ML19329E564

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Memorandum Re Impact of NRC 731001 Memorandum & Order in Case of La Power & Light Co on Proposed License Applications.Verification Encl
ML19329E564
Person / Time
Site: Waterford, Midland
Issue date: 10/19/1973
From: Jablon R
MICHIGAN MUNICIPAL COOPERATIVE POWER POOL, SPIEGEL & MCDIARMID
To:
US ATOMIC ENERGY COMMISSION (AEC)
References
NUDOCS 8006160355
Download: ML19329E564 (22)


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UNITED STATES OF AMERICA BEFORE THE ATOMIC ENERGY COMMISSION In the Matter of

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CONSUMERS POWER COMPANY

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Do.cket Nos.

(Midland Units 1 and 2)

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50-33 0A

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,.'.V MEMORANDUM CONCERNING THE IMPACT OF THE LOUISIANA POWER AND LIGHT COMPANY MEMORANDUM AND ORDER ON THE PROPOSED MIDLAND LICENSE APPLICATIONS This memorandum is written pursuant to the Hearing Board's Order issued verbally during a conference call October 15, regarding the impact on these proceedings of the Commission 's

1973, Docket Memorandum and Order _ in Louisiana Power and Licht Comoany, No. 50-382 A (October 1, 1973).

Because of time constraints, this statement is not meant to be exhaustive.

inter-Especially at this stage of the proceedings, venors do not believe that the LP&L Order can be viewed as an expression by the Commission of a desire to narrow the grounds The LP&L or extent of relief that should properly be granted.

Order does three things :

(1) it affirms the Hearing Board's decision of the issues certified to the Commission in that

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(2) it re-affirms the Commission intent that the AEC

, case; licensing process should not allow nuclear energy "to develop into' a. private monopoly via the AEC licensing process " (page'4);

L (3) it establishes that there should be a relationship between the operation of the licensed facilities -and the relief sought V'

I by intervenors.

The LP&L Order confirms intervenors' entitlement to participation in the Midland units and to access to transmission and coordination services to make that participation meaningful.

Thus, the Commission states (page 4) :

"As stated in our original Memorandum and Order, the requirement in Section 105 for pre-licensing review reflects a basic congressional-concern over accessed power produced by nuclear facilities.

The Commission's anti-trust responsibilities represent inter-alia a Congressional recognition i

that the nuclear industry originated as Government monopoly and is in great measure the product of public funds.

It was the intent of Congress that the. original public control should not be permitted to develop into a private monopoly via the AEC licensing. process, and that access to nuclear facilities be wide-spread as possible.

The Commission is determined strictly to enforce this Congressional intent, and to work with other responsible agencies to assure that AEC licensed activities accord with the antitrust laws and policies underlying those laws."

i Nuclear energy was developed as a Governmental monopoly.

It-is becoming a significant, if not the major, new source of i

base load generation.

As the available supply of useable fossil 6 '

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, resources diminishes, the value of the alternat;ive source of nuclear energy is likely to take on increased significance.

The intent of Congress, as recognized in the LP&L Order, is that nuclear generation not be a monopoly of the dominant 1

investor-owned systems and that smaller systems be granted access to such power.

Smaller systems such as.tho's'e represented by intervenors cannot obtain power from the plant without use of Consumers Power transmission lines.

It would not be economic-ally or environmentally practical to duplicate the Consumers Power transmission system.

Furthermore, rights of access to emergency, maintenance and coordinating power would be necessary in order to properly utilize this nuclear base load power When plants are shut down, Consumers Power, for example, source.

relies upon its own otjher plants and power from other inter-connected systems to obtain reasonably priced maintenance and If the smaller systems are isolated from ac-emergency power.

cess to such coordination or from transmission services to obtain coordinating power, participation in or the ability to buy unit power from the Midland units would be of limited value to them.

The question left open by the LP&L Memorandum and Order, however, is whether the Midland licenses should provide for ancillary relief which would more generally prohibit Con-

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, sumers Power from blocking intervenors from access to trans-mission services and coordination.

Intervenors submit that such license conditions should be ordered.

While the Commissions LP&L Order appears to view this as presenting factual questions (e.g., page 6), intervenors believe that, where basic facts

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are established, the question becomes one more' of -law'and of policy.

The LP&L Order certainly does not hold that such relief may not be appropriate.

If the Midland units are licensed, Consumers Power Co. will enjoy a nuclear generation monopoly within its service area.

Additionally,in forming the Michigan Power Pool Con-sumers Power and Detroit Edison jointly dominate high voltage transmission and, inde.ed, large unit generation.

Given this situation, under the LP&L Order, it is appropriate to look at the impact of granting the Midland licenses both from the vantage point of Consumers Power and of intervenors.

If denial of the broader conditions that we seek is likely to in-crease the advantage to Consumers Power from owning and oper-ating the Midland units compared with more limited con-ditions or, if through denial of broader conditions, inter-venors are likely to be denied a similar benefit to that which would be obtained by Consumers Power, then the broader license T

. conditions must be ordered.

If either Consumers Power obtains a greater benefit from owning and operating the plant due to its control of high voltage transmission facilities and its coordination agreements than it would otherwise, or if the benefits to intervenors obtained from granting access to the plant is limited because of the denial to them of the' bene-2 fits of access to Consumers Power's high voltage transmission then system and to coordination on fair and equitable terms, a direct ne.xus between the building and operating of the plants and the relief sought by. stervenors will have been established.

In judging this question, we would also suggest that the Trial Board look to the more general tests of whether the relief requested by intervenors is consistent with the policies of the antitrust laws and whether denial of such relief would permit a continuation of violations of those policies.

We do not mean to imply that the Board must try an antitrust case or independently determine' whether there is in fact a criminal or civil violation of particular antitrust statutes, although if such violations were established, certainly broad relief l

should be granted.

Nor do we suggest that the Board should hear complaints of isolated antitrust violations and attempt to remedy them.

However, where there has been a course of conduct or a series 3~f related actions by Applicant to limit the ability of intervenors to compete, then there is a situation

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inconsistent with the antitrust laws, Which demands remedy.

In determining the scope of appropriate relief in such sit-a the Commission should look to the general purposes

uations, of the antitrust laws.

Just as it would be improper to sanction Consumers Power building and operation of nuclear plants to.Ehe exclusion 1

so it would be only slightly less detremental of intervenors, to sanction its use of nuclear units as intregal parts of its generations and transmission system in conjunction with other invester-owned utilities, and to exclude municipal and cooper-ative intervenors from the full benefits of the development of nuclear power by allowing consumers Powers Company to deny them access to transmission and coordination rights which are II being used by Consumers Power Company and Which make the gen-eration from the Midland Plants more valuable.

We point out to the Board the obvious fact that one does not build 800 megawatts units without adequate transmission and coordination

Thus, to backup the units -- nor has Consumers Power done so.

Consumers Powerb system demonstrates the " nexus" between these services and the plants.

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THE CONSTRUCTION AND OPERATION OF THE MIDLAND UNITS

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PROVIDE. SUBSTANTIAL ADVANTAGES TO CONSUMERS POWER, WHICH CANNOT BE JUSTIFIED WITHOUT GRANTING ACCESS TO TRANSMISSION AND CO-ORDINATION TO INTERVENORS.

The following facts have been established (or we be-j lieve can be established) either from the application, published i

Federal Power Commission or other reports, deposition material, or from the record to be developed:

Consumers Power present peak generation capability l.

is approximately 5,000 megawatts.

In 1979, including Midland II (but not. Midland I) it will be approximately 8,000 mw.

The Palisades capability of the Midland units will be 1,630 mw.

has a 700 mw capability and Big Rock has a 71 mw capability.

Thus, not including the planned 2,400 mw of. gen'eration at Quanticassee, Consumers Power can be anticipated to have approximately 2,400 mw of nuclear generation.

Including Quanticassee this figure would double.

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Nuclear generation will have high unit capital costs, but low unit operating costs; peaking generation will have high operating costs, but comparatively low unit capital Costs.

3.. Within'its' area of service Consumers Power Co.

will have a monopoly of nuclear generation and of high voltage

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transmission.

Within that general area of service, Consumers Power Company currently owns all transmission operated above 69 kv, although the Michigan Municipal and Cooperative Poweh Pool is planning 138 kv transmission (some of which is now in existence, but operated at 69 kv).

None 'of the municipal or,

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rural electric cooperative systems within its area of service own generation units larger than Lansing's 160 mw unit.

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Consumers Power Co. has interconnection agree-ments and interchange arrangements with Detroit Edison, Indiana and Michigan Electric Co. and the Hydro-Electric Commission of Ontario (" Ontario Hydro").

It has agreements for joint use of facilities and/or interchange of power with Detroit Edison, Toledo Edison, Indiana and Michigan, Commonwealth Edison, 6

Northern Indiana Public Service Company and Ontario Hydro.

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Power generated from plants of Const3ers Company and Detroit Edison Company are centrally dispatched in accordance with need and with the economics of generation on the com-bined systems, regardless of the ownership of an individual plant.

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These interconnections and interchange agreements have allowed Consumers Power Company to take advantage of economies of scale through building larger size base load gen-era tion.

At the same time the interconnection and interchange agreements have allowed Consumers Power to maintain a lower

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than would have been necessary with the same level of reserves Interconnections and interchange arrangements size plants.

provide for the use of larger plants while maintaining the same reserves proportimate to load and absent these agreements, t

Consumers Power would have had to either' maintain larger re-This would have re-l serves levels or build smaller plants.

sulted in a higher cost of generation.

The interchange s

arrangements make provision for emergency and maintenance such power, for use during periods of time when large units, as dhe Midland units, cannot generate, thus, lessening the required amounts of reserves to support such plants.

Detroit Edison and Consumers Power jointly plan 7.

for system growth, which allows the building of larger plants.

As a pratical matter, Midland Power will be inter-grated into the combined Consumers Power - Detroit Edison systems, and will provide support and be supported by inter-Whatever connected systems beyond the Michigan Power Pool.

may be the potentialities of building and operating the Midland

" isolated", Consumers Power and Detroit Edison in fact plants operate a joint system, which will support and be supported by the Midland units...Intervenors are excluded from these joint operations.

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As outlined above, the Midland units will provide for That is, because of the high capital costs base load power.

and low operating costs associated with nuclear power generat' ion (and because of the large unit sizes necess ry to achieve economies of scale),

large market areas and backup generation, ihe're need are necessary to make the Midland units economic.

be sufficient markets to support the plants full-time generation.

However, in addition, the plants are tied to a generation system with sufficient flexibility to allow for " intermediate" and

" peaking" generation to provide power for periods of high demand.

4 It would be uneconomic to use nuclear generation for peak load demands and have the plants sit idle during non-peak periods.

Moreover, there must be substitute power availability during when the plant is shut down either beccuse of periods period s of scheduled maintenance or forced outage.

The different generating sources that provide alter-nate and additional sources of the power which is intergrated with Midland power are connected by the transmission grid.

This grid connects generating sources with each other and with Thus, absent having a high voltage transmission market areas.

grid, either Consumers Power could not economically build plants the size of the Midland units -- or it would not have the same economic advantage to do so.

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There is no question that the building of the Midland When built, units will greatly advantage Consumers Power.

these units are expected to provide reliable sources of base' load generation.

Furthermore, nuclear generation will pro-vide a substantial portion of Consumers Power's total base load generation.

Since there is increasing question-ofth6 avail-l ability and price of fossil fuels, the availability of an al-ternative power source with anticipated fuel costs lower than However, because of any other source is of obvious advantage.

4 the necessity for adequate reserves to " backup" units and to the construction and operation of generation to I

integrate provide for an optimal mix of low generation cost base load f

generation and low capital cost peaking generation, the building

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and operation of the Midland units is closely linked to a highly integrated generation and transmission system, including interties

l to other large investor owned systems.

For the AEC to fail to give effect to these realities would relegate intervenors to a position of future disadvantage and uncertainty.

To grant intervenors access to the plant without providing for the same coordination that Consumers Power itself has established with other utilities would be.to allow the building of these units to solidify and continue the dominating position of Consumers Power.

Indeed, 'it is'~ of' significance that Consumers Power 4

itself recognizes that its coordination arrangements allow it i se e

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to take advantage of the economies of building large units. /

The disadvantage to the in'cervenors from being blocked to direct access to obtaining power from the Midland units id obvious.

Fuel uncertainty makes this more so.

However, from the standpoint of the intervenors, if Consumers Power Company, Detroit Edison and other large investor owned util1'tids can build large units, integrate them into their systems, and con-tinue to exclude intervenors from access to transmission ser-vices and coordination on terms equivalent to those agreed to between Consumers Power Company and other large investor owned utilities, the Midland units will be part of a pattern of com-bined operations allowing Consumers Power to use additions to its generation capabilities to the disadvantage of the intervenors.

Indeed, the thrust of Gainesville vs. Flo. ida Coro., 402 U.S.

515 (1971) is that municipals should not be. interconnected "on terms more onerous than those required of other investor-owned utilities".

La fayette, Louisiana vs. SEC, 454 F2d 941, (CADC, 1971), affirmed sub. nom. Gulf States Utilities Co. vs.

FPC, 411 U.S. 747 (1973).

  • / See, e.g., Deposition of Harry R. Wall, page 70-82.

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THE ATOMIC ENERGY ACT AND CASE LAW REFUTES THE CLAIM

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THAT IN CERTIFICATING THE MIDLAND PLANTS THE HEARING BOARD SHOULD IGNORE THE INTEGRATED NATURE OF CONSUMERS POWER GEN-ERATION AND TRANSMISSION.

In judging the closeness of the relationship that

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should be shown between the relief claimed necessary and the operation of the plant, it should again be stressed that Con-sumers Power ist operating an integrated system.

Whatever the law would be in dealing with a plant being built by an isolated system or where a small nuclear unit is under construction, this is not the factual situation.

Furthermore, Consumers Power has been engaging and continues to engage in series of anti-competitve activities, including direct take-overs or r;t take-over attempts of competing systems, wholesale territorial agreements, discouraging municipal and cooperative generation efforts, refusals to deal, including refusals to sell trans-mission services and refusals to coordinate at all or to coordinate on an equalized reserves basis.

To the extent that a monopoly situation has been created or maintained by such practices, the construction and operation of nuclear units, such as the Midland units, makes that situation more feasible.

The above listed activities have

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a combined result of limiting intervenors ' abilities to compete for bulk power and expanding Consumers Power's bulk power mar kets, which in turn allow it to build and operate 800 mw or larger units.

In determining the relief to be granted, th(

anti-competitive activities of Consumers-Company Which have helped create the " situation inconsistent with-the'-antitrust laws" cannot be ignored.

In interpreting the extent of the nexus that need be shown to grant relief, there are various reference points avail-able to the Trial Board.

First, is the language of the statute itself.

The statutory language of a " situation" inconsistent with the antitrust laws is obviously broader than acquiring a monopoly over nuclear generation and does not limit itself to the operation of the plant.

Atomic Energy Act, Section 105c, 42 U.S. C 2135.

Indeed, the statutory terms are couched in language which refer to activities beyond the operation of the plant.

See generally, " Reply of the Department of Justice on 1

Issues Other Than Disqualification Raised by Applicants Answer of May 9, 1972 " (June 9, 1972), which extensively briefs these issues.

Moreover, a determination of the scope of Commission jurisdiction should be viewed against the background of general antitrust laws, espesially as applied to Wholesale power trans-actions, and against the authority generally granted regulatory commission in conditioning licenses.

The situation in this - -- -

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case is that, contrary to agreements for settlement that have been reached by other major utilities, Consumers Power Co.

refuses to deal in major areas of wholesale power transactions with smaller utilities systems within its area of service, or will do so only on discriminatory terms.

Consumers Power Co._

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is vertically integrated.

It refuses to pennit-in't'ervenors access to purchasing power directly from the Midland plants, or participation in those plants: it refuses to sell trans-mission service (separate from the sale of wholesale power);

it refuses to coordinate or will do so only on discriminatory Its defense apparently is that it is willing to sell terms.

wholesale power ar.d that this is sufficient.

Consumers Power refusal to provide access (1) to C

nuclear generation and (2) to transmission services is the A

type of refusal to deal long condemned by antitrust laws.

bottleneck monopoly cannot lawfully refuse to deal in bottle-neck or attendant services.

United States vs. Terminal Rail-road Assoc., 224 U.S. 383 (1912) ; Associated Press vs. United States, 326 U.S. 1 (1945); Silver vs. New York Stock Exchance, 373 U.S. 341 (1963).

Nor may a monopolist use the defense of refusing to deal in order to avoide competition in order to maintain his monopoly.

Eastman Kodak Co. vs Southern Photo Co.,

273 U.S. 359, 375 (1927) ; Lorain Journal Co. vs. United States,

342 U.S. 143 (1951).. This is the precise holding of Otter Tail.

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Otter Tail Power Co. vs. United States, U.S. 35 L.ed2d 359, 93 S. Ct. 1022 (1973).

Consumers Power apparent claimed dis-tinction that, unlike Otter Tail, it is not refusing to deal' because it is willing to sell wholesale power, is totally lack-ing in substance.

For the " bottleneck" cases -- and the anti-trust law generally -- stand for the proposition t at a verti-a cally horizontally integrated company cannot refuse to deal in bottleneck or monopoly services.

Nor can it use its con-trol over these services to affect competition at other levels of service.

E.g.,

Baltimore and Ohio Railroad Company vs.

United States, 264 U.S. 258 (1924, " Chicago Junction Case") ;

United States vs. Griffith, 334 U.S. 100 (1948); United States vs. Aluminum Co. of America, 148 F2d 416 (CA2, 1945)..*/

Similarly, the Consumers Power Company exclusive pool arrangements create " barriers to competition".

United States vs. United Shoe Machinery Coro., 110 F. Supp. 295 344-345, (D. Mass. 1953), affirmed per curiam, 347 U.S. 521 (1954).

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  • j' In one sense Consumers Powers refusal to sell unit power or participation in the Midland units or to sell trans-mission or forms of coordinating power sales directly is nothing more than a disquised " Tying" arrangement.

Gen-eration from nuclear plants and transmission is being sold as part of the sale of wholesale power and the costs of these transactions are included in purchased power costs.

What Consumers Power will not do is sell these services separately.

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'See W. Montague Co. vs. Lowrv, 193 U.S. 38 (1904); Associated Press vs. United States, 342 U.S. 143 (1951).

As stated earlier, the Supreme Court has directly upheld Federal Power' Commission action condemning discrimination in interconnections and interchange agreements.

Gainseville'vs. Florida Fower Coro.,

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402 U.S. 515 (1971).

See also Gulf States UtiTities Co. vs.

FPC, 411 U.S. 747 ( 1973 ).

In light of cases condemning activities of refusals to deal, such as those being engaged in by Consumers Power Co.,

the Trial Board should take. a broad view to the appropriate re-lief that should be granted.

This would be precisely the kind of factual situation, which under the LP&L Order would call for a scrutiny of Consumers Power Cuapany's pooling and/ interchange C7 l

arrangements and of its blocking of access to small municipal systems and rural electric cooperatives.

Where there is a violation of antitrust policy, as is the case here, there can be no public interest in, narrowing the scope of relief.*/

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The Act is not be given a tight reading wherein every action of the Commission is justified only if referable to express statutory authorization.

On the contrary, the Act is one that entrusts a broad sub-ject-matter to administration by the Commission, subject l

to Congressional oversite, in the light of new and en-volving problems and doctrines The statutory authority to issue certificates or permits on conditions implies broad authority to take effective fx,

In determining the extent of the exercise of its power the Board should certainly consider that there is no public interest purpose to permitting a continuation of Con $

sumers Power refusal to deal and refusal to coordinate on an equalized basis.

Compare Colorado Antidiscrimination Comm.ssion i

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vs. Continental Airlines, 372 U.S. 714 (1963) ; Southern Steam-ship Co. vs. NLEB, 316 U.S. 31, 46-49 (1942 ).

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  • / Continued action to achieve regulation in the public interest.

We are mindful of the liberal interpretation of the Supreme Court has given similar provisions in other statutes as reflecting broad authority, and in appropriate cases a correlative duty, to effectuate the public interest Finally, we observe that the breadth of agency discretion is, if anything, at zenith when the action relates pri-marily not to the issue of ascertaining whether conduct violates the statute, or regulations, but rather to the fashioning of policies, remedies and sanctions, including enforcement and voluntary compliance programs in order to achieve maximum effectuation of Congressional object-ives.

This source of discretion is available

. where the agencies order, though having aspects determination of individual fault, is a denial to a wrong-doer of participation in a Government program generally extended to businessmen, "or the purpm e of maintaining the fair-ness, equity, and efficiency of the program.

Here the case is stronger, for petitioner seeks a license or pri-vilege.

While that license may not be unreasonably or unlawfully withheld, it certainly need not be extended to an applicant not ready to redress his default by dis-charging the duty-he should by rights have assumed with-out nudging." m-

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Especially relevant is the host of antitrust cases courts or holding that in the case of antitrust violations, agencies should look to the transactions and violations as a#

whole and should not limit themselves to the isolated acts immediately coniplained.

E.g.,

Swift & Co'.

vs. United States, -

196 U.S. 375 (1905); Continental oil Co. vs. Union ~ Carbide Corp.,

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370 U.S. 690 (1962).

See United States vs. Masonite Corp.,

316 U.S. 265, 274-276 (1942).

Moreover, in determining the extent of its authority, the Board should also look to cases interpreting the general obligation of regulatory agencies in considering antitrust matters and cases establishing the scope of the conditioning authority which attaches to licensing or certificating authority.

The power to condition licenses to protect the Indeed, even public interest has been held to be very broad.

where a commission cannot command the alternative - or where it may have no direct or limited regulatory authority over a sub-ject matter, in licensing or issuing certificates it has been held that consideration must be given to national policy.

E.g.,

365 U.S.

1 (1961);

FPC vs. Transcontinental Gas Pipeline Corp.,

United States, Denver and Rio Grando Western Railroad Co. vs.

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387 U.S. 485 (1967), FMC Svenska Amerika Linien, 390 U.S. 283 (1963) ; City of Pittsburdh vs. FPC, 237 F2d 741 (CADC 1956) ;

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Northern Natural Gas Co. vs. FPC, 399 F2d 953 (CADC 1968) ; See Udall vs. FPC, 387 U.S. 428 (1967) ; Scenic Hudson Preservation Conference vs. FPC, 354 F2d 608 (CA2 1965), certiorari denied Scenic Hudson sub. nom., Consolidated Edison Co. of New York vs.

Preservation Conference, 384 U.S. 941 (1966) ; United Church cf Christ vs. FCC,_ 359 F2d 994, 425 F2d 543 (CADC, 1966, 1969).

Considering the strong national policy underlying the antitrust laws */, and the breadth of the conditionir.g power granted administrative agencies, it is difficult to perceive that in the situation presented here action of the Atomic Energy Commission to limit the scope of its jurisdiction would be con-sidered lawful where an agency has given direct statutory authority to apply antitrust law.

We do not think that the Commission intended otherwise in issuing th'e LP&L Order.

We think that the Commission merely stated the proposition that the conditions ordered should have a reasonable relationship to activities to be licensed under the act based upon the facts of the various cases. The Commission stated its intent

  • / E.g. Gulf State, Utility Comoany vs. FPC, 411 U.S. 747 (1973). I

to prevent its licensing from resulting in a private monopoly, Midland power will be used as part of an integrated generation and transmission network and in conjunction with supporting interconnection and interchange arrangements.

Thus, there is a direct nexus between granting interven' ors access to these -

arrangements and the building and operating the plants.

Furthermore, as we have stated above, in determining issues of nexus both antitrust and regulatory law fully support the appropriateness of the conditions we seek.

Respectfully submitted,

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Robert A. Jablon Attorney for the Municipals of Coldwater, Grand Haven, Holland, Traverse City, and Zeeland; the Michigan Municipal Electric Association, Northern Michigan Electric Cooperative and Wolverine Electric Cooperative October 19, 1973 Law Offices of:

Spieigel and McDiarmid 2600 Virginia Avenue, N.W.

Washington, D.C.

20037.

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VERIFICATION DISTRICT OF COLUMBIA, SS:

Robert A. Jablon, being first. duly sworn, deposes and says that he is an attorney for the Municipafi of Coldwater, Grani. Haven, Holland, Traverse City, and Zeeland; the Michigan Municipal Electric Association, Northern Michigan Electric Co-operative and Wolverine Electric Cooperative; and that as such he has signed the foregoing Memornadum for and on behalf of said party; that he is authorized by the Municipals of Coldwater, Grand Haven, Holland, Traverse City, and Zeeland; the Michigan Municipal Electric Association, Northern Michigan Electric Co-operative and Wolverine Electric Cooperative so to do; that he has read said Memorandum and is familiar with the contents thereof; and that the matters and things therein set forth are true and correct to the best of his knowledge, information l

or belief.

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Robert A. Jablon Subscribed and sworn to before me this 19th day of October, 1973.

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otayy Public.

N My Commission expires September 30, 1974.

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