ML19319B841

Answer of City of Cleveland to Dismissal Motion of Cleveland Electric Illuminating Co Re Allegations Fully Litigated Before & Finally Decided by Fpc.Certificate of Svc, Opinion 759 & Initial Reply Briefs Encl

ML19319B841
Person / Time
Site:	Davis Besse, Perry
Issue date:	05/26/1972
From:	Ardery P BROWN, TODD & HEYBURN, CLEVELAND, OH
To:	Atomic Safety and Licensing Board Panel
References
NUDOCS 8001280672
Download: ML19319B841 (144)

Text

.

.- . o p M UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION Before the Atomic Safety and Licensing Board In the Matter of )

.F ) e The Toledo Edison Company and ) Docket Nos.JW The Cleveland Electric Illuminating ) 50-500A Company ) 50-501A (Davis-Besse Nuclear Power Station )

Units 1, 2 and 3) )

)

The Cleveland Electric Illuminating ) Docket Nos. 50-400A Company, et al. ) 50-401 A (Per ry Nuclear Power Plant, )

Unit.s 1 and 2) )

ANSWER OF THE CITY OF CLEVELAND TO DISMISSAL MOTION OF CEI WITH RESPE.CT TO THE ALLEGATIONS FULLY LIT; GATED BEFORE AND FINALLY DECIDED BY THE FPC On April 20, 1976, CEI filed its motion to dismiss with respect to allegations fully litigated before and finally decided by the FPC. The basis

_ of the motion (motion, pp.1-2) is that "the fact issues raised in said allega-tions, and to which the evidence subject to the present motion relates, were fully litigated before the Federal Power Commission ("FPC") by the parties

_ to this proceeding, or their privies, and were finally adjudicated by that agency, as affirmed by the United States Court of the District of Colurr.bia Circuit. " It is argued that collateral estoppel precludes consideration of those issues by this Commission. The City of Cleveland (City) opposes CEI's motion.

~

. 8001280 7M A

f' '

It is rather amazing to find CEI asserting that this Board is pre-l cluded from considering issues previously considered by the FPC. This motion represents a complete reversal of the position previously taken by CEI in these proceedings. At the very first prehearing conference held in F these proceedings, CEI's position was that no collateral estoppel effect could be attached to the FPC proceedings. Thus, the transcript reveals the following colloquy (Tr. 63, 64):

Chairman Farmakides: Is this Board then bound by the decisions of the Federal Power Commission?

,. Mr. Charnoff: No, I don't think I can argue that, sir. I don't think I can argue that at all.

1 I think that the Federal Power Commis-sion proceedings simply puts the agency on notice that the agency ought to require a showing at the outset, before it embarks on another proceeding to hear the same type of allegations. That this Intervenor be dealt with strictly in the sense that it ought to, as I said earlier, ought to make a showing of nexus, strictly and specifically as required by Waterford. And it ought to make a show-ing at the outset that it has something to offer in connection with each of those anticompetitive practices that it alleges.

I don't think I could argue that the Federal Power Commission in any way is res judicata or in any way binds this particular proceeding.

The City is in complete agreement with counsel for CEI that this Board is not bound by the decisions of the Federal Power Commission in this regard. Under the circumstances it is not surprising that CEI's motion l

i makes no reference to its counsel's previous denials of any collateral estoppel l

~

\

. m l

j

effect of the FPC decision. Despite CEI's prior recognition that the FPC

~

can not "in any way bind" this Commission, CEI now puts the City to the task of demonstrating that which it previously admitted.1/

~

THE FACTS Most of the relevant facts regarding the FPC ruling on which CEI relies on this motien are set forth in the documents that CEI has submitted

~

as its exhibit nos. 18-23. The relevant facts are as follows:

On May 13,1971, the City of Cleveland instituted before the FPC a proceeding under Section 202(b) of the Federal Power Act, 16 USC 9824a, for an order requiring CEI to establish an electrical interconnection with the Crcy for'the sale to the City of electric power and energy (Applicants' Ex. 18, p. 2). That statute empowers the FPC to order one electric sys-tem to sell electricity to another system under certain conditions. The existence or absence of anticompetitive practices is not made an element of .

proof under the statute,2/ and the City alleged no such practices in its initial pleading. ,

1_/ CEI's motion was not filed until the eve of commencement of Applicants' cas e -in-chief. Thus, the City is doubly burdened by having to reply to an admittedly unsupportable motion at the same time it must prepare to cross-examine Applicants' witnesses.

s ._2/ Otter Tail, 410 US 366, 35 L Ed 2d 359 (1973); cf. New England Power Co.

v. Federal Power Commission, 349 F2d 258 (CA 1,1965). Of course, the FPC has the right and the obligation to consider national antitrust policies to ineure, for example, that parties to a power agreement do not foreclose either of them from dealing with a competitor of one of them. City of Huntingburn v. Federal Power Commission, 498 F2d 778 (CA DC,1974).

l

~~

w -

_4 On May 21,1971, CEI tendered with the FPC for filing a " notice of termination and canec11ation" of the load transfer service then being provided to the City ( Applicants' Ex. 18, p. 2).

On December 6,1971, the City filed a motion that would, among other things, consolidate the proceedings on the two filings and cause the commencement of an FPC investigation of "the anticompetitive aspects of CEI's conduct in relation to Cleveland" ( Applicants' Ex. 18, p. 6).

The City did not, either in the December 6,1971, motion, or in

'~

any statement made to the FPC, define its intention in the use of the word "anticompetitive. " More specifically, the City at no time equated the alleged anticompetitive practices with conduct violative of the antitrust laws. In the December 6,1971, motion the City charged CEI with having violated "the antitrust aspects of the Federal Power Act" ( Applicants' Ex.

18, p. 5). In its brief to the FPC administrative law judge the City appeared to treat as anticompetitive any conduct that would be " discriminatory"under Sections 205 and 206 of the Federal Power Act, 16 USC S 824d and 824e

( Appendix A, pp. 18-19). In its brief to the FPC on exceptions to the initial decision of the administrative law judge the City referred to the policy of the Federal Power Act "against anticompetitive practices" ( Appendix B,

p. 15).

Nor did the City, either in the December 6,1971, motion or any other statement request any specific relief in the proceeding on the ground of anticompetitive practices. (Indeed, there does not seem to be any relief that the FPC is able to grant in a Section 202(b) case even in the face of 9 N

proof of conduct violative of the policies of the antitrust laws. ) In its

~

brief to the administrative law judge, the City requested merely that anticompetitive acts be " considered" ( Appendix A, pp. 21, 25). In its reply brief the City again sought nothing more specific than " consideration" of these alleged acts ( Appendix C, p.12). In its brief to the FPC on ex-ceptions to the initial decision of the administrative law judge the City suggested that the anticompetitive acts "be borne in mind" in the FPC's ratemaking function (Appendix B, p. 5), but the FPC has consistently to

_ date held the view that rates cannot be fixed in consideration of anticom-petitive practices.3/ In the Conclusion of its brief to the FPC, the City requested no more than that the FPC issue an order " recognizing" and i

" condemning" anticompetitive acts and that "the Commission will monitor these practices in the future" (Appendix B, p.16).

Significantly, in its requested findings in the proceeding, the City

, made no mention whatever of anticompetitive practices ( Appendix A, pp.

32-35).

The FPC consolidated the two filings, and a hearing thereon was held on March 21 through 24, and April 6,1972 ( Applicants' Ex. 20, p. 4).

As the administrative law judge later noted ( Applicants' Ex. 20, p.14):

The City did not present any testimog at the

~

hearing on CEI's alleged anticompetitive practices nor did it cross examine CEI's witnesses on this issue (Tr. 453).

-3/

Conway Corp. v. Federal Power Commission, 510 F2d 1264 (CA DC, 1975), cert granted -- US - , 46 led 2d 276 (1975).

1 The administrative law judge issued his initial decision on January

~.

12, 1972 ( Applicants' Ex. 20). He referred to the totality of the City's charges of anticompetitive practices on the part of CEI as consisting of "the so-called Bridges memorandum, CEI's effort to collect the Ohio ex-cise tax, and CEI's alleged refusal to build a parallel interconnection"

_ ( Applicants' Ex. 20, p. 14). Inasmuch as the " Bridges memorandum" can-not be viewed as an act in itself, anticompetitive or otherwise, but, at most, a statement of intention to act, the only two acts that the judge found

_ to be involved in the proceeding related to (i) CEI's collection of the excise tax and (ii) its refusal to build a parallel interconnection.

The administrative law judge made the following rulings on the i

, City's claims of anticompetitive acts by CEI (Applicants' Ex. 20, p.15):

The Bridges memorandum does not support a finding of anticompetitive practices or anti-trust violations.

The charge of CEI refusal to build a parallel

'~

line as an anticompetitive practice is ironic in the light of this record which shows clearly that the City repeatedly turned down such proposals in an effort to remain self sufficient and inde-pendent of the CEI system.

CEI's effort to collect the Ohio excise tax does not constitute an anticompetitive practice.

The administrative law judge also noted that although the City had not included refusal to wheel as an alleged anticompetitive practice, a docu-ment appended to the City's brief contained " vague proposals for wheeling power through CEI's facilities. " The judge noted that there was nothing in

the record on that matter and that, in any event, wheeling was "outside the scope of this proceeding" ( Applicants' Ex. 20, p.15). The FPC clearly .

has no power to order one electric system to transport (" wheel") electricity for another.II On January 11, 1973, the FPC issued its opinion and order in which the initial decision of the administrative law judge was modified (Applicants' Ex. 21). Except for the FPC's single reference to the rulings of the judge on the matter of allegations of anticompetitive practices ( Applicants' Ex. 21,

p. 3), the following is the only treatment accorded in the FPC order on that matter ( Applicants' Ex. 21, pp. 4, 10):

Finally, City urges that it has shown anti- '

competitive practices on the part of CEI and that such practi;es should be considered in regulating the relationship between City and CEI.

s Exceptions to the Administrative Law Judge's decision not granted herein are denied.

L The FPC did not indicate whether its denial of the City's above quoted ex-ception was based on the City's failure to prove its case or on the FPC's view that the issue did not require resolution by virtue of the absence of any cognizable request for relief based thereon. There is no gainsaying that either view would be a correct one on the basis of the record made in the proceeding and the pleadings filed therein by the City.

i/ Otter Tail Power Co. v. United S+ates, 410 US 366, 3 5 led 2d 359 (1973).

eh

There can be no doubt as to the propriety of the FPC ruling on the City's anticompetitive allegations, if it be assumed that any ruling were called for. The two alleged acts were not shown by the City to have anti-competitive import. The City did not request any specific relief on these allegations except, perhaps, a vague call for remedies that were not within the ambit of the FPC's authority in the proceeding at hand. Therefore, the City's present counsel did not raise any charges of anticompetitive practices in the judicial review proceedings determined in Cleveland v.

Federal Power Commissig, 525 F2d 846 (CA DC,1976).

c s

l

ARGUMENT I I NO RES JUDICATA OR COLLATERAL

{~ ESTOPPEL EFFECT CAN BE ACCORDED THE FPC RULING IN THIS ACTION BECAUSE OF THE GREAT DISSIMILARITY

.I' OF FACTUAL AND LEGAL ISSUES.

~

Inherent in the concept of law as a mechanism for settling disputes L

.,. is the requirement that properly rendered judgments must effectively bind the parties thereto. In Southern Pacific R. Co. v. United States, 168 US 1, 49, 42 led 355, 377 (1897), the Supreme Court said:

, This general rule is demanded by the very object for which civil courts have been es-tablished, which is to secure the peace and repose of society by the settlement of matters capable of judicial determination. Its enforce-ment is essential to t'.e maintenance of social order: for the aid of judicial tribunals would not be invoked for the vindication of rights of persors and property, if, as between parties

, and their privies, conclusiveness did not attend the judgments of such tribunals in respect of all matters properly put in issue, and actually de-termined by them.

This essential principle is formally recognized in the broad, judicially-created doctrine of res judicata.

One of the doctrine's two basic applications, to which use of the term res judicata is ofte restricted, prevents relitigation of any facet of a once

~

tried cause of action. The other -- the doctrine of collateral estoppel --

prevents relitigation of particular issues which have been previously resolved as part of a different cause of action. The difference between these two 9

,-, --.-n -

branches of doctrine has been described by the Supreme Court in Lawlor T

v. National Screen Service Corp. , 349 US 322, 326, 99 led 1122,1126 (1955), as follows: .

9 d

The basic distinction between the doctrines of res,judicata and collateral estoppel, as those terms are used in this case, has frequently been emphasized. Thus, under the doctrine of res

' judicata, a judgment 'on the merits' in a prior suit involving the same parties or their privies bars a second suit based on the same cause of action. Under the doctrine of collateral es-toppel, on the other hand, such a judgment pre-cludes relitigation of issues actually litigated

and determined in the prior suit, regardless of whether it was based on the same cause of action as the second suit.

It is clear in the first instance that CEl's motion for dismissal must be denied if it is predicated upon the first branch of the doctrine of res judi-cata. Claims arising under the antitrust laws are within the exclusive jurisdiction of the federal courts. See General Investment Co. v. Lake

, Shore & Michigan So. R. Co. , 260 US 261, 287, 67 led 244 (1922);

B_lumenstock F vos. Advertising Agency v. Curtis Publishir:g Co. , 252 US s

436 441, 64 led 619 (1920); Washington v. American League of Professional Basebal Clubs, 460 F2. 654, 658 (CA 9,1972); Cream Top Creamery v.

Dean Milk Co. , 383 F2d 358, 363 (CA 6,1967). Similarly, and as a corol-lary, the FPC "has no , ower to enforce the Sherman Act as such, . . .

[and] cannot decide definitely whether the transaction contemplated consti-tutes . . . an attempt to monopolize which is forbidden by the Act. " See Pittsburgh v. Federal Power Commission, 237 F2d 741, 754 (CA DC,1956);

see also McLean Trucking Co. v. United States, 321 US 67, 79-80, 88 led F

544 (1944); National Broadcasting Co. v. United States, 319 US 190, 87 led 1344 (1943); FPC Opinion 759, April 12,1976, Gulf States Utilities Company v. FPC, Docket Nos. E-8600 et al. ( Appendix D).

Accordingly, the proceedings before the FPC and this Commission involve such different causes of action that res judicata as to the instant

, case could not be applied on the basis of the earlier adjudication before the FPC. The decision of the Supreme Court in United States v. Radio Corp.

of America, 358 US 334, 3 led 2d 354 (1959), is dispositive as to this

,. branch of the doctrine. In that case, an application by broadcasting com-i

~

panies to exchange television stations was granted by the Federal Communi-cations Commission upon the completion of proceedings wherein antitrust

, issues were reviewed by ths FCC. The action by the FCC was held not to foreclose a subsequent cause of action before the federal district court attacking the exchange as being in the furtherance of corspiracy to violate the antitrust laws. Justice Harlan's concurring opinion states the holding succinctly, 358 US at 353, 3 led 2d at 366:

'~

[A] Commission determination of 'public interest, convenience, and necessity' cannot either constitute a binding adjudication upon any antitrust issues that may be involved in the Commission's proceeding or serve to ex-empt a licensee pro tanto from the antitrust laws . . . .

This holding was not affected by the fule of law that the regulatory body had t

the duty to give consideration to federal antitrust policy in determining the nature of the public interest in issue. 358 US at 351, 3 led 2d at 366.

r

The second branch of the res judicata doctrine, collateral estoppel, j also requires as a prerequisite for its application that the issues in the

e first case be essentially the same as those in the second. The determina-r tion of a fact in the context of one set of legal issues will not foreclose a i later inquiry in regard to the same fact on litigation involving an entirely different bundle of legal issues.

In order that the doctrine of collateral estoppel be applicable, it is necessary that the factual or legal issues to be concluded be the same as that involved in the prior action. Peterson v. Clark Leasing Corp. ,

't 451 F2d 1291 (CA 9,1971); Embry v. Equitable Life Assurance Society, 451 F2d 472 (CA 10,1971). As the court said in Overseas Motors, Inc.

v. Import Motors Limited, Inc. , 375 FSupp 499, 519 (DC Mich,1974),

affirmed 519 F2d 119 (CA 6,1975), "[i}dentity of issues is absolutely s

essential for the invocation of collateral estoppel. " In this same connec-tion, the Supreme Court has made clear that the party asserting collateral estoppel has the burden of showing identity of issues and determination of issues on the merits. See United States v. International Building Co. , 34 5 US 502, 97 led 1182 (1953).

^

In determining whether there exists an identity of issues the courts have consistently held that a lack of identity results from address of the same factual issues upon different standards of review. This is to say that

~

issues are substantively different even as to identical factual circumstances i

, where the standard of review is different. The proposition was clearly i

enunciated in Neaderland v. Commissioner of Internal Revenue, 424 F2d m

l e

639, 642 (CA 2,1970), cert denied 400 US 827, 27 led 2d 56 (1970), as r follows:

' ,l Collateral estoppel is confined, however, to

' situations where the matter raised in the l

second suit is identical in all respects with that decided in the first proceeding and where

( the controlling facts and applicable legal rules remain unchanged' [ cites omitted]. Even if the issue is identical and the facts remain constant, the adjudication in the first case does not estop the parties in the second,

~

unless the matter raised in the second case involves substantially 'the same bundle of legal principles that contributed to the ren-dering of the first judgment' [ cites omitted).

(

The public interest standard on which the FPC basis its determina-tions is totally different from the standards involved in the instant action.

Hence, although it is by no means clear from the record in the FPC pro-ceeding that the City's charges of "anticompetitive" practices encompassed 5!

the same types of practices as those envisioned by the Sherman Act ', it is perfectly clear that the FPC could not, and did not, use antitrust standards in the resolution of the charges.

Where the statutes underlying two different factual investigations t

are dissimilar, a factual determination in the first such investigation does not bar litigation of that same factual issue in the second. Thus, it was l

said in Brandenfels v. Day, 316 F2d 375, 378 (CA DC,1963), that the 5.,/ As noted, the City alleged to the FPC that CEI violated "the antitrust as-pects of the Federal Power Act

and may very well have had in mind the  ;

prohibitions against discriminatio n found in Sections 205 and 206 of that statute.

.e*-

Federal Trade Commission was not precluded from making a factual deter-mination wholly different from one made earlier by the postal authorities

]

"since the agencies act under different statutes employing different stan-dards."

-[ In Jason v. Summerfield. 214 F2d 273 (CA DC,1954), cert denied r

348 US 840, 99 led 662 (1954), a finding of disloyalty to justify removal a from federal employment made under one executive order would not bar a new fact finding on the issue of loyalty under the slightly differently worded standard of a later executive order.

't In Thompson v. Fleming, 188 FSupp 123 (DC Ore, 1960), a finding of fact by the Veterans Administration did not bar a contrary finding by the Social Security Administration. The factual issue was held to be " identical" in the two proceedings, but conclusiveness of the earlier finding was ruled out because the issue was presented in the two proceedings under different

, statutes.

i F

Because of the absence of totally similar statutes governing deter-minations by the two administrative bodies involved, in National Labor Relations Board v. Pacific Intermountain Express Co. , 228 F2d 170 (CA 8, 1955), cert denied 351 US 952,100 led 1476 (1956), it was held that a factual finding by a state agency on workmans compensation was not bind-ing on a federal agency looking into essentially the same matter.

~

In United Brick & Clay Workers v. Deena Artware. Inc. , 198 F2d 637 (CA 6,1952), a judicial finding of secondary boycott was not precluded by a prior inconsistent finding by the NLRB. "The two proceedings, even l"

l l

L i

though arising out of the same labor dispute, were heard by separate fact l'

f.inding agencies. The witnesses in the two proceedings were not the same. "

l

, 198 F2d at 642.

,1 In Federal Trade Commission v. Motion Picture Advertising Service f Co., 344 US 392, 97 led 426 (1953), it was held that a prior administrative

, finding of absence of proof of unfair labor practice would not stand as a bar to a later charge of unfair 1rbor practice, where conspiracy had not been an element of the first allegation but was included in the second.

- Of particular interest on this issue is Tipler v. E. I. du Pont de it Nemours & Co. , 443 F2d 125 (CA 5,1971). The plaintiff there, a dis-charged employee, had sought various administrative remedies in a quest for redress for an allegedly racially motivated dismissal by an employer.

Following "an extended evidentiary hearing" the NLRB ruled that the dis-r missal was with good cause and, hence, not wrongful. That finding was e held not to preclude a redertermination of the same fact. The court said, m

443 F2d at 128-29:

L Absent a special consideration, a determination arising solely under one statute should not automa-tically be binding when a similar question arises under another statute. See Title v. Immigration and Naturalization Service, 322 F. 2d 21, 25 n.11 (9th Cir., 1963); 2 K. Davis, Administrative Law Treatise $ 18. 04, at 577-78 (1958); cf. Commis-sioner of Internal Revenue v. Sunnen, 338 U. S.

591, 601-602, 68 SCt 715, 92 L. Ed. 898 (1948).

Similar is Hutchings v. United States Industries, 428 F2d 303 (CA 5,1970).

Of interest in the context of the nonbinding effect on a fact finding collateral to other, primary issues is Talavera v. Pederson, 334 F2d 52,

.y

-- w

.~

57 (CA 6,1964). In that case it was held that a finding in one immigration

. r and naturalization proceeding that acts of adultery did not present ground I

for deportation and did not bar later administrative action for deportation

.; on the same acts of adultery, where proof of adultery was merely collateral

[ to the primary issues in the first proceeding.

In Pottawatomie Nation of Indians v. United States, 507 F2d 852, 861 (Ct. C1. , 1974), it was said:

We reject the contention of appellants that the Commission somehow violated this Court's mandate in Hannahville Indian Community v.

United States, supra, by determining that the i

Pottawatomies formed a single political unit during the period 1795-1833.. . . It is clear that, with the benefit of the additional expert testimony taken.in the do novo hearing, the Commission reassessed the documentary evi-dence and arrived at a different conclusion.

And in Davis, Administrative Law Treatise (1958), it is said, at S18.12:

Lack of identity of issues may result from differences in facts, in subject matter, in periods of time, in case law, in statutory pro-visions, in notions of public interest, in quali-fications of tribunals, and in other similar factors . . . . Slight differences in legislative history or purpose may destroy identity of issues.

i There can be no question in the instant case that the FPC has the authority to weigh federal antitrust policies in the performance of its statu-tory functions. Gulf States Utilities Co. v. Federal Power Commission, 411 US 747, 758-59, 36 led 2d 635 (1973); Otter Tail Power Co. v. United States, 410 US 366, 373-74, 35 led 2d 359 (1973); C ity of Huntingburg v. l m a

Federal Power Commission, 498 F2d 778, 783-84 (CA DC,1974): Northe rn Natural Gas Co. v. Federal Power Commission, 399 F2d 953 (CA DC,1968).1/

r-However, there is no " pervasive regulatory scheme" by which FPC is en-trusted with enforcement of the antitrust laws. FPC's deliberations are conducted under statutes that do not include the power to make antitrust

., determinations. Therefore, FPC orders to not immunize an FPC licensee against antitrust charges brought before the courts. Otter Tail, 410 US at 374, 35 led 2d at 366.

.,_ While there may be some similarity between the factual issues of this case and the factual issues in the FPC proceeding, the statutory standards that govern the vantage points from which the facts are viewed

t. .

are totally dissimilar. Under these circumstances, the doctrines of res judicata and collateral estoppel are simply not applicable.

r i

-6/ But FPC's ability to give concrete effect to its consideration of antitrust policies depends on the issues of particular proceedings. Where com-peting companies are vying for an FPC certificate to engage in certain operations, the FPC can certificate one company and not the other in furtherance of these policies, as in Northern Natural, supra. The FPC can prohibit companies from entering into certain contractual arrange-ments that would hinder their competitors, as in Huntingburg. .Ho weve r ,

the FPC's view is that anticompetitive considerations are not relevant to its rate hearing function. Conway, supra. The FPC's determinations under Section 202(b) of the Federal Power Act, under which the City's s

petition for interconnection with CEI was filed, are on standards "unrc-lated to antitrust considerations. " Otter Tail, supra, 410 US at 373, 35 t

LE2d at'366.

.~..

II r THE ISSUES INVOLVED IN THIS CASE WERE

s NOT FULLY RAISED, CONSIDERED AND ACTUALLY ADJUDICATED IN THE PRIOR

r- FPC PROCEEDING.

l

.( It is hornbook law that the issues to be concluded in a subsequent proceeding must have been raised, considered and actually litigated in the

.c prior action before the doctrine of collateral estoppel can come into play.

"~

Mercoid Corp. v. Mid-Continent Investment Co. , 320 US 661, 671, 88 led 376 (1944); United Shoe Machinery Corp. v. United States, 258 US 451, 459, 66 led 708 (1922); Cromwell v. County of Sac, 94 US 351, 352, 24 led 195 T (1877).

t In the earlier FPC proceeding, the anticompetitive allegations con-

s stituted, at best, an issue peripheral to the primary issues in the case.

I The primary issues there were whether, and under what terms and condi-L_

tions, CEI should be required to sell electricity to the City and whether CEI T

L should be permitted to discontinue service already being rendered to the City. The allegations of anticompetitive practices on the part of CEI were -

.L not set forth for any purpose except the general one of being accorded " con-sideration" in connection with the resolution of the primary issues.

The City did not request th.e FPC to accord any specific remedy for the alleged anticompetitive conduct of CEI, and, indeed, in the submission of proposed findings of fact the City did not ask the FPC for any finding at all on the subject of anticompetiveness. (See the discussion on the absence of any request by the City for relief on its allegations of anticompetitive conduct, supra. )

In the FPC case the City alleged only two anticompetitive acts, r

namely, (i) CEI's collection of an Ohio excise tax and (ii) CEI's refusal to i

build a parallel electrical interconnection. In the instant action the anti-r-

t trust claim is based on a whole host of alleged facts. Among other things,

r evidence has been offered te prove (i) that the Applicants refused to allow the City the reliability benefits of CAPCO membership and then turned

.r around to solicit business from the City's customers on the sales pitch that r

the City's electricity service was not reliable due to the City's lack of interconnection with CEI and other neighboring utilities, (ii) that the Applicants refused to grant the City participation in nuclear units that would not be economically feasible for any isolated electric system (in-s cluding the Applicants themselves if they did not have joint reserve planning) and depended on group cooperation and planning, (iii) that Applicants refused to wheel power for City and others although they would wheel for other inves-u tor-owned utilities, and (iv) that the Applicants committed other acts that 6

were designed to isolate City's system from other systems and to destroy

., k the economic viability of the City's electricity operations.

Many of the acts on which plaintiff bases its claim had not occurred at the time of the FPC hearing. Other acts had already occurred but were not known to plaintiff until the subsequent discovery in these proceedings.

The anticompetitive acts alleged in the FPC proceeding form a minis-cule portion of plaintiff's present case. CEI acknowledges (motion, p. 21) that the City offered no evidence other than the Bridges memorandum in 6

.p

, 7 support of its antitrust claims before the FPC. / Neither did the City seek r.

, any specific relief. The FPC has consistently required a party seeking re-y view of anticompetitive issues to state the requested relief which is within

(

its authority to direct. Indiana & Michigan Electric Company, 49 FPC 1232 (1973). Failure to do so precludes FPC review. Since no evidence of anti-competitive acts was offered and no relief was sought, it can scarcely be

~l argued that the issues were considered and actually adjudicated in the FPC

.r-

, proceeding, e

Even the antitrust laws have changed during the period following the FPC ruling. The issuance by the United States Supreme Court of Otter Tail

( is an important supervening event in the field of antitrust law relevant to

.c the instant action.

It would seem to be beyond cavil that the issues raised in the instant

,, case bear no significant similarity to those determined by the FPC. And it

r is hornbook law that the doctrine of collateral estoppel precludes only reliti-

~u gation of issues actually litigated and determined in a prior suit and does not

.9 1 operate as a bar to the later litigation of claims that could have been, but were not, presented in an earlier case. Lawlor v. National Screen Service n.

Corp. , 349 US 322, 326, 99 led 1122,1127 (1955). Indeed, precluding later actions on antitrust claims on the basis of an earlier denial of the establish-ment of such a claim "would, in effect, confer on [ defendants] a partial n

1/ The record before the FPC does not explain why the City's then counsel raised an issue and then offered neither direct testimony nor cross-f examination to prove the allegation.

I L.

I 1

. ~ --

immunity from civil liability for future violations," particularly where a r- substantial change in the scope of the alleged monopoly has occurred in the interim. _I_d_.

d , 349 US at 328-29, 99 led at 1128.

r-

Under the circumstances of this case the present inquiry should not r

be barred by the FPC ruling. Indeed, plaintiff should not be estopped from including as part of its proof in the instant case even the two anticompetitive acts alleged and not proved in the FPC proceeding.

r A key case in this connection is Federal Trade Commission v.

.i Raladam Co. , 316 US 149, 86 led 1336 (1942). That case involved an

.c carlier finding by the FTC that the company in question had used unfair methods of competition. The Court of Appeals had set aside the earlier cease and desist order, and the Supreme Court had affirmed the Court of Appeals ruling on the ground of lack of finding or evidence of injury to com-petitors. Some years later, the FTC instituted the second proceeding on the same grounds, this time making the required findings of injury to com-i s petitors, and the question was whether or not res judicata effect should be given to the determination in the first proceeding that injury to competitors was not shown. The Supreme Court held that the FTC was not barred,

.. saying, 316 US at 151, 86 led at 1339-40:

It is clear that the reason [in the earlier case]

u for refusing to enforce the Commission's order are grounded upon the inadequacy of the findings and proof, as revealed in the particular record then before this Court. Hence, these reasons are not controlling in this case, arising, as it does, out of different proceedings and presenting different facts and a different record for our consideration.

l<

[ *

'c In Federal Communications Commission v. Pottsville Broadcasting Co. , 309 US 134, 84 led 656 (1940), it was held that a court's reversal of 5

a refusal of a license on one ground does not prevent the agency from re-

i fusing the same license application on other grounds.

In Exposition Press, Inc. v. Federal Trade Commission, 295 F2d 869 (CA 2,1961), cert denied 370 US 917, 8 LED 2d 497 (1961), it was held

't that a finding that a publisher had not committed an unfair trade practice

r was not a bar to a later charge on additional evidence.

(

As was noted in Brandenfels v. Day, 316 F2d 375 (CA DC,1963),

supra, it was held that fact finding by one administrative agency did not preclude a contrary fact finding by a different agency, where the agencies

(

viewed factual determinations within the context of different statutes. In the same case it was also held that fact finding in later litigation may take in account any circumstances that may have changed since the earlier find-

.s ing. 316 F2d at 378.

d

>. In Greater Kampeska Radio Corp. v. Federal Communications Com-mission,108 F2d 5 (CA DC,1939), the court noted that the qualification of

(

- an individual to operate a radio broadcasting station may depend on cumula-tive facts. It was held that an earlier finding of qualification is not a bar to a later inquiry on the same issue and that facts known at the time of the u

first investigation could be relied on in the second. The court said that the

._ argument that earlier facts are barred from introduction into the later hearing --

has much the same substance as would a contention that because an indulgent judge 9

r

i had repeatedly granted probation to a

" confirmed criminal, he would be barred from considering the criminal's past record, 5

when he next committed a crime and again

, applied for probation.

'l In Title v. Immigration & Naturalization Service, 322 F2d 21 (CA

.f 1

9,1963), it was ruled that a finding of fact that supported revocation of naturalized citizenship, made after a full evidentiary hearing, was not I

conclusive in a later deportation proceeding on the same alleged fact. The r

individual concerned was held entitled to relitigate the very same factual

c. issue. One consideration that the court deemed relevant was that a judicial decision bearing on the law relevant to the issue had been handed down during th( period between the two proceedings.

In United States v. Simon, 281 F2d 520 (CA 6,1960), it was held that an adjudication of tax liability for one year does not estop relitigation of similar factual and legal issues in connection with taxes payable for later r years.

^

In the light of the foregoing authorities, it is clear that no res judicata L or collateral estoppel effect can be given in the instant case to the findings made by the FPC on the City's charges of anticompetitive activities. These t

issues were not fully raised, considered and actually adjudicated by the FPC

, to the degree necessary to according binding effect to the FPC ruling thereon.

h, .

=ae We e

i III

-F THE RESOLUTION OF THE ISSUES RAISED q ON THE MOTION BY CEI, EVEN AS NARROW-LY RAISED AND ADJUDICATED BY FPC, F WERE NOT ESSENTIAL TO THE CONCLUSION i RENDERED BY THE FPC IN THE EARLIER PROCEEDING.

a Another precondition to the application of the doctrine of collateral F

t estoppel is that the prior resolution of the issues to be concluded must have f

been essential to the judgment rendered. See Eastern Foundation Co. v.

t Creswell, 475 F2d 351, 354-55 (CA DC,1973); Louis Ender, Inc. v.

t General Foods Corp. , 467 F2d 327, 330-31 ( CA 2,1972). In returning to the earlier discussed case of Otter Tail Power Company v. United States, i

supra, it is clear that the decision by the FPC to order the Section 202(b) i interconnection did not require as an essential element to that conclusion f

js..

that antitrust violations be decided. Again quoting from Otter Tail, 410 US at 373, 35 led 2d at 366, the Supreme Court stated its interpretation of 5

Section 202(b) of the Federal Power Act as follows:

Only if a power company refuses to interconnect L

voluntarily may the Federal Power Commission, subject to limitations unrelated to antitrust consi-derations, order the interconnection. The standard which governs its decision is whether such action is

'necessary or appropriate in the public interest. '

Although antitrust considerations may be relevant, they are not determinative. [ Emphasis added. ]

The FPC factual findings that CEI seeks on this motion to bind this Board were not essential to the FPC's determination. This is clearly shown

" by the fact that the FPC ordered the interconnection desired by the City i

L notwithstanding the finding that certain of the City's difficulties were due l

t l

=

r' 1 ,

to the City's incompetence and not any anticompetitive conduct on the part F ' of CEI.

Indeed, it is not all that clear from the FPC order that the FPC i

even bothered to make a finding on the City's allegations of anticompetitive activities. The FPC first referred to the exceptions that had been taken by the City to the initial decision of the administrative law judge, in the follow-1 ing words:

Finally, City urges that it has shown anti-competitive practices on the part of CEI and that such practices should be considered in I

regulating the relationship between City and CEI.

After having thus referred to the City's exceptions, the FPC disposed of 1

them in these words:

Exceptions to the Administrative Law Judge's decision not granted herein are denied.

It does not appear, therefore, whether the FPC intended to reject the City's

~ contention that "it has shown anti-competitive practices" or whether FPC

, denied the request that this issue "be considered in regulating the relation-ship between City and CEI. "

m Regardless of the actual intent of the FPC, it is clear that the factual findings that CEI seeks to foreclose on this motion were not essential to the ultimate conclusion attained by the FPC. These issues, then, have not been

" fully resolved" within the necessary prerequisite for application of the doctrine of collateral estoppel. Louisiana v. Federal Power Commission, 503 F2d 844, 867 (CA 5,1975).

f

, T N THE DOCTRINES OF COLLATERAL ESTOPPEL

-r AND RES JUDICATA ARE NOT APPLIED WHERE IT WOULD NOT BE EQUITABLE TO DO SO.

CONSIDERATIONS OF FAIRNESS DICTATE THAT THE DOCTRINES NOT BE APPLIED IN THIS INSTANCE.

F t

The doctrines of collateral estoppel and res judicata are not immu-(

table rules of law but, rather, they are applied as the interests of fairness and justness warrant.

Closely analogous to the instant case is Title v. Immigration &

.! Naturalization Service, 322 F2d 21 (CA 9,1963). In that decision it was s

r-held that a finding of fact that supported revocation of naturalized citizen-4 ship was not conclusive in a later deportation proceeding based on the same alleged fact. The Court said, 322 F2d at 24:

Further, we think that the application of the doctrine of collateral estoppel would, apart

[from other considerations) be unfair in this

' case. It has been recognized that the doctrine should not be exercised in such a manner as o

to work an injustice.

s _.

At the denaturalization hearing, petitioner did not elect to take the stand and did not present evidence in his behalf . . . . Why he did not choose to present evidence in his denaturali-zation proceeding is not of concern to us now.

L-What does concern us is that at his deportation proceedings he desired to present evidence and was refused the opportunity to do so.

Tipler v. E. I. du Pont de Nemours & Co. , 443 F2d 125 (CA 6,1971),

l is another analogous case. The plaintiff there was a discharged employee who 1 l

\

F had sought various administrative remedies in a quest for redress for an

- F' alleged racially motivated firing. After a full evidentiary hearing the NLRB had ruled that the firing was with good cause. When the employee again attempted to attack the cause of the firing, this time under the Civil Rights Act, the court refused to impart a collateral estoppel effect to the NLRB ruling. The court said, 443 F2d at 128:

Neither collateral estoppel nor res judicata is rigidly applied. Both rules are qualified or rejected when their application would con-travene an overriding public policy or result in manifest injustice.

In antitrust litigation there exists a strong and overriding public in-terest which has specifically been recognized in the relazation of the doctrine F of collateral estoppel. This result has been identified as flowing from the role of the plaintiff in antitrust litigation in acting as a private attorney-I general enforcing the public policy embodied in the statutes. See American

"~

Safety Equinment Co. v. J. P. Maguire and Co. , 391 F2d 821, 826 (CA 2 (1968).

I w In Overseas Motors, Inc. v. Import Motors Limited, 375 FSupp 499, 521 (DC Mich,1974), affirmed 519 F2d 119 (CA 6,1975), it was said:

[P]1aintiff may now be afforded an opportunity to i relitigate certain previously decided issues. Those

]

- issues to whose determination a public interest I attaches may be termed antitrust issues, and as to them there can be no collateral estoppel. [ Emphasis added.]

]

The "Public interest in vigilant enforcement of the antitrust laws through the instrumentality of the private treble-damage action" has been

" adverted to by the Supreme Court. Lawlor v. National Screen Service Corp.

349 US 322, 329, 99 led 1122,1128 (1955).

r

• e Were the doctrine of collateral estoppel to be applied rigidly in the

~~

instant case on the basis of findings entered by the FPC, it would be neces-sary to such an approach to first determine that Congress intended that the FPC's regulatory power override the fundamental national policies embodied in the antitrust laws. See United States v. Radio Corp. of America, 358 US r-334, 351, 3 led 2d 354 (1959). In this regard, the Supreme Court in Otter Tail Power C:. v. United States, 410 US 366, 35 led 2d 359, held that:

There is nothing in the legislative history

[of the Federal Power Act] which reveals a purpose to insulate electric power companies from the operation of the antitruet laws. To the contrary, the history of Part II of the Federal Power Act indicates an overriding policy of maintaining competition to the maximum extent possible consistent with the public interest.

As the Supreme Court noted in Otter Tail, the Power Act, as originally conceived, would have included a common carrier provision making it "the

,. duty of every public utility to . . . transmit energy for any person upon reasonable request. . . . " Inasmuch as this provision and other similar provisions were eliminated to preserve "the voluntary action of the utilities,"

~

the Court also concluded:

It is clear, then, that Congress rejected a pervasive regulatory scheme for controlling the interstate distribution of power in favor of voluntary commercial relationships.

As the Court said in United States v. Radio Corp. of America, 358 US at 351, when these transactions and relations ',ips are governed in the first instance by business judgment and not regulatory coercion, the courts must be hesitant to conclude that Congress intended to override the antitrust laws. Thus, while l~

m

c 29- i the statutes are similar in purpose, "there is.no basis for concluding that I

the limited authority of the Federal Power Commission to order intercon-

.. nections was intended to be a substitute for or a repeal of" the antitrust l 2-laws. Otter Tail, supra. ,

9 e-I

,.. l

(

1*

t p. -

i:

O i f" 4

u g VM

L.

h t

h

+w ee=

e-

.e.

.- r m-9 gf -

-m -

-3 --y, , . . - - . - - q..-. ,- , ,w -m-c.,,,,, ..r*'w- ry-- '+w- e

V

. I'~ THE FPC AUTHORITY UNDER SECTION 202(b) OF THE FEDERAL POWER ACT TO FASHION A REMEDY IS INADEQUATE TO MEET

[- THE PUBLIC INTEREST TEST.

I In its motion, CEI argues that in Section 202 cases the FPC must apply the antitrust laws pursuant to a public interest test which in effect is the same legal standard applicable to these proceed,,gs (motion, pp.

26-29). To make its argument, CEIis forced to ignore the plain language

_ of the Supreme Court in Otter Tail, 410 US at 373, 35 led 2d at 366, that I

the FPC may order interconnections under Section 202 subject to limitations

" unrelated to antitrust considerations" and while " antitrust considerations may be elevant, they are not determinative. " Accordingly, in the FPC proceedings, the issues were not subject to the same standards that govern

! these proceedings.

r Moreover, while the City requested no specific velief predicated or anticompetitive acts from the FPC, the FPC would have lacked the authority u

to grant full relief had such relief been requested, The limited authority of the FPC under Section 202(b) was the subject of discussion in Otter Tail Power Co. v. United States, 410 US 366, 374, 35 led 2d 359, 366 (1973), in which the Supreme Court said:

It is clear, then, that Congress rejected a per-vasive regulatory scheme [under $202(b)] for controlling 4he interstate distribution of power in favor of voluntary commercial relationships.

~

+ + +

i l^

lm

r-t Thus, there is no basis for concluding that the

_ limited authority of the Federal Power Commis-sion to order interconnections was intended to be a substitute for or immunize Otter Tail from

_ antitrust regulation for refusing to deal with municipal corporations.

_ Thus, under Section 202(b) the FPC was not empowered to direct CEI to engage in joint reserve sharing and capacity planning with the City,

r-although CEI engages in these cooperative ventures with the other CAPCO member s. Therefore, and in view of the limitation in Section 202(b) that i

the FPC may not " compel the enlargement of generating facilities" in order to provide service by one utility system to another, the FPC order in issue in the instant case granted CEI the right to disconnect its interconnection with the City when necessary for CEI to protect service to other customers.

1 s.

rw S

me h

wm d

e

- ,- r - r

VI

'r .

j COLLATERAL ESTOPPEL HAS NO RELEVANCE TO THE CITY'S CHARGE THAT CEI'S I

RATES WERE DESIGNED TO BLEED THE f FINANCIAL VIABILITY OF THE CLEVELAND 1

SYSTEM.

r CEI asserts (motion, p.19) that collateral estoppel should bar the City from asserting that CEI's rates for service to the City were designed to bleed the financial viability of the Cleveland system. CEI admits (motion,

p. 7) that the applicability of collateral estoppel to administrative agency J

determinations is limited to determinations made by the agency acting in a judicial capacity. It is elementary that in rate proceedings an agency acts in a legislative capacity.

L Moreover, the FPC has taken the position that anticompetitive con-siderations are not relevant to its rate hearing function. Conway Corp. v.

FPC, 510 F2d 1264 (CA DC 1975), cert granted US , 46 led 2d 276 (1975). The Circuit Court's decision in Conway ordering the FPC to j consider allegations of price squeeze in limited context in rate hearings has been stayed pending appeal. In the meantime, FPC continues to disclaim m any relevance of anticompetitive considerations in rate hearings.

w h+

IW 1

CONCLUSION r CEI HAS FAILED TO MAKE THE SHOWING f NECESSARY TO INVOKE THE DOCTRINE OF COLLATERAL ESTC PEL: THAT (1) THERE r IS A FINAL AND VALIu JUDGMENT AFFECTING THE ISSUE, (2) THE ISSUE TO BE CON-CLUDED IS THE SAME AS THAT INVOLVED

.{ IN THE PRIOR CASE, (3) THE ISSUE HAS BEEN

, RAISED, CONSIDERED AND ADJUDICATED IN THE PRIOR CASE, (4) THE ISSUE WAS RELEVANT AND

,[ MATERIAL TO THE DISPOSITION OF THE PRIOR CASE, AND (5) THE RESOLUTION OF THE ISSUE WAS ESSENTIAL TO THE PRIOR JUDGMENT.

In order to invoke the doctrine of collateral estoppel, a litigant has the burden of showing five basic requirements: (1) there must be a final and valid judgment affecting the same (or similarly situated) parties as appear in a second action; (2) the issue to be concluded must be the same as that involved in the prior action; (3) the issue must have been raised, considered, and actually adjudicated in the prior action; (4) the issue must have been material and relevant to the disposition of the prior action; and (5) the resolution of that issue must have been essential to the judgment rendered (i. e. , not dictum). Overseas Motors, Inc. v. Import Motors Limited, L

375 FSupp 499, 510-11 (DC Mich,1974), affirmed 519 F2d 119 (CA 6,1975).

The presence of only one of these preconditions in this case in un-disputed. Plaintiff does not deny that the findings by the FPC were final and valid findings affecting the same parties as appear before this court in i

the second action. However, even as to this requirement, it should be noted that because of the FPC's continuing jurisdiction to review the interconnec-tion agreement between CEI and plaintiff, the finality which would attach to 4 --

1 m_

e v.- - e,-

the FPC's findings is less conclusive than that of a court judgment. See

<p National Labor Relations Board v. Baltimore Transit Co. , 140 F2d 51 (CA 4,1944), cert, denied 321 US 795, 88 led 1084 (1944).

CEI has failed to demonstrate the presence of the remaining four

?

[ preconditions.

WHEREFORE, for the foregoing reasons, CEI's motion to dismiss 3

'l should be. denied.

Respectfully submitted,

.c.

. 1 /

/ ) Vh<w $$U l b ?' C h ]fl k ii Reuben Goldberg i'

David C. Hjelmfelt Goldberg, Fieldman & Hjelmfelt 1700 Pennsylvania Avenue, N. W.

Washington, D. C. 20006 Telephone (202) 659-2333 Vincent C. Campanella Director of Law R.obert D. Hart

.{ First Assistant Director of Law L City of Cleveland 213 City Hall

{ Cleveland, Ohio 44114 L- Telephone (216) 694-2737 Attorneys for

^-

City of Cleveland, Ohio T

L' May 17,1976 1

l L

- - - ~

9 f

CERTIFICATE OF SERVICE e.

I hereby certify that service of the foregoing " Answer of the City of Cleveland to Dismissal Motion of CEI with Respect to the Allegations Fully

=. r Litigated Before and Finally Decided by the FPC" has been made on the following parties listed on the attachment hereto, this 17th day of May,1976, 7

I by depositing copies thereof in the United States mail, first class postage prepaid, or by hand delivery.

a 7h/I, I//E'v

/

'R'eub~en Gol'db rg i -

Attachment *

.y i

l f

L.

, i l

f l

t-L.

MM e

t 9

m ._ . , _ __

ATTACHMENT

, Douglas V. Rigler, Esq. , Chairman Ivan W. Smith, Esq. ,

e- Atomic Safety and Licensing Board John M. Frysiak, Esq.

Foley, Lardner, Hollabaugh and Jacobs Atomic Safety and Licensing Board 815 Connecticut Avenue, N. W. U.S. Nuclear Regulatory Commission ,

i & Washington, D. C. 20006 Washington, D. C. 20555 '

'l

'(

l Alan S. Rosenthal, Chairman Elizabeth S. Bowers, Chairman

r Atomic Safety and Licensing Appeals Board Edward Luton U. S. Nuclear Regulatory Commission Thomas W. Reilly Washington, D. C. 20555 Atomic Safety and Licensing Board Panel lr' U.S. Nuclear Regulatory Commission l Richard S. Salzman Washington, D. C. 20555 Jerome E.' Shariman Atomic Safety and Licensing Appeals Board Atomic Safety and Licensing Appeal j U.S. Nuclear Regulatory Commission Board Panel '

Washington, D. C. 20555 U.S. Nuclear Regulatory Commission Washington, D. C. 20555  ;

, Howard K. Shapar, Esq. i'

, Executive Legal Director Joseph Rutberg, Esq.

p U. 3. Nuclear Regulatory Commission Jack R. Goldberg,. Esq.

,-. Washington, D. C. 20555 Office of the Executive Legal Director U. S. Nuclear Regulatory Commission Mr. Frank W. Karas, Chief Washington, D. C. 20555 Public Proceedings Branch -

Office of the Secretary Benjamin H. Vogler, Esq.

U. S. Nuclear Regulatory Commission Robert J. Verdisco, Esq.

Washington, D. C. 20555 Roy P. Lessy, Jr. , Esq.

Office of the General Counsel j Abraham Braitman, Esq. Regulation i Office of Antitrust and Indemnity U. S. Nuclear Regulatory Commission

. U. S. Nuclear Regulatory. Commission Washington, D. C. 20555

]w washington, D. C. 20555 Melvin G. Berger, Esq.

Frank R. Clokey, Esq. Joseph J. Saunders, Esq.

Special Assistant Attorney General Steven M. Charno, Esq.

Towme House Apartments, Room 219 David A. Leckie, Esq. '

Harrisburg, Pennsylvania 17105 Janet R. Urban, Esq.

Antitrust Division e Edward A. Matto, Esq. Department of Justice Assistant Attorney General Post Office Box 7513 l Chief, Antitrust Section Washington, D. C. 20044 L ' 30 East Broad Street, 15th floor Columbus, Ohio 43215 Ka n.: H. Adkins, Esq.

Christopher R. Schraff, Esq. Ric sard M. Firestone, Esq.

l Assistant Attorney General Assistant Attorneys General

! Environmental Law Section - Antitrust Seetion 361 East Broad Street, 8th floor 30 East Broad Street, 15th floor Columbus, Ohio 43215 Columbus, Ohio 43215

- - - , , ~ _-,

4 Pago 2 ATTACHMENT (Continued)

Russell J. Spetrino, Esq. Leslie Henry, Esq.

!r Thomas A. Kayuha, Esq. Michael M. Briley, Esq.

. j~ Ohio Edison Company Roger P. Klee, Esq.

47 North Main Street Fuller, Henry, Hodge & Snyder e- Akron, Ohio 44308 Post Office Box 2088 John Lansdale, Jr. , Esq.

,r Cox, Langford & Brown James R. Edgerly, Esq.

'I 21 Dupont Circle, N. W. Secretary and General Counsel Washington, D. C. 20036 Pennsylvania Power Company

r One East Washington Street

( Richard A. Miller, Esq. New Castle, Pennsylvania 16103 Vice President and General Counsel The Cleveland Electric Illuminating Co. Donald H. Hauser, Esq.

Post Office Box 5000 Victor A. Greenslade, Jr. , Esq.

Cleveland, Ohio 44101 The Cleveland Electric Illuminating Co.

l[ Post Office Box 5000

., Gerald Charnoff, Esq. Cleveland, Ohio 44101 Wm. Bradford Reynolds, Esq.

Shaw, Pittman, Potts & Trowbridge Thomas J. Munsch, Jr. , Esq.

( 1800 M Street, N. W. General Attorney

, Washington, D. C. 20036 Duquesne Light Company r 435 Sixth Avenue

[ David McNeill Olds, Esq. Pittsburgh, Pennsylvania 15219 William S. Lerach, Esq.

J' Reed, - Smith, Shaw & Mc Clay Joseph A. Rieser, Esq.

1

. Post Office Box 2009 Reed, Smith, Shaw & McClay Pittsburgh, Pennsylvania 15230 1155 Fifteenth Street, N. W.

] Washington, D. C. 20005 i _ Terrence H. Benbow, Esq.

Steven B. Peri, Esq. John C. Engle, President f Winthrop, Stimr.on, Putnam & Roberts AMP-O, Inc.

L 40 Wall Street 20 High Street New York, New York 10005 Hamilton, Ohio 45012 .

.. Docketing and Service Section Atomic Safety and Licensing Board Panel Office of the Secretary U. S. Nuclear Regulatory Commission U. S. Nuolear Regulatory Commission Vashington, D. C. 20555 m Washington, D. C. 20555 Alan P. Buchmann, Esq. Michael R. Gallagher, Esq.

Squire, Sanders & Dempsey 630 Bulkley Building 1800 Union . Commerce Building 1501 Euclid Cleveland, Ohio 44115 Cleveland, Ohio 44115 h.

h I

[ .

s

,, ea . uswuo n

- RECEIVED UNITED STATES OF AMERICA FEDERAL POWER CO.NNISSION MAY S1972 I o l?!?fuO

'~

City of Cleveland, Ohio )

o )

v. ) Docket Nos. E-7631 -

if~ ) and E-7633 -

i Cleveland Electric Illuminating )

.r._ Company ) x-

)

N and )

- - )

.i City of Cleveland ) Docket No. E-7713 7 _.

t INITIAL BRIEF r OF 1 CITY OF CLEVELAND, OHIO u

j BROWN, TODD & HEYBURN

l. Sixteenth Floor Citizens Plaza

' Louisville, Kentucky 40202 t.

Attorneys for City of Cleveland L Philip P. Ardery BRONN, TODD & HEYBURN May 8, 1972 M*'

4

. , e

r b

TABLE OF CONTENTS

. r . ..

Page

j STATEMENT OF THE CASE. 1 I. . . . . . . . . . . . . . . .

m j Procedural Background.

Additional Factual Background 1

8 I

Questions Presented . . . . . . . . . . . . . . . . 16 i p-1 II. ARGUMENT. . . . . . . . . . . . . . . . . . . . . . 18 T'

q A. The Terms and Conditions of Service to Cleveland Should be the Same as the Terms and Conditions

'~~~

CEI Offers Other Companies . . . . . . . . . . . 18 B. CEI's Anticompetitive Acts in the Past Should F be Considered by the Commission in Prescribing Terms and Conditions of Future Service to Cleveland . . . . . . . . . . . . . . . . . . . 21 o

i C. This Commission Should Determine Cleveland Has Paid CEI What it Owes for Delivery of j

7 Power to the Transfer Points . . . . . . . . . . 25 r- III. CONCLUSION. . . . . . . . . . . . . . . . . . . . 30

1' IV. REQUESTED FINDINGS. . . . . . . . . . .. . . . . . . 32 r

[ APPENDIX 1 - Interconnection Agreement Between The City of Cleveland, Ohio and i The Cleveland Electric Illuminating i Company, f'

w. .

be b

b

' i-b L.

F . .

9 TABLE OF AUTHORITIES Cases: Page r- Alabama Electric Cooperative v. Alabama Power

Company 38 F.P.C. 962 (1967). . . . . . . . . . . . . . 20 City of Lafayette v. Securities and Exchange Commission 454 F.2d 941 (CADC-1971) . . .. .. . . ... 24 City of Pittsburgh v. Federal Power Commission ,

237 F.2d 741 (CADC-1956). . . . . . .. . . . . .. . . 22,23 East Ohio Gas v. Tax Commission i 238 U. S. 465 (1931). . . . . . .. . . . . . . . . . . . . 28 Federal Power Commission v. Sierra Pacific Power Co. 350 U. S. 348 (1956). .. .. . . . . . . . . 27 Georgia Power Company 35 F.P.C. 436 (1966)

. . . . . .. .. 19

.. _. McLean Trucking Company v. United States 387 F.2d 657 (1967). . . . . . . . . . .. .. . . . .. 26 United Gas Pipe Line Co.. v. Mobile Gas Service

,. Corp. 350 U. S. 332.(1956) ... ... . . . . . . .. . . 27 United States v. Western Pacific Railroad Company 252 U. S. 59 (1956). . . . . . . .. . .. .. 25,26 STATUTES AND REGULATIONS:

a. Federal Power Act, 49 Stat. 838, 16 U.S.C.

791a, et seq.

t Section 202(b). . . . . . . . . . .. . . . . . . . 7 Section 202(c). . . . . . . .. . . . . . . . . . . 5 Section 205 . . . . . . . . . . . . . . . . . . . . 18 L Sectio'n 206 . . . . . . . . . . . . . . . . . . . . 18

[" Ohio Revised Code, Sections 5727.32, 5727.33 and 5727.38 . . . . . . . . . . .. . . . . . . . . . . 28

(

t 6

i. . -

i-

" k k **

r

.4* .

I.

UNITED STATES OF AMERICA FEDERAL POWER COMMISSION

(:

l-r- City of Cleveland, Ohio )

.i )

v. ) Docket Nos. E-7631 r ) and E-7633 t Cleveland Electric Illuminating ,)

Company )

I

)

and )

,. )

City of Cleveland ) Docket No. E-7713

)

9 i . INITIAL BRIEF OF

[ CITY OF CLEVELAND, OHIO I

STATEMENT OF Tile CASE Procedural Background f

On May 13, 1971, the City of Cleveland, Ohio (Cleveland) filed

, a formal complaint with the Commission against Cleveland Electric L

Illuminating Company (CEI) in which Cleveland alleged that it had t _. commercially operable capacity' insufficient to meet its load. It j stated that certain of its units were down temporarily for installa-tion of envircamental pollutiott control equipment; that in late 1969 r

' Cleveland experienced a forced outage of its largest unit shortly M

- - - -' .i

W* .

after which time an arrangement was made with CEI to transfer ap-r I

proximately 26,000 kva of the Cleveland load to CEI at a rate agreed between the parties.

.c The agreement on behalf of the City was done by enactment of

(

Ordinance No. 115-70, which was attached to the complaint and which r

i in part specified the agreement between CEI and the City "shall pro-vide further that the CEI shall sell said power to the City at a l

rate not to exceed 30 cents a month per kva demand, $0.0085 per hwh

' for ten million kwh, and $0.005 per kwh above ten million." The r

Ordinance was effective January 15, 1970.

1 On January 19, 1970 the City Council passed Ordinance No. 161-70 repealing Ordinance No. 115-70 repeating the same price for power 1.

as in the earlier ordinance but adding a new section whereby Cleve-f land agreed to pay the cost of installing the load transfer points.

L Neither ordinance was ever filed with FPC.

Clevelar.d further stated in its complaint that CEI wrote letters subsequent ' o the enactment of Ordinance No.161-70 " attempting to change the basic understanding and establish a modification of the

'- rate schedu'e so as to make the price of power higher than the maxi-mum. set by the Ordinance." The letter was filed with FPC and accepted for filing as Cleveland Electric Illuminating Company's Rate Schedule

~

FPC No. 7.- ,

sa h,

k k

3, .

The complaint alleged that the letter changed the arrangement in the ordinance of 8.5 mills per kwh for the first ten million kwh and all energy above ten million per kwh at five mills to a provision:

"first 400 kwh per kva of contract demand for kwh. . . $0.0085." The letter dated January 20, 1972 also stated " contract demand shall be

'r the sum of such jointly determined loads to be supplied." This, d

according to Cleveland's complaint changed the arrangement from al-i lowing the City to pay a single demand charge based on the highest actual peck demand to an arrangement under the letter, whereby billing

, would be at each substation without regard to load diversity. Cleve-land alleged losing such diversity would penalize Cleveland 15 to 20%

over billing on actual demand.

Cleveland also alleged that the letter sought to impose a ratchet, thereas the Ordinance enacted by the Counsel had no such provision.

I L The complaint further alleged that CEI sent another letter, dated March 17, 1970, which purported to change the agreement with the City by the L .

words, ". . .the monthly kva demand. . .shall be calculated using the maximum registered kw demand and the average monthly power factor."

This, according to Cleveland, was an attempt to make the " contract y demand" substantially higher than the actual kva demand. The letter l

of March 17 was filed with FPC as Supplement No. 1 to Rate Schedule No.

, -',  ?, *

^

The complaint alleges that other letters of the Company to Cleveland dated June 9,1970 and July 22, 1970, purported to make further changes at the expense of the City. These letters were e

filed with the Commission and accepted for filing as Supplements j No. 2 and 3 respectively to Rate Schedule No. 7.

-' Cleveland had made some payments to CEI "under protest" and 7

the complaint makes clear an existing disagreement between Cleveland and CEI over what amounts if any were then due in payment to CEI

'~ for service furnished at the load transfer points. The complaint

/

asks for relief including an immediate emergency order pursuant to Section 202(c) of the Federal Power Act directing the company not to disconnect the load transfer points. It also asks for an order directing physical interconnection of the transmission systems of Cleveland and CEI and specifying terms and conditions for coordina-

[ tion of power supply.

j-On May 21,1971 CEI tendered a " notice of termination and L

cancellation" of the service provided Cleveland. This notice has L_

been designated Supplement No. 4 to Rate Schedule FPC No. 7 and was ,

designated Cleveland Illuminating Electric Company, Docket No. E-763 CEI later agreed to certain extensions of the effective date of its

~ notice of termination until December 16, 1971, at which time the

"- -4

9 I Commission suspended the notice of termination and cancellation until May 17, 1972.

On December 6, 1971 the City filed a motion to consolidate the

{; two cases, to set the matter for hearing and to investigate certain

- anticompetitive practices it charged CEI with. This motion also re-quested an emergency Section 202(c) parallel interconnection with CEI.

The Commission in the previously mentioned order of December (E

16, 1971, in addition to suspending CEI's notice of termination to

i /

May 17, 1972 rejected Cleveland's request to investigate the alleged i CEI anticompetitive practices and refused to grant a Section 202(c) emergency interconnection.

On December 22, 1971 Cleveland renewed its request for a 202(c) interconnection. On January 31, 1972 the Commission denied the City's

.r

( renewed request saying, "no facts have been presented since our Dec-j ember order which established that the City system currently is operat-

.L ing in an emergency situation."

i L On February 7,1972, the City suffered a forced outage of its i largest generating unit which resulted in a blackout of several L.

hours duration in the early morning heavy traffic period. Warren

' D.11inchce, Commissioner of Light and Power for the City of Cleveland H.

t 3

E- . .

s. . .

comments at 10 Tr. 22 et. seg. Hinchea stated that the Cleveland system was totally blacked out by 7: 25 a.m. He indicated that traffic lights were out creating not only a serious problem for persons coming into town to work but increasing the problem of his 7

i maintenance people getting to Cleveland's outlying gas turbines, so they could be manually started to pick up part of the load. He stated that by 9:00 o' clock the three gas turbines had been started manually. By 10:00 o' clock all residence and commercial service was restored but all industrial customers were still out of service and were told they would remain out until further notification.

(10 Tr. 22).

The day af ter the Cleveland blackout, February 8,1972, Cleveland, by wire, again reiterated its request for an emergency interconnection, advising the Commission that it had suffered a serious blackout.

'~ Two prehearing conferences were held February 10 and February 15 and staff personnel of the Commission visited Cleveland to investigate the situation and then on March 8, 1972, the Commission issued an order 1

Two prehearing conferences were held in these proceedings, one on February 10, 1972 and one on February 15, 1972. Transcripts

- of these hearings will be designated 10 Tr. and 15 Tr. .

L i

- s .

The order directed CEI to permit Cleveland to establish a temporary

~

emergency interconnection at 69 hv, nonsynchronous with suitches to be kept open, to be closed only in an emergency. The Commission also directed a consolidated hearing of dockets No. E-7631, E-7633 and E-7713 (the latter being the latest request for emergency inter-

~

connection) would commence March 21, 1972.

The Commission's order of March 8 designated the issues as:

(1) whether a permanent interconnection should be ordered under Section 202(b) of the Federal Power Act; (2) whether CEI should or should not be allowed to discontinue the temporary, low voltage de-liveries currently being provided the City under five load transfer points; (3) whether the interconnection should be at 69 KV, 138 KV or both; (4) whether the interconnection should be synchronous or nonsynchronous at either or both 69 KV and 138 KV; (5) the issues of rate, terms of service, payment for service and conditions for main-

' taining the five load transfer points to the extent that those issues L

were not agreed upon by the parties prior to hearing, and (6) the

- issues of rate, terms of service, payment for service and conditions for interconnection to the extent that those issues were not agreed upon by the parties prior to hearing.

No significant agreement has been reached betwocn the parties.

-m -

g = e

Additional Facettal Background

~

Uarren Hinchee present Commissioner of Light and Power, came to Cleveland March 15,1971 (15 Tr. 21). When he came the city's ,

generating units were in a sad state of disrepair. He immeHlWEErp stepped up work on the machines as much as he could. (15 Tr. 22 and 23).

A fairly comprehensive assessment of the situation by Mr.

Hinchee was sent to the Director, Department of Public Utilities on March 22, seven days after his arrival. This assessment appears as Exhibit 1 herein. Considerable of the information in the Exhibit relates to Hinchee's calculation that CEI was overcharging Cleveland and had sought by various means to circumvent the limitations on the price Cleveland could pay under Ordinance 161-70. Therein he mentions the suit that CEI brought in the Common Pleas Court against

.a

, the City of Cleveland, claiming $1,352,286.60 and says the best estimatt he can make at that time is that the claim is an attempted overcharge of more than $300,000.00.

Also, bearing upon the issue of whether Cleveland has been over-charged and why, until Hinchee's arrival no one picked it up, are

- two affidavits which were received in evidence as Exhibits 37 and 38.

I These are the affidavits of Robert J. Kapitan and Ben S. Stefanski, iere

= e

-y.

who at the time the load transfer arrangement was made, were assist-ant director of law and director of the department of utilities of

'~

hp Cleveland respectively. Both of them say that they had no idea that the letters which CEI filed and which were accepted by the Commission

'f

, as FPC No. 7 with three supplements, were in any way attempts to modify the price Cleveland could legally pay for power as enacted in the Ordinance.

Hinchee tells why the load transfer points were not adequate to meet Cleveland's needs. He states: "They do not provide pickup

-- for this boiler. If we had a parallel interconnection we would be able tu base load this boiler, then if we needed power, some addi-

.t tional power over and above what the boiler could supply, we would J pick that up on a parallel interconnection." (15 Tr. 25).

L.

Hinchee indicates the load transfers instead of a real inter-connection were agreed to by " personnel other than myself," (15 Tr. 25)

[ giving the clear indication that the personnel in_ch.arge at the time wer completely incompetent to understand the consequences of such an ar-

~- -

~

rangement.

By way of further explanation, Hinchee, when asked why the load transfer arrangement was not a satisfactory one, states:

"Well, because they are simply a portion of the load separated from the rest of the City's 9

1 i

system, and they do not lighten the load, making it possible for us not to exceed our boiler capa-city, but they increase our operating difficulties by making or forcing us to make major swings be-tween off peak and on peak load conditions around the cloch on our large boiler.

,"They relieved the load to the point where we can r_

handle it, but not properly. That is what I am saying.

q. .

"There is a difference between being able to meet the momentary requirements and being able to meet them with some reliability and without over stressing your equipment." (15 Tr. 27).

f~ Again and again he indicates displeasure that the arrangement of transferring a load is simply "an amputation" of the Cleveland system. (10 Tr. 37). In talking about how the lack of a synchronous tie hurts the Cleveland system, Hinchee goes into some detail about t

r why a nonsynchronous tie is damaging to his system and, though carry-

!" Hinchee comments:

ing some slight benefit, creates serious problems.

"At the present time the Commission's Order m

is for an open switch situation. That is helpful to our system to this extent: With the emergency L

we have right at this particular moment with No. 6 boiler down, we have all three of our gas turbines operating and we are buying all of, the power that -

we can obtain through these load transfer points and we are still curtailing service right now. Now,

' if we lose any one of our gas turbines and everyone knows whatever machinery you have, no matter how new it is or how well maintained, anything can happen to it -- you can lose a unit. If we lose

' a unit for any reason right now at this moment, i

then we just have 15 megawatts of power out that there is no replacement for'and that per cent of our load is down until whatever repairs are necessary, whether major or minor, can be made. So if we have the connection, even though the tie is open, we could close the tie and receive power under those conditions and that is more than we have now. That is a

. help. But it is not the answer. We would still have the outage, we would still have the service

_7

, interruptions and still have an hour or two of switching interruptions, that is compared to an

~

eight or ten-day period. That is a tremendous benefit. If we have the switch closed and we are operating synchronous and we lose a unit

~

and we have an emergency, there is no reason to have service interrupted. We would not take power unless we did lose a unit. If we are starting up No. 5 boiler right now, I presume we would be byying power right at this particular time but it would be of short duration. By 5 or 6 o' clock tomorrow No. 5 boiler would be on the line and we would cease the purchase of emergency power. That is the advantage of the synchronous tie in a closed position to the City.

That is what we feel is necessary. Our system has been interrupted and abused and this is abusive of equipment. This in itself generates

] failures of equipment when you are constantly knocking them off the line and having switches opened, you know, and interrupted because the system falls apart. This is abusive and creates additional causes of failure of equipment itself."

(Tr. 212 and 213).

In addition to other disadvantages of load transfer as compared to a synchronous intertie there is the matter of basic reliability.

- Here 111nchee tells about three outages he had in one month caused by CEI cable failures. In response to a question by CEI Counsel p

T e .

g t

llinchee comments:

"There were three outages created by load transfers where troubic was detected on CEI sometime before it caused a failure and we r

switched over so that your people could do work, but this requires an interruption of service and there were three outages on the 2300 load feeders. If you would like to look at this.

I don't think-you would like it in evidence, but if you would like to look at this."

. (Tr. 359).

Considerable interest was shown by the Commission Staff in why the three gas turbines were located away from the rest of the'generat-ing equipment and had never had automatic startup equipment placed in operation. He was asked about the remote controls and the following questions and responses were given:

1 "There have been a few instances where remote controls work but they are not re-f liable. GE is still trying to work this I problem out and we are still holding their money until they do so we haven't accepted the first installation.

1 "Q. When did you first put 1, 2 or 3 of these turbines on the line?

Mr. Bergman, "A. It was before I came here.

~who was the Commissioner ahead of me put these

" units on the line in 1970, during the summer of 1970 I believe and I am a little hazy on this, but I believe this to be correct, with 4 the permission of General Electric Company, although the installation was not complete, he did get permission to operate these units with fuel oil as a prime supply and put them on the line to bolster our sagging generation."

> (Tr. 182).

I*

With regard to the issue of payments made by Cleveland to CEI, llinchee indicates that the City having been promised a permanent synchronous interconnection by CEI was unhappy that CEI wouldn't make good on its promisc. Then Cleveland fell behind in its pay-

- ments and Hinchee was told "it was done to develop leverage over the ,

$ Company to force an interconnection." (10 Tr. 39). However, when Hinchee arrived he immediately recognized the fact that CEI was not a

billing the City consistent with the rate established in the Ordinance r-j and Hinchee's detailed statement of the differences between what the l-City was billed and what it should have been billed appears in Exhibit

39. Exhibit 39 is a month by month check showing the differences between the billings and the amount which should have been billed.

l The last billing which is from 2-1-72 to 2-29-72 shows an amount due u.

CEI of $793,330.39. By Cleveland's recomputation the amount due should have been $95,665.15.

Hinchee explains how these recomputations were made beginning

[.

Tr. 278. Part of his explanation relates to the month of March, 1970 E~ where he states:

"If you vill look at the column you will see a total of 10,124,000 kilowatt hours. If you

! will then go to the fourth page from the rear y and look at the energy charge as set forth there

you will see that all energy was calculated by i.

r CCI at tre 8-1/2 mill rate against the total e of 10,124,000 kilowatt hours. According to document 161-70 all hours over 10,000,000 kilo-watt hours are to be paid at the five mill rate.

Therefore, we multiplied 8-1/2 mills times 10,00,000 kilowatt hours for a total of $85,000 and then 124,000 kilowatt hours times the five r mill rate for $620.00, so instead of an energy

! charge of $86,054, as shown on the CEI billings,,

the actual energy charge was recomputed to be

$85,620, for a net difference, net overcharge

. 'I of $434 for energy. This was in the month of March, 1970." (Tr. 281).

i Also showing the sham of CEI using failure to pay bills for load transfer power as an excuse to refuse a permanent interconnection, Hinchee makes a comparison of the payments to CEI by Cleveland for street lighting. He was asked by staff counsel:

.a "Q. Would the City have any objection to paying its monthly bills within 30 days from f the date of rendition of the bill for any ser-l vice tendered through a 69 kv emergency inter-connection or a 138 kv synchronous intertie?

I "A. Mr. Woods , the Division of Light and Power would have no objection, but the facts of the

]

metter are that the City must go, whether it is the Division of Light and Pouer or General Funds Division, through the same identical procedure in

[ the payment of all its bills and this must be ap-proved by the Accounting Department, by the Finance 3

Department and by the Finance Director and by the L Purchasing Commissioner. And it has been my ex-perience, I have been with the Cityof Clevelan?,

' that there is approximately a normal 60-day de.ay L in payment of any bill and I have brought that to the attention of Staff before and referred speci-fically.to the CEI street lighting contract which

^

1 /. .

s e

is in a subdepartment of my Division of Light

- and Power, Dureau of Street Lighting, where the total bill runs $1,500 and CEI allows a prompt payment discount if the bill is paid within 60 days, a three per cent prompt payment discount.

j Our payments follow the same identical procedure as the street lighting payments and are processed r in the same manner, the only difference being the street lighting payments come from one fund with a different number and ours come from our own fund which has a 104 operating charge on it. We had agreed i with counsel, with Staff and with CEI in some of our previous conferences here that we thought that that

) time could reasonably be shortened with extra effort to about 45 days and CEI had agreed that 45 days j - would be fair." (Tr. 274, 275).

i \

As another issue in this case Cleveland charges that CEI is

, deliberately trying to damage the Cleveland system so as to put it out of business as a municipal system and take it over and incorpora1 :e i

it as a part of CEI. This appears as. Exhibit No. 24. It is a memor-I I J andum bearing the caption of CEI from one R. H. Bridges to Lee C. '

llowley, dated October 9,1970. In it is contained on page 24 the

{

statement ~" Objective #4: "Five-Year Plan Objective -- 'To reduce ,'

• i and ultimately eliminate the tax-subsidized b

{ Cleveland and Painesville Municipal E1cetric

, System'" -

i A part of the CEI cffort to impair the competitive position of ,

/ I

c. Cleveland was to_ increase Cleveland's costs.. CEI witness Loshing .

testifics as to the applicability of Ohio Excise Tax (Tr. 725) and  :

1

' tem 15-

e e completely without justification for his legal conclusion that

.it is a very necessary cost

[ the tax is applicabic says, ". .

compon uit in deriving these costs." (Tr. 801).

This ties in with his earlier testimony about Cleveland (which 7

he calls MELP):

"In view of this competitive milicu, the

j rates specified in my testimony represent a minimum acceptable level; lower rates would

.p constitute an undue competitive advantage to MELP and would put the Company's customers in the position of directly subsidizing the customers

,T: of our competitor. Such an alternative situation 1 is clearly not in the public interest." (Tr. 737).

J Also interesting is the f ailure of CEI witness Ilowley, its i

General Counsel, to deny that the City of Colunbus was not paying

' the tax on power purchased from Columbus and Southern Ohio Electric Company. (Tr. 432).

Cleveland's witness, Hinchee, makes clear he feels the attcmpt _

~

to apply the tax is illegal. (10 Tr. 37, 38). *

i i Questions Presented a The Commission Staff takes the position that the long range y -

solution to Cleveland's problem is a 138 kv synchronous intertie

.5 There (A no real disagreement

- between Cleveland and CEI. (Tr. 747).

[ with this but Cleveland believes it shor: 0 Je (cdcred by the Com-t mission. (10 Tr. 32) .

f

• w The Commission has already ordered a 69 kv interconnection e

with the switch open. (Commission Order March 8,1972) .

r-Remaining questions are:

I.

L (1) Should the 69 kv interconnection be operated closed instead of open.

f.

(2) What terms and conditions should apply to the 69 kv J

interconnection as an emergency interconnection and as a permanent interconnection if made permanent.

(3) What terms and conditions should apply to the permanent 138 kv interconnection.

In considering 1, 2 and 3 the Commission should also consider.

(4) The anticompetitive conduct of CEI in the past and

(

' what will the terms and conditions imposed by 1, 2 e

and 3 do to the competitive position of Cleveland in f

L the future.

(5)

Should not a determination be made by this Commission ,

u rather than a court as to what, if anything, Cleveland i

owes CEI for power delivered through the load transfer points, and (6) If so what if anything does Cleveland owe. .

L t

r L-s

r- .

o -

• r II ARGUMENT I

U A. 'The Terms and Conditions of Service to Cleveland Should be the Same as the Terms and Conditions CEI 7; Offers Other Companies.

, Throughout this case the witness for Cleveland attempted to r - ---

j make it clear that Cleveland was not seeking treatment preferential F in relation to other bulk power suppliers with whom CEI has con-trac,tual reinH nnships.

Cleveland asserts this with regard to the availability and price of emergency power, with regard to the right of Cleveland to receive power from other sources through

[(

, CEI's transmission system, with regard to Cleveland's right to short term power, economy energy, maintenance power and all'the

other types of service normally provided between CEI and other a companies. It is Cleveland's position it should have service

\

available to it identical to that provided other electric suppliers.

li This Commission has made it abundantly clear that it views Sections 205 and 206 of the Act as prohibiting discrimination.

Section 205 specifically forbids any public utility to "make or grant any undue preference or advantage to any person or subject any person to any undue prejudice or disadvantage." Section 206

, prohibits any rate, charge or classification which is " unduly dis- .

criminatory or preferential."

[

9

==

e, ' .

The Commission in Georgia Power Company 35 F.P.C. 436 (1966)

(

7 adopted an examiner's opinion in a case uhcre the power company was seeking to impose a discriminatory requirement on its municipal

. y.

j customers, claimi g that if it did not do so industrial customers of the municipals would be able to obtain power at lower rates than the industrial customers of the company. The Examiner responded to

.g

. this by saying:

"This argument is essentially a plea for a complete monopoly in favor of the Respondent.

There is no evidence to indicate that indus-l trial loads now served through municipalities

' having no ceilings are charged uniformly lower rates than the Respondent's customers who re-ceive direct service. If municipal manipulation of rates is foreign to the concept of utility

. regulation, the same enn he said of rates ar-3 rived at by negotiation and manipulation by utility companies. We agree with the Respondent

< that the customers should be treated alike--

1 certainly those in the same class, which is the very purpose of this proceeding." 35

( F.P.C. at 447.

t The examiner in that case also rejected the complaint of the

' Company that the municipal systems " pay no taxes." This is the same language as appeared in the document which is Exhibit 24, where CEI states its objective "to reduce and ult.imately eliminate

' the tax-subsidized Cleveland and Painesville Mur.icipal Electric System."

Shortly after the decision of the Commission in the Georgia

.(.

j d. '

i Power case the Commission decided Alabama Elcetric Cooperative v.

r

l. Alabama Power Company 38 F.P.C. 962 (1967). In this case a coopera-r- tive filed a complaint against Alabama Power Company alleging Alabama l

Power Company's contract for sale of energy to the municipalities 7

i of Troy and Luverne were unduly preferential. The cooperative I maintained it was entitled to special classification by virtue of

(,

its status as a cooperative. Basically it was losing as custcmcrs 7

J the municipal systems of Troy and Luverne to the company and the r-. cooperative wanted the company to require the cities to pay an extra t

7 contribution for construction. The Commission said:

"We further find that to require a contribu-

- tion from Troy and Luverne, as coopecutive has

( proposed, would unduly discriminate against these cities in favor of Alabama Power's other whole-

< sale customers, including Cooperative, partic-1 ularly so since the record shows that it is not the practice of the Company to require contri-

.I butions for line extensions to serve wholesale i customers, and, in fact, the Company has not asked for such contribution from wholesale l customers since 1950." 38 F.P.C. at 975.

L So here Cleveland urges the Commission to be consistent with its previous determinations and by its order direct CEI to enke the home kind of arrangement with Cleveland as it makes with investor companies.

Cleveland, as was stated by its witness Hinchee, desires to i

l'..

• 7.

~

play by the same rules of the game as any other bulk power i

supplier, j B. CEI's Anticompetitive Acts in the Past Should be Considered by the Commission in Prescribing Terms and Conditions of Future Service to Cleveland, e

p- When Cleveland witness,.Hinchce, was asked the question for~

l what reason would CEI refuse Cleveland a parallel interconnection, f- he responded:

"I think the reason is pretty obvious, and pretty well spelled out in the internal memo-randum between Mr. Bridges and Mr. Houley, dated October 9, 1970, in which they set out a goal for completion by 1975 to reduce the City of Cleveland and the City of Painesville, and ac-quire those systems by 1975.

"Q. You have indicated the lack of desirability of segregating the Cleveland system as compared to a permanent intertie. What would be the effect 3,

on Cleveland Electrical Illuminating Company of a

' permanent intertie as compared to the present method of CEls taking over some of Cleveland's i load?

i L

"A. The effect would not help but be benefi-cial to both parties. The present load transfer L scheme has worked bar:1 ship on the operations of the. City of Cleveland, and also worked a hardship on the CEI people." (10 Tr. 28, 29).

L.

From Mr. Hinchec's testimony it is apparent that CEI is willing to do itself injury in order to damage Cleveland.

(

w m a

+^ . - .

w

r r- .

. j. -

r l

I As was stated, supra, Cleveland's operation is further im-c' q paired as a consequence of a nonsynchronous interconnection by the j

r unusual wear and tear imposed on its generating equipment as a con-L.

sequence of having to "take swings." If Cleveland could base load r;

.i its units and take swings as needed on the interconnection there r is little doubt that it would not have the maintenance problem it a

• has now and has had over the years. Here again is an example of

(

l CEI deliberately seeking to impair Cleveland's operations,  !

r~

Yet another example of CEI's anticompetitive practices was its l i  :

, insistence upon collecting an inapplicable excise tax. This will be,

" discussed later in this brief and we think the brief will clearly ,

1

(

show the tax is not applicable to sales to Cleveland. However, the r tax money is paid to the state so here again is CEI doing something i

t.

not to benefit itself but simply to injure Cleveland by making Cleve-I' J. land's power costs as high as possible and reducing Cleveland's 1 ability to compete.

L .

At times the Commission appears to be unwilling to sustain its j responsibility to supress anticompetitive practices among the com- l 1

panies it regulates. In the City of Pittsburgh v. Federal Power I fu j r

Commission 237 F.2d 741 (CADC-1956), the District of Columbia Circuit Court remanded a matter to the Commission citing as one of its errors

[~

l

'%e W -

---r= r , _ y.._

c -

i a failure to give proper attention to the anticompetitive aspects r' of a proceeding relating to a natural gas pipe line. The Court, i

inter alia, comments:

i "The Commission, while it 'has no power to enforce the Sherman Act (15 U.S.C.A. SS 1-7,15 note) as such * ** * (and) cannot 7

~

decide definitely whether the transaction contemplated constitutes * *

• an attempt to monopolize which is forbidden by that Act * * *,' nevertheless 'cannot without more ignore the (Act) . ' Thus, if it appears that Texas Eastern's project would tend to pro- '

t- duce monopolization of a petroleum products

( market, the Commission canno* ignore that fact merely because it is an antitrust factor and such factors have been placed within the s ken of the Attorney General. That he is specially competent as to the antitrust laws does not make all other officers or agencies i of the Government incompetent,

[r "Even private citizens play a role in the

' effectuation of our national antitrust policy.

It would seem odd if circumstances upon which private ritizens may found legal and equitabic remedies and defenses should be wholly beyond

< the reliance of Government. Although the Com-

, mission has no power to enjoin conduct as il- \

legal under the Sherman Act, or even to declare such illegality, it certainly has the right to

m. consider a congressional expression of fundamental national policy as bearing upon the question

[ whether a particular certificate is required t by the public convenience and necessity."

237 F.2d at 754.

I L The same court very recently caller! the attention of the Commissic:

E e

T?

1 . .

_ to its responsibilities in this regard in City of Lafayette v.

a Securities and Exchange Commission 454 F.2d 941 (CADC-1971). The Court in this case in reviewing an order of the Federal Power Com-c-

4 mission and the Securities and Exchange Commission approving a bond r issue, criticizes FPC for failure to concern itself with antitrust 1

In so doing the court, speaking through Judge Leventhal, issues.

r .

, says:

i "So far as antitrust issues are concerned i the agency has the opportunity to obtain the comments of the Department of Justict. It I. . may even, indeed, defer its disposition pend-I ing determination of relevant court litigation where that will aid in the determination of the l

'public interest' issue. This would be in ef-feet a reverse application of the doctrine of r

primary jurisdiction, a doctrine that has been appropriately referred to as supple and flexible.

[' . The doctrine of primary jurisdiction 'has become

[

one of the key judicial switches' in furtherance

[ of ' coordination between judicial machinery and (administrative) agencies' in matters of mutual

[ concern. Switches operate both ways, and, depend-o ing on the nature of the issue, an agency may wait for a court as well as the reverse.

f

- "We have been at pains to set forth the latitude available to the agency in approach and procedure to obviate any concern that this court seeks to interfere with its exercise of discretion. What t the court does require is that the agency take I a 'hard look' at problem areas." 454 F.2d at 953, 954.

e

, We carnestly suggest that the record in this case is replete with evidence of efforts on the part.of CEI to damage the Cleveland u

b-i

y. .

q ,

system. It also contains an unabashed admission in an "in house" document that it is the objective of CEI to take over the Cleveland ir system. If there is any anticompetitive responsibility upon this 1

Commission surely this should be taken into consideration in pre-F 1 scribing the terms and conditions of future service so as to be l[-

sure that Cleveland pays only what is fair and does not bear any 1

undue burden simply because CEI would like to price Cleveland out \k r -g g

i of competition.

C. This Commission Should Determine Cleveland Has Paid

'f CEI What it Owes for Delivery of Power to the Transfer

r Points.

'l*

First of all the issue is for determination by the Commission, 1

[ not a court. As has been mentioned herein CEI has sued in the Common Pleas Court in Ohio claiming a deficiency in the amount T  !

.t Cleveland has paid for power received at the transfer points.

I L Clearly this-involves a rate and the construction of a contract which established a rate and is not for detennination by a court L

except upon appeal from a determination by the appropriate regula-Such has consistently been the

' tory agency, in this case FPC.

! decision of courts in this country all the way from the United L

States Supreme Court on down.

In United States v. Western Pacific Railroad Company 252 U. S.

i%

1

59 (1956) an issue involved three railroads having sued in the a

Court of Claims to recover from the United States as a shipper I

i the difference between the tariff rates actually paid and those

[ allegedly due on certain shipments. The court, in rej ecting the t

effort, said:

r d

". . .because we regard the maintenance

(_

of a proper relationship between the courts j and the Commission in matters affecting transportation policy to be of continuing public concern, we have been constrained to 3 inquire into this aspect of the decision.

We have concluded that in the circumstances f here presented the question of tariff con-l struction, as well as that of.the reasonable-ness of the tariff as applied, was within the exclusive primary jurisdiction of the Inter-state Commerce Commission." 352 U. S. at 63. ,

i !

Similarly the Court of Claims in McLean Trucking Company v.

United States 387 F.2d 657 (1967) held that not only was the matter d~ of rate level a matter for determination by a regulatory commission 4

i not a court, but also a matter of interpretation of words relating to a rate. In this case the quest.on at issue was a determination of the meaning of the word " destination." The court states:

(

4 "Apparently, both parties believed that the issue is not the ordinary meaning of the word 1 ' destination' but whether that word was used L in its ordinary sense in the pertinent' tariff.

The latter is precisely the type of question which is to be determined preliminarily by the Commission." 387 F.2d at 660, 661.

9 6

L I

g

r~

r .

]. '*

, i The theory of all these cases has been that rate-making is a I legislative process which is part of the function of a regulatory a

or administrative agency.and is no part of the function of a court.

Since it is clear the rate must be determined by the Commission, I not the court, we turn our1 attention to the question of whether there t is any deficiency in what Cleveland paid. Ordinance'161-70 established

a. contract betueen Cleveland and CEI. It specifically limited the r

i amount Cleveland.can pay for power to 30 cents a month per hva demand and 8.5 mills per kwh for the first ten million and 5 mills per kwh for energy above ten million. CEI is without power to amend an ordi-r E nance enacted by the council of the City of Cleveland. Thus the.

filings which became Rate No. 7 with supplements were not a part of

the contract that had been made between CEI and Cleveland and con-

~

ctituted a unilateral attempt to violate that contract.which is pro-u hibited by the rule of the Sierra-Mobile doctrine.2 In the Sierra-l Mobile cases the Supreme Court held a unilateral filing was not u

rufficient to change a contract rate. The only contract here that has. existed between CEI and Cleveland is the original contract limited to the specification of Ordinance No. 161-70. -

f 2 Federal Power-Commission v. Sierra Pacific Power Co. 350 U. S.

+ 348 (1956); United Gas Pipe Line Co. v. Mobile Gas Service Corp.

350 U. S. 332-(1956).

ik .

r. .

! '.  : i l

In addition to the attempt of CEI to collect more from Cleveland than Cleveland can legally pay as a consequence of the ordinance, CEI has deliberately attemp+.ed to force upon Cleveland the Ohio excise tax which it must know is clearly in-

~

applicable. The Ohio Revised Code, Sections 5727.32, 5727.33 and 5727.38 specifically exclude and exempt receipts from inter-state business. The language of 5727.32 and 5727.33 exclude "all receipts derived wholly from interstate business." 5727.38 ap-i plies only to gross receipts "of. . . intrastate business."

The statute as it is today is the consequence of determina-tion nade by the Supreme Court in East Ohio Gas v Tnx Commission 238 U. S. 465 (1931) uhere the Supreme Court knocked down the Ohio gross receipts tax as it might otherwise have applied to inter-state gas transfers. The Court said that the tax as it purported to cover interstate business was voided by the Commerce clause 1

of the Federal Constitution. Subsequent to the determination in the East Ohio Cas case the statute was amended specifically to put in the exemptions or exclusions for receipts from interstata

-- transactions.

f CEI is not so ignorant of the law as to fail to understand u

that this tax is clearly inapplicable to Cleveland. It only could 6

L

• s ,

O

= w

.p, .

-i 1

. have attempted to exact the tax as one more device to increase Cleveland's costs and Phus impair its position as a competitor

r-in the field of power st pply in the Cleveland area. CEI also is acquainted with the fact that in certain other cases in Ohio, municipalities are refusing to pay the tax with impunity as ,

was mentioned in the record in the case of Columbus, Ohio pur-

'~'

chases from Columbus and Southern Ohio Electric Company. The arrogance of CEI's attempt to foist this inapplicable tax on Cleveland is little short of shocking.

With respect to other purchases of power from CEI the only place in the record which c1carly shows what was due and what was paid is Exhibit 39 wherein each of the bills was recalculated a to remove the excise tax, to give Cleveland a rate consistent

!l with Ordinance 161-70 and to correct certain CEI miscalculations

'that had been made on the bills by CEI. It is, therefore, sub-

- vitted that the proper calculations of amounts owing between Cleveland and CEI show that as of February 29, 1972, the amount u

owing to CEI was $95,665.15.

.L.

b

_pq_

~

s .

4 III CONCI.USION The testimony in this case makes it clear that the parties

~

herein have not been abic to agree. It also makes it clear that CEI attempted by a simple filing, which was never understood by representrtives of Cleveland, to hike a rate agreed upon between the parties in the Cleveland Ordinance 161-70. The Sierra-Mobile doctrine forbids this and the rate as specified in Ordinance 161-70 should prevail until a finding of the Commission on basic principles of rate making that this rate is no longer appropriate. i

- It is further evident that CEI has in numerous ways employed anticompetitive practices against Cleveland which have been damag-T ing to the Cleveland system and have contributed, at least indirec t1

~~

to many of the problems which the Cleveland system has faced, in-L cluding its blackouts.

- The record also shows clearly that Cleveland needs something p.,

more than a nonsynchronous interconnection at 69 kv. It needs a

.L synchronous interconnection at 69 kv followed by a synchronous

~~

interconnection at 138 kv. Until the 138 kv interconnection is in commercial operation, since Cleveland will be limited to the ap-proximate 40 mva of capacity on the 69 kv interconnection, the load transfer points should be maintained, t

S b

OA e

n . . , ,

The terms and conditions for service at the 69 kv and 13 3 kv interconnections should be consistent with rates and services CEI

- provides generally and particularly with the terms and conditions contained in contracts betwcon CEI and other companies.

In conclusion Cleveland submits this Commission should make $

~

its order in accordance with the requested findings hereinafter set 3 out.

- Respectfully submitted, BROJN, TOD  % EvBURN By ,$/3 , r , va j

PhilipiP. Arderf 1600 Citizens Plaza-L Louisville, Kentuckp 40202 Attorneys for Clevelan.d May 8, 1972

%=as M

M lh I-l l

(. .

l m s -

f

.- 1 4e,7 IV . , ,<

.l,../d >i s.

REQUESTED FINDINGS Of'

1. CEI is a public utility within the meaning of Section 201(a) of the Federal Power Act.

- 2. Cleveland is a " person" within the meaning of Section 202(b) of the Federal Power Act.

~

3. It is necessary and appropriate for purposes of the T~

Federal Power Act, particularly Sections 202(b) and 202(c) there-t of, that the Commission order CEI to establish physical connection of its transmission facilities with the facilities of Cleveland at the CEI 72nd Street Station, to sell energy to and exchange energy with Cleveland upon the terms and conditions as ordered below.

Such sale and exchange of energy will not place any undue burden upon CEI, nor require CEI to enlarge its generating facilitics for

"' such purposes, nor impair its ability to render adequate service to u -

its customers.

u 4. Cleveland and CEI shall construct at Cleveland's expense a 69 hv interconnection between the Cleveland system and the CEI u

72nd Street Station, which interconnection will be limited in use

- to 40 mva capacity and shall be operated with switches closed under normal circumstances.

Said 69 kv interconnection shall be used only in case of emergency on the Cleveland system and payment for use by

Cleveland to CEI shall be 17.5 mills per kwh, or cost plus 10 per cent, whichever is greater. Cleveland shall, except in em-crgency, maintain zero power flow over the interconnection as nearly as possible and inadvertent flows of power may be returned by either i

• party. .

5. Cleveland and CEI shall construct at Cleveland's expense

- a 138 kv interconnection between the Cleveland system and the CEI 72nd Street Station to be operated with switches normally closed.

r The ter.ns and conditions for operating said 138 kv interconnection shall be as indicated in Appendix 1 hereto.

6. Until the 138 kv interconnection is in commercial operation, L. /

'- lor A;,ril 30, 1973, whichever is earlier, the load transfer points now in use between Cleveland and CEI shall be continued. If within r 60 days before April 30, 1973 it appears the 138 kv interconnection t

will not be in operation by April 30, 1973, Cleveland may report this i

m.

to the Commission and request an extension of the load transfer points, m

7. Fayment for power and energy delivered by CEI to Cleveland i

'- over the load transfer points shall be at the rate of 30 cents a month per kva of demand with energy at 8.5 mills per kwh for the u

first total of ten million kwh delivered over all of the transfer

~

~

r -

k.

j. -

~

l b

points taken as a unit, and 5 mills per kwh for kwhs above ten million. In addition to the demand and energy charges, CEI may impose its regular fuel escalation. Within 30 days of the date

- of the order of the Commission, CEI will submit a rate for power and energy delivered over the load transfer points in compliance

, herewith.

8. As regards the amounts claimed due from Cleveland to

[~

CEI, the Commission adopts the statement as contained in the Cleve-

- land Exhibit No. 39 to the effect that as of the end of February, 1972, there was an amount due to CEI in the sum of $95,665.15.

Bills for future deliveries of power over the load transfer pointe shall be computed in the manner of Cleveland's computation in Exhibit 39, save and except for the application of fuel escalation as herein-

'~ above specified.

9. Cleveland shall pay bills rendered by CEI not later than .

t. '45 days subsequent to receipt of the bill unless a valid controversy exists as to the computation of the bill. If Cleveland fails to pay a bill af ter said 45 days, 5% shall be added to the bill. If said bill is not paid after 60 days, an additional 2-1/2% shall be added.

10. The parties hereto shall construct the aforesaid 69 kv and 138 kv interconnections in the shortest reasonable time.

~

I I

it. ,

I *

.'t .

3- 9

p-i 11.. CEI shall report to the Commission the date of commence-7..

it ment of service of the 69 hv interconnection within 30 days follow-

.~.

ing:the'commencsment of such service.

n d

4 ee i

i-e I

b

?

j.

1 p.

!I t

U]

l

+

2 a

.f , .-

il 3-

j

.L .

1 1

c f

i v,

L.

lC

.6 g SI

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

r .

.I ,o h .

APPENDIX B

,~ . E .* i . .

, - ($ .** *

~.

T?. UNITED STATES OF AMERICA

,.- FEDERAL POWER COMMISSION

'l

.',' . City of Cleveland, Ohio .)

g. . , , ,

)

.,. .v .

~

. , /.. .. )' .. Docket Nos. E-7631

.(1, . ie '

) and E-7633 t.i Cleveland Electric Illuminating )

f'! , M LCompany , ) ^

" , ';. f _)

j ' ~C,'l . , and .. ,- )

f.. ; .'.'i . , ,.

)

,7 ? p, City of Cleveland

~) Docket No. E-7713 4' . ' I, .; '

+.' l BRIEF ON EXCEPTIONS

) l1. ,

, ; \.

.?d. '

0- OF THE. CITY OF CLEVELAND .

v. ~

!! Q,;

. ..t

l . ' ', r ,

'^t .t.

~:l o . .

] .'Q,;l ...g 8 . . . . . , - p .. . . . .. . . , . , .,. , . . . . _ . . , . . . . . _

. .u .- . ..c. ,

, y .

! .:e :s

,., .2-..

b ,-

~

a. ; '.J. .

m .. - ~;

, ;e; , ,

\ **h

~i BROWN, TODD & HEYBURN i.. "l f ,

^

Sixt-' enth Floor Citizens Plaza 5,

'." Louisville, Kentucky 40202 5 i Attorneys for City of C1.eveland

(-. . :

Philip P. Ardery u BROWN, TODD & HEYBURN

! - August 9, 1972 n on M-k

l

r. -

-( .

TABLE OF CONTENTS Page 1

r' I. STATEMENT OF THE CASE. . . . . . . . . . . . . . .

(

II.

SUMMARY

OF THE BASIC POSITION OF 4 CLEVELAND. . . . . . . , , . . . . . . . . . . .

s III. THE GROUNDS UPON WHICH THE EXCEPTIONS 6

!(j.. REST. . . . . . . . . . . . . . . . . . . . . .

4 7

IV. ARGUMENT . . . . . . . . . . . . . . . . . . . .

' 1. The Ordinance Specified the Contract Rate and the Examiner is Unsupported by Evidence in His Comments about CEI's Claims .for . . . . 7 Amounts Due From Cleveland.

(~

2. The Price of Power Since the Expiration of the So-called FPC Rate Schedule No. 7 Cannot 11 r be Supported. . . . . . . . . . . .. . . . .

i t

3. All Interconnections Should be Snychronous 12 With Switches Closed. . . . . . .

i

4. The Commission Should not Turn its Back on Anticom' pet'itive Practices of CEI but

-[ They Should be Condemned by the Commission

,' and Should be Considered in Frescribing 14

', Terms and Conditions of Future Service .

s.. 15 V. CONCLUSION. . . . . . . . . . . . . . . . .

i "A" . . . . . . . . . . .Pages 1,2&3 ATTACHMENT .

ATTACHMENT "B" f

"/

b le 4.

m

~

s -

(_

r -

j .

.f TABLE OF AUTHORITIES

.F Cases Page 1

City of Colton v. Southern California F Edison 26 F.P.C. 223 (1961). . . . . . . . . . . 10 East Ohio Gas v. Tax Commission, 238 U. S.

~

465 (1931). . . . . . . . . . . . . . . . . . . 8 F.P.C. v. Sierra Pacific Power dompany

). 350 U. S. 348 (1956). . . . . . . . . . . . . . 10 o

... St. Michaels Utilitics Commission v. Eastern

, Shore Public Service Company of Maryland I'

31 F.P.C. 1161 (1964) . . . . . . . . . . . . . 10 j United Gas Pipeline Company v. Mobile Gas 10

,l Service Corporation 350 U.S. 332 (1956) . . .

'T STATUTES AND REGULATIONS:

s a Ohio Revised Code Sections 5727.32, 5727.33 7 and 8

! and 5727.38. . . . . . . . . . . . . . . .

z-Commission Regulation,5 35.1(d) . . . . ... . . . 9 i Commissions Rules of Practice and i Procedure 5 1.31 . . . . . . . . . . . . . 1 MISCELLANEOUS:

Charter of the City of Cleveland 5 109 . . . . . 9 7

b.

b emeo-

'A

• 4 l

ii ,

s

h

] 1 r

UNITED STATES OF AMERICA

.,. FEDERAL POWER COMMISSION

f'

' l' City of Cleveland, Ohio )

)

v. ) Docket Nos. E-7631

) and E-7633

+

Cleveland Electric Illuminating )

lt Company )

)

l and )

d )

City of Cleveland ) Docket No. E-7713 1

[

BRIEF ON EXCEPTIONS OF THE CITY OF CLEVELAND

! I

(

, STATEMENT OF THE CASE

" This case comes to the Commission under the Commission's Rules of Practice and Pr'ocedure, 5 1.31 as Cleveland's exceptions to the Initial Decision of the Presiding Examiner issued July 12, 1972.

This case was commenced May 13, 1971 when Cleveland filed a formal complaint'against Cleveland E'lectric Illuminating Company j (CEI). The complaint alleged that Cleveland had commercially operable u

capacity insufficient to meet its load, that it had attempted unsuc-

- cessfully to obtain a synchronous interconnection with CEI and that as a consequence of its isolated operation it had experienced blackouts h

w I

w I

r 1 . .

,. from forced outages and was likely to experience more.

CEI had arranged transfer to approximately 26,000 KVA of Cleveland's load to CEI at'a rate which Cleveland alleged was 7- fixed originally by an agreement which was embodied in City Ordinance No. 115-70. The ordinance specified an agreement between C'EI and the City would " provide further that the CEI shall sell said power to the City at a rate not to exceed 30 cents a month per KVA demand,

$0.0085 per KWH for ten million KWH, and $0.005 per KWH above ten million." Ordinance 115-70 was repealed by Ordinance 161-70 on January 19, 1970 but the repealing ordinance repeated the same agreed price for power purchased.

CEI wrote letters subsequent to the enactment of the ordi-s nance attempting to change the basic understanding and establish a modification of the rate so as to make the price higher than the maxi-mum set by the original agrcement and the ordinance. The letters

] were filed by CEI with the Federal Power Commission and the Federal Power Commission accepted them for filing as.CEI's Rate Schedule No.

7 with sup;Tements, a

L Cleveland's complaint alleged that the letters changed the agreement between CEI and Cleveland in certain ways. The letters were approved by Cleveland's then Director of Utilities and ecsistant Director of Law but both of these officials have given affidavits now i..

• l l

e

r j -

a part of the record as Exhibits 37 and 38 in which they say that

-c

[ they did not have any knowledge that the language contained in the r letters purported to exceed the price for power theretofore agreed 1

to and incorporated in the ordinance or they would not have approved m

them.

I The present Commissioner of Light and Power of the City of Cleveland, Warren Hinchee, came to Cleveland on. March 15, 1971 (15 Tr. 21).* At that time the City's generating units were in sad disrepair. Hinchee immediately stepped up work to put the machines e in commission as quickly as possible. He also noted for the first a

time that CEI's billings were not in accord with the original agree-ment and the price of power incorporated in Ordinance 161-70.

1 The questions initially posed to the Examiner were whether L.

Cleveland should have a anychronous interconnection with CEI and at f

i what voltage level any interconnection or interconnections should be operated, what should have been the price of power for energy sold L

over the load transfer points and what should be the price of power prospectively for energy sold by load transfer and/or by other inter-connection or interconnections in the future. Also how much, if anything did Cleveland owe CEI for service.

• Two prehearing conferences were held in these proceedings, one on February 10, 1972 and the other on February 15, 1972. Transcripts

- will be designated 10'Tr. and 15 Tr. .

4 w

N

r-11 .

^

II-

SUMMARY

OF THE BASIC POSITION OF CLEVELAND r- It is Cleveland's basic position that there should be two interconnections with CEI, one a 69 KV which can be made very quickly, and the other at 138 KV which will take approximately twenty-four months owing to the lag time in procurement of equip-ment. It is Cleveland's position that both of these connections I

should be operated snychronously and with switches closed.

] It is Cleveland's position that the price of power pur-r chased from CEI through load transfer was fixed in the ordinance and that CEI agreed to this at the time the ordinance was passed

and by subterfuge CEI later attempted unilaterally to raise the rate, r which attempt did not result in changing the legal rate or in any way m

modifying the rate agreed upon ar.d prescribed by Ordinance 161-70.

(

[ It is Cleveland's position that the Examiner erred in not ordering the 69 KV interconnection to be operated with switches closed; t

that the Examiner erred in not adopting the price of power to the end of May, 1972 as agreed to in Ordinance 161-70. It is further Cleve-(

l land's position that any increase subsequent to the end of May, 1972 is subj ect to price commission regulations and that the increase ad-opted by the Examiner in his opinion is more than a 50% increase in l

4_

v w

7 s

1 .

1 the cost of power which violates price commission regulations. It f r i L is finally Cleveland's position that the Examiner erred in complete- !

,r ly ignoring the anticompetitive acts committed by CEI against Cleve L

land and that those anticompetitive acts should be borne in mind by  !

P the Commission in any change of rates to prevent CEI from getting

1. an unwarranted competitive advantage over Cleveland.

i Cleveland excepts to the conclusion drawn by the Examiner,

' Paragraph 1, P. 16 of the Examiner's Decision, wherein he specifies a 69 KV "non-snychronous open switch interconnection." Cleveland

, does not except to the price established by the Examiner for emergency service at 16.8 mills per KWH, but does except to the rate for con-tinuation of load transfer at 13.8 mills per KWH.

As previously indicated Cleveland excepts to Paragraph 3 L

of the Examiner's Conclusion, P. 16 aforesaid because of the obvious

(

[. and virtually admitted anticompetitive practices of CEI.

t As to the first six of the " additional findings and con-clusions", P. 17 of the Examiner's Decision, Cleveland excepts only to the provision of a 69 KV open switch non-snychronous interconnection.

Cleveland excepts to Finding No. 7, P. 17 as to the rate as heretofore indicated.

As to the Examiner's Order, Cleveland again excepts to 3,.

W.

5

. - -r _

7 i .

P' provision for a 69 KV open switch non-snychronous interconnection r and it excepts to the provision for a change in rate as hereinbefore stated.

- Cleveland does not except to the other provisions in the Order, including a provision for a 5% penalty if Cleveland does not

~

pay its bills within forty-five days of receipt and an additional l

2-1/2% if not paid within sixty days.

f Finally, Cleveland excepts to a statement made on Page 10 r of the Examiner's Decision, as follows:

i

'accordingly, Rate Schedule FPC No. 7, as supplemented, is the legal rate for service

prior to May 19, 1972, and CEI claims

$788,239.48, for such load transfer service as of May 19, 1972."

i Cleveland has reported to the Commission and to the De-r L partment of Public Utilities, City of Cleveland, its claim that as of May 31,1972 it was due $733,696.19. (See Attachment "A", P. 3).

e III THE GROUNDS UPON WHICH THE EXCEPTIONS REST The grounds upon which the exceptions rest in this case are that the Examiner, in the portions of his Initial Decision, his 1

l conclusions and his order, which have been excepted to, leaves him-scif unsupported by facts and at odds with predominantly existing law.

h m .

i Details of these grounds are hereinafter stated.

I IV i

_ ARGUMENT i

i 1. The Ordinance Specified the Contract Rate and the Examiner is Unsupported by Evidence in His Comments I

about CEI's Claims for Amounts Due From Cleveland.

As indicated above, the Examiner, on Page 10 of his opinion o

d stated that CEI claims "$788,239.48 for load trancfer service as of v

May 19, 1972." Nowhere in the record have we been able to find the basis of that figure. CEI reports as of the end of June, 1972 as i

indicated in Attachment "A", Page 3 that the " total due CEI from I~

! previous bill $733,696.19." This is a statement that CEI claims

that figure to be due ' of the first of June, 1972, including excise t

tax, i

L-But the Examiner, PP 12 and 13 of his opinion states that

.[, the rates established by this Commission should exclude excise tax,

, leaving it to the state court to determine whether the tax is applic-able.* In the original brief filed with the Examiner a review of the

.f excise tax statute was given, Ohio Revised Code, SS 5727.32, 5727.33

-

• Attachment "B" to this brief gives a recomputation of the actual amounts due CEI if the so-called rate schedulo 7 as supplemented were the legal rate. This Attachment shows face amounts of bills less tax and less payments.

4

.- and 5727.38. These sections specifically exclude and exempt i

receipts from interstate cusiness and it was pointed out to the r

i Examiner that the exemption of interstate business and the applica-

[ tion of the tac only to " intra-state business" was the consequence t

of a supreme court decision in East Ohio Gas v. Tax Commission, I

238 U. S. 465 (1931) . There the Supreme Court knocked down the j gross receipts' tax as it might otherwise have applied to inter-r state gas transfers, saying that such a tax was voided by the r

Commerce Clause of the Federal Constitution. After that decision i was handed down the Ohio Legislature amended the act to' exempt I~ receipts from interstate transactions, t

So we have a statement of CEI that to the enr1 of May I

and including gross receipts tax they claim $55,000 less than the Examiner states in his opinion was due on May 19, 1972. But we urge

[- , this Comr;ssion not only that the gross receipts tax is obviously L i inapplicable but the legal rate was that reached by agreement of x

L the parties prior to and inserted in Ordinance 161-70. It was the agreement fixed by CEI and the City Council and even though the so-L_

called " letter agreements" were subsequently approved by the directors of utilities and law, those letter agreements could not have altered a

the prior agreement and a determination by the council.

,L D-g .

.s_

F l

l

F. - -

' And so with respect to the attempted changes in the so-called " letter agreements" which followed it is important to look I at the Charter of the City of Cleveland which is in the record as r

i t

Exhibit 36. It provides as follows:

"All contracts, agreements or other obligations p entered into and all ordinances, passed, re-i solutions and orders adopted, contrary to the r provisions of the preceding sections, shall be j void, and no person whatever shall have any claim or demand against the city thereunder, nor shall the council, or any officer of the

[ city, waive or qualify the limits fixed by any i

ordinance, resolution or order, as provided in I section 106, or fasten upon the city any liability I whatever, in excess of such limits, or release or relieve any party from an exact compliance with his contract under such ordinance, resolution,

[t or order." (Emphasis added.) (Charter of the City of Cleveland 9 109.)

[t It is also well to recall that the city directors who purported to approve the letter agreements both under oath deny that they understood the trick that CEI was attempting to pull to raise f

[ the rate since they were not experts in such matters as CEI was.

[ (See Exhibits 37 and 38) .

L This Commission Regulation 5 35.I(d) prohibits a utility from collecting a rate "which is different from that provided in a rate schedule required to be on file with this Commission. . . ."

(Emphasis added.) The law is perfectly clear that an agreement

- reached between parties can become an effective legal rate without b i=-

_9 t

i i

being' filed. St. Michaels Utilities Commission v. Eastern Shore Public Service Conipany of Maryland 31 F.P.C. 1161 (1964). Here l the Commission directly holds that a contract between parties is con-trolling and cannot be unilaterally changed even though it is not properly filed.

St. Michaels cites the City of Colton v. Southern Calif-ornia Edison 26 F.P.C. 223 (1961). In this case Southern California i Edison and Colton had a contract which included a rate and the con-

, tract was never filed. The Commission stated "the fact that the i

l contract rate was not filed does not prevent our jurisdiction from

' attaching." 26 F.P.C. at 232, and held that the contract though un-filed was the only lawful reta until changed by order of the Commissior..

t .

These cases bring to play the Sierra-Mobile Doctrine'l where-

[ in the Supreme Court has. held that a unilateral filing by a party cannot alter a legal contract rate such as has here attempted to

[

(

be done, f

L.

i.

• F.P.C. v. Sierra Pacific Power Comoany 350 U.S. 348 (1956)

United Gas Pipeline Company v. Mobile Gas Service Corporation 350 U.S. 332 (1956). -

~.

m WW N

r 1 2. The Price of Power Since the Expiration of the So-called FPC Rate Schedule No. 7 Cannot be Supported.

]

Though we urge, as hereinabove stated, that the only legal rate was the rate as speciti;3 in Ordinance 161-70, even if FPC Rate

'r

{

Schedule No. 7 were the legal rate, the change of that rate to 13.8 mills directed by the Examiner in his Inition Decision is insupport-able. Mr. Hinchee, Commissioner of Utilities .for Cleveland, testi-r k fied that under the billings being received by Cleveland, including I~ the excise tax, the price came out at approximately 9.25 mills per i

KWH. (Tr. 257). A change from 9.25 including excise tax to 13.8 r

I i exclusive of excise tax is slightly more than a 50% increase over and above a rate which we say was much higher than the legal rate.

p It would be very substantially more than 50% higher than the rate originally agreed upon and specified in the ordinance.

[

If this Commission is to give any concern to price stabi-i lization guide lines and.to regulations of the price commission L

this is completely unwarranted. Not only is a 50% or more jump in the rate for power purchased by Cleveland a violation of price i guide lines it allows CEI to continue its anticompetitive advantage, c

which is a part of the argument hereinafter made.

L Cleveland makes no complaint about the rate the Examiner i

ww

r specified for emergency power for, though that rate seems high it r is to some extent consistent with rates for emergency power now currently in vogue.

, Cleveland in its initial brief requested a rate established

~

in the manner of Cleveland's computation in Exhibit 39 (as provided in the ordinance) with addition of fuel escalation as CEI applies fuel escalation in contracts with other bulk power suppliers. This protects CEI, gives it a reasonable return and yet does not permit p CEI an excessive rate imposing upon Cleveland an a ticompetitive i

disadvantage.

3. All Interconnections Should be Snychronous With Switches Closed.

1 Cleveland Witness, Hinchee, testified about the s.rious

[ problems created by a non-synchronous open switch interconnection.

L He states that if he needs power on an emergency basis and the switches i

l are open it causes him to have an outage which might run to an hour or two of switching interruptions. He states:

"If we have the switch closed and we are I

operating synchronous and we lost a unit and we have an emergency, there is no reason to have service interrupted. We would not take power unless we did lose a unit. If we are starting up No. 5 boiler right now,

. I presume we would be buying power right at this particular time but it would be of short By 5 or 6 o' clock tomorrow No. 5 duration.

F.

1 1- .

~ . _ ,

boiler would be on the line and we would i cease the purchase of emergency power.

That is the advantage of the synchronous tic in a closed position to the City. That is what we feci is necessary. Our system has been interrupted and abused and this is abusive of equipment. This in itself generates failures of equipment when you are constantly l knocking them off the line and having switches e opened, you know, and interrupted because the

! system falls apart. This is abusive and creates additional causes of failure of equipment itself."

(Tr. 213).

The fact is that the Examiner has prov'ded a " blackout" type interconnection in his initial opinion without any reason what-soever. The Commission made the same mistake in its order issued March 8, 1972. It is well to remember that Commissioner Carver, dissenting from that order, commenting:

"The ' emergency' now being act.ed upon is neither more nor less than the ' emergency' which has existed for months or years here-

{ tofore. The effect of the order of the Com-mission for a non-synchronous interconnection at 69 kilovolts does not serve the cause of reliability; it does not achieve anything re-sembling appropriate relief from an electric t

reliability standpoint. It meets only the L public relations objective of making it appear that the Commission has taken constructive action following an outage on the Cleveland city system which got a lot of political and media attention."

'It is obviously true that a 69 KV interconnection operated on a snychronous basis would not provide all the backup that Cleveland he

t needs, but it was quite obvious from Hinchee's testimony and virtually undenied in the record that a snychronous tie at 69

~

KV is infinitely more valuable to Cleveland than a tie with open switches. We submit the concern of the Commission here should be to avoid blackouts in Cleveland and if that is so there is no reason to support the Examiner's recommendation.

4. The Commission Should not Turn its Back on Anti-competitive Practic's of CEI but They Should be Condemned by the Commission and Should be Considered

- in Prescribing Terms and Conditions of Future Service.

In the Initial Decision the Examiner sweeps under the ruf; the anticompetitive practices of CEI, so clearly established in the

(

record, blandly saying: "The city did not present any testimony a~

the hearings on CEI's anticompetitive practices, nor did it cross-examine CEI's witnesses on this issue." (Initial Decision, P. 14)

The Examiner does this in the face of the captured in-hou se document which was a memorandum to Lee C. Howley, Chief Counsel of i

" CEI from an official of the company in which one of the " major objectives--1971" *s stated "to reduce and ultimately eliminate T the tax subsidized Cleveland and Painesville Municipal Electric System." (Exhibit 24). This is a complete admission on CEI's part g

that its aim is to destroy its competitor and to have the Examiner m

say there is no evidence of anticompetitive practices is pre-s.

posterous."

Other anticompetitive practices which the Examiner re-jected are such things as the insistence of CEI on a blackout type interconnection for Cleveland and its attempt to foist an illegal

, type of tax on Cleveland knowing of its illegality, simply to in-crease the burden of expense and put Cleveland at an anticompetitiv e disadvantage.

If the Examiner can ignore these practices, he can ignore anything insofar as anticompetitive activity is concern'ed. So we suggest that the Commission, if it believes the Act has any policy against anticompetitive practices, these matters should be recognized and taken into consideration in regulating the relationship between Cleveland and CEI.

V CONCLUSION u

Cleveland, in conclusion, recommends the following order:

1. The calculation for amounts due CEI from Cleveland shall be recapitulated to accord with the original agreement between the t

• In this brief writer's experience this compares to a situation he obset<(d in a small county court house in Kentucky many years ago where

' .a jury was empaneled solely to fix the penalty of a felon who had plead; guilty. The jury went to the Jury Room, deliberated for thirty minutes and returned with a verdict of not guilty.

4

l parties as specified in Ordinance 161-70 through the end of May, 1972. Subsequent to that time the rate fixed for all power provided except emergency power shall be 30 cents per month per KVA demand r

with energy at $0.0085 per KWH for a total of ten million KWHS and

$0.005 per KWH above ten million, together with fuel escalation as presently in effect between CEI and other bulk power suppliers.

2. Both the 69 KV and the 138 KV shall normally be operated synchronous with switches closed.

r

3. The anticompetitive practices heretofore engaged in by CEI against Cleveland are hereby recognized and condemned and the Commission will monitor these practices in the future so as to pre-vent CEI from taking illegal competitive advantage of Cleveland.

, 4. The conclusions, findings and order of the Presiding Examiner are adopted except to the extent that they are inconsiste'nt with 1,

• 2 and 3 above.

Respectfully submitted, E BRO A , T0h & 4EYBURN

$ By ( tA L g - ( th

' Phili)P.nrdery{

1600 Citizens Pld,za I Louisville, Kentu'cky 40202

- i August'9, 1972 r

8 0

\ -

.r .1. ,. C L tV n ..i>

I... . , J. t r... i.. .rC T R I C ,<.

.. . e. . ..:,c too . , . . : . m , ut.u ...;,. c ...

I l ILi.L':.lli! AYl!!O C Ci.1PMiY m ~.:.5 9 99 w+ -

s I MA,L Accatss PCs? Chou. oc t nr: = c:.t.t.4 40, es::a . :p

( % s',jj

~ Sctwng Thc Elest Lcestoun on :nc tbtion

.p..

i Department ;? Public Utilities. City of Cleveland Billing Memorandum - Month :>f JUG 1972 .

I For Service from 5-31-72 through 6-30-72 3

P

1 Load Transfer Energy Charge: (See Exhibit A) $ 188,415.05 i Total kWh = 10,766,574 i

Tertporary 69 kV Emergency Service: (See. Exhibit B) $ -

o

. Totcl kWh =

Total Charge for Electric Service $ 100,L15.05 Total Arrears (See Exhibit C) $ 642,487.73 r To';al Other Charges (See Exhibit D) $_

j s

Total Amount Due CEI $ 830,902.78 i.

i t

i, L~

J. R. GUY -

S L g:g;;&n' k,\1 'Yv n- - --- , - 3% %

T Dstia' M INe d

Approved:

Supciintendent . - System Opere. tion u,nd Test Depr.rt::. ant ATIACIIMENT "A" -Sheet No. 1

.. . n . . . . . ..

rb. 01a itj s.r 1,14et i.- El'_=:i r.2t 5 :.g Co.mpsr.y L . T ' :. ., c'. r tr.+.: *;

.C C c p b::6 I a .; >, r . . , ', . , c . ',,1 1.U..: t. . . : , .: :y

,  : :. sti Tr n;~ r. t- . *:r : ~ 'c

. .;r :.wr. .::e fr: 31-72 __ -h r r .-h 6-30-72 i

I t

, 1. Er.crcy Cherce:

I 16tal kKh = 10,766,574 khn = $ 188,415.05 i kWh 6 $.0175 x 10,766,574

(

c 1

i-

2. kh'h Meterol incrc :

' l.eter F.eri strritict L h es rr.; 2r or I;iff. X: Mr i 'I s t a l k'. n Location _

r- '

4638' 153 ' 30,000 4,590,000" Frod cEl clint:n nut 4791

[

6309' 283 8,000 2,264,c00 -

Fr'am CEI V-380-LS-G 6592

[ 3103 29^>0 - 113 16,000 1,ScS, coo

• From CEI V-417-L3-G 6195 5995 200: 4,c82 816,400 From CEI V-537-LS-c 7266- 7003> 263: 4,893 _1,208J.5 7 Fron CEI clark cub

',' lo Total kWh: =_J66.574

=

L.- ,

r ri r

1 l

L l -

1 4TTACIIMENT "A" - Shee t No. 2 l

l

.,m.. __ . , . . ,

f.di.h t31 L U c ..

i 7-.

The Cleic h.nd 21cetric Illtr.ir.at ir.; Co.r. par.y Billin.; Mc.v.nrandum to l Depus toer.*. of Tui;11e Ut:11 tics, Ci y cf Clevelar.d Arrears r-733, @ 6.19

! Total Due GI from Tre.rious Bill $_

J ll Less: Payments Received Eurin5 Month:

Date 6-27-72 $ - 91,208.'6 4 Date -

Arrears as of Billin5 Date $ 612,1;g 3 6

i u

+

r r

I Y

Y.L e

% a 7

6-,

a A.

\

"A" - Sheet No. 3 ATTACINENT

~

CEl-MELP BILLING AND PAYhErlT StmMARY MONTHLY OHIO PAYMENTS PAYMENT BILL TAX OATE 1970 February $ 42508.55 $ 1634.94 $ 42508.55 4-16-70 March 94333.10 3628.20 94333.10 5-27-70 ApriI 83183:70 3199.37 83183.70 6-11-70

,_ May 39978.60 1537.64 39978.60 8- 3-70

, June 134964.00 5190.92 134964.00 11-10-70 July 207776.90 '7991.47 August 222269.40 8548.82 September 209728.30 8066.42 3 October 183126:60 ' 7043.33 November 193260.50 7433.10 l December 179026.20 6885.62 1971 January 157098.70 6042.26

February 107777.30 4145.28 107777.30 3-24-71 March 110935.90 4266.77 400000.00 7- 2-71 April 102330.50 3935.79 400000.00 . 8-13-71

May 103268.90 3971.88 692367.06 11-10-71 June 98652.40 3794.32 93843.46 12-17-71 July 72638.30 2793.78 August 75609.50 2908.07 September 103959.10 3998.43 .

October 116151.50 4467 37 100401.12 1-31-72 Novegiber 108430.10 4170 39 89248.32 2-25.72 December 105655 70 3691.17 93856.59 3-20-72 1

1972 January 110704.70 4257.87 95950.66 4- 6-72 f February 109423.99 4208.62 95665.15 5- 5-72 i

March 112623.98 4331.70 97764.42 5-24-72 April 101665.11 3910.20 May 109313.53 4204.37

? 19 Adj.

Gr CEI 8828,15 ,__,9685.39 12-31-71 Credit

} 3,405,223.61 130,258.10 2,671,527.42

' 91,208.46 6-26-72 95,372.40 8- 2-72

~

$ . 3,405,223.61 $ 130,250.10 $ 2,858,108.26 u

Total C.E. I . Billing thru 5-31-72 $ 3,405,223.61

• Less Help Payments thru 5-31-72 2,671,527.42 L Total Balance thru 5-31-72 Per F.P.C. Rate #7 $ 733,696.19 Less Ohio Excise Tax 130 p x.10 Balance as of 5-31-72 Per F.P.C. Rate #7 Ms,438.09 Less Payments Made After 5-31-72 for Service thru 5-31-72 186,580.86 Balance Per F.P.C. Rate #7 For Service thru 5/31/72- $ 416,857.23 1972 June 188,415.05 7246.74 l 3593,638,66 137,504.84 $ 2,858,108.28 ]

L~ RS:mcm  !

~

'"7 ATTACIB1ENT "B" s

d t -

CERTIFICATE OF SERVICE I!

f .

' I hereby certify that I have this day served a copy of the foregoing document upon all parties l of record in this proceeding in accordance with the i requita.ents of Section 1.17 of the Rules of Practice and Procedure.

4 L

y.

j. Dated at Louisville, Kentucky, this 9th day of August, 1972. i t 1

s 10 r ,(1 PhiIip P.6 A (

l dery, Counsel for the City of Cleveland, Ohio i

I L .

t.

f f

L_

a l

4 "

n.

! , APPENDIX C i /

UNITED STATES OF' AMERICA FEDERAL P0tfER COMMISSION

\

f",

City of Cleveland, Ohio ) /

)

v. ) Docket Nos. E-7631

) and E-7633 r Cleveland Electric Illuminating )

, Company )

. )

and )

)

City of Cleveland ) Docket No. E-7713 REPLY BRIEF OF .

CITY OF CLEVELAND, OHIO f

L BR0',1N, TODD & HEYEURN Sixteenth Floor

! Cit!" ens Plaza t Louisville, Kentucky 40202 I Attorneys for City of Cleveland L

Phifip P. Ardery

BROWN, TODD & llEYBURN May 26, 1972 ,

s .

b

- -y 4

-r ,

i -

r a$

"- TABLE OF CONTENTS r

'r Page I. INTRODUCTORY STATEMENT. . . . . . . 1

r II. TIIE LEGAL RATE BETWEEN CLEVELAND AND CEI IS THE RATE SPECIFIED IN ORDINANCE NO. 161-70. . . . . . . . 2 r III. AN EMERGENCY 69 KV INTERCONNECTION OPERATED SWITCHES CLOSED LIMITED TO 40 MVA CAPACITY SHOULD BE ESTABLISHED lr BETWEEN CLEVELAND AND CEI AS S00N AS POSSIBLE. .. . . . . . . . . . . . 7 IV. THE ANTICOMPETITIVE PRACTICES OF CEI IN THE PAST SHOULD BE CAREFULLY CONSIDERED IN ESTABLISHING TERMS AND CONDITIONS FOR PRESENT AND FUTURE SERVICE. . . . . . . . . . . . . . 12

{

V. CONCLUSION . . . . . . . . . . . . 13 r

S e

4 i

1

\

r 1

D fr i

g s

\ .

TABLE OF AUTITORITIES Cases Page City of Colton v. South'ern California Edison Company, 26 F.P.C. 223, 232, (1961). . . . . . . . . 6, 7 m . . ..

F. P. C. v. Sierra Pacific Power Ccmpany, 350 U. S. 348 (1956). . . . . . ... . . . . . . . .. 6, 7 Gainesville Utilities Department et al. v Florida Power Corporation, 402 U. s. 515 (1971) . . . 13 St. Michaels Util'ities Commission and Commissioners of St. Michaels, Maryland

v. The Eastern Shore Public Service Company i of Maryland, 31 F.P.C. 1161, 1172 (1964) . . . . . . 6 United Gas Pipe Line Company v. Mobile Gas Service Corporation, 350 U. S. 332 (1956). . . . . . 6, 7 Regulations:

F-FPC Regulations S 35.1(d). ..... . . . . . . . . 6 4

u e

s L

e ii

~*

] .

i

'~

NITED STATES OF AMERICA FEDERAL POWER CO> MISSION s

- -, . _ City of Cleveland, Ohio ) .

)

v. ) Docket Nos. E-7631

) and'E-7633 j Cleveland Electric Illuminating )

Company. )

-r )

and )

)

r City of Cleveland ) Docket No. E-7713 i

.r REPLY BRIEF OF THE CITY OF CLEVELAND I

INTRODUCTORY STATEMENT There is much in the brief of the Commission Staff that the f

City of Cleveland agrees with. There is some discussion in the CEI brief that Cleveland also agrees with. The main points of disagreement between Cleveland and CEI and the Commission Staff

[_ are:

(a) Was not the legal rate the rate specified by Cleveland's u

Ordinance No. 161-70 despite the fact that it was never

l. filed? We say it'was the legal rate; CEI and Staff I

l say it was not.

(b) Should not an emergency 69 kv interconnection be operated E

I r cwitch2s closed, limited to 40 mva capacity. Wo say yes, t

i Staff and CEI say no. .

F

., (c) Should not the anticompetitive practices of CEI in the past a

r affect the terms and conditions of present and future service set by the Commission? We say yes; Staff says the practices i employed by CEI are " normal". (Staff Brief p. 53); CEI says

~

nothing.

(d) What should the terms and conditions be for an interconnection 4

between Cleveland and CEI for temporary emergency service at J 69 kv, for load transfer service, and for permanent inter- .

1

, , , connection at 138 kv? For temporary emergency service we say .

I we would pay 17.5 mills per kwh or cost plus ten percent which-ever is higher but only if the interconnection is operated closed

' For service at load transfer points we say the rate should be fixed by Ordinance 161-70 plus fuel escalation. Staff and CEI

, say the load transfer rate should be much higher. For permanent service at 138 kv we say terms and conditions should be as pre-scribed in Appendix 1 to our initial brief. Staff and CEI dis-L agree.

This Reply Brief will be addressed to these points respectively.

L II THE LEGAL RATE BETWEEN CLEVELAND AND CEI IS THE RATE SPECIFIED IN ORDINANCE NO. 161-70 It is quite evident from the testimony that Ordinance No. 161-70 should have been filed with the Commission. This ordinance in part specified "CEI shall sell. . . power to the City at a rate not to -

- exceed 304 per month per kva demand, $0.0085 per kwh for 10 million kwh and $0.005 per kwh above 10 million." Clement T. Loshing, rate r-expert for CEI and one of CEI's chief witnesses was asked:

"Q. Why wasn't the ordinance filed with the Federal Power Commission?

" "A. That is a legal question, I do not know. I think I would defer to my counsel on that.

t

+ "Q. Whose responsibility would it have been to file it?

".'. Our legal department.

"Q. Would that include Mr. Howley?

"A. Yes, it would." (Tr. 500-501).

When Lee C. Howley,'Vice President and General Counsel of CEI was questioned on the same subject, he was asked:

"Q. Mr. Howley, on the top of page 15 again you mention Ordinance 16170 and you mention the'so-called letter agreements. Did this ordinance play any part in f

establishing the rate between Cleveland and CEI?

[

"A. Did the ordinance?

t.

"Q. Yes.

1_ "A. Well, to some extent, but I think greatly it was changed and worked out over the months that followed when the problems were recognized.

W

~

r "Q. Would you say the ordinance had something to do with the rate?

"A. Yes, it did, r

"Q. If it had something to do with it, why wasn't it filed i

. with the Federal Power Commission?

" A*. I don't know. I didn't think it was necessary. You are talking about the local municipal ordinance?

, "Q. Yes, I am talking about the ordinance you just read I

from.

"A. We didn't think it was necessary at the time. ~

"Q. Isn't it true that you just didn't want it in the

. Federal Power Commission files?

"A. No, not at all.

"Q. Explain that?

/

"A. I don't know why we wouldn't want it in. I would have no objection to that ordinance.

l "q. So you don't know why it wasn't filed?

"A.

, No. ,

"Q. Would it have been your responsibility as Chief Legal Officer to see it was filed?

"A. Yes, if we thought it was necessary." (Tr. 425-426.)

4_

~

9 For all the effort made by CEI witnesses to contend that the -

so-called " letter agreements" made no change in the agreement speci-fied in the ordinance, it is quite cicar that CEI is not willing to bill according to the specifications of the ordinance but insists on the higher rate established by the " letter agreements". (Tr.497 et seq.

Exhibits 37 and 38 are affidavits of Robert J. Kapitan and Ben S.Stefanski. Kapitan was the Assistant Director of the law of Cleve-land, who ok'd the letter dated January 20, 1970 which purported to change the ordinance provision. He states he had no idea that the letter made any change in the rate and that had he had any idea that it did purport to change the rate he would not have approved it.

In any event f 109 of the City Charter (Ex. 36) makes it impossible for any city officer to waive or qualify that which is established by ordinance.*

Stefanski was the Director of the Department of Public Utilities at the time the so-called letter agreements were approved. He said

, that he thought the letter made no change in the rate established by the ordinance. These affidavits show conclusively that the " letter i

agreements" constitute a simple attempt on the part of CEI unilaterally to hike the rate.

L With regard to the law applicabic to such matters the Commission Staff makes a very good argument in favor of Cleveland's position

• Staff brief p.3 states the ordinance was passed January 21, 1971. Thc ordinance shows on its face to have been passed January 19,1971 (Ex.5).

~.

g i

r \

't .

N i

without appcoring to understand it, as indicated in the Staff Brief, page 10 ygi seq. Commission Regulation, ! 35.1(d) prohibits e utility from collecting a rate "which is different from that pro-vided in a rate schedule required to be on file with this Commission..."

(emphasis added).

The cases cited by the Commission Staff are all in favor of the position taken by Cleveland in this case. St. Michaels Utilities Commission and Commissioners of St. Michaels, Mary'1'and v. Th'e Eastern Shore Public Service Company of Maryland, 31 F.P.C.1161,1172 states:

"That contract between the parties is con' trolling and cannot be unilaterally changed by the action of one of the parties. See United Gas Pipe Line Company

v. Mobile Gas Service Corporation, 350 U. S. 332, F.P.C. v. Sierra Pacific Power Company, 350 U. S.

348. Consequently, the reduced rates contained in Resale Service Schedule No. 1 are the legal rates of Eastern Shore after May 1, 1963, notwithstanding its omission to complete a proper rate schedule filing. See City of Colton v. Southern California Edison Company, 26 F.P.C. 223, 232."

As the Commission says, the contract between the parties is controlling. Here the contract was the ordinance which had previously l

i been agreed to by CEI. It is obvious that this ordinance was a rate

~

schedule " required to be on file" with the Commission as specified by 6 35.1(d) of the Commission's Regulations. The Colton case cited in St. Michaels was also a case where a contract had not been filed l

c

l .

~

, cnd yet was held to be the legal rate. The Sierra and Mobile cases, also cited in St. Michaels and in Cleveland's initial brief, give the authority of the Supreme Court to the principle that a filing like that attempted here does not suffice to change a contract be-tween a regulated utility such as CEI and a customer such as Cleveland.

It is difficult to understand the Commission Staff quoting, Colton as supporting any contention other than that of Cleveland, where the Court says:

"The fact that the contract rate was not i

, filed does not prevent our jurisdiction from attaching. . . the contract rate, even though unfiled became and remained the only lawful rate until changed by order of the Federal Power Commission." Commission Staff Brief, page 14.

How Staff could cite such cases as being in support of Staff's position that the " letter agreements" effectively changed the contract

~

is indeed difficult to understand. The Staff later says the contract cs specified by the ordinance was not effective " simply because it was not filed." (Staff Brief, page 16). This is directly contrary to the law Staff cites.

III AN EMERGENCY 69 kv INTERCONNECTION OPERATED L. SWITCllES CLOSED LIMITED TO 40 MVA CAPACITY S110ULD BE ESTABLISIIED BETWEEN CLEVELAND AND CEI AS SOON AS POSSIBLE.

The Commission Staff argues for an open switch cmergency inter-

-I l .

connection. Staff Brief, p. 22, et seq. CEI refers to such cn interconnection saying "all the parties are now agreed that this should not be a normally closed tic." CEI, Proposed Findings,

p. 22. This is obviously untrue as indicated in Cleveland's

- initial brief and its requested findings. To Cleveland an open interconnection is a blackout type interconnection. As noted in various places in Cleveland's initial brief, Cleveland witness,

~Hinchee, makes it clear that he wants backup so that Cleveland does not have to be in a state of blackout for an extended period of time until switches can be closed and other procedures followed, to en-cble the emergency service to be provided.

Perhaps one of the best observations made about the comparison cf a synchronous or closed as compared to a nonsynchronous or open interconnection is the comment made by Commissioner Carver in his dissent in the order issued March 8, 1972 herein. Commissioner Carver cays:

"The ' emergency' now being acted upon is neither more nor less than the ' emergency' which has existed for months or years heretofore. The

- effect of the order of the Commission for a non-synchronous interconnection at 69 kilovolts does not serve the cause of reliability; it does not achieve anything resembling appropriate relief from an electric reliability standpoint. It meets only the public relations objective of making it appear that the Commission has taken 1

L_

r 1 .

constructive action following an outage on the Cleveland city system which got a lot of politi-cal and media attention."

. Passing from the situation as Commissioner Carver sees it to further details of the situation confronting us, it is quite ap-parent that the Commission Staff has erroneously interpreted the testimony with regard to the CEI Lake Shore switch house. Commission Staff says with regard to the five 69 hv cables leading into the cwitch house " operation without all five 69 kv cables would result in severe overloading of some facilities during any CEI outage on the Lake Shore-Newburgh area." Staff Brief, p. 24. The Staff Brief on the same page talks about CEI having only a 24 mva margin which it says " represents approximately 5% of the total load at that sub-station."

In using that language Staff has, completely misinterpreted the testimony of the CEI witness, Harold L. Williams. Mr. Williams, a vice president of CEI in charge of engineering, shows the total capa-city at Lake Shore-Newburgh as being 694 mva and the load as 450 mva w

leaving a reserve of 244 mva. Even with an outage of two ninety mega-watt units which would subtract 180 mva, there is 64 mva yet remaining cs unallocated reserve. (Tr. 685). In other words, the real reserve at Lake Shore-Newburgh is 180 plus 64, or 244 mva. If 40 mva (one ,

e i

f i cable) were ellocated to Cleveland, the remaining reserve would be 204 mva. Such a reserve is not 5% as stated by Staff but more than

- 45%. And so if we want to go so far as to count a single maintenance

? outage plus a single contingency loss netting 180 mva, a release of h one line for Cleveland would still leave 24 mva unallocated reserve.

- Staff's discussion of reserves is a departure from the almost impossible into a completely fanciful never-never land. It violates r

all reasonable standards of calculating and maintaining reserves, and conclusively shows that Staff has failed to make a proper analysis of the testimony.

In addition to the abundant reserves as shown in Mr. Williams testimony, Cleveland witness, Hinchee, at the erccerence of February

- 15 talks about the Newburgh-Lake Shore location, as reported by CEI i

to the Commission. He states that in the latest year reported, the h, five lines, one of which might be allocated to Cleveland, sustain loading on all five of only 30 megawatts at peak with normal use at c

f 15 megawatts. (15 Tr. 45).

. CEI witness Sener in his prepared testimony talked about the operators at Lake Shore maintaining proper balance between power infeeds and loads. (Tr. 570). He was asked on cross examination if a cable went out would an operator have any trouble maintaining e

?

i

r

balance. He stated he could do that without serious difficulty, i

~

(Tr. 584).

l ,, Also, it is to be remembered that all of the arrangeinents pro-posed to be made between Cleveland and CEI are on a when, as and if basis and obviously if all of CEI's generation in its entire system went down at once, Cleveland would not expect to draw from the Lake Shore-Newburg connection.

One further comment appears appropriate at this point. Staff talks about ECAR and states "the Cleveland Electric Illuminating Company (Company) conforms to the principles and cbligations which the inter-i connected parties are expected to comply." Staff Brief, p. 44. Staff then cites testimony of CEI witness Sener at Tr. 558-563. It is true Mr. Sener went over the ECAR standards but he carefully avoided testi-U . fying that CEI complied with the established standards. When asked on cross examination if CEI did comply he responded: "The ECAR standards are in here as -- I am afraid I can't answer that question."

(Tr.579, 580:

So there is absolutely no support for the conclusion of Staff'. -

_ The position of Cleveland is that it will measure up to the standards on a basis reasonably comparable to the way CEI and other participants lL

[ do. More should not be expected of it.

l There can be no doubt CEI has ample capacity at Lake Shore to m

i

F -

v.

take care of its own needs and Cleveland's with adequate reserves.

The only remaining question is whether this Commission believes that people being served by the Cleveland system should be blacked out for a period of time, even if it is only a half hour. If so then the order would normally follow that the switches on the 69 kv interconnection ~would be left open. If on the other hand the Commission believes it is in the public interest to prevent black-outs, then it seems clear that the suggestion made in the Cleveland testimony that the interconnection should be synchronous with the switches closed is appropriate.

IV THE ANTICOMPETITIVE PRACTICES OF CEI IN THE PAST SHOULD BE CAREFULLY CON-SIDERED IN ESTABLISHING TERMS AND CONDI-TIONS FOR PRESENT AND FUTURE SERVICE.

. The Commission Staff brief gives the anticompetitive activities of CEI a simple brushoff. With regard to the Bridges Memorandum stat-j ing the goal of CEI to eliminate Cleveland as a competitor, Staff says l

-this " constitutes normal competitive practices." Staff Brief, p. 63.

It would be odd if the Commission should adopt such an attitude making it policy to leave to the Justice Department the responsiblity of t_

washing linen more appropriately consigned to FPC.

k Certainly an attempt on the part of one competitor to dominate i

another or to eliminate another as a competitor is not considered 7 legal by Justice. We will not reiterate examples given in Cleve-land's initial brief here, except to say that the many things CEI

-F

.i has done to Cleveland to reduce Cleveland's effectiveness as a cc..petitor present a picture of predatory practice which runs a

seriously counter to the responsibility of this Commission to do what'is "necessary or appropriate in the public interest." The proposed findings filed as a brief for CEI give no concern to this aspect of the case at all.

Cleveland, therefore, renews its request for an order which takes into consideration these practices in past relationships and which seeks to improve Cleveland's competitive position in the future.

4 V.

f 1 ,

CONCLUSION In conclusion Cleveland can do littic but reiterate what it said in the beginning of this case. Cleveland wants to be treated

! not as a captive customer of CEI but as a bulk power producer in the same spirit that this Commission and the Supreme Court of the United States directed the Florida Power Corporation to treat Gainesville,

~

Florida. Gainesville Utilities Department et al . v. Florida Power Corporation, 402 U.S. 515 (1971).

i 1

u-l e

[ Cleveland believes this can best be done by following the requested findings in its initial brief. Particularly for the long term arrangement between Cleveland and CEI covering the 138 ,

i t.

l kv interconnection, Cleveland believes the arrangement specified

!r in Appendix 1 to its initial brief would put Cleveland on'the same i

.,1 basis that CEI deals with other utilities. As regards load transfer r

service, Cleveland believes this should be as specified in Ordinance

/ 161-70 with fuel escalation added. As to emergency service, Cleveland l

has indicated its willingness to pay 17.5 mills per kwh if the inter-i' . connection is operated with switches closed.

It seems to us that it takes these essentials to put Cleveland

, on a footing reasonably comparable to the way CEI is treated by other utilities and to the way CEI treats others.'

] Respectfully submitted, r BR05 TODp&HEBURN

t . .

j By . i , e of4 Philip4 P. Ardbry I, 1600CitizensPlaz{y Louisville, Kentucky 40202

- Attorneys for Cleveland May 26,1972 -

i 1

sh O

11.

l

.c

,f , .-

s . .

1 .

-r- CERTIFICATE OF SERVICE 1) i t

r~

r' I hereby certify that I have this day served a copy of the foregoing document upon all parties l of record in this proceeding in accordance with the j .

requirements of Section 1.17 of the Rules of Practice I

and Procedure.

t f Dat,ed at Louisville, Kentucky, this 26th day of May, 1972. n 6 I:p i. dY i

Philip P. Ard ry, Counsel for

[

L.

the City of Clevc, land, Ohio l

\ l I

e

]

i i

i 1

p l

(

APPENDIX D UNITED STATES OF AMERICA

.- FEDERAL POWER COMMISSION

(

OPINION NO. 759

.: Gulf States Utilities Company Docket Nos. E-8600, E-8601, I* . E-8003, E-7676, et al. ,

v. and Docket No. E-75b7.

Fcderal Power Commission i

l OPINION AND ORDER AFFIRMING AND MODIFYING INITIAL DECISION OF PRESIDING ADMINISTRATIVE LAW JUDGE 4

APPROVING SETTLEMENT

\

+

/

L Issued: April 12, 1976 DC-46 m

i - __

l

' UNITED STATES OF AMERICA FEDERAL POWER COMMISSION

r-Gulf States Utilities Company Docket Nos. E-8600, E-8601, E-8003, E-7676, et al.

v. and Docket No. E-75b7.

9

./

Federal Power Commission r*

( OPINION NO. 759 1

APPEARANCES a j B. H. Hughes for Gulf States Utilities Company Robert C. McDiarmid for the Cities of' Lafayette, Louisiana and Plaquemine, Louisiana.

Walter E. Workman for Central Louisiana Electric Company.

[ Richard Boone for the Staff of the Federal Power Commission, i

I

(

1 L

l W

I

r N .

~~,

INITIAL RATE, INTERCONNECTION, JURISDICTION DISCLAIMER, PRACTICE AND PROCEDURE, BURDEN OF PROOF, 7 RATE FILING

" UNITED STATES OF AMERICA FEDERAL POWER COMMISSION Before Commissioners: Richard L. Dunham, Chairman;

' Don S. Smith, John H. Holloman III, and James G. Watt.

Gulf States Utilities Company ) Docket Nos. E-8600, E-8601,

) et al.

e v. ) E-8003, and DocketE-7676, No. E !7557.,

' )

Federal Power Commission )

(

OPINION NO. 759 OPINION AND ORDER AFFIRMING

.AND MODIFYING INITIAL DECISION OF PRESIDING ADMINISTRATIVE LAW JUDGE APPROVING SETTLEMENT (Issued April 12, 1976) 1 On August 18, 1975, Presiding Administrative Law Judge Isaac D. Benkin issued an initial decision which would approve agreements between Gulf State Utilities Company L

(Gulf) and the Cities of Lafayette and Plaquemine, Louisiana (Cities) providing for settlement of long-standing disputes between Gulf and the Cities concerning alleged anticompetitive practices. The agreements would provide interconnection fapilities between Gulf and the Cities, reciprocal sale of power, particularly during emergency periods, between the parties and the rates to be charged for such reciprocal service. The prime consideration d or Gulf finally agreeing.to transmit power for the Cities and to sell Cities emergency power is an agreement on the part of the Cities to cease further litigation with reference y to anticompetitive issues both before the Commissi~on and l in the United States District Court, and further to drop l its opposition to the issuance of certain mortgage bonds L pending before the Commission in Docket No. E-7567.

! We will affirm the initial decision of the Presiding Administrative Law Judge with certain modifications. We will modify his decision to the extent of dismissing,without pre-judice, charges by all parties against any other parties in m

>=

1

if;> . '

Docket Nos. E-8600, et al. these proceedings with reference to antitrust matters in E any of the pending dockets. Both the decision below and I the briefs submitted by the parties indicate that the parties will be able to settle their differences without further litigation of these issues in the Commission.

3 Additionally there is now pending an antitrust action in the United States District Court for the Eastern District

, of Louisiana involving the same issues. We emphasize that should the parties reveal tl.at the Commission can provide additional remedies notwithst.anding the settlement approved herein they may refile complaints. Further the description of the facts in this case which follows is not intended to be binding either in this Commission or in any other forum insofar as it concerns allegations of violations of anti-

, trust law.

4 This matter involves a long-standing dispute over many years and in many forms between a number of parties.

The matter involves not only Cities and Gulf, but Louisiana Power and Light (LP&L), the Central Louisiana Electric Company (CLECO), the Cajun Electric Power Cooperative, Inc.

(Caj un) _1/

1 BACKGROUND I E-7676, et al.

On October 16, 1970, the Commission noticed the 4 application of Gulf in Docket E-7567 to issue $30,000,000 1 in first mortgage bonds. On November 2, 1970, Cities filed a Protest and Petition to Intervene in that docket, r pointing out.that the money sought would further a pre-1 existing combination or conspiracy of Gulf, LP&L, CLECO and others, which had sought to extinguish a poc1 set up to allow Cities , and Cajun in cooperation with Dow Chemical

(, Company, to obtain an integrated pool. Cities requested that i the Commission set the application down for hearing unless conditioned upon the cessation of the alleged unlawful action, and the establishment of conditions which would allow "the g original pool or its equivalent" to operate. On December 3, l l 1970, the Commission issued an Order allowing the intervention l , of the Cities, but denying the relief sought. Rehearing was '

denied on January 13, 1971. A petition for review was r promptly filed and the Court of Appeals for the District of I Columbia Circuit reversed on October 12, 1971. City of f Lafayette, Louisiana, City of Plaquemine, Louisiana v. SEC,

~

454, F.2d 941, (CADC 1971).

l 1/ Cajun which was formally known as Louisiana Electric Cooperative, Inc. is.a generation and transmission cooperative financed by the Rural Electrification Administration, made up of twelve electric distribution cooperatives, all of which operate in Louisiana.

w--

'I bocketNos. E-8600, et al. F On September 30, 1971, Cities filed a Protest and Petition

~ to Intervene in Docket No. E-7663, a second Gulf States financing application. In that filing, Cities incorporated in its entirety previous Protest and Petition to Intervene in Docket No. E-7567. By Orders of November 4, 1971, in Docket

'r No. E-7663, and E-7676, the Commission authorized the issuance t of the securities in question, and simultaneously initiated, sua sponte, a " complaint" proceeding in Docket No. E-7676 against Gulf, LP&L and CLECO.

The Cities' Petition for Rehearing in Docket No. E-7663

• was denied by order of December 30, 1971.

Interventions or responsive pleadings were filed

in Docket No. E-7676 by Gulf, LP&L, CLECO, Dow, and Caj un. By letter of November 8, 1971, from the Commission's General Counsel, the Department of Justice, Antitrust Division, (Justice) was invited to participate. The invitation was declined by letter of December 15, 1971, from the Acting

Assistant Attorney General. That letter noted that

"Because of the view which the Commis-sion ? as taken of its jurisdictional limitetions under Part II of the Federal Poser Act, it is our view that the Com-mission would provide only a small part of the necessary relief; Federal Power Act, Section 202b, Gainesville Utilities Departrient v. Florida Power Corocration, J ' 402 U.S. 515 (1971), City of_ Paris, Kentucky v. Kentucky Utilities, 38 FPC 269 (1937), 41 FPC 145 (1969). On the i other hand, the Courts under the Sherman Act would have complete authority to deal with any violation. U.S. v. Otter Tail Power Company, (D. Minn., 6 DIV.)

L 6-69-CIV-139. We further note that an application by Louisiana Power &

Light to construct nuclear generation

, is presently pending before the Atomic Energy Commission, and that under Section 105 of the Atomic Energy Act

' as amended, the AEC has authority to condition nuclear licenses against

' licensee conduct that would be inconsistent with the policies of the antitrust laws."

l' we

j' Docket Nos. 'E-8600, et al. s ,_ Volumes of pleadings counter pleadings, etc., followed.

p Prehearing conferences wer,e held to resolve issues of discovery, p b2t only limited discovery, pursuant to an order of January 14,

, 1972, by the-Presiding Examiner, took place. On February 23, n 1972,' Cities filed with this Cctission a Motion for Extra-

1. ordinary Relief and/or Reconsideration, dealing with discovery. '

The Motion was granted by Commission Order Granting Extraordinary 2

r Relief of April 6, 1972. Pursuant to that order, the o Examiner scheduled a further prehearing conference and thereafter issued an order, requiring production of documents in conformity with the Commission order, l- On May 2 through 9, 1972, Gulf States, CLECO, and LP&L filed applications for rehearing of the Commission's April 6, 1972, Order. On May 30, 1972, the United States J Supreme Court granted certiorari in Gulf States Utilities Co.v.

. F.P.C., in which Gulf States had petitioned for certiorari f from the decision of the Court of Appeals for the District of "j Columbia Circuit. On June 1, 1972, the Commission, relying upon the grant of certiorari, granted rehearing of its April 6 order for purposes of reconsideration and clarification, and 4' determined that the public interest would best be served 3 by staying all further proceedings in this docket until the United States Supreme Court has enterr.d its decision on appeal of City of Lafayette, Louisiana v. SEC, 454, F.2d 941 (CADC 1971)." Thereafter the Cities and Dow Chemical filed petitions _for reconsiderction of the Order of June 1, requesting that, at the very least, the Commission allow -

discovery to go forward. On July 14, 1972, the Commission denied rehearing, e

,L On May 14, 1973, the Supreme Court issued its opinion in Gulf Sta"es Utilities Co. v. F.P.C., 411 U.S. 747 (1973).

i That decision af firmed the holding of the Court of Appeals that the FPC must consider the anticompetitive consequences

i. of a security issue under Section 204 of the Federal Power Act.

In the meantime, on January 26, 1973, Gulf filed an egreement with Cajun for the integration of the Cajun generation station into the Gulf system and for transmission of power from Cajun to points of delivery of its member Cooperatives located on the Gulf system. On February 5, a notice of.that application was issued in Docket No. E-8003.

On February 15, both Cities and Dow filed protests and pntitions to intervene, alleging that the proposed contract provided for transmission service only to Cajun's member

,- coops, and appeared to provide for the purchase by Gulf States of most if not all of Cajun's excess capacity

~

and energy from its present units, and appeared to preclude i Csjun from purchasing power in the future for the needs of its member Coops from Cities or other members of the Lcuisiana Power Pool. Cities pointed'out that:

l

l

IfL ll , .

Docket-Nos. E-8600, et al. il 4

"The Cities would not object to Gulf States joining i[ -the members of Louisiana Power Pool in an arrangement p which would allow appropriate coordination and savings i for all of the parties. In such circumstances, the ir Cities could not and would not object to purchases y~

and sales such as those which appear to be contemplated by the instant contract, if these were economic for y,-

the group and indicated as such and if the present contract was' conditioned to' require that similar co-ordination, reserve sharing, transmission and outage services , adjusted as necessary to accomodate the f Cities' circumstances, be made available to the other s

Pool members."

r On March 1, 1973, the Commission issued an Order accepting q~ rate schedules r.ud consolidating proceedings in that docket with those in Docket No. E-7676. '

[

4 II. LP&L AEC PROCEEDINGS

" On August 18, 1972, Justice furnished an " advice letter" to the AEC in a pending AEC docket, Louisiana Power & Light y

Company, 50-383-A, advising that the Department had 5

commenced an antitrust investigation of LP&L's conduct based on essentially the same antitrust allegations set j

forth in City of Lafayette v. SEC, 454 F.2d 941 (CADC 1972),

f , that the investigation was continuing, and them if the allegations proved to be supported by the facts the J. Department would seek relief against all the participants in the alleged conspiracy. The Department advised however, that LP&L had agreed to conditions which, in the view of

{ the Department, would' allow an AEC license without further

( hearing. : Interventions were filed by Cities, Dow, Louisiana

- Municipal Association -Utilities Group, and Cajun. These petitions alleged that conditions on which the Justice

(~ Department and LP&L had agreed were insufficient to support 4

1. the conclusion.of Justice that a license should issue. By

-.mtmorandum and order of February 23,'1973 the AEC admitted the Cities as Intervenors, designat6d an Atomic Safety and y Licensing Board, and remanded the proceeding to that Board to determine specified issues and to certify the record to the AEC'for-further consideration. After .urther proceedings,

t. and negotiations on October 24, 1974, the-Board entered a memorandum with respect to appropriate' license conditions which should be attached to a construction permit. The

" Board imposed ' conditions in addition to'those previously agreed requiring the' option of access to LP&L's Waterford Unit transmission between and among the entities and a more specific requirement for reserve sharing. On m

f L- l

. . _ - < . . _ _ . _ . . . _ . _ _ _ _ , , - _ . - . _ , ~ . _ _ - - .--.-- 4 . - -._ , - _.-_ _-

t . .

Docket Nos. E-8600, et al. . . .

l November 14, 1974, LP&L advised AEC that it would accept the conditions and not proceed further Justice however

' requested the Board to modify or claridy one of the elements of its' Order. On February 3. 1974, an Order was i entered by the Atomic Safety and Licensf.ng Appeal Board of the NRC (the Nuclear Regulatory Commission assumed the responai-r bilities and obligations of the AEC in mid-January, 975)

{ which granted in full the relief sought by the Justice, c

[ III. GULF STATES AEC PROCEEDING

,. Coincident with, and after its negotiations with Cities for the agreement at issue in this docket, Gulf had apparently i been negotiating with Justice as to the antitrust review under the Atomic Energy Act of its application for a license

[ for its River Ber.d Nuclear Power Plant. On March 25, 1974, j the Attorney General forwarded to the AEC a letter of advice, which after noting that the Department had been investigating the antitrust situation in Louisiana, concerned

,' with "... basically the same antitrust allegations against the Company as those cet forth in the decision of the Court of

,_ Appeals in ' City of Lafayette v. Securities and Exchange Commission', 454 F.2d 941 (CADC, 1972)," concluded that:

• "It is unnecessary to detail here these allegations...

Within the past year or so, Applicant has evidenced

'i a constructive attitude in its relations with the smaller systems in Louisiana. In the course of our antitrust review of the instant license application,

' Applicant has discussed with the Department its future policies...While not conceding that any of its prior conduct may have been anticompetitive, Applicant had indicated...the policies which it t

will follow with respect to such aspect of its

' operations in Louisiana as access to nuclear units, ,

interconnection and reserve sharing, wheeling, s~ and exchanges of bulk power...These developments enable the Department to inform the.../KEC/ that it would not appear necessary that an antitrust

. hearing be held in the instant application..."

The commitment letter from Gulf attached to the Attorney General's letter noted, s.

h

'- t

3 l

• Docket Nos. E-8600, et al. 1_

"We have now filed with the Federal Power Com-o[ mission copies of the power interconnection agreements entered into by applicant with Cajun Electric Power Cooperative, Inc., and with the r

Cities of Lafayette and Plaquemine, Louisiana.

J' - Such agreements contain terms and provisions for bulk power coordination and transmission r service. Such agreements with Cajun and the Cities were offered and negotiated by applicant in pursuit of the policy commitments attached, and it is C applicants's understanding that such agreements (as subject to regulatory action and change by actions of the parties) comply with such commitments."

' In its commitments, Gulf States agreed to (1) interconnect and coordinate reserves with entities in reasonable proximity to its service area, (2) exchange emergency service and/or i

scheduled maintenance service, (3) jointly set minimum reserves as a percentage of peak load responsibility, (4) set ready reserve capacity, (5) not limit interconnections to low voltages, (5) not embody unlawful or unreasonably restrictive provisions on intersystem coordination in interconnection and coordination agreements, (7) sell or purchase bulk power when economically desirable, (8) offer an opiartunity to participate in the nuclear units to entities in proximity to its service area which had requested participation, (9) transmit between two or more entities over its lines, (10) include requested transmission capacity in its construction program when compensated therefore and (11) sell power for resale to entities in its service area in Louisiana engaging or proposing to engage in retail distribution of electric power under certain conditions.

Commitment 9, in full, reads:

" Applicant shall facilitate the exchange of bulk -

power by transmission over its transmission faci-lities between two or more entities engaging in bulk power supply in its service area in Louisiana with which it is interconnected; and between any such entity (ies) and any entity (ies) engaging in t bulk power supply outside Applicant's service area in Louisiana between whose facilities Applicant's transmission lines and other transmission lines would form a continuous electrical path: Provided, 4

,I . .

r

~l Docket Nos. E-8600, et al. r 1 that (1) permission to utilize such other trans-

'I mission lines has been obtained by the entities involved, (2) Applicant has aporopriate agreements J for transmission service with tue entities inter-I connected with Applicant at both the receiving and delivery point on Applicant's system, and (3) the r arrangements reasonably can be accomodated from a functional and. technical standpoint. Such trans-mission shall be on terms that fully compensate r-Applicant for its cost. Any entity (ies) requesting such transmission arrangements shall give reasonable advance notice of its (their) schedule and require-ments." (The foregoing applies to any entity (ies) engaging in bulk power supply to which Applicant

i may be interconnected in the future as well as those to which it is now interconnected).

I, THE DISTRICT COURT PROCEEDINGS 4

Pursuant to a suggestion of the United States Court of Appeals for the District of Columbia Circuit in City of Lafayette, Louisiana, City of Plaquemine, Louisiana v. SEC,

[

u 481 F.2d 1101, 1105 (1973), in remitting the Cities to Yorums other the SEC in that proceeding, that "...the activities of LP&L in Louisiana can form the basis for court action by

[ private plaintiffs, like the Citics, as well as by the J ,

Department of Justice. Cf. Otter Tail Power Co. v. United States, 410 U.S. 366 (1953)", the Cities, in th'e summer of r 19737 filed .a treble damage action against LP&L, Middle South

" Utilities, Inc., LP&L's parent holding company, CLECO, and Gulf States. City of Lafayette, Louisiana and City of Plaquemine, Louisiana v. Louisiana Power & Light Company, Middle South Utilities, Inc., Central Louisiana Electric Company, and Gulf L States Utilities Company, (E.D. La., No. 73-1970). All defendants in that proceeding have answered, and discovery is proceeding. 1 m

COMMISSION ACTION

\

By Order issued July 5, 1974 the Commission noticed the filings of January 21, 1974 of the interconnection agreement and the rates therefore. The July 5 Order required the t

1.

s I

r-

'l < , .

tocket Nos. E-8600, et al. '

1, I

Cities and Gulf to file comments on r

,' (1) '*The antitrust issues originally set forth -

in all petitions to intervene filed by the r- intervening parties, and the basis upon which these issues are settled. by the filings in this docket. -

, (2) The parties will set forth the alleged anticompetitive issues which are not y proposed to be settled.

I (3) The proposed effect the settlement of l the issues in the instant submittals will

( have upon other intervenors in the previously cited dockets who are not parties to the instant submittals."

The Commission also invited Dow and Cajun to comment.

i Comments were received from Cities, Gulf, Cajun, and CLECO. No comments were received from LP&L or Dow, and Dow filed a motion to withdraw as a party. The filed comments indicated that the tendered interconnection agree-ments appeared to provide some of the benefits which the Cities had hoped to obtain through the LEC 2/ Pool. There

+

was, however, little information provided in the comments on

' the manner in which the agreement specifically remedies *the t

alleged past practices of the companies of harassing litigation and lobbying which resulted in demise of the LEC Pool, and

, formed the bulk of the Cities complaints in Docket E 7676.

~

f 2/ Now Cajun.

l

. t

P 1 .

Docket Nos. E-8600, et al. .(

il The Commission therefor on March 14, 1975, issued an j" Order Accepting-Initial Rates Consolidating Proceedings and Setting Hearing which Order provided for hearing

, on the following issues:

<r-

', ^(a) "Whether the agreements which constitute Gulf States' -offer of settlement 3*/ are in the public interest. ~~

-r a

a (b) Whether, in light of previous allega-N~

tions, Gulf States' offer of settle-

!i ment will violate the anti' ust laws or policy of the United State .

4 (c) Whether any anticompetitive issues remain q' for decision in Docket No. E-7676, et al.,

and, if so, the precise issues whicE~ ~-

remain'for decision on the merits.

(c) Whether the rates and terms and conditions of each interconnection agreement filed as 1 part of Gulf States' offer of settlement e

are just and reasonable under the provision of 205 and 206 of the Federal Power Act, r

16 U.S.C. 824d and 824e."

A one day hearing was held on April 22, 1975 and

, an initial decision issued by Presiding Administrative

(

Law Judge Benkin on August 18, 1975.

T ' THE INITIAL DECISION i The Administrative Law Judge states that it was clear that the agreements filed in Docket Nos. E-8600 and E-8601 resolve the antitrust allegations made by Cities against

[ '- Gulf States now pending in E-7676 and that there has been no resolution of charges against LPL or CLECO. He stated however counsel seemed confident that Commission approval of the States agreement as a settlement would result in rapid settlement of the Cities disputes with the other two utilities and that Cajun was not represented at the hearing and the record does not support any conclusion that the t controversy between Cajun and any of the three utilities has chenged,and that the claims by Cajun and Cities against LPL and r

CLECO would have to proceed to hearing and disposition on the merits unless further settlements are filed and approved.

"3*/ Docket Nos. E-8003,-E-8600 and E-86Cl are to be construed as

-~

an offer of settlement. Consolidati.on of these Dockets with Docket No. E-7676, et al.,will allev the parties to the latter Docket the opportunity to enter an appearance (Footnote continued on next page.) -

b. 6

h Docket Nos. E-8600, et al.  :

p it The Judge stated that it was agreed that the two agreements filed in each case must be construed together, 4

h'p that the effectiveness of the transmission and interconnection contracts is contingent upon Commission approval of the settlement in each case in its entirety. He stated that the i Staff counsel argument that the Commission's acceptance if of the contracts for filing suffices to make them fully l

operative is to misread the intention of the parties as manifested by the documents they offered. He stated that the interconnection agreement and the side agreement for the dlr cessation of litigation taken as one, represent the integrated contract that the parties wrought.

F q The Judge then proceeded to the question "whether the Commission should, in the public interest, give its sanction to the whole of the settlements."

He observed that since the original objective of the Cities and Cajun in the early 1960's i.e. formation of a true power pool, cannot now practicably be achieved, having fallen victim to the passage of time and galloping inflation, that the " interconnection and coordination of power generation between each of the Cities and Gulf States is the next best f:j .

thing, and that is what the contracts before the Commission would accomplish." He stated the agreements would end each

, of the Cities isolation from available sources of power and j- allow the Cities to. build new generating capacity to satisfy future growth.

Judge Benkin pointed out that one clear indication that T{" the agreements conformed to the public interest is the fact that they have been subjected to close scrutiny by Justice

{ and have been approved. He states that the Commission which

. g' sees antitrust issues only on a sporotic basis should give great deference to the Justice Department's views. The Judge

made a number of pertinent observations concerning the lengthy l history of litigation in this case the public interest in ending that litigation and the agreement of all parties including Staff that the implementation of'the agreements will promote the public interest. -

The Judge then came to the question of whether or not the i

rates and other terms and conditions of the interconnection agree-

' ments are just and reasonable under the relevant provision of the Federal Pouer Act. He stated that since the rates and conditions L

']_*/ (Footnote continued from previous page.)

on the record in former Dockets , and to elicit through cross-examination, or otherwise, the impact of such settlement on their respective positions in Docket

~

No. E-7676, et al. We are concerned that piecemeal settlement oT tee proceeding in Docket No. E-7676, et al, may proceeding.grejudice the rights to parties to that xl.

l t

, o_. - _ __ .

..._e , , . . , . . . . _ . m. _ _ - . _ , . .

. Docket Nos. E-8600, et al. :r

I 1

are the product of a contractual arrangement rather than a tariff filing, the scope of the Commission's power to d

" set aside the rates and other publications is rather narrow.

The Judge cited in support of this contention F.P.C. v.

j. Sierra Pacific Power Company, 350 U.S.348, 355 (1956) and also Sam Raburn Dam Electric Cooperative v. F.P.C.

t D.C. Cir., July ll, 1975. He quoted the following language from. Sierra in support of his view:

ir ' .

N In such circumstances the sole concern of the Commis-sion would seem to be whether the rate is,so low as to e

adversely affect the public interest--as where it might

i

" impair the financial ability of the public util-ity to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory.

i Judge Benkin says that it is idle to expect the rates in

, an interconnection agreement to achieve optimum goals of providing a fair, but not excessive, return and ecuivalent treatment to all affected parties with the same precise certainty of a rate developed by the Commission after a hearing and close impartial scrutiny of the evidence.

Judge Benkin stated that the Staff attack on' the rates I which is limited solely to the clause in both providing 4

t for rates for emergency service while covering " troublesome .

aspects" must be reviewed in the light of the limited scope

'for Commission inquiry prescribed by Sierra. He says

! "in the context of that rule, it ic not the Commission's i

function to withhold its approval of contractual bargains merely because of one or more de minimis idiosyncracies j in the rates the parties have agreed upon."

Judge Benkin found the agreements to be just and

, reasonable and in the public interest,that they are accepted and approved as settlements of the controversies between the parties pending before the Commission in

' Docket No. E-7676,and that the complaint and protest of the City of Layfayette against Gulf States Utilities and t the City of Plaquemine against Gulf States Utilities now pending before the Commission in Docket No. E-7676 should 4

be dismissed.

POSITIONS OF THE PARTIES u

Staff Position:

Staff in its prehearing brief and in its brief on exceptions takes violent umbrage with the decision. Staff t states that the burden of supporting the agreements is on the proponents and that they have failed to tender any evidence which would support a conclusion of lawfulness, u

L ,

f

![~ Docket Nos. E-8600, t al. -

13 -

lI y and that the case must be remanded for further hearing on q

~

this issue. Staff points to " serious errors in the Presiding Administrative Law Judge's process of reasoning which

/.

ultimately resulted in his eroneous finding of lawfulness."

l Staff excepts to the Judge's conclusions relating to the jurisdictional powers of the Commission and to his questionable use of the rule of de minimis.

Staff states that with esference to the reauirements of Section 205 and 206 of the Federal Power Act with regard to 4

'r just and reasonable rates that the " evidentiary hearing

" upon this aspect of the case was of such a nature and quality as to be tantamount to no adjudication whatsoever,

, necessitating a remand by the Commission to the Presiding 1

3 Administrative Law Judge for further, and more adequate, treatment of this issue in an evidentiary proceeding."

Staff points out that the initial decision does not clearly make a finding that the rates are just and reasonable and that it was not within the power of the Judge to completely ignore,or procedurally nullify,a discretionary Commission decision J. r to adjudicate the lawfulness of an initial, or superseding, rate. There is more on this such as the statement that the proceedina. held on April 22, 1975 "was so deficient

., and the resultant record so incomplete as to constitute a gross failure process ..." Staff states that the precise issue with regard to the Judge's findings is "which party in a proceeding before the Commission bears T the risk of failure of proof?" Staff takes strong umbrage 4 with the use of the term "de minimis" and says that the emergency rates are not de minimis.

(~ , Staff states that the initial decision erroneously holds that the Commission has limited jurisdiction to

, regulate the lawfulness of initial rates and that he j has erroneously relied on the Sierra doctrine. Staff points out, correctly it must be observed, that the I

instant proceeding has absolutely no factual resemblance to the Sierra type case. Staff states that there is no L law,no presumption,which assists a jurisdictional rate in achieving aporoval by the Commission as "just and reasonable,"

r I

and thereby lawful. Staff disagrees with the Judge's

' conclusion that since the rates are contractual rates rather than a tariff filing the scope of the Commission's power to set aside the rates and other obligations is rather narrow.

Staff says "the mischief resultant from the cramped jurisdictional holding of the initial decision is pervasive.

The notion of a limited inquiry to determine lawfulness has a subtle and erroneous effect of shifting the burden of proof."

Docket Nos. E-8600, et al. 1 Finally Staff takes lengthy and laborious exception to the interpretation of the contract by the parties to it and by the Administrative Law Judge that the contract is not effective until finally approved without conditions 7 unacceptable to the parties by the Commission. Staff j takes the position that the contract was effective on the date, i.e. March 14, 1975, that the agreements were accepted for filing by the Commission. This specific clause at issue (only in so far as Staff is conzerned) is s Section 7.6 of the agreement which is as follows :

1 This Agreement shall not be bind ng upon i the parties hereto until approved or accepted for filing by the Federal Power Commission or other regulatory bodies, if any, having jurisdiction, without conditions unacceptable to either party. (emphasis supplied).

Staff devotes six pages in bo'th its prehearing brief and its brief on exceptions to arguing this issue. The j argument with reference to the parol evidence rule does '

not appear to be apropos. It does not appear that the Judge relied on extrinsic oral evidence to modify a written e

agreement,but rather construed two contemporaneous written

arguments. In any event he could have reached the same conclusion based on the literal language of Section 7.6.

Further as we shall observe in more detail later since there i

is no dispute between the parties with reference to the questioned paragraph there is no justiciable issue concerning contract interpretations either for the Presiding Judge or

[

for this Commission to decide.

Finally Staff argues that it was error for the Judge to fail to dismiss the pending investigation in Docket

{ No. E-7676, et al. against both States and LP&L and urges that all antitrust problems have been solved with reference to both States and LP&L.

i 1 l Cities Brief In Response To Exceptions.

Cities says there has been undue delay in this case i r'

' since they have fought since 1960 together with other entities to obtain the economies and reliability of inter-connection and pooling. The Cities say the Commission t refused to investigate or pursue its claims  !

l l

1 i I t 1

- 1 l

- . l l

F i .

T Docket Nos. E-8600, et al. F i

until the decision of the Court of Appeals in 1971, and that the Commission's response to the decision could fairly be termed as " grudging i '. Cities say that their f

/

interconnection agreement filed with the Commission on January 21, 1974 is a perfectly straight-forward inter-connection much like hundreds of others between equals throughout the country. Cities say they have repeatedly contacted Staff of the Commission to see if there was any

- problem of understanding or interpreting the filing and that on July 5, 1974 more than five months after the filing of the initial agreement the Commission issued an order

' requiring filing of comments. Cities say that their two entities have spent in excess of one and one half million for interconnection equipment and that because of lack of connection Plaquemine has had several blackouts during the i

.. summer of 1975. Cities say that Sections 7.6 and 7.12 of the interconnection agreement when taken_together~can only be construed to impose an obligation on Gulf to construct its part of _h' interconnection on final acceptance and approval without conditions unacceptable to the parties by the Commission.

' Cities say that on March 14 nearly fourteen months

' after the filing of the interconnection agreement the Commission issued an order which " accepted" the initial c rate filing in terms so conditional that no attorney j

representing a client could give the client any assurance that the interconnection agreement might not be changed by the Commission or indeed even what issues the Commission had in mind, and that consequently both Cities and Gulf L.

found the filing unsatisfactory and the parties did not release each other fron claims.

Cities object to the finding of the Judge that there is no resolution of the dispute between Cajun and Gulf in Docket 8003. Cities state they are will_ing to withdraw objections in Docket E-8003 as now being moot.

l r

I L

Docket Nos.

E-8600, et al. -

16 -

[ Cities point out that until the hearing on April 22 no one connected with the proceedings knew what problems, if any, Staff had with the interconnection and that the rates issue hearing. was first raised in Staff's brief after the Cities say that it is anticipated that there will be approximately equivalent service in both directions between the interconnection parties but the esact terms and cost of

' each service are not nearly as important as they would be if service were only to be one way. Cities point out that there has been no evidence to indicate the rates are not just and reasonable and that the proponent of a change (Staff) has the burden of proof, and that the only legal

• basis on which the Commission could ef;ect a change in the

, ratejust not wouldandbereasonable.

on the basis of evidence thc.t the rates were Cities do not agre.e.with Staff that the Judge should have dismissed claims against LP&L. Cities agree with the "

contention of LP&L in its brief that many of the matters J

which it appears that the Commission wishes to investigate I are involved in the district court antitrust proceeding, that the discovery in that action is likely to be more extensive than that before the Commission, and that Cities j are willing if other parties are willing to make discovery in that proceeding available to the Commission if desired.

3 Cities disagree with LP&L and CLECO's position in

]- their briefs that the Law Judge's narrative history is incorrect.

It says that the main reason for the objections is LP&L and CLECO's fear that these findings will bind it J

1 in the antitrust proceeding. Cities state that

_the Judge's findings are not binding in the district court proceeding.

Finally, Cities disagrce with'CLECO's position in its brief on exceptions that the Judge should have dismissed the 1

claims against CLECO. They say however that settlement with

' CLECO is close and willl depend on the resolutions in this proceeding. '

a h

lL 1

l w

I . -

l f

Docket Nos. E-8600, et al.  !

l

!! Gulf States Brief Opposing Exceptions: '

l

Gulf States says the agreements constitute constructive offers of settlement and that Staff in its brief on exceptions  !

attempts to raise questions which do not exist in the i proceeding. Gulf States says that the contracts specifically provide that they shall not become binding until approved or accepted for filing by the Commission without conditions unacceptable to either party. It says that the Commission's order of March 14, 1975 accepting th'e contracts and providing for further proceeding did not constitute conditions acceptable to the parties, and that Cities gave written notice to Gulf States by letter dated March 24, 1975, to the effect that the provisions of the order were not acceptable. It says both parties want to know that their arrangements are acceptable as filed, subject to the continuing jurisdiction of the Commission. Gulf States says the decision s rants the relief required except for its failure to dismiss Gulf States with respect to Caj un. 3/ Gulf States says that the interconnections are in the publI interest and that in their brief on exceptions, after more than twenty months of consideration, Staff raises only technical procedural issues which will further delay worthwhile interconnections.

. Gulf States says that respect to rates and terms and conditions of the interconnection agreements, financial iustification while not presented to the Judge at the hearing was filed in Dockets E-8600 and E-8601 in January 1974. It says the

~,

' records of the Commission containing financial justification filed in the reference dockets together with the testimony of the various parties uncontroverted by any ~

positive evidence from any other source, including the Staff, do constitute substantial evidence that the agreements, and the rates and terms and conditions are just and reasonable and cost justified. It says that the point raised on cross-examination by Staff that the rates between it and Cities and the rate in the Cajun contract is distinguishable because the Cajun contract is a one-way rate only for sales from Gulf

--3/ Gulf States also filed a short brief on exceptions for the purpose of arguing its position that no further i charges or complaints by Cajun against Gulf States exist and additionally taking exception to some of the proported factual statements of the ALJ.

Cm e.

r' I .

Docket Nos. E-8600, et al. f States to Cajun and the rate in the Cities contract is a two-way rate and therefore reflects a negotiated rate acceptable to both parties. It says that the four mill adder which Staff questions was deemed necessary and reasonable by both pa: Lies because of a higher margin of error which r

had to be compensated for at the higher and more wiloly fluctuating fuel cost levels. It points out that a five mill j adder was adopted in 1974 in emergency service schedules between eleven interconnected systems , including Gulf Sta~es, and was accepted for filing without hearing in Docket E-8860 l on August 29, 1974 presumably after its review by Staff.

It says that to the existing justification on file in support of the filed rates, customarily sufficient for acceptance of the rates as just and reasonable without further investigation or hearing is added to the uncontroverted testimony of all parties that the rates were just and ,

9- reasonable justified the Judge in finding that no further j rate issue existed.

1 Brief Opposing Exceptions of Cajun:

Cajun says the interconnection agreements should be approved, that it has settled its differences with Gulf States and seeks no further relief. Cajun does not agree l

with Staff's view that LP&L should be dismissed as a party to the proceedings and says that with respect to LP&L and CLECO the Commission should cause the allegations of

' anticompetitive conduct to be the subject of hearings and relief. It " takes strong umbrage" with CLECO's characterizations of the legality and validity of the REA loan to Cajun, 'and i

t a number of other statements made by CLECO of a factual nature in its brief. It asks the Commission to approve the interconnection agreemente between Gulf States and Cities j

dismiss Gulf States as a party to these proceedings and order L

hearings with respect to LP&L and CLECO.

Brief On Exceptions of LP&L.:

LP&L disputes the Judge's summary of the history of the case and asks that the Commission nullify that part of the j

initial decision with respect to any recitations that might ,

be regarded as findings of fact on allegations of anticompetitive conduct. It also asks that the Commission approve the interconnection agreement and that it dismiss the proceeding in all the dockets as to LP&L or alternatively if LP&L is not dismissed require that Gulf States remain in the case as a defendant with respect to all antitrust allegations. It says that it should be dismissed as to all antitrust allegations for the reason that the Commission has no general jurisdiction

Docket Nos. E-8600, et al. to entertain antitrust allegations as such, and that in the absence of a proceeding by the Commission pursuant to a Section of the Federal Power Act under which it might afford some concrete remedy, either enforcing the anti-trust laws or specifically directing an action that might otherwise be inconsistent with such laws , the Commission has noStates United primary jurisdiction,

, 410 U.S. 366citing Otter Tail Power Company v.

(1973). It says that if Gulf States remains in the proceeding the Commission might afford the relief, if Cities proved their allegations of requiring Gulf States to cease and desist from anti-competitive conduct in order to get financing, and that this possibility affords the basis for Conmission jurisdiction.

It points out that LP&L is already physically interconnected with Plaquemine and could not physically be interconnected with Layfayette because of the location of its system. It says there is no rate dispute between LP&L and Cities and therefore there is no " nexus of jurisdiction" under the Commission's wholesale rate jurisdiction.

FINDINGS AND CONCLUSIONS Sierra-Mobile: '

Since we are approving the proposed agreements between the parties in this proceeding it is not necessary to decide the correctness of the Presiding Administrative Law Judge's reliance on the " Sierra-Mobile" doctrine, 5/ but we believe the Judge's reliance upon this doctrine raises questions for future administrative proceedings before this Commission, and thus we are impelled to observe that we believe the Judge doctrine.has unnecessarily widened the applicability of this Judge Benkin states in his initial decision that "since the rates and other terms and conditions upon which Gulf States and the Cities propose to render service are the products of a contractual arrangement inter sese rather than a tariff filing, the scope of the Commission's power is rather to narrow:"

set aside the rates and other contractual obligations ,

e The Judge quotes from the Sierra case In such circumstances the sole concern of'the Commis-sion would seem to be whether the rate is so low as to i

' adversely affect the public interest--as where it might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discrim-inatory.

Judge Benkin also cites Sam Raburn Dam Electric Cooperative v.

F.P.C. No. 73-1996, D.C. Cir., July ll, 1975.  ;

1

~~

5/ F.P.C. v. Sierra Pacific Power Co., 350 U.S. 348 (1956).

United Gas Pipeline Company v. Mobile Gas Service Corp.,

350 U.S. 332 (1956). I ha wa

i '

Docket Nos. E-8600, et al. _

j We do not believe that the facts in the proceeding before us justify the Judge's holding. Sierra involved the abbrogation of a duly filed pre-existing contract j without any finding that the contract rate was unreasonable.

This case involves an initial contract. We specifically reject the idea that the cited cases limit the Commission's authority to determine the justness and reasonableness of an initially filed rate.

Burden of Proof:

Since we do not agree that we are circumscribed by Sierra-Mobile in the review of the justness and reasonableness of an initial rate, the next question is on whom does the burden of proof fall if an initial rate is challenged.

Staff's brief is in error in its pesition on burden of proof. In American Louisiana Pipeline Company v. Federal

!' Power Commission, 344 Fed. 2d 525 (1965); the Court of Appeals for the District of Columbia Circuit in interpreting the identical provision of the Natural Gas Act with reference to the burden of proof in rate cases made the following statements:

"The Commission seemed to assume that American Louisiana had the burden of proving the rea-sonableness of its proposed rate form. In its opinion, for example, the Commission stated that American Louisiana's arguments "do not q

• support the requested change, nor was any

' evidence adduced to support it." In the view we take of Section 4(e) of the Natural Gas Act, 15 U.S.C. 2 717c(e), and the proceedings

{- in this case, the Commission's assumption is unwarranted. Section 4(e) states in part:

'At any hearing involving a rate L

or charge sought to be increased, the burden of proof to show that the increased rate or charge is t' just and reasonable shall be upon the natural gas company * * *.'

(Emphasis supplied.)

i e

~

b L '

r i

I Docket Nos.

E-8600, et al. T l "It is our view, and the respondent's brief seems to concede as much, that Section 4(e) r governs as to burden of proof, and that the l

' burden of proof is on the gas company only if an increase in rates is involved. If the change in rate is not an increase, the

1. burden of proof is on the Commission if it attacks the tariff. 4/

! The lan 4(e) and 5(!$ age which the court wa.s interpreting from Section of the Natural Gas Act, is paralleled by the

' identical language in Section 205(e) and 206(a) of the Federel Power Act.

Since Staff's arguments with reference to the burden of proof must faf', the question for the Commission is whether or not the recsrd as it stands sustains the Judge's decision that the proposed rate is just and reasonable.

Just and Reasonable Rate:

The rates were initially filed on July 5, 1974. Between July 5,1974 and the filing by Staff of its brief on May 5, i

1975, there has been no suggestion by any party including

! Staff in its various memoranda that the proposed rates were not just and reasonable. At the hearing held April 22, 1975,

' Staff did not suggest that the proposed rates were unjust  ;

' or dhreasonable, but did raise some questions concerning the emergency rates. That cross examination which appears 1

at pages 84-91 does not sustain a conclusion on the part t of Staff that certain features of the emergency rates  !

might be unjust and unreasonable. In any event, the Statf l does not contend that they are unjust or unreasonable but l 5

only that the hearing was not complete. One of the sponsoring l L Witnesses, Sylvan Joseph Richard, Director of the Utilities System, City of Layfayette, testified that he was familiar  !

1 L .

4/ "If we took the view that the Commission j

was acting under Section 5(a), 15 U.S.C.

E 717d(a), it would still have the burden that the contract demand of showing' rate was unjust, unreasonable, i unduly discriminatory,.or preferential."

l

4

[

i . .

r Docket Nos. E-8600, et al.  !, '

D with the rates and proposed interconnection ~s' and that it 1

was his opinion that the rates were just and reasonable.

(Tr. 62). The rates in question had been on file with the Commission eight months at the time the hearing April 22, i 1975. The evidence of record is that the rates are just .

, and reasonable. There is no evidence of record to sustain g a holding that they are not just and reasonable, and Staff apparently does not contend that they are, but only that they -

might be if further evidence was adduced. Given the state

. of the record before him and the requirements of Sections 205 and 206 of the Federal Power Act the only holding that the Presiding Judge could have made was that the rates were just and reasonable, and he should be sustained.

Contract Interpretation:

Staff has strongly urged that the parties to this proceeding and the Presiding Administrative Law Judge have erred in their interpretation of Section 7.6 of the proposed agreement between the parties. As we pointed out above since there is no disagreement between the parties as to the meaning of the clause there is no justiciable insue pending before this Commission with reference to the clause. In reaching this conclusion we caution that the Commission is not bound by the parties' interpretations e of their own contracts if a clause in a contract clearly 1

is in violation of the Federal Power Act or is not in the public interest. We cannot say that a. requirement in a

, contract that it is not effective until finally approved j by this Commission without conditions unacceptable to the o parties is per se a violation of the Act or not in the public interest.

t

[ We make the above finding with a caveat. While we cannot say that contract clauses conditioning the effective-

, ness of the contract on final. approval of the Commission j are per se either a violation of the Act or not in the public interest, the condition in this particular contract comes close to being violative of the public interest. Staff's position in this matter while it lacks legality has a certain

_ spiritual quality. The effect of the agreement of the parties to delay the installation of interconnection facilities and other supporting equipment until final determination by r

this Commission builds into the final action that further delay required by completion of the administrative process.

, Meanwhile the parties can blame the " bureaucracy" for their

! failure to effect their interconnection 1 agreement. Further we must observe that it is difficult to discern what " conditions" this Commission might have imposed that would have been so unacceptable to the parties as to justify their failure to com-plete their interconnection agreement.

i

-.-mw-__.9.m- ,--e. -e- -+ g n -'

3 i -

Docket Nos. E-8600, et al. 5 Antitrust Issues:

We believe that it is in the public interest to end all

.{ pending antitrust litigation before this Commission in

i each of the pending dockets. In doing so we make no final determination as to any issues raised with reference to anticompetitive practice. Most of these matters have either

' been considered by the Department of Justice by the Atomic Energy Commission or are now pending in federal court. With 1

the settlement of this case as it applies to Gulf States Utilities Co., there is no regulatory proceedings pending in this Commission jurisdiction under having to doPower the Federal with the exercise of its primary Act. We do not adjudicate nor do we enforce antitrust law.

482, 486 (1962). California v. F.P.C. , 369 U.S.

This Commission's duty to consider allegations and evidence of anticompetitive conduct arises as a consequence i

of, and in conjunction with, our regulation of public utilities and their activities subject to our jurisdiction. Gulf States Util. Co. v. F.P.C.,

411 U.S. 747 (1973). The propriety of our consideration of allegations then, on a showing that the alleged of anticompetitive conduct turns, i conduct is materially furthered diction. 5/ This " nexus" principle istoa our by thd transactions subject regulatory juris-prerequisite to any investigation of anticompetitive issues by this Commission to guard against a usurpation or bootstrap by the Commission of the power to adjudicate and enforce antitrust law, doing by indirec-l tion that which cannot be done directly. Northern California Power Agency v. F.P.C., 514 F.2d 184, 189 (D.C.

Cir. 1975).

That the " nexus" pleaded in the Docket No. E-7676 proceeding 1- was our jurisdiction under Section 204 of the Federal Power Act, 16 U.S.C.

i by Gulf States is 824c, to regulate a proposed security issuance clear.

3ent Dismissal of Gulf States as a respon-to the complaint proceeding, therefore, removes the statutory nexus upon which our jurisdiction to proceed with the pending L investigation was predicated. City of Lafayette, City of Plaquemine v. S.E.C. and F.P.C., 454 F.2d. 941 (1971). It a

i follows that it is appropriate to dismiss the pending complaint

' proceeding against LP&L and CLECO unless and.until the complainants can demonstrate, by amended pleadings or otherwise, a rational nexus between the alleged conduct to LP&L and CLECO and some

, jurisdictional transaction.

L

_5/ See also, Conway Corporation v. F.P.C., 510 F.2d 1264, 1274, cert. granted, 44 L.W. 3279 wherein the Court noted, "However, the FPC concedes that it is authorized to consider nonjurisdictional matters when necessary to the exercise of its jurisdictional authority. "

L,.

l

t *

f' ,

Docket Nos. E-8600, et al. Should the complainants file additional pleadings, those pleadings should reflect the Commission's minimum pleading

~ standards as previously set forth in Indiana & Michigan Elec-tric Company 49 FPC 1232, (1973). The Commission in the Indiana and Michigan order, supra indicated that the pleading must clearly specify "(1) the facts relied upon, (2) the r

anticompetitive practices challenged, and (3) the requested relief which is within this Commission's authority to direct." _6/

I The Commission further finds:

The initial decision of the Presiding Administrative T Law Judge issued August 18, 1975 in this proceeding cpproving a proposed settlement between the Cities of Lafayette and Plaquemine and Gulf States Utilities Company, except as modified herein is approved.

The Commission orders:

(A) The agreements tendered to the Commission in Docket Nos. E-8600 and E-8601 are accepted and approved by the Commission in all respects as settlements of the controversies between the parties thereto pending before the Commission in Docket No. E-7676 and allied dockets.

, (B) The complaints and protests of all the parties

! cgainst any other party now gending before the Commission i in Docket No. E-7676 and allied dockets are dismissed without prejudice.

p

[ By the Commission.

(SEAL)

L f  !

Kenneth F. Plumb, '

Secretary.

k

-- 6/ Id. These standards were required in'the Conway case.

" The FPC held that petitioners failed to meet third criteria.

The Court disagreed with the Commission's finding as being

, unsupported and remanded for further proceedings. )

l EW L

I

- .