J trade" in the industry. (United States v. E.I. duPont 7

'f deNemours & Co., 351 U.S. 377 (1956); Brown Shoe Co. v.

i United States, 370 U.S. 294, 336-37 (1962); United States v. l; United Shoe Machinery. Corp., 110 F. Supp. 295 (D. Mass.

1953)]

31.08 Products are part of the same relevn.nt market if

.they are " reasonably interchangeable." [ United States v.

3 E.I. duPont deNemours & Co., 351 U.S. 377 (1956)]. Inter-changeability is measured in terms of options readily avail- 1 J

able to most customers in the market place gnd in terms of 1.

purchaser reaction to those options, i.e., the willingness ,j or readiness to substitute one option for another. [ United .

I

' J States v. E.I. duPont deNemours & Co., 351 U.S. 377 (1956);

Acme Precision Products, Inc. v. American Alloys Corp., 484 F.2d 1237 (8th Cir. 1973); United States v. Chas. Pfizer

& Co., 246 F. Supp. 464 (E.D.N.Y. 1965)]. Interchangeable j products are included in the same market even when they a

t . - 4-- ~. ,

-169-r vary substantially in price or physical characteristics or even when one. product is unsuitable for some uses within the market. [Id.] In this proceeding the product markets considered are the market for retail power and the market i for b_ k wholesale power. The market for wholesale power r is composed of two submarkets: (1) short-term support i

i power, and (2) long-term dependable capacity.

r L

31.09 Determination of the geographic extent of the market must be based on a " careful selection of the market area in which the seller operates and to which the purchaser r

t can practicably turn for supplies." [ United States v.

Philadelphia National Bank, 374 U.S. 321 (1963); and see l

Tampa Electric Co. v. Nashville Coal Co. , 365 U.S. 320

[ (1961); Standard Oil Co. v. United States, 337 U.S. 293 t.

(1949)] In drawing geographic boundaries cognizance must r'

.[ be taken of the economic and legal characteristics of the industry. Definition of the geographic market must take into account federal and state regulatory restraints on entry

[L into the line of commerce which, in a given area, allow or foreclose choice of electric suppliers. [ Brown Shoe Co. v.

(L U.S., 370 U.S. 294, 336 (1962); U.S. v. United Shoe Machinery r -- Corp., 110 F. Supp. 295 (D. Mass. 1953); United States v.

Marine Bancorporation, 418 U.S. 602 (1974); United States v.

~[

. Connecticut National Bank, 418 U.S. 656 (1974)]

h

-170-

.. I 31.10 Activities under the applied-for-licenses cannot -

create or maintain a situation inconsistent with the anti-trust laws at,the retail level. There is no nexus between ."

u the nuclear facilities and any retail market. Therefore, the retail market is irrelevant to this proceeding. [See Brief at 217-18] .

q l

31.11 If retail markets are viewed as relevant to this Th

. proceeding, the economic realities of the electric utility >

I industry and the limitations on competition imposed by law ~

a require the recognition of separate "open" and " closed" relevant geographic areas for the sale of retail power.

[ Conclusions of Law 31.07-31.09] In the " closed" areas, there is no existing or potential competition because legal -

i and economic barriers deny retail power purchasers a choice i j

of electric suppliers. [ Conclusion of Law 31.09] "Open" areas n

are those in which retail purchases have a choice of elec-tric suppliers. []:j1. ] Only the "open" areas may be in-corporated in the specificaticn of a gecgraphic market in an antitrust prcceeding. [Id.]

'(

31.12 There are no "open" retail markets in Pennsylvania. ~

[ Conclusions of Law 31.02, 31.03, 37.01-37.03; Findings of ,

~

Fact 31.03, 31.04, 37.20-37.30] There can be no competition at retail among electric suppliers in Pennsylvania. [I_d_.]

i l Thus, there is no retail market in Pennsylvania relevant to a I

this proceeding in which monopoly power can be assessed.

l

[;tj i. ; Conclusions of Law 31.07-31.11]

_ _ ~

r

'l -171-31.10 Activities under the applied-for-licenses cannot Tr create or maintain a situation inconsistent with the anti-trust laws at the retail level. There is no nexus between

, the nuclear facilities and any retail market. Therefore, the retail market is irrelevant to this proceeding.

[See i.

Brief at 217-18]

31.11 If retail markets are viewed as relevant to this

.r proceeding, the economic realities of the electric utility i~

r industry and the limitations on competition imposed by law l

t require the recognition of separate "open" and " closed" i

relevant geographic areas for the sale of retail power.

[ Conclusions of Law 31.07-31.09] In the " closed" areas, r

i there is no existing or potential competition because legal and ecenomic barriers deny retail power purchasers a choice of electric suppliers.

_ [ Conclusion of Law 31.09] "Open" areas are those in which retail purchases have a choice of elec-tric suppliars. [I d . ] Only the "open" areas may be in-

~

corporated in the specification of a geographic market in an antitrust proceeding. [id.]

'I 31.12 .There are no "open" retail markets in Pennsylvania.

I L

e

[ Conclusions of Law 31.02, 31.03, 37.01-37.03; Findings of

, Fact 31.03, 31.04, 37.20-37.30] There can be no competition et retail among electric suppliers in Pennsylvania. ((d.]

t Thus, there is no retail market in Pennsylvania relevant to this proceeding in which monopoly power can be assessed.

(pd.; Conclusions'of Law 31.07-31.11] .

Guieur s -soww e a

-172-

~

31.13 The only "open" areas at the retail level which , j are even theoretically possible under Ohio law are (i) each __

of those municipalities within the corporate limits of which both a municipal electric system and an investor-owned "

utility serve, (ii) with respect to new customers only, each of the various fringe areas immediately surrounding adjacent investor-owned utilities and rural electric coop- ,

eratives, and (iii) the fringe areas surrounding those municipal electric systems which can and do serve outside municipal boundaries. (Conclusions of Law 31.04 & 31.05] -

31.14 Within the theoretically-possible "open" areas there is '

meaningful retail competition only in Cleveland. In other "open" l areas economic and legal barriers so restrict competition as to make it unrealistic to speak in terms of market power. (See -

Findir.gs of Fact 31.05-31.08; Conclusions of Law 31.07-31.09]

31.15 Any allegation that Applicants have monopolized ,

the bulk power or wholesale market must fail because that market cannot be properly determined from the evidence in the Record. [ Finding of Fact 31.11; See Walker Process

]

Ecuipment, Inc., v. Food Machinerv & Chemical Coro., 382 ..

i U.S. 172, 177 (1965); See also Marine Products v. I.C.I.

American, Inc., 379 F.Supp. 261 (M.D. Ill. 1974)]. '

I J

m I

1

... . -1

-173-

- 31.16 " Captive" wholesale sales may not be included within the specification of the wholesale product market.

~'

Such sales must be excluded from the definition of the appro-

. priate product market. [ United States v. Blue Bell, Inc. 395 F. Supp. 538 (M.D. Tenn. 1975); British Oxygen _Co., 3 CCH

- Trade Reg. Rep. 120,910 (1975); United States v. Associated Press, 52 F. Supp. 362, 374 (S.D.N.Y. 1974), aff'd in part and rev'd in part on other grounds, 326 U.S. 1 (1945);

L United States v. International Telephonc & Telegraph Corp.,

,_ 324 F. Supp. 19, 27 (D. Conn. 1970); Elco Corp. v. Microdot,

- Inc., 360 F. Supp. 741, 748 n.3 (D. Del. 1973)]

._ c. Absence of Monopoly Power

~

31.17 Applicants' " dominance" of generation and trans-mission within the CCCT (or within an individual Applicant's service area) and any Applicant's share of retail sales within its service area as a whole may not be used to support a find'ig that any such Applicant [s] possess [es] monopoly power in the retail market. Such figures fail to measure a "dcminance" or market shares in the "open" retail areas. Thus, p they are irrelevant to this proceeding. [ Conclusions of Law r

] 31.07, 31.09, 31.11; Findings of Fact 31.04, 31.07]

31.18 Any computation of Applicants' share of the whole-I', sale market which includes as an element of Applicants' share their captive wholesale sales may not be used to support a

,_ finding that Applicants possess monopoly power in the whole-p sale market. Such figures fail to define the market, and 4

+ -

, n . h

-,I

-174-fail to measure market shares, appropriately. [ Conclusions

~

of Law 31.07-31.09, 31.16]

31.19 At the very least, such statistical evidence as is in the Record precludes a finding that Ohio Edison or -

Toledo Edison (the only two companies for which even remotely appropriate statistics are in the record) possess 5 i

monopoly power. [ Findings of Fact 31.12; Conclusions of -

1 Law 31.07-31.09, 31.16; United Str.res v. Aluminum Company --

of America, 148 F.2d 416 at 424 (2nd Cir. 1945)]

31.20 In. order to demonstrate that a firm has monopo-lized a relevant market, it is necessary to show that the firm. possesses monopoly power. [ United States v. Grinnell _j i

Corp., 384 U.S. 563, 570-71 (1966)] Moncpoly power is defined as the power to control pricec or exclude compe- -

tition. [ United States v. Grinnell Corp., 384 U.S. 563, l J

571 (1966)] Monopoly power may be inferred frem a statis-tically high market share only in industries where prices _

and entry are controlled exclusively and meaningfully by competition. [3rief 69-84; Times-Picayune Publishing Co.

v. United States, 345 U.S. 594, 612 (1953); United States

~..

v. United Shoe Machinery Corp., 110 F. Supp. 295, 343 -

i l (D. Mass. 1953), aff'd per curiam, 347 U.S. 521 (1954)] _

Statistical predominance may not be relied on as an indica- .

L t

' tion of monopoly power when, as in the electric utility ~

r I -175-i industry, economic and legal barriers restrict the power to control prices or exclude competition. [Brief 69-84; United States v. General Dynamics Corp., 415 U.S. 486 (1974); Nankin Hospital v. Michigan Hospital Service, 361 F. Supp. 1199, 1209-10 (E.D. Mich. 1973); Travelers Insur-ance Co. v. Blue Cross, 361 F. Supp. 774, 780 ('W.D. Pa.

r 1972), aff'd, 481 F.2d 80 (3rd Cir. 1973), cert. den, 414 L U.S. 1093 (1973)]

31.21 Since, in Pennsylvania, there are no "open" areas which can constitute a market or in which competi-tion can take place [ Conclusion of Law 31.12, Finding of Fact 31.03, 31.04], and since, in Ohio, there is, as a r

practical matter, no economically meaningful competition t' in the "open" areas theoretically possible under Ohio law (with the exception of the City of Cleveland) [ Conclusion of Law 31.13; Findings of Fact 31.05-31.08], no Applicant I has any exercisable monopoly power which can be used to L

monopolize the retail market within Pennsyliania or F

L within Ohio (not including the City of Cleveland). Nor p is there any probability that any Applicant will, or L

would have had, any such exercisable monopoly power.

-r

[

m .

[ Conclusions of Law 31.20]

I, 31.22 In the City of Cleveland, and even on the assuup-tion that competition does take place in the other Ohio t-

[ "open" areas, Applicants lack the power to control prices

1

-176- .l-i or exclude competition because of the regulation to which they are subject. They do not now have monopoly power -

and'there is no reasonable probability that they will _

acquire monopoly power in the future. (Brief; Utilitv -

~

Users League v. FPC, 394 F.2d 16, 19-20 (7th Cir. 1968),

~

cert. den. 393 U.S. 953 (1973); Conclusions of Law 31.01-31.06; S-204; A-271; Findings of Fact 31.04, 31.07, 31.08, ..

31.09] -

31.23 Applicants have never possessed monopoly power, and there is no probability that they will obtain monopoly -

power in the future, in those portions of the wholesale '

market in which it is possible for non-Applicant CCCT entities to participate because Applicants' rates, conduct

.~

and service in this market are fully regulated by the FPC.

[ Conclusions of Law 31.01, 31.20; Findings of Fact 31.11- -

31.14]

I J

f h

a a

f '*

T i

i

-177-32.00 APPLICANTS' CONDUCT PROVIDES NO BASIS FOR FINDING ANY " INCONSISTENT SITUATION" UNDER SECTION 1 OR SECTION 2 OF THE SHERMAN ACT.

32.01 Applicants have not contracted, combined or con-spired among themselves or with others to unreasonably restrain trade in violation of, or inconsistent with, Section 1 of the Serman Act. [See Findings of Fact 33.01-33.54; T' Conclusions of Law 33.01-33.06]

32.02 In the absence of any showing that Applicants are, or have been, participants in a combination or conspiracy in restraint of trade, there is no legal basis to impute the conduct of one Applicant to the other Applicants. [See e.c.,

Standard Oil Co. v. Moore, 251 F.2d 188, 218-19 (9th Cir.

1957); South-East Coal Co. v. Consolidation Coal Co., 434 7-

, F.2d 767, 788 (6th Cir. 1970)]

32.03 The individual conduct of each Applicant is not inconsistent with the antitrust laws. [See Findings of Fact

!_ 34.01-34.46; Conclusions of Law 34.01-34.11; Findings of Fact r 35.01-35.53; Conclusions of Law 35.01-35.25; Findings of Fact 36.01-36.181; Conclusions of Law 36.01-36.15; Findings of f.

L Fact 37.01-37.52; Conclusions of Law 37.01-37.23]

7. p .#

s w

J

I

~

-178-33.00 THE CAPCO POOL. -

33.01 The coming togethar of Applicants to form the -

CAPCO pool was lawful and does not evidence an unlawful -

contract, combination or conspiracy in restraint of trade.

Such action is neither in violation of, nor inconsistent with, Section 1 of the Sherman Act. [See e.g., Rooffire ,

Alarm Co. v. Royal Indemnity Co., 202 F. Supp. 166, 169 (E.D. Tenn. 1969), aff'd, 313 F.2d 635 (6th Cir.), cert. ~

denied, 373 U.S. 949 (1963); United States v. Pan American World Airways, 19.' F. Supp. 18, 33 (S.D.N.Y. 1961); United States v. Morgan, 118 F. Supp. 621, 689 (S.D.N.Y. 1953)]

33.02 CAPCO was not formed for the purpose or with the intent of excluding competition. Such action by Applicants _

does not constitute, either individually or collectively, monopolization, an attempt to monopolize, or a conspiracy to ~

monopolize any relevant market. !

i 33.03 The CAPCO requirement of unanimous executive ll t

J' approval for all major actions does not unlawfully restrain trade. Assuming arguendo that it did restrain trade, the unanimity rule is reasonable and is not a violation of, or inconsistent with, Section 1 of the Sherman Act. [ Compare -"

l ~

Associated Press v. United States, 326 U.S. 1 (1945)]

I l 33.04 The formula used by C.'.PCO to allocate capacity E responsibility is reasonable and does not restrain trade in ~

i J

-179-violation of, or inconsistent with, Section 1 of the Sherman Act. [See Gainesville Utilities Dept. v. Florida Power Corp.,

[' 402 U.S. 515 (1971)] The formula was not adopted for the L.

purpose or with the intent of excluding competition. What-ev,er changes .tave been made in the formula were reasonable and were not made for the purpose or with the intent of excluding competition.

33.05 Applicants' responses to Pitcairn's request to E discuss.the advantages and disadvantages of pool membership

!L v

r-was not a boycott, either individually or collectively, in violation of, or inconsistent with, Section 1 of the Sherman

- Act. [See Fashion Originator's Guild of America v. FTC, 312 U.S. 457 (1941); Klor's,Inc. v. Broadway Hale Stores, Inc.,

F 359 U.S. 207 (1959)] The similar conclusions each Applicant a

reached as to the desirability of Pitcairn's membership does F

g not indicate that Appicants unlawfully combined or conspired.

(See Independent Iron Works v. United States Steel Corp., 177 F. Supp. 743, 747 (N.D. Cal. 1959)] Duquesne's conclusion

{

that pool membership by Pitcairn would be impracticable was r reasonable and not inconsistent with the antitrust laws.

L [See DeFilippo,v. Ford Motor Co., 516 F.2d 1313, 1318 (3d Cir. 1975); Jo_.tph E. Seagram & Sons. Inc. v. Hawaiian Oke

[ & Licuors, Ltd., 416 F.2d 71, 76 (9th Cir. 1969), cert. denied, 396 U.S. 1067 (1970)] Such a conclusion does not indicate that Duquesne acted for the purpose or rith the intent of L

7 I

-180- - 7 l

excluding competition. [See Silver v. New York Stock Exchange, I

. I 373 U.S. 341, 350 (1963); Deesen v. Professional Golfers' _

Association, 358 F.2d 165, 170-71 (9th Cir.), cert. denied, 385 U.S. 846 (1966)] Likewise, any sinilar conclusion reached by the other Applicants was not inconsistent with the antitrust laws. No action taken with respect to Pitcairn restrained trade, excluded competition, or had the effect of denying to Pitcairn _

the benefits of coordinated development and operations.

33.06 The Applicants did not unlawfully boycott, either individually or collectively, the City of Cleveland. [See _

Fashion Originator's Guild of America v. FTC, supra; Klor's, .,

j Inc. v. Broadway-Hale Stores, Inc., supra] In responding to Cleveland's request for pool membership Applicants did not combine or conspire to restrain trade or to exclude competi-r tion. [See Independent Iron Works v. United States Steel Corp., _

l supra] CEI's belief that Cleveland would not be able to ful-l l

i fill its responsibilities in CAPCO, that Cleveland's participa-l tion in CAPCO would be disadvantageous to both CAPCO and

]-

Cleveland, and that the best way for Cleveland to obtain the l benefits of coordinated development and operations was through 2 a bilateral arrangement with CEI, were reasonable and not in-l consistent with'the. antitrust laws. [See e.g., Modern Home Institute, Inc. v. Hartford Accident & Indemnity Co.,

l 513 F.2d 102, 111 (2d Cir. 1975)] CEI's conduct in response to Clev' eland's request for membership indicates that CEI did _

not act for the purpose or with the intent of excluding

-181-competition. {See Silver v. New York Stock Exchange, g ora)

Similarly, any action taken by the other Applicants was not inconsistent with the antitrust laws. Cleveland has not

~ .

been denied the benefits of coordinated development and y

operations.

I I,

r yan-b t*

.I ib i

i i

. l O

w I

-182- )

. 34.00 CLEVELAND ELECTRIC ILLUMINATING -

34.01 CEI's transmission system is not an essential -

[ resource. [ Findings of Fact 36.27; United States v. Terminal' -

Railroad Association, 224 U.S. 386 (1912); American Federa-tion of Tobacco Growers v. Neal, 183 F.2d 869, 871 (4th Cir.

1950); Gamco, Inc. v. Providence Fruit & Produce Building, _

194 F.2d 484 (1st Cir. 1952)]

34.02 Cleveland, DOJ, and the NRC staff are _

collaterally estopped from relitigating before this agency

~

those matters,'such as the operation of interconnections between CEI and' Cleveland, already litigated by Cleveland before the Federal Power Commission. [ Cromwell v. County of Sac, 94 U.S. 351 (1876); Restatement of Judgments $68 (1942)] _

34.03 The Bridges Memorandum does not support a finding of anticompetitive practices or antitrust violations.

.} -

[ Conclusion of Law 34.02; A-20, p. 15] J 34.04 CEI's interest in serving customers served by Cleveland or any interest by it in acquiring the Cleveland system is not evidence of an anticcmpetitive intent. [ Lamb Enterprises, Inc. v. Toledo Blade Co., 461 F.2d 506 (6th i Cir. 1972)] ..

J 34.05 CEI's interconnection agreements with Paines-ville and Cleveland are not inconsistent with the antitrust. laws. _

l n.

-183-34.06 CEI has no exercisable monopoly power.

_ , 34.07 CEI's memoranda studies, surveys, trend analyses, etc. ascertaining whether corporate goals were

' ~ ~

being reached are indicia of lawful, active competition and not of predatory conduct or monopolistic intent. [ Telex Corp.

4

v. International Business Machines, Corp., 510 F.2d 894 (10th Cir. 1975); Cf. Scott Publishing Co. v. Columbia Basin b

Publishing, Inc., 293 F.2d 15 (9th Cir. 1961)]

r

. 34.08 CEI's negotiations, actions and other conduct

[- with respect to load transfer service and/or an interconnection with Cleveland MELP or Painesville, whether veiwed singly or in combination, are not situations inconsistent with the

_ antitrust laws.

34.09 CEI's ;1fers to wheel power to Cleveland or r

. Painesville, and any conditions thereon, whether viewed singly r- or jointly, are not situtations inconsistent with tS'e anti-trust lates.

F 34.10 CEI's refusal to wheel PASNY power is not a

~

situation inconsistent with the antitrust laws.

r- 34.11 'Any actions, conduct, intent, or agreements

~ ~ ~

of CEI evidenced in the Record are not situations inconsis-tent with the antitrust laws. Such actions, conduct, intent or' agreement, etc. will not be created or maintained by the activities under the licenses applied for in this proceeding.

y -

l L

-184- j-35.00 TOLEDO EDISON

a. Acquisitions ~

35.01: Since Toledo Edison achieved its present posture m through natural growth and not pursuant to a predatory intent, its acquisitions have no anticompetitive signifi-cance.

35.02 Since Toledo Edison's acquisition policies did not have any adverse effect on competition, they are not _

in violation of, or inconsistent with, Section 2 of the -

Sherman Act. The municipal systems purchased by Toledo -

Edison were not viable competitors since they were severely rundown and unable to provide adequate service to their customers; accordingly, the acquisitions of cnese systems by Toledo Edison did not have any effect upon past or -

potential competition. [ Brown Shoe Co. v. United States, -

l 370 U.S. 294 (1962); Crown Zellerbach Corp. v F.T.C. 296 F.2d 800 (9th Cir 1961); United States v. Jerrold Elec-

]

l

! tronics Corp.,-187 F. Supp. 545 (E.D. Pa 1960), affirmed _

i per curiam, 365 U.S. 567 (1961) ; Commonwealth Edison Co.

36 F.P.C. 927 (1966)] ~

35.03 Toledo Edison does not possess monopoly power -

.nor is there any reasonable probability that Toledo m

Edison will acquire monopoly power in the future. [C/L 31.17-31.23]

a

-185-

b. Napoleon 35.04 Toledo Edison's insistence on a 90-day disconnect

~'

by Napoleon was provided for by state law and consequently was not an anticompetitive act.

e 35.05 Toledo Edison's insistence on a 90-day disconnect

by Napoleon prior to taking Buckeye Power from Tricounty' is irrefevant and a moot issue for purposes of this pro-L ceeding because Napoleon made a business decision to con-

[ tinue to take power from Toledo Edison.

L 35.06 The 90-day disconnect provision in the Buckeye contract .:Us consonant with state law, is based upon legi-timate business practicalities and does not have any anti-competitive purpose or effect.

t

c. Buckeye Agreement r

.L 35.07 Since the 90-day disconnect provision found in r

.L t

the Buckeye Agreement was previously cleared by the Depart-ment of Justice it cannot now be challenged as anticompeti-tive.

f L 35.08 Section 4905.261 of the Ohio Revised Code applies to both retail and wholesale consumers of electrical energy.

~ ~

[ Shopping Centers Association v P.U.C.O., 3 Ohio St. 2d 1, 208 N.E. 2d 923 (1965) ; Mohawk Utilities , Inc. v P.U.C.O.,

37 Ohio St 2d 47, 307 N.E. 2d 261 (1974)] Since the 90-day a

-- -r -rzy

l "1

't li

\

-186-

~1 i

disconnect provision is provided for by the laws of the . I State of Ohio, consonant with the legislative policies of -

Ohio, action taken in furtherance of such law cannot be subject to antitrust review.

35.09 Neither the Buckeye Agreement nor Toledo Edison's activities pursuant to the Buckeye Agreement constitute a situation inconsistent with the antitrust laws. j

d. Bowling Green t.

35.10 Toledo Edison's use of the 69kv line located in Bowling Green, Ohio, is according to an understanding with the City of Bowling Green and such usage is not an anti- .

competitive act.

35.11 Refusal by an electric utility to agree to an un-specific wheeling request which does not set forth the -

specifics of origin and destination or specify the compen- l

, sation, and which would in effect require such utility to l

agree to become a common carrier, is not a situation incon-sistent with the antitrust laws. (Compare Otter Tail Power 3

Co. v United States, 410 U.S. 366 (1973); F/F 35.27-35.32]

e. Municipal Contracts l

1 35.12 The territorial provisions contained in Paragraph _j 8 of certain of Toledo Edison's wholesale municipal con-I tracts do not constitute a per se violation of the Sherman 2 l

J

-187-i Act because these provisions were merely in furtherance of state law and were less restrictive than the state consti-

~'

tution. [ United States v Pan American World Airways, 193 1

F. Supp. 18 (S.D.N.Y. 1961), reversed on other grounds, 371 U.S. 263 (1963); United States v National Football

r. League, 116 F. Supp. 319 (E .D . Pa. 1953); In re Coca Cola, 3 Trade Reg. Rep. 1 21,010 (F.T.C., October 8, 1975);

I Parker v Brown, 317 U.S. 341 (1943); United States v 1

Citizens and Southern National Bank, 422 U.S. 86 (1975)] l F '

35.13 The territorial provisions contained in Paragraph l l

8 of certain of Toledo Edison's wholesale municipal con- l

. tracts had no anticompetitive effect because ttey were not enforced and there was no opportunity for competition.

'E [See F/F 35.33-35.36] :

i p- 35.14 Since the territorial provisions have been elim- i L

inated from all Toledo Edison contracts (except one which is due to expire in late 1976), their prior usage cannot

_ represent a situation that will be either created or main-4 6 tained by operation under the' licenses sought in this pro-

-p ceeding.

L 7 f. Territorial Agreements

.iu. l 35.15- The evidence of record fails to support the alle-i gation that Toledo Edison ever entered into any exclusive territorial agreements or understanding with the Consumers

'u ,

l 1

m a

74

-188-Power Company of Michigan.

35.16 The Department of Justice is collaterally stopped from raising the question of an alleged territorial agree-ment between Toledo Edison and Consumers Power Company since ;

this question was fully litigated and decided in a prior li proceeding. [ Consumers Power Co., supra, NRCI-75/7 at 89, r-106; Baldwin v Iowa Traveling Men's Association, 283 U.S.

~

522 (1931); See Alabama Power Company (Joseph M. Farley Nuclear Plant, Units 1 and 2) 7 A.E.C. 210 (1974)] _

u 35.17 The evidence of record fails to support the alle-gation that Toledo Edison ever entered into any exclusive M4 territorial agreements or understandings with Ohio Edison l

Company. U 35.18 The evidence of record fails to support the alle- ..

gaticn that Toledo Edison ever entered into any exclusive

-l territorial agreements or understandings with Ohio Power l

! Company.

35.19 The alleged exclusive territorial, agreements I J

between Toledo Edison and Consumers Power, Ohio Edison and . .

Ohio Power, even if proved to have once existed, do not o presently constitute a situation inconsistent with the ;

antitrust laws nor do they bear any relationship to, nor can they be created or maintained by, the activities under i license in this proceeding. [ Consumers Power Company, I

]

t t

-189-supral

g. Price Squeeze r-35.20 There is no evidence to show that Toledo Edison r-has ever formulated or charged rates for the supply of electrical energy in any manner which was intended for or i.

which had the purpose of creating an anticompetitive

situation.

'i.

r h. General

_ 35.21 The Toledo Edison Company has not engaged in any joint action in a restraint of trade within the meaning of

~

Section 1 of the Sherman Act.

L

- 35.22 The Toledo Edison Company has not, either alone or

" )

in combination or conspiracy with others, obtained a ,

j I i L monopoly position in any market, nor has it misused, main-tained or attempted to maintain its position in any market

'I lL through any conduct inconsistent with Section 2 of the

.i Sherman Act.

'L l

't

- 35 23 The Toledo Edisor. Company's acknowledged dominance

t

'~

in generation and transmission within its general service area has not as a matter cf law resulted in the attainment

, of monopoly power, nor is there a " reasonable probability"

! L. that Toledo Edison will in the near future acquire monopoly

, power.

'\

'l

-l

')

-190- ':

l

. I 35.24 The Toledo Edison Company's relations and dealings q

with the municipal electric systems located within its . j.

general service area do not evidence any desire or intent l

to exclude or otherwise eliminate any such entity as an 3 independent producer or distributor of electric energy.

35.25 Each of the allegations directed against the 7 Toledo Edison Company, whether considered alone or together, have not and will not create or maintain a situation incon-sistent with the antitrust laws and, moreover, there is no nexus between any activities under these nuclear licenses -

and said allegations.

l

)

1 1

_J A

I s

t

.J

-191-36.00 OHIO EDISON AND PENN POWER 36.01 Ohio Edison and Penn Power acquired their domi-I~ ' nant share of the generation and transmission in their i

n. service areas as a result of natural growth and not pur-suant to any anti-competitive intent or practices.

g.

36.02 Ohio Edison and Penn Power have not engaged in 1

conduct constituting monopolization, an attempt to monopo-L lize, or a conspiracy to monopoli:e, nor are the companies E engaged in conduct permitting an inference that they have l_

ever intended to monopolize any of the markets in which

. they operate in violation of, or inconsistent with, ,

l Section 2 of the Sherman Act or Section 5 of the Federal Trade Commission Act.

.r L 36.03 Ohio Edison and Penn Power have not entered

[-

I into any contracts, combinations or conspiracies in re-

~

straint of trade in violation of, or inconsistent with, L Section 1 of the Sherman Act or Section 5 of the Federal Trade Commission Act.

1 36.04 The management of Ohio Edison and Penn Power l L have a legal responsibility to the public they serve and 1

i to the companies' stockholders to operate efficiently ;

l and not to waste the companies' assets.

t 9+

m

-w .- - + - ew-

--aa--etow s w,h--ha h-a m---~<-

l t

is b

7

-192-7 36.05 The management of Ohio Edison and Penn Power

7 have a legal obligation not to enter into any ac sement l

(a) be it for the purposes of developmental coordination, _

(b) operational coordination, (c) wheeling transactions, .

(d) retail or wholesale power contracts, or any other agree- 1 l

ments or understandings, which will not result in a net benefit to the companies. j 36.06 As a matter of law, Ohio Edison and Penn Power l are not common carriers of electricity and the management of the companies cannot allow the transmission system of the companies to be used for purposes of effectuating trans- '

actions which would not result in a net benefit to the companies. I a

36.07 Ohio Edison at.d Penn Power have not used their i I

a dominant share of transmission to hinder or preclude compe-1 tition in the transmission of bulk power. j 36.08 Ohio Edison and Penn Power have not used their dominant share of transmission to prevent other electric I

entities from achieving the benefits of coordinated opera- .1 tions either among themselves or with the companies. -

36.09 Ohio Edison and Penn Power have not used their ;

dominant share of transmission to prevent other electric i

entities from obtaining access to the benefits of economy ,

i

.1

-193-

_ of size from large nuclear generating facilities.

i 36.10 Ohio Edison and Penn Power have not used their dominant share of transmission to prevent other electric entities from obtaining any of the benefits of coordinated development either among themselves or with the companies.

I

! 36.11 Ohio Edison and Penn Power have not prevented

[ any other electric entity from achieving access to the L.

benefits of operational or developmental coordination.

e-36.12 The policies of Ohio Edison and Penn Power with u

regard to providing access to their shares of the Davis-

_ Besse Units 2 & 3 and Perry Units 1 & 2 has not and will

u not deprive any other electric entity from realizing the

- benefits of nuclear power.

=1 t_

p 36.13 Ohio Edison and Penn Power are not engaged in

'l any conduct for the purpose or having the effect of elimi-

I~

L nating competition in the markets in which they operate.

p 36.14 There is not now in existence a situation in-consistent with the antitrust laws in the market in which

j- Ohio Edison and Penn Power operate.

I 36.15

'L Assuming arguendo that there is presently in

. existence a situation inconsistent with the antitrust u laws, there is no logical connection between the pro-posed activities of Ohio Edison and Penn Power under the L

i

-194-q l

licenses sought and any such assumed situation inconsis- ,

tent with the antitrust laws in the markets in which A they operate that meetr the nexus requirement of Section 105 (c) (5) .

i J

l

.J a

J 4

1

_d I

I

-195-37.00 DUQUESNE LIGHT

a. Barriers to Competition under Pennsylvania Law.

~-

37.01 The following preclusions of competition are imposed under Pennuylvania law:

i (a) an electric public utility must obtain approval from the PaPUC before it may "begin to offer, enter, furnish or supply service within [ Pennsylvania)."

[66 P.S. 51121]. Pennsylvania law establishes L

specific exclusive service areas for electric t entities. [id.; 15 P.S. 3277 et seq]

(b) an electric public utility must obtain approval from the PaPUC before it may "begin to offer, render, furnish or supply . . . service of a m.

- different nature or to a different territory L . . . ." than that previously authorized. (emphasis F added) [66 P.S. Sil22 (a) ] .

'L (c) an electric public utility must obtain approval L[ from the PaPUC before it may " abandon or surrender, w.

in whole or in part, any service," except discon-l_ tinuance of service upon nonpayment of a bill

,- or upon request of a patron [66 F.S. S1122 (b)]. -

E (d) an electric public utility must obtain approval from the PaPUC before it may make, inter alia,

, any acquisition or transfer of tangible or intan-gible property involving a transfer of customers, 4

m

-196- r

{66 P.S. S1122 (c)] or before it may exercise l, any power of eminent domain. [66 P.S. SS 1123, ,

1124] -

(e) a Pennsylvania borough operating a municipal '

electric system has absolute monopoly power to e

control prices and exclude competition with res- -

pect to electric service within its municipal ,

boundaries. [53 P.S. 547471]. Its rates and service within its boundaries are totally unreg- F ulated by the PaPUC. [66 P.S. SS 1141, 1171].

(f) a municipal corporation must obtain a certificate ..

of public convenience from the PaPUC before it may furnish electric service outside its corporate limits. [66 P.S. S ll22 (g) ] . Its rates and ser- l) vice outside its corporate limits are regulated I

by the PaPUC. [66 P.S. SS 1141, 1171]. m t

(g) a municipal corporation whose residents are al- i i

ready served by an electric public utility may "

not acquire by condemnation the facilities of l

.)

such utility, and supplant the service provided by such utility within the municipal limits with

.its own, unless it can be shown that subh utility i has been indifferant to, or neglectful of,'its public obligations or that its service has been u

i inadequate, unreasonable or fundamentally defective.

j, l fMetropolitan Edison Company v. P.S.C., 127 Pa. _)

Super. 11, 191 A. 678 (1937); 66 P.S. S1122 (c) ] .

! l a

I Jl ,

d b*V-

-197-c-.

i u

_ (h) a borough must obtain voter approval before it may increase its borough indebtedness for the

~-

purpose of " construct [ing] an electric light plant" or "purchas[ing] the property of any per-i son, copartnership, or electric light plant."

[53 P.S. S47471].

(1) an electric public utility subject to PaPUC juris-

{

diction may not discriminate unreasonably within or among classes of customers as to rates and r

[ types of service. [66P.S. SS 1144, 1172].

- (j) an electric public utility, and a municipal electric utility serving outside its municipal limits, m

must file a tariff with the PaPUC setting forth its rates and services. The utility must provide r

L service in conformity with this tariff and may not deviate from it. The rates and services con-tained in the tariff are subject to the review I and approval of the PaPUC.

L [66 P.S. SS1142, 1143, 1145, 1149, 1176, 1182, 1183].

F L

37.02 Pennsylvania has established a policy and regula-p L tory framework which, as interpreted by its courts, has had the purpose and effect of eliminating and preventing

!}

~- -

competition among suppliers of electric service. The policy of Pennsylvania is to promote " regulated monopoly" and to prevent " unrestrained competition." Public utilities are

_. "to be protect from unfair and ruinous competition."

.m

_ ~ - -

t

-198-I-

Under Pennsylvania law, competition is " unnecessary and '

useless." Competition in the same territory by public l; I

electric utilties is " deleterious and not in the public interest." (Metropolitan Edison Co. v. P.S.C., 127 Pa. .

Super. 11 at 20, 191 A. 678(1937); Painter v. PaPUC, -

194 Pa. Super. 548, 551, 169 A.2d 113, 115 (1961). ~

See Conclusions of Law 31.02, 31.03, 37.01]

37.03 Pennsylvania has decided that competiti6n is not 1 1

the summum bonum in the electric utility industry and has deliberately provided an alternate form of regulation.

Consequently, there is no competition in Pennsylvania for --

i this Board to protect, nor can there be any injury to com-petition for this Board to rectify. (See conclusions of Law 31.02, 31.03, 37.01, 37.02].

I

b. Absence of Monopoly Power. ~'

37.04 In order to demonstrate that a firm has monopolized -

a relevant market, it is necessary to show that the firm ~

possesses monopoly power. [ United States v. Grinnell Corp.,

( 384 U.S. 563, 570-571 (1966)]. Monopoly power is defined l

as the power to control prices or exclude competition.

)

[ United States v. Grinnell Corp., 384 U.S. 563, 571 (1966)]. J Monopoly power may be inferred from a statistically high '

market share only in industries where prices and entry are

! controlled exclusively and meaningfully by competition. l j

(Times-Picayune Publishing Co. v. United States, I

?

I J

I

-199-345 U.S. 594, 612 (1953); United States v. United Shoe Machinery Corp., 110 F. Supp. 295, 343 (D. Mass. 1953),

aff'd ger curiam, 347 U.S. 521 (1954)]. Statistical predominance may not be relied on as an indication of monopc.ly power r

when economic or legal barriers restrict the power to control prices or exclude competition. United States

v. General Dynamics Corp., 415 U.S. 486 (1974); Nankin n Hospital v. Michigan Hospital Service, 361 F. Supp. 1199, 1209-10 (E.D. Mich. 19 73) ;

Travelers Insurance Co. v. Blt-]

r Cross, 361 F. Supp. 774, 780 (W.D. Pa. 1972), aff'd, 481 F.2d 80 (3d Cir. 1973), cert. den, 414 U.S. 1093 (1973)].

37.05 Duquesne has no monopoly power and cannot mono-

[ polize because, as a matter of. law and fact, there is no competition for it to exclude, and there can be none.

[ Findings of Fact 37.20-37.30; Conclusions of Law 37.01-

.c 37.04] It has not monopolized or attempted to monopolize l L

because its act' ions had no adverse effect on competition.

I

[Id.; Findings of Fact 37.47; Conclusion of Law 37.05, j

~

37.08]

v 37.06 Assuming there is competition in the relevant !

l q, markets of Pennsylvania (although Duquesne submits that there is none (Findings of Fact 37.20-37.30), and, as a matter of law, can be none (Conclusions of Law 37.01-37.03)),

Duquesne has lacked the power to control prices or exclude 6

9 M

-200-i' competition. Therefore it has had no monopoly power and there is no reasonable probability that it will acquire monopoly power in the future. [ Utility Users -

League v. FPC, 394 F.2d 16, 19-20 (7th Cir. 1968), cert.

den. 393 U.S. 953 (1973); Conclusions of Law 37.07, 37.08]. ~

Thus, any alleged refusal by Duquesne to sell wholesale a

power for general resale to municipal electric systems could j have no force or effect on competition and would not be

_l a violation of, or inconsistent with,the antitrust 16vs. J

[ Applicants' Prehearing Legal Brief (December 1, 1975), -

pp. 110-112; Conclusions of Law 37.0*/, 37.08] -.

r -

37.07 The following Pennsylvania laws deny Duquesne ~

the power to control prices and exclude competition:

(a) By law, Duquesne must serve all persons who re- l a

quest retail service within its service areas.

The rates and conditions of that service are subject to the regulatory jurisdiction of the ,

PaPUC and must be reasonable, uniform and non-discriminatory. [66 P.S. SS 1141, 1144, 1171, j 1172]. In particular, Duquesne may not establish or maintain "any unreasonable difference as to -

rates . .

. between classes of service." [66P.S. . ;

S11441 In addition, it may not establish or maintain "any unreasonable difference as to ser- 1 J

vice . . . as between classes of service," [66P.S.

S1172]. !

.J

I

-201-(b) By law, the reasonableness of Duquesne's rates l<

and of its conditions and types of service is r- subject to review whenever a proposed change is submitted to the PaPUC, or at any other time upon r either the PaPUC's own initiative or upon the complaint of any interested party. The PaPUC I has effective control of the rates and service offered by Duquesne. [66P.S. SS 1148 (b-c), 1149, 1182, 1183].

![ (c) By law, the PaPUC has the power to order Duquesne L.

to provide any electric service which it finds to be in the public interest upon a finding that Duquesne's exisiing service is unreasonable, m.

unsafe, inadequate, insufficient, or unreasonably discriminatory. [66P.S. S1183].

/L (d) By law, all contracts between public utilities and municipalities, except contracts for the' provision of service at the regularly filed and L published tariff rates, must be filed with the

[ ~ PaPUC and are subject to specific and individuel L.,

review by the PaPUC. [66P.S. 51351]. Such

.L contracts are unenforceable if they are not so filed. [ Carnegie Natural Gas Co. v Allegheny

.l County, 406 Pa 134 (1962)].

t n - , ,

, _ , -.n- e ,-ye- 4 - - .

-202- ,

1 (e) By law, all acquisitions of a municipal electric I system by an electric public utility must he '

. i approved by the PaPUC. The PaPUC may not approve

=

such an acquisition unless it finds or determines that the acquisition is "necessary or proper for - .

the service, accommodation, convenience, or safety M' I

of the public" and it may impose such conditions f

}

on such approval as it deems to be "just and rea-sonable." [66P.S. SS1122, 1123]. j, 37.08 Among the requirements of the Federal Power Act and Federal Power Commission regulations which deny Duquesne _

power to control prices or exclude competition are the following: ?

).

(a) By law, the rates, terms and conditions of Duquesne's I

interchange transactions and sales for resals j

are subject to the regulatory jurisdiction of

.l the Federal Power Commission and must be reason- -l able, uniform and nondiscriminatory. [16 U.S.C. 1 5824d].

(b) By law, the reasonableness of these rates, terms and conditions of service is subject to review 3

whenever a proposed change is submitted to the J FPC, or at any other time either upon the FPC's l

.1 own initiative or upon the complaint of any in-terested party, and the FPC may fix the rate, j

[16 U.S.C. SS 824d, 824c]

t

I

-203-(c) In its exercise of its regulatory power over rates

[' and service, the FPC must take account of anti-trust considerations. [ City of Huntingburg, Ind.

r.

, v. F.P.C., 498 F.2d 778 (D.C. Cir. 1974); F.P.C.

,,-- v. Conway Corp., 96 S. Ct. 1999 (1976); Pacific I

Gas & Electric Co., 51 F.P.C. 1030, (1974); Gulf

, States Utilities Co. v F.P.C., 411 U.S. 747 (1973)].

i (d) By law and FPC regulation, the Company's whole-sale tates are established at the lowest possible p levels consistent with maintaining the Company's financial integrity and the rates may not be set

{ at levels which will maximize profits. [Bluefield Waters Works and Improvements Co. v Public Service m Commission of W. Va., 262 U.S. 679 (1923); F.P.C.

-~

V. Hope Natural Gas Co., 320 U.S. 591, 605 (1944)].

(e) By law, the Federal Power Commission may compel I Duquesne to provide service for resale to another

,_ system where it is in the public interest and

- not unduly burdensome. [16 U.S.C. 5824a (b) ;

lp Gainesville Utilities Dept. v. Florida Power i L.

Corp., 402 U.S. 515 (1971)].

r-l{ (f) The Commission may order Duquesne to coordinate it.

operations with another electric supplier on reason-

'L- , able terms. [16 U.S.C. S824a(b); Gainesville Utilities Dept. v. Florida Power Corp., supra.].

u

'S.

-204- il 1

7 (g) By law, before Duquesne may acquire another public !l 1

utility system, the Federal Power Commission must '

i find the acquisition to be in the public interest and in doing so must take account of possible anticompetitive consequences of the acquisition. -

[16 U.S.C. S824b; Citizens fqr U Allegan County, Inc. v. F.F.C.,

(D.C. Cir.

114 F.2d l'.25 1969); Gulf States Utilities Co. v.

]

F.P.C., 411 U.S. 747 (1973)]. u

c. Absence of Predatory or Unfair Conduct or Mcnopolistic Intent. '

37.09 In order to sustain a charge of monopolization, it is necessary to show the willful acquisition or main-tenance of monopoly power as disinguished from its growth j or maintenance as a consequence of a superior product,

'{

business acumen or historic accident. [ United States v.

Grinnell Corp., 384 U.S. 563, 570-71 (1966)]. While verbal formulations have varied, the courts have consistently I 'I looked into predatory conduct or explicit monopolistic J l intent for proof of such willful acgetsition or maintenance of monopoly power. [ Otter Tail Power Co. v United States,

~

410 U.S. 366, 377 (1973); United States v Griffith, 334 )

J U.S. 781 (1946)].. This is particularly so with regard to

- 1 l

l industries, such as the electric utility industry in Penn- J

! sylvania, possessing natural monopoly.ci.aracteristics where -

l i

competition is foreclosed by legal or economic barriers.

J

[ Lamb Enterprises, Inc. v. Toledo Blade Co., 461 F.2d 506,

_ j j

f' -205-515 (6th Cir. 1972), cert. denied, 409 U.S. 1001; Union

~

Leader Corp. v. Newspapers of New England, Inc., 284 F.2d 582, 584 (1st Cir. 1960), cert. denied, 365 U.S. 833 (1961);

Amurican Football League v. National Football League, 323

7. = F2d. 124, 131 (4th Cir. 1963)] The alleged refusals by

)

Duquesne to sell wholesale power to municipal electric systems are not evidence of predatory conduct or monopolistic I

intent. [ Finding of Fact 37.48; Columbia Broadcasting System, Inc. v American Society of Composers, 400 F. Supp.

737, 783 (S . D . N. Y . 1975)]

F- !

1 1

37.10 The question of the provision of bulk or base-l load power for resale to municipal electric systems is regulated by state and federal agencies and raises issues

~

u of policy which are an essential element of the regulatory scheme established by federal and state governments and

, implemented by the PaPUC and FPC. Duquesne's actions in such matters can raise no antitrust violation or inconsis-

.r tency. {See Findings of Fact 37.48-37.50; Conclusions of L

Law 37.01-37.n8, 37.12, 37.14; Gordon v New York Stock

.c-

[ Exchange 422 U.S. 659 (1975); Cantor v. Detroit Edison, 96 c S. Ct. 3110 (1976); Parker v. Brown, 317 U..S. 341 (1943)]

s.

L 37.11 Neither predatory conduct not monopolistic intent

.L can be demonstrated by reference to conduct that is, or is believed to be, compelled, supervised, or approved by regulatory authority and involves an essential element of u

- m-

s

-206- ;

m the regulatory scheme. [ Parker v. Brown, 317 U.S. 341 (1943); Eastern Railroad Presidents Conference I

v. Noerr Motor Freights, Inc., 365 U.S. 127, 136 (1961); .

Cantor v. Detroit Edison, 95 S. Ct. 3110 (1976)]. These principles apply particularly to activities of electric -

utilities such as Duquesne which are, or are believed to "

be, regulated by state and federal agencies and which concern the utilities' electric utility business, such as the sale l

(or refusal to sell) of bulk or base-load power for resale, .I and no predatory conduct or monopolistic intent can be ~

demonstrated by reference thereto. [Id.; Gas Light Co.

~

a of Columbus v. Georgia Power Co., 440 F.2d 1135 (5tt. Cir. j 1971), cert. denied, 404 U.S. 1062 (1972); Cantor v. Detroit Edison, 96 S. Ct. 3110 (1976); Conclusion of Law 37.09; -

Findings cf Fact 37.48, 37.50].

}

.j 37.12 Before 1971 Duquesne's right to sell bulk or base-load power for resale was subject to regulation by the PaPUC

[Gainesville, supra]. I a

37.13 In 1966-60, as well as at the present tima, Duquesne '

could provide service only in conformity with its filed _

tariff. [66 P.S. SS 1142, 1142].

j

\

37.14 In 1966-68, Pennsylvania law provided that Duquesne f l

was prohibited from providing bulk or base-load power for

! resale. [S-211, Rule 18; PaPUC, et al. v. Duquesne Light j Company, 42 Ps. P.U.C. Rep 706 (1966)]. This policy wat i

\ l l

l t

I

-207-6 an essential element of the state regulatory scheme and was reviewed and approved by the state. [id.]. Rule 18

}

~

was not motivated "by any intention to discriminate impro-perly or to achieve an improper objective." [id.]. In such circumstances, any alleged refusal by Duquesne to sell bulk or base-load power for resale, was not an antitrust viola-tion or inconsistency. IParker, supra; Gas Li'ht, g supra; Cantor, supra].

I L 37.15 A municipality could also have petitioned the PaPUC for an amendment to Duquesne's tariff to permit Duquesne to sell bulk or base-load power for resale. [66 P.S. SS 1149, 1182]. The provision of,such service raised funda-mental questions of regulatory policy, essential to the L

regulatory scheme of Pennsylvania, and Duquesne had no anti-

~

L.

trust obligation to seek an amendment to its tariff that would allow it to provide such service. IBusiness Aides, t Inc. v. Thb Chesapeake and Potomac Telechone Co. of Virginia, p

480 F2d 754 (4th Cir. 1973); Conclusions of Law 37.10, 37.13,

'L 37.14; Cantor, supra]

7 L 37.16 Duquesne had no antitrust obligation to enter an entirely new line of business and sell wholesale power a

to Aspinwall and Pitcairn. [ Lamb Enterprises, Inc. v. Toledo Blade Co., 461 F.2d 500 (6th Cir. 1972); Otter Tail Power

, Co. v. United States, 410 U.S. 366 (1973); Six Twenty-Nine Productions, Inc. v. Rollins Telecasting, Inc., 365 P.2d t..

+

,-c--

.- e- . ."%

-208- I m

479 (5th Cir. 1966); Packaged Programs, Inc. v. Westinghouse Broadcasting Co., 255 F.2d 708 (3d Cir. 1958)] '

~

37.17 A predatory scheme to force competitors out of business cannot be inferred from any conduct by Duquesne in connection with any actual or potential purchase of the municipal l

j electric distribution facilities of Aspinwall or Pitcairn. -

[ Lamb Enterprises, Inc. v. Toledo Blade Co., 461 F.2d 506 (6th Cir. 1972)]. l 1

37.18 A refusal by Duquesne to sell wholesale power i LJ to Aspinwall or Pitcairn is not in the circumstances a violation of, or inconsistent with, the antitrust laws [ Compare Otter Tail, j supra.].

.l I

37.19 The rate for service under Rate M can raise no j.

antitrust consequences since it was reviewed and approved j by the PaPUC. [ pap.U.C. v. Duquesne Light Company, 29 PaPUC Rep 674 (1951); Parker v. Brown, 317 U.S. 341 (1943); Cantor "'

v. Detroit Edison, 26 S. Ct; 3110 (1976)]

37.20 Duquesne's alleged refusals of any alleged re-quests by municipal electric systems for power for resale i

do not evidence any anticompetitive intent or desire to j exclude or otherwise eliminate any such systems as producers _

or distributors of electricity. J l

J r

J

-209-37.21 Duquesne's alleged refusals of any alleged re-quests by municipal electric systems'for power for resale are not a situation inconsistent with the antiturst laws.

particularly since they did not have, and could not have had, any adverse effect on competition.

l 37.22 Since Duquesne presently does sell power for re-sale to municipalities, any alleged refusal to do so in the past cannot represent a situation that will be created I or maintained by the activities under the licenses sought ;

in this proceeding. i 1

37.23 None of the activities, courses of conduct, or

(

characteristics of Duquesne which are established by the evidence in the Record, whether considered singly, jointly, L

or in any combination, constitute a situation inconsistent l

[ with the antitrust laws. Moreover, none of these activities, L i etc., will be created or maintained by the activiti(= under the licenses applied for in this proceeding.

'L k

M

-210- L 7

1 38.00 NO " INCONSISTENT SITUATION" WILL BE CREATFD OR MAINTAINED BY ACTIVITIES UNDER THESE LICLNSES.

38.01 Aside from Cleveland's request for access to nuclear

]

generation (which request was granted [ Findings of Fact 34.23]), this Commission has no jurisdiction to adjudicate any of the allegations raised by the NRC Staff, DOJ and _,

Cleveland since those parties have failed to demonstrate that i the challenged ccnduct has a " substantial connection" with 1 J

the nuclear facilities. [ Conclusions of Law 20.02]

7 38.02 In any event, Applicants' affirmative policy of access to the nuclear facilities [A-44; see Findings of Fact 38.02], the availability of the wholesale power option [see Findings of Fact 38.03), and the feasibility of non-Applicant CCCT entities constructing their own small coal-fired ;;

4 generating unit (see Findings of Fact 38.04] guarantee that construction and operation of these nuclea- facilities will I not create or maintain a situation inconsistent with the anti-1 trust laws. [ Compare Municipal Electric Association v. FPC, 414 F.2d 1206, 1207 (D.C. Cir. 1969) (provisiens for access to hydroelectric plant "sufficiently guarantee that [the]

project will not be used as part of [a group boycott]")]

~

i e

I j

F F

-211-III. Conclusion

{' Based upon the findings of fact and conclusions

,_ of law contained herein, and any further necessary findings or conclusions supported by " Applicants' Joint Brief In i Support Of Proposed Findings Of Fact And Conclusions Of Law,"

i no relief, in the form of conditions to Applicants' licenses I or otherwise, is necessary to protect the public interst.

l See 42 U.S.C. S 2135 (c) (6) . Applicants do not object, however, to having their affirmative policy statements [A-44) attached to the nuclear licenses, if the Licensing Board so desires.

L Respectfully cubmitted, SHAW, PITTMA?1, POTTS & TROWBRIDGE F

l < -~

k.4 u 2 Lb1 4_ > -_&

wm. Bradford Reynolds Of Counsel: Robert E. Zahler Jay H. Bernstein SQUIRE, SANDERS & DEMPSEY

- ' FULLER, HENRY, HODGE Counsel for Applicants

& SNYDER

~

REED SMITH SHAW & McCLAY

~~

WINTHROP, STIMSON, PUTNAM

& ROBERTS a

Dated: August 30, 1976 L J

r CERTIFICATE OF SERVICE '

r I hereby certify that copies of the foregoing

" Applicants' Joint Proposed Findings Of Fact And Conclusions ,

[^ Of Law" were served by hand on each of the persons listed I

below, on this 30th day of August, 1976:*

Douglas V. Rigler, Esquire Chairman, Atomic Safety and Licensing Board Foley, Lardner, Hollabaugh and Jacobs Chanin Building - Suite 206 815 Connecticut Avenue, N.W.

Washington, D.C. 20006 Ivan W. Smith, Esquire b

Atomic Safety and Licensing Board U. S. Nuclear Regulatory C(mmission East-West Towers 4350 East-West Highway Bethesda, Maryland

~ John M. Frysiak, Esquire Atomic Safety and Licensing Board

, U. S. Nuclear Regulatory Commission i

L East-West Towers 4350 East-West Highway Bethesda, Maryland

- L u. bdd \

Nm. Bradford Reynolds 0-1 c -

e ,

"

By order of the Licensing Board, on September 8, 1976 copies of the Brief will be served upon all persons (sted on the Service List used throughout this proceeding.

L.

a - l

ML19319B291

Text

SUMMARY

SUMMARY

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