ML19331A187
| ML19331A187 | |
| Person / Time | |
|---|---|
| Site: | Midland |
| Issue date: | 11/20/1973 |
| From: | Hoffman J, Ross W, Watson K CONSUMERS ENERGY CO. (FORMERLY CONSUMERS POWER CO.), WALD, HARKRADER & ROSS |
| To: | |
| References | |
| NUDOCS 8006160458 | |
| Download: ML19331A187 (191) | |
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UNITED STATES OF AMERICA -
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ATOMIC ENERGY COMMISSION .- J a.? 'i' . r _ In the Matter of -+ % ~ < Docket Nos. 50-329A CONSUMERS POWER COMPANY
- and 50-330A .
'E' l (Midland Units,1 & 2) s "i.
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,t Ar ' < ,
J To the Atomic Safety and Licensing Board: . PREhEARING BRIEF FOR APPLICANT e ;,
- s. ..
A WM. WARFIELD ROSS, q JOEL E. HOFFMAN, -m
~ ' #
KEITH S. WATSON,
-- THis DOCUMENT CONTggg3 GERALD B. WETLAUFER, '
POOR QUAUTY PAGES _. Attorneys for Consumers Power Company - s WALD, HARKRADER & ROSS 1320 Nineteenth Street, N.W. . Washington, D. C. 20036 3 3.~
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HAROLD P. GRAVES, .-
' .n' C'" ~
JAMES B. FALAHEE, - C'.. ,Y , l Of Counsel 4-Consumers Power Company d*, , ; y v.mj jrema irp,,::2,-u jiDh,ir .,-;;,i ~ --j j;;4d t.r-dg
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-i- '} INDEX Page Introduction . . . . . . . . . . . . . . . . . . . . . . . 1 I. THE PROPER SCOPE OF THE COMMISSION'S INQUIRY UNDER SECTION 105c IS NOT THE ENTIRETY OF CONSUMERS POWER'S GENERATION, TRANSMISSION, BULK WHOLESALE SUPPLY, AND RETAIL DISTRIBUTION ACTIVITIES , AS ARGUED BY THE '~
JUSTICE DEPARTMENT AND THE INTERVENORS , BUT SIMPLY THE IAWFULNESS OF SPECIFIC ARRANGEMENTS FOR OWNERSHIP OF THE LICENSED FACILITY AND FOR DISPOSITION OF THE ELECTRIC ENERGY TO BE ?RODUCED. . . . . . . . . . . . 4 A. The Terms of Section 105c Limit The Scope of the Commission's Antitrust Review. . . . . . . . . 6 B. The Legislative History of Section 105c Confirms that Congress Intended to Limit Scope of This Commission's Antitrust Review Authority. . . . . . 12 s 1. Prior Antitrust Review Standards . . . . . . . 12
< 2. The 19 70 Amendments . . . . . . . . . . . . . . 15 C. The Foregoing Construction of the 1970 Amendments Has Been Adopted by the Commission in its LP&L Order. 24 s- II. A " SITUATION INCONSISTENT WITH THE ANTITRUST LAWS" WITHIN THE MEANING OF SECTION 105c IS A SITUATION RESULTING FROM CONDUCT BY THE LICENSE APPLICANT
, (a) WHICH VIOLATES THE ANTITRUST LAWS OR (b) WHICH WOULD VIOLATE SUCH LAWS BUT FOR FAILURE TO SATISFY
, SOME TECHNICAL OR JURISDICTIONAL PREREQUISITES TO STATUTORY COVERAGE. . . . . . . . . . . . . . . . . . 33 III. IN DETERMINING WHETHER A " SITUATION" IS " INCONSISTENT WITH THE ANTITRUST LAWS", THE AEC -- LIKE THE COURTS s- IN ANTITRUST ENFORCEMENT ACTIONS -- MUST BE GUIDED BY THE DOCTRINES OF PRIMARY JURISDICTION, ACCOMMODATION OF ANTITRUST AND REGULATORY POLICIES, IMMUNITY OF m GOVERNMENTAL KCTION FROM ANTITRUST CHALLENGE, AND CONSTITUTIONAL FREEDOM TO SEEK GOVERNMENTAL ACTION BY ANY
, OTHERWIEE-LAWFUL MEANS -(THE NOERR-PENNINGTON DOCTRINE) . 42 r
A. The Doctrine of Regulatory / Antitrust Accommodation, and of Primary Jurisdiction, Require the AEC (1) to Recognize that Utility Rates and Practices Approved u. L.
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Page by the Federal Power Commission as Necessary to Effectuate the Regulatory Purposes of the Federal Power Act are not Subject to Antitrust Attack on the Merits, and (2) to Leave to the FPC the Deter-mination Whether Rates and Practices Should be
. , Approved or Disapproved. . . . . . . . . . . . . . 44 f
B. Neither the Actions of the Michigan Legislature and of the Michigan Public Service Commission, Nor any Actions of Consumers Power Pursuant to their Direction I Can Properly Be Held to Create or ' Maintain a Situation Inconsistent with the Antitrust Laws. . . . . . . 55 C. Political Efforts to Secure Favorable Federal or State Governmental Action, Whether Legislative or Regulatory, Are Protected by the First Amend-ment to the United States Constitution and There-fore Cannot Be Relied Upon to Deny or Condition a License Under Section 105c. . . . . . . . . . . 62 IV. STATEMENT OF RELEVANT FACTS . . . . . . . . . . . . .- 70 A. The Place of the Midland Units in the Consumers Power System. . . . . . . . . . . . . . . . . . . 70 B. Consumers Power's Neighbors. . . . . . . . . . . . 71 C. Consumers Power's Interchange Arrangements. . . . 73 D. Consumers Power's Supply Arrangements. . . . . . . 76 E. Retail ' Competition Between Consumers Power and l its Neighbors. . . . . . . . . . . . . . . . . . . 84
~1 V. THE EVIDENCE WILL FAIL TO SHOW THE EXISTENCE OF A SITUA-TION INCONSISTENT WITH THE ANTITRUST LAWS WHICH WOULD BE MAINTAINED BY CONSUMERS POWER'S ACTIVITIES UNDER 1 THE LICENSE APPLIED FOR IN THIS PROCEEDING. . . . . . 91 A. Neither the Ownership Arrangements for the Midland Facility Nor the Proposed Disposition of its Output
~ -
Raises Antitrust Issues' Cognizable in this Proceeding.91 l B. Consumers Power Has Not Unlawfully Monopolized Any
-- Relevant Wholesale or Retail Electric Energy Market. 95
- 1. The Relevant Markets in This Proceeding. . . . 95 l
9 @
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- a. The purpose of defining relevant markets in this proceeding and the definitional criteria to be applied. . . . . . . . . . 95
- b. The relevant markets in this proceeding. . 98
. (i) Retail' markets. . . . . . . . . . . . 99 (ii) Wholesale bulk power markets. . . . . 105
- 2. Consumers Power Neither Possesses Nor Has Exercised Monopoly Power in Any Relevant Market. . . . . . . . . . . . . . . . . . . . 109
- a. Without power to control prices or to exclude competition, there can be no monopoly power, and s tatistical co=puta-tien of market shares is merely a foundation from which an inference may be drawn in the nonregulated industrial context. . . . . . . . . . . . . . . . . . 109
- b. In the only relevant markets in this proceeding in which co= petition is legally and economically possible, Consumers Power's market share would not under any circumstances support an inference of monopoly pcwer. . . . . . 113
- c. The direct evidence of economic realities in the present case will demonstrate that Censumers Power can neither control prices nor exclude competition in any relevant market. . . . . . . . . . . . . . 115
~.
- i. Consumers Power's rates are deterrdned by the Federal Power j Co= mission at the wholesale level and the Michigan Public Service Ccmmission at the retail level. . . . . . . . . . . . . . . . . 115 ii. The Federal Power Commission and the Michigan Public Service Cc= mis-sion have authority to order Con-sumers Power to interconnect on specified terms , and thus f rus -
. trate any atte=pt to exclude potential wholesale or retail compe titor. . . . . . . . . . . . . . 118
- iv - - Page iii. Consumers Power faces strong actual and potential competi-
, _. tion in wholesale bulk power supply. . . . . . . . . . . . . . . . 120 iv. Substantial subsidies and tax exemptions available to the Intervenors but not to Consumers Power strengthens their competi-tion disproportionately to their relative size or share of the
- market. . . . . . . . . . . . . . . . 123
' ~
- 3. Consumers Power has not Unlawfully Foreclosed or Restricted the Intervenors ' Access to the Regional Power Exchange Market. . . . . . . . 126
- a. There is no principle of antitrust law which prohibits a trader, in sole and exclusive control of a facility,. from denying his competitors access to the facility if the basis for the exclusion is reasonable , nor which prohibits him from allowing access only on reasonable terms , even if the facility can be char-acterized as " unique" or " essential". . . 126
- b. The municipal and cooperative systems enjoy access to bulk power supplies including the " regional power exchange",
! on terms which are entirely reasonable. . 132
- i. Wholesale bulk purchases from Con-sumers Power, under rates and con-ditions regulated by the FPC, is a reasonable form of access present;y I utilized by the municipal and coop-erative systems. . . . . . . . . . . . 133 ii. The evidence will demonstrate-Con-sumers Power's willingness to enter
, into interchange agreements on rea-sonable and nondiscriminatory terms. . 135
- c. The terms on which the municipal and cooperative systems may join the l
Michigan Pool have been approved by l the Department of Justice as reason-l< able and non-discriminatory. . . . . . . 157 l _.'
-v-S d. The forms of preferential access sought by Intervenors, such as unit power, equity participation, and wheeling, are inherently unreasonable and in-consistent with the antitrust laws . . . . 158
- e. The Intervenors' present competitive viability demonstrates that forms of access to large scale bulk power, in addition to those now available, are neither " essential" nor " unique" in assisting them to compete, and that reasonable access is already being enjoyed. . . . . . . . . . . . . . . . . . 166
- 4. Consumers Power's Market Position is the Inevitable Consequence of the Economic Characteristics of the Electric Power Industry and of Governmentally-Imposed Regulatory Requirements , Rather Than Unlawful Monopolization. . . . . . . . . . . . 171
- a. The antitrust laws do not forbid the
, existence per se of monopoly power, but only its willful acquisition or maintenance. . . . . . . . . . . . . . . . 171
- b. The noncompetitive characteris' tics of the relevant markets in this proceeding are imposed by State and federal regulation in further-ance of particular governmental policies. . . . . . . . . . . . . . . . . 174 l c. Cons umers Power's business conduct
'u since 1960 has been well within the limits allowed by Section 2 of the t Sherman Act, even if the Company were found to possess monopoly power in a relevant market. . . . . . . . 184 1 i CITATIONS CASES: l Alabama Power Co. v. A11bama Elec. Cooperative, l Inc., 394 F.2d 672 (5th Cir.), cert. denied,
, 393 U.S. 1000 (1968). . . . . . . . . . . . . . . 61, 184 *-s
C s (' - vi -
- (
Page
. c. ' 't American Football League v. National Football
- ~. League, 323 F.2d 124 (4 th Cir. 1963). . . . . . . 131, 174 American Tobacco Co. v. United States, 328 U.S.
{' 781 (1946). . . . . . . . . . . . . . . . . . 110, 111, 172 {
,. Associated Press v. United States, 326 U.S. 1 (1945). . . . . . 4 . . . . . . . . . . . . . . . 127 Atlantic Seaboard Corp. v. FPC, 404 F.2d 1268 j (D.C. Cir. 1968) . . . . . . . . . . . . . . . . . 48 Banana Distributors , Inc. v. United Fruit Co. ,
162 F. S upp . 32 (S.D.N.Y. 1958), re v ' d , 269 F.2d 790 (2d Cir. 1959). . . . . . . . . . . . . 128 Beatrice Foods Co., 67 F.T.C. 473 (1965), aff'd
'h as modified per consent, 1967 CCH Trade Cas.
\
172124 (9 th Cir. 1967). . . . . . . . . . . . . . 40 ( California Motor Transport Co. v. Trucking Un-( limited , 404 U.S. 508 (1972). . . . . . . . . . . 63 Carter v. American Tel. & Tel. Corp., 365 F.2d [ 486 (5th Cir. 1966), cert. denied, 385 U.S. 47 1008 (1967). . . . . . . . . . . . . . . . . . . f Case-Swayne Co. v. Sunkist Growers , Inc., 369
! F.2d 449 (9 th Cir. 1966), rev'd, 389 U.S .
384 (1967). . . . . . . . . . . . . . . . . . . . 96 Center for Law & Social Policy, 32 F.C.C. 2d 400, 23 Radio Reg. 2d 187 (1971). . . . . . . . . . . . 51 r Ig Cities of Statesville v. AEC , 441 F.2d 962 l (D.C. Cir. 1969) . . . . . . . . . . . . . . . . . 15 City of Lafayette v. SEC, 454 F.2d 941 (D.C. l(.# ' Cir., 1971), af f ' d sub nom. Gulf States Utilities Co. v. FPC, 411 U.S. 747 (1973). . . . . 5, 54 I f' City of Saginaw v. Consumers Pcwer Co. , 213 Mich . 460, 182 N.W. 146 (1921). . . . . . . . . . . . . 176
/
Continental Ore Co. v. Union Carbide & Carbon Corp . , L 370 U.S. 690 (1962). . . . . . . . . . . . . . . 185
, Daily Press , Inc. v. United Press Int'l, L; 412 F.2d 126 (6th Cir. ) , ce rt . denied, 396 U.S. 990 (1969). . . . . . . . . . . . . . . 130, 131 '
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~
vii - Page r', E.W. Wiggins Airways, Inc. v. Mass. Port
, Authority, 362 F.2d 52 (1s t Cir. ) , cert.
denied, 385 U.S. 947 (1966). . . . . . . . . . . . 61 i Eas tern R. R. President's Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) . . . . . 63 Eas tman Kodak Co. v. Southern Photo Materials Co., 273 U.S. 359 (1927). . . . . . . . . . . . . 129 Elbow Lake v. Otter Tail Power Co. , 46 F.P.C. 675 (1971). . . . . . . . . . . . . . . . . . . . 119, 153 Far Eas t Conf. v. United States, 342 U.S. 570 (1952). . . . . . . . . . . . . . . . . . . . 45
\
FPC v. Florida Power & Light Co., 404 U.S.
/ 453 (15'72) . . . . . . . . . . . . . . . . . . . . 44 FTC v. Fre d Meye r , Inc., 390 U.S. 341 (1968). . . . 40 FPC v. Southern Calif. Edison Co. , 376 U.S.
\'
205 (1964). . . . . . . . . . . . . . . . . . . . 44 Florida Power Corp. v. FPC, 425 F.2d 1196 (5th Cir. 1970), re v ' d s ub nom. Gainesville Utilities Dep't v. Florida Power Corp. , 402 U.S. 515, cert. denied, 403 U.S. 910 (1971). . . . 151 Gainesville Utilities Dep't v. Florida Power
- Corp., 402 U.S. 515 (1971). . . . . . . . . . 149, 151, 152 Gainesville Utilities Dep ' t v. Florida Power Corp., 40 F.P.C. 1227 (1968). . . . . . . . . 154, 155, 156 1
, Gamco, Inc. v. Providence Fruit & Produce Bldg., 194 F.2d 484 (1s t Cir. ) , cert.
denied, 344 U.S. 817 (1952). . . . . . . . . . . 127
< Gas Light Co. of Columbus v. Georgia Power Co., 440 F.2d 1135 (5th Cir. 1971), cert. . Henied, 404 U.S. 1062 (1972). . . . . . . . . . . 57
' i A Georgia Power Co. , 39 F.P.C. 930 (1968). . . . . . . 11 ( Grand Union Co. v. FTC, 300 F.2d 92 (2d Cir. 1962). . . . . . . . . . . . . . . . . . . . 40 i l' Great Northern Ry. v. Merch ants ' Elevator Co., 259 U.S. 285 (1922). . . . . . . . . . . . . 46
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- - viii -
Gulf States Utilities Co. v. FPC , 411 U.S.
, 747 (1973). . . . . . . . . . . . . . . . . . . . 48, 175
,,- Hughes Tool Co. v. Trans World Airlines, Inc., 409 U.S. 313 (1973). . . . . . . . . . . . . . . 45
, Huron Portland Cement Co. v. Michigan Public Service Commission, 351 Mich.
255, 88 N.W. 2d 492 (1950). . . . . . . . . . . . 86, 177 International Tel. & Tel. Co rp . v. General Tel. & Electronics Corp. , 351 F. Supp. 1153, (D. H aw . 1972), appeal pending, No. 73-152 3, 9 th Cir. . . . . . . . . . . . . . . . . . . 97 In the Matter of Louisiana Power and Light Co. ,
. AEC Dkt. No. 50-382A . . . . . . . . . . . . . . . 24, 33, 91 In the Matter of the Adoption of Rules Governing the Extension of Single-Phase Electric Service ,
No. U-2291 (MPSC, March 24, 1966). . . . . . . . . 178 Israel v. Baxter Laboratories , Inc., 466 F.2d
, 272 (D.C. Cir. 1972). . . . . . . . . . . . . . . 65 l
._ John Wright & Associates, Inc. v. Ulrich, 328 F.2d 474 (8th Cir. 1964). . . . . . . . . . . 173 l(
Kotch v. Bd. of River Pilots Comm' rs . , 330 U.S. 552 (1947). . . . . . . . . . . . . . . 56
, Lamb Enterprises , Inc. v. Toledo Blade Co.,
461 F.2d 506 (6th Cir. 19 72) , cert denied, 409 U.S. 1001 (1972). . . . . . . . . . . . . . . . . 173 i Lorain Journal Co. v. United States, 342 U.S. 14 3 (1951). . . . . . . . . . . . . . . . . 129, 130
, Marnell v. United Parcel Serv. of Ame rica ,
Inc., 19 71 CCH Trade Cas . 173761 (N.D. Cal. 1971). . . . . . . . . . . . . . . . . . . . . . 96 k- McLeran v. El Paso Natural Gas Co. , 357 F. Supp. 329 (S.D. Tex. 1972) . . . . . . . . . . . . 52
- t. Michigan Consol. Gas Co. v. Township of Aus tin , 373 Mich. 123, 128 N.W. 2d 491 (1964). . . . . . . . . . . . . . . . . . . . . . 176
\"
Montana-Dakota Utilities Co. v. Northwestern r < P ub . Serv. Co., 341 U.S. 246 (1951). . . . . . . . 52 l l n _- __ ._ . - . _ _ _ _ . _ _ _ . . -_ ._ _ . _ _ _ _ - . _ _ _ _ _ _ , - , , , . . _
r-rs
- ix -
Page (" Nankin Hosp. v. Michigan Hosp. Serv., ( 361 F. Supp. 1199 (E . D . Mi ch . 1973). . . . . . . . 112 r National Ass 'n of Women's and Children 's
' Apparel Salesmen, Inc., [1970-1973 Trans fer Binder] CCH Trada Reg. Rep. 119538 (PIC 19 71) ,
aff'd, 19 73-1 CCH Trade Cas . 174511 ( 5 th Ci r. ) , cert. denied, 42 U.S . L.W. 3270 (1973). . . . . . . 50, 53 New England Power Co. ,- 43 F.P.C. 568, amended, 43 F.P.C. 785 (1970). . . . . . . . . . . 11 Ols en v. S mi th , 19 5 U. S . 332 (1904). . . . . . . . . 56 Otter Tail Power Co. v. United States, 410 U.S. 366 (1973). . . . . . . . . 49, 119, 129, 130, 153 Otter Tail Power Co. v. United States , 360 F. Supp. 451 (D. Minn. 1973). . . . . . . . . 64 Pan American Airways v. United States , 371 U.S. 296 (1963). . . . . . . . . . . . . . . 45 Panhandle Eas tern Pipe Line Co. v. Michigan Public Service Commission , i, . 328 Mich. 650, 44 N.W. 2d 324 (1950) . . . . . . . 86, 177 Parker v. Brown, 317 U.S. 341 (1943). . . . . . . . 56 Philadelphia World Hockey Club, Inc. v. Philadelphia Hockey Club , Inc., 351 F. Supp. 462 (E.D. Pa. 1972). . . . . . . . . . . 173 REA v. Northern States Power Co. , 373 F.2d 686 ( 8th Cir. ) , ce r t . deniede 1 387 U.S. 945 (1967). . . . . . . . . . . . . . . . 182 Ricci v. Chicago Mercantile Exchange, 409 U.S. 289 (1973). . . . . . . . . . . . . . . . 45, 46 Scientific Mfg. Co. v. FTC, 124 F.2d 640 (3d Cir. 1941). . . . . . . . . . . . . . . . . . 68
\
! Sherbert v. Verner, 374 U.S. 398 (1963). . . . . . . 68 ( lC Sierra Club v. Butz, 349 F. S upp . 934 (N.D. Cal. 1972). . . . . . . . . . . . . . . . . 63 (' Silver v. N.Y. Stock Exchange , 373 U.S. 341 (1963). . . . . . . . . . . . . . . . . . 45
- i-1 em _
-x- ./ Page Si=ke v. Enid Automobile Dealers Assoc. , 456 F.2d 1361 (10th Cir. 1972). . . . . . . . . . . . 67 f
Speiser v. Randall, 357 U.S. 513 (1958). . . . . . . 68 Tarpa Elec. Co. v. Nashville Coal Co. , s 36 5 U.S . 320 (1961). . . . . . . . . . . . . . . . 96 Telex Corp., v. International Business Mach.
, Corp., CCH Trade Reg. Rep. No. 91, Sept! 24, 19 73, Pt. II. . . . . . . . . . . . . . . . . . . 95 Texas and Paci fic Ry. v. Abilene Cotton Oil Co., 204 U.S. 426 (1907) . . . . . . . . . . . 45 Ti=es -Pic ay une P ub . Co . v. United States , .- 345 U.S. 594 (1953). . . . . . . . . . . . . . . . 110, 166 't \
Travelers Ins. Co. v. Blue Cross of
. Wes te rn Pa. , 19 72 CCH Irade cas . 173811 (W.D. Pa. 1972). . . . . . . . . . . . . . . . . . 112 \
Traverse City v. Cons tr .e rs Power Co . , 340 .Mich. 85, 64 N.W. 2d 491 (1954). . . . . . . . 176 t Union Leader Corp. v. Newspapers of New , England, Inc., 284 F.2d 582 (1st Cir. t 1960), cert. denied, 36 5 U.S . 833 (1961). . . 172, 173, 174
.t United Mine Workers v. Pennincton, 381 , U.S. 657 (1965). . . . . . . . . . . . . . . . . . 63 t
United States v. Aluminu= Cornany of America, 14 6 F. 2 d 416 (2d Cir. 1945). . . . . . . 111, 113, 114, 172 United States v. Associated Press , 52 F. f Supp. 362 (S . D.N .Y . 1943), aff'd 326
. U.S. 1 (1945) . . . . . . . . . . . . . . . . . . 108
.t. United States v. Borden Co., 308 U.S. 168 (1939). . . . . . . . . . . . . . . . . . . . 44 <\.- United States v. Chas. Pfizer & Co., 246 F. Supp. 464 (S.D. N.Y. 1965). . . . . . . . . . . 97 .s~ United States v. Colcate & Co., 250 U.S . 300 (1919). . . . . . . . . . . . . . . . . . . . 130 .c ( 4 L.
i~ ('.
- xi -
1 Pag,
/N United States v. Columbia Steel Co.,
[ 334 U.S. 495 (1948). . . . . . .. . . . . . . . . 110, 112 7- United States v. E.I. du Pont de Nemours
& Co., 118 F. S upp . 41 (D. Del. 1953),
aff'd, 351 U.S. 377 (1956). . . . . . . . . . . . 172 United States v. E.I. du Pont de Nemours t
& Cc., 3 51 U.S . 377 (1956). . . . . . . . . 96, 109, 110 United States v. General Dynamics Corp. ,
341 F. S upp . 534 (N.D. Ill.), prob juris. noted, 409 U.S. 1058 (1972). . . . . . . . . . . . 97 United States v. Gri f fith , 334 U.S. 100 ,. (1948). . . . . . . . . . . . . . . . . . . . . . 129 United States v. Grinnell Corp., 236 F. [g Supp. 244 (D. Mass. 1964), aff'd, 384 U.S. 563 (1966). . . . . . . . . . . . . . . . . . 172 4 United States v. Grinnell Corp. , 384 U.S. 563 (1966). . . . . . . . . 96, 98, 109, 110, 111, 171 United States v. Harte-Hanks Newspapers , L Inc., 170 F. S upp . 227 (N.D. Tex. 1959). . . . . . 173 United States v. International Tel. & Tel. Corp., 324 F. Supp. 19 (D. Conn. 1970), appeal dismissed, 404 U.S. 801 (1972) . . . . . . . 10 8 United States v. Otter Tail Power Co., 331 F. Supp. 54 (D.C. Minn. 1971), rev'd in part, 410 U.S. 366 (1973). . . . . . . . 63
/
. United States v. Pabst B rewing Co. ,
384 U.S. 546 (1966). . . . . . . . . . . . . . . . 98 l 1 United States v. Philadelphia Nat'l Bank, 374 U.S. 321 (1963). . . . . . . . . . . . . . . . 174
*' United States v. Rob el , 389 U.S. 258 \- (1967). . . . . . . . . . . . . . . . . . . . . . 68 United States v. Terminal R. R. As s ' n ,
(, 224 U.S. 383 (1912). . . . . . . . . . . . . . . . 127 United States v. United Shoe Mach . Corp. , 110 F. Supp. 295, (D. Mass. 1953), (s aff'd per curiam, 347 U.S. 521 (1954). . . . 111, 171, 172 l( United States v. Yellow Cab Co., 332
\. U.S. 218 (1947). . . . . . . . . . . . . . . . . . 97 1 _- _ _ . . _ _ _
g i ts ~
- xii -
United States Navigation Co. v. Cunard S.S. Co., 284 U.S. 474 (1932). . . . . . . . . . . 45 f Washington Gas Light Co. v. Virginia
', Elec. & Power Co., 438 F.2d 2(8 (4 th Cir. 1971). . . . . . . . . . . . . . . . . . 58 Wes te rn Mas s . Ele c. Co., 39 F.P.C. 723, modified on other grounds, 40 F.P.C.
296 (1968), aff'd sub nom. Municipal Elec. As s ' n v. FPC, 414 F.2d 1206 (D.C. Cir. 1969). . . . . . . . . . . . . . . . . 10 STATUTES:
, Fed 6ral:
I Atomic Energy Act of 1946, 60 Stat. 764: S7(c). . . . . . . . . . . . . . . . . . . . . . . 13
- t. Atomic Energy Act of 1954, 6 8 Stat. 934: . . . . . . 34 S105c, 6 8 Stat. 938. . . . . . . . . . . . . . . . 7 Atomic Energy Act of 1954, as amended, 42 U.S.C. 52011 et seq. :
S 10 5 c , 42 U.S.C. S2135 (c) . . . . . . . . . . . . . passim j Clayton Act, 15 U.S.C. SS12 et seq. : S2 ( f) , 15 U. S . C . S13(f). . . . . . . . . . . . . . 40 57, 15 U.S.C. S18. . . . . . . . . . . . . . . . . 39 Sil(a) , 15 U.S.C. S 21(a) . . . . . . . . . . . . . 5 3 Federal Power Act, 16 U.S.C. SS791 et seq. :
, 16 U.S.C. S791 et seq. . . . . . . . . . . . . . . 44 S 3 (ll) , 16 U. S . C . S796 (11) . . . . . . . . . . . . 10 S202, 16 U.S.C. S824a. . . . . . . . . . . . . . . 119 S202(b), 16 U . S . C . S824a(b). . . . . . . . 118, 150, 152, 156 r S205, 16 U.S.C. S824d. . . . . . . . . . . . . . . 116
- m. S205 (d) , 16 U . S . C . S824d(d). . . . . . . . . . . . 116 S205 (e) , 16 U.S.C. S824d(e). . . . . . . . . . . . 116
[ Federal Property and Administrative Services Act, 40 U.S.C. SS471 et seq. : S207, 40 U.S.C. S488 . . . . . . . . . . . . . . . 33, 35
' ' Federal Trade Commission Act , 15 U . S . C . SS41 et seq. :
SS, 15 U. S . C. S45. . . . . . . . . . . . . . . . . 40 i'.. Rural Electrification Act of 1936, 7 U.S.C. SS901 et seq. : 5901 et seq. . . . . . . . . . . . . . . . . . . . 72, 181 .; S904 . . . . . . . . . . . . . . . . . . . . . . . 182 '!, S913 . . . . . . . . . . . . . . . . . . . . . . . 87, 182 , 1 l s
l' \ t-i - xiii - i Page (' Sherman Act, 15 U.S.C. SS1 et seg. . . . . . . . . . passim ( State: Michigan Statutes Annotated S22.13(b) . . . . . . . . . . . . . . . . . . . 59, 117, 118 S22.142 . . . . . . . . . . . . . . . . . . . . 177 < S22.145 . . . . . . . . . . . . . . . . . . . . 177 i S22.152 . . . . . . . . . . . . . . . . . . . . 60, 117 S22.156 . . . . . . . . . . . . . . . . . . . . 176 S22.157 . . . . . . . . . . . . . . . . 117, 118, 119, 120 Constitutions: / l Michigan Constitution Art. VII, S15 . . . . . . . . . . . . . . . . . 118 Art. VII, S24 . . . . . . . . . . . . . . . . . 101, 108
, Art. VII, S25 . . . . . . . . . . . . . . . . . 175 s_
Regulations:
\.
38 Fed. Reg. 22249. . . . . . . . . . . . . . . . . 53 i 10 C.F.R. Part 2, App. A, Par. X(i) . . . . . . . . 39 18 C.F.R.: Sl.8 . . . . . . . . . . . . . . . . . . . . . . 117 S 154. 6 3 (e) (2) . . . . . . . . . . . . . . . . . . 134
, LEGISLATIVE MATERIAL:
7 Bills: H.R. 8862, 83d Cong., 2d Sess. (1954) . . . . . . . 14 H.R. 9757, 83d Cong., 2d Sess. (1954) . . . . . . . 14 s. H.R. 8289, 91st Cong. , 1s t Sess . (1969) . . . . . . 16
- g. H.R. 96 4 7, 91s t Cong. , 1s t Sess . (1969) . . . . . . 16 H.R. 186 79, 91s t Cong. , 2d Sess . (1970) . . . . . . 20, 21, 22 S. 3323, 83d Cong., 2d Sess. (1954). . . . . . . . 14
. S. 3690, 83d Cong., 2d Sess. (1954). . . . . . . . 14 \.
p - xiv - Page S. 212, 91st Cong. , 1st Sess . (1969). . . . . . . . 15-16 .f He arings : 1 Hearings on Prelicensing Antitrust Review of Nuclear Powerplants Be fore the Joint Co==. on Atomic Energy, 91s t Cong. , 1s t & 2d Sess. (1969-70), . . . . . . . . . . 17, 18, 19, 20, 37, 93, 94 Recorts :
, H. Rep. No. 91-1470, 91s t Cong. , 2d Sess . (1970) 36, 38, 185 S. Rep. No. 49 7, 88th Cong., 1st Sess . 8 (1964). . . 182 . Deb ates : . 116 Cong. Re c . H . 34318 (Septe=be r 30, 1970) . . . . 24
' 22 116 Cong. Rec. S. 39619 (December 2, 1970) . . . . . I 116 Cong. Rec. S. 39623 ( De ce =be r 2 , 1970) . . . . . 19 1 116 Cong. Re c . H . 39819 (Dece=ber 3,19 70) . . . . . 13 8 MIS CELLA'iEOUS : Address by Donald I. Baker, Director of Policy Planning, Antitrust Division , Dep ' t of Jus tice , Before Ass'n of Bank Holdinc Co=canies Conference
~
on State Legislation, September 10, 1973 . . . . . 111 Address by Norman Clapp, Rural Electrification (Oct. 1961). . . . . . . . . . . . . . . . . . . . 184 . s. Att ' y Gen . Nat' l Co=m. Antitrust Re p . 60 (1955). . . 174, 190 Bonbright, Principles of Public Utility Rates (1960) 134
" Dissenting Views on H.R. 18679" (draft dated Sept. 14, 19 70) . . . . . . . . . . . . . . . . . . 21 lt Electric Coordination Agree =ent between Consumers Power Company and The Detroit Edison Company
~
dated May 1, 1973 Article I, Section 3 . . . . . . . . . . . . . . 138 Article I, Section 4 . . . . . . . . . . . . . . 138 i Artf.cle I, Section 6 . . . . . . . . . . . . . . 76, 157
$ * -%, w -
<~
( f.
' - XV -
Page (' FCC Public Notice 65-965, Radio Reg. (Current Service) 111:402. . . . . . . . . . . . . 51 g Meeks , Concentration in the Electric Power Industry: The Impact of Antitrus t Policy , 72 Colum. L. Re v. 64 (1972). . . . . . . . . . . . 102
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UNITED STATES OF AMERICA
- ATOMIC ENERGY COMMISSION 3- -
; In the Matter of )
) Docket Nos. 50-329A
(~ CONSUMERS POWER COMPANY ) and 50-330A
, (Midland Units 1 and 2) )
PREHEARING BRIEF FOR APPLICANT
'; Introduction Consumers Power Company, the Applicant in these proceedings, is an investor-owned electric utility serv-ing more than 1,163,000 customers in Michigan's lower peninsula. The Company is engaged in the generation, trans mission , and bulk wholesale distribution of electric
( energy, and also (in most parts of its service area) in the direct retail distribution of such energy. Consumers Power is a large utility company. Its
-) .; system, integrated through high voltage transudssion lines, is comprised of 29 generating stations, operating i
internal combustion, gas turbine , steam, and hydroelec- 2 i tric units . Consumers Power presently has interchange agree-l/ (.) ments with three other electric systems -- The Detroit Edison Company, the City of Lansing, and the City of Holland l, l~ l_/
-- and with the so-called Muni/ Coop ("MMCPP") Pool. In
\_
1/ The members of the Muni/ Coop Pool are the Northern Michi-i m gan Electric Cooperative, the Wolverine Electric Coopera-tive, the City of Grand Haven, and Traverse City.
/
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'[ ' addition, Consumers Power and Detroit Edison (collectively the " Michigan Pool") have interchange agreements with the i
Hydro-Electric Power Commission of Ontario and with the
,. "MIIO" Companies: Indiana & Michigan Electric, The Toledo ' - Edison Company, Commonwealth Edison, and Northern Indiana Public Service.
Consumers Power, though by far the largest, is only one of 41 electric utilities within or adj acent to its service area. C.ese include 23 municipal electric
- i. systems, the largest of which are those of the cities of Lansing and Holland. There are, in addition to the
\
municipals, twelve rural electric cooperatives in the area. Ten of these distribut' electric energy at retail; ( two are generation and transmission cooperatives, which l s supply bulk power to seven of the distributing cooperatives. Finally, besides Consumers Power there are two small investor-owned utilities which operate in the region. The present proceeding commenced when Consumers Power applied to the Atomic Energy Commission for a con-t struction permit for the nuclear generation facility under construction at Midland, Michigan. That facility, when completed,-will consist of one 815 megawatt unit and one 486 megawatt unit. On June 28, 1971, the Department of ( Justice advised the Commission pursuant to Section 105c s._ e
-g i
bc
- s. -
c. J t f~ of the Atomic Energy Act" that in the Department's opinion the activities under the license might " maintain a situation 7
, inconsistent with the antitrust laws", and requested the present hearing. A number of municipal and rural-cooperative systems operating in Consumers Power's servico area (here-af ter "Intervenors") have also intervened in the proceedings in support of the Justice Department's allegations. , At the hearings to be conducted as part of these proceedings, Consumers Power will present evidence estab-i lishing that its activities under the proposed license will not " maintain a situation inconsistent with the anti-s trust laws" within the meaning of Section 105c as correctly 1
interpreted. This Prehearing Brief will set forth Consumers Power's position on the proper scope of the Commission's l inquiry under Section 105c, and on the relationship of the antitrust laws as such to the standard embodied in that provision. We will then summarize the evidence to be pre-
/
I sented by Consumers Power, and explain why that evidence , refutes any claim that antitrust principles applicable
*- in this proceeding support the Jus tice Department's and , Intervenor's allegations.
i. \ j2 / 42 U.S.C. S 2135 (c) . k i I; 3-
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i-l. (~ [ r-I. THE PROPER SCOPE OF THE COMMISSIOt 'S INQUIRY UNDER I SECTION 10 5c IS NOT THE ENTIRETY f,F CONSUMERS POWER'S GENERATION, TRANSMISSION, BULK WHOLESALE SUPPLY,
/~ AND RETAIL DISTRIBUTION ACTIVITIES, AS ARGUED BY i THE JUSTICE DEPARTMENT AND THE INTERVENORS , BUT SIMPLY THE LAWFULNESS OF SPECIFIC ARRANGEMENTS FOR p- OWNERSHIP OF THE LICENSED FACILITY AND FOR DISPOSI-TION OF THE ELECTRIC ENERGY TO BE PRODUCED.
t.
. The premise of the Justice Department's and the -
Intervenors' contentions is that because the Midland unit {~ will become a part of Consumers Power's total electric ( utility system, every facet of this system and its oper-( ation is subject to antitrust review in this proceeding. This ignores the plain terms of Section 105c, misreads t its legislative history, and is inconsistent with the basic
<' character of the regulatory scheme administered by the Atomic Energy Commission.
The scope of the inquiry contemplated by .he Justice Department and the Intervenors might arguably be appropriate in a Sherman Act prosecution before a federal i '< court. But the inquiry in this proceeding arises in a j (' completely different statutory context. The Atomic Energy !e l Commission has no authority to conduct antitrust enforce-ment proceedings as such, i.e. , proceedings directly to ,u compel ccmpliance with the antitrust laws . That power l is reserved principally to the Department of Justice as I '\ prosecutor in civil or criminal court actions; to injured private parties suing in court for damages or injunctions; u 4 L t- _ ._ ._. _ .
t f a r and to the Federal Trade Commission. Some Federal admin-i istrative agencies such as the Interstate Commerce Commis-(,
, sion or the Federal Reserve Board are also authorized by -
( Section ll(a) of the Clayton Act (15 U.S .C. S21(a) ) to conduct enforcement proceedings under that statute with e- respect to the industries they regulate, but the Atomic Energy Commission is not one of those so autPorized. r Most administrative agencies with licensing 4 responsibilities are required by statute or judicial i g decision to take account of antitrust policy. Section r 105c is one such statute. Such licensing responsibilities, however, neither require nor permit the agency to conduct an overall review of the license applicant's conduct in
\
light of the antitrust laws. Rather, there must be "a
' reasonable nexus between the matters subject to its sur-veillance and those under attack on anticompetitive grounds." City of Lafayette v. SEC, 454 F.2d 941, 955 (D.C.
Cir. 1971), aff'd sub nom. Gulf States Utilities Co. v. , L. FPC, 411 U. S . 747 (1973). l' The surveillance of the Atomic Energy Commission lt l over electric utilities is not unbounded; its scope is . '- defined by Section 105c, w1ich is part of a statutory regime l concerned with the practival applications of nuclear tech-t nology and, primarily, with the impact of such applications
=
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- r on national security, physical health and safety. There l
is no reasonable nexus, we submit, between this regulatory ! schene and most of the matters sought by the Justice De-p- partment and the Intervenors to be litigated here. ,. A. The Terms of Section 105c Limit The Scope of the Commission's Antitrust Review. t- Section 105c of the Atomic Energy Act, as amended, a 42 U.S.C. S 2135 (c) , requires the Atomic Energy Commission to I take account of the antitrust laws in its licensing process. \ But Section 105c neither provides the Commission with general antitrust enforcement activity, nor subjects every t' facet of a license applicant's activities to antitrust re-i view by the Commission. To the contrary, the section man-dates only that when the issue has properly been raised in s a licensing proceeding, the Commission must determine "whether the activities under the license would create or maintain a situation inconsistent with the antitrust laws" i' (42 U.S.C. S 2135 (c) (5) ) (emphasis supplied) . i
- 1. In urging that Cons umers Power's entire elec-tric utility operations are subject to antitrust review 0
- s. in this proceeding, the Justice Department and the Intervenors construe Section 105c as if the words " activities under the license" had been deleted from the statute. These words delimiting the Commission's antitrust review authority L
L
P r [ ,. were an integral par.t of the 1970 mmendments to the { Atomic Energy Act, which made explicit the Commission 's ! duty to consider antitrust matters in licensing proceedings r such as these, and on which the Justice Department and the
' ~~
3/ Intervenors rely. The apparent referent of these words , which suggests itself as a matter of common understanding of the language, is the organization and operation of the f i licensed facility itself. The phrase would seem on its g face to sweep more narrowly than all the activities of i' the applicant, and to exclude activities which could and would be conducted whether the license were granted or l not. ( ( The term "under" connotes a causal connection
- between the authority granted by the license and the ac-tivities in question -- in this case, ownership of the facility and the generation and distribution of approxi-mately 1300 megawatts of power. The activities under the i
( license here applied for will not produce the remaining 7218 megawatts of power generated and distributed by L ( L _2/ The previous version of Section 105c (68 Stat. 938) required only that the Attorney General advise the Commission as to the anticompetitive impact of the s' proposed license itself. Prior to 19 70 the statute was si-lent as to what antitrus t s tandards should
, guide the Commission in disposing of license app-lications.
L ed t
[' m 8-r { Consumers Power. g 2. The statutory phrase "would create or main-I tain" further requires that this Commission confine its inquiry to the antitrust consequences for which direct responsibility can be laid to the construction and operation (. of the particular licensed facility. Section 105c does not direct the Commission to consider whether the activities r-t under the license would contribute to a larger course of
<- conduct which as a whole creates or maintains a situation \
inconsistent with the antitrust laws. The antitrust-incon-
, sistent situation to which this Commission must be alert is one whose creation or maintenance can be attributed to r
( activities under the license.
, As a matter of common understanding, each of the statutory terms - " create" and " maintain" -- signifies ; substantial direct responsibility for the result. The addition of a single plant does not " maintain" a system
( L as large as Consumers Power; neither does it " maintain" .t any significant characteristics of that system. The system [' may be analogized to a house with three bedrooms, one bath, and a kitchen. The owner proposes to erect an addition containing a fourth bedroom and a second bath, l' .u or to replace the kitchen with a more modern one. Do
,- these improvements " maintain" the existence of the build-u 1
1 F L - 9-c' i ing? Obviously not. Even without the added bedroom, bath
- or modern kitchen, the building will continue to exist.
Similarly, when the output of a nuclear genera-ting plant is simply added to an electric utility system's much larger total energy capacity, consequencos of the operation
.(- ; of that system as a whole are not consequences of the operation r of the nuclear plant. There is an intervening cause -- the i- method of operating the system as a whole -- and since the consequences of such operation would flow whether or not i
the nuclear plant even existed, any allegedly anticompeti-f 4 tion consequences of the operation of the whole system are neither " created" nor " maintained" in any normal sense by L the operations of the nuclear plant.
- 3. Thus, the scope of this Commission's anti-
,l trust inquiry under Section 105c can properly extend, in-sofar as operations are concerned, only to the proposed disposition of the energy produced by the licensed facility.
- L Any special arrangements for the disposition of such energy If to particular parties, from which others are excluded, are l
a proper subject for antitrust review. But if the license l I applicant intends merely to add the output of the new faci-lity to its existing system, and to market that energy as L part of systemwide capacity without identification of its i particular origin, then that is where this Commission's (t. r -, n a s ----.--a -, , ,g - - - , e , - - ,
F i F inquiry must stop. For systemwide activities are not .I "under the license", and it is impossible to attribute r-direct substantial responsibility for the consequences of
- r. such activities to the small segmen '. of those activities which are "under the license" .
( An analogous issue has sometimes arisen before { the Federal Power Commission, in hydroelectric project g licensing proceedings under Part I of the Federal Power Act. Section 3 (11) of the Act (16 U.S .C . S796(11) de fines i the scope of the Commission's licensing authority over [ transmission lines by reference to the " primary lines ( transmitting power (from the project]" as opposed to the { license applicant's " interconnected primary transmission system." The FPC holds that "in determining whether a l line is a primary line, the test to be applied is that of the basic purpose of the line in relation to other facili-ties" (Wes tern Mas s . Elec. Co., 39 F.P .C. 723, 731, modified ft on other grounds , 40 F.P .C. 296 (1968), af f ' d s ub nom. Municipal Elec. Ass'n v. FPC, 414 F.2d 1206 (D.C. Cir. 1969)). I' L In the cited decision, the Power Commission ruled f that the proposed lines in question were not licens able i
" primary lines" because they "will be built by Applicants whether or not the Northfield Project is authorized, and L
will function as major links of a regional transmission W-
i^ { l' [ = 11 -
;[' grid, interconnecting important generating plants serving i
several states" (id. at 733). Either of these considera-tions, moreover, would have been sufficient to exclude the lines in question from the scope of the project. New England Power Co., 43 F.P.C. 568, 573, amended in other
-{ respects, 43 F.P.C. 785 (1970). "If the answer to either i
question is 'yes', the project is not a primary line" r
-( (id. at 598 (Initial Decision)).
,- Thus , where "the lines in question are *** used
'l principally for the transmission and distribution of power Ji generated at plants other than the *** plants [to be l
licensed, they] **
- therefore , cons titute parts of the
- (
( interconnected primary transmission system of Applicant" and are outside the scope of the license (Georgia Power
- I Co., 39 F.P.C. 930, 932 (19 6 8) ) . General system components, in other words , are not considerr.d part of the " project"
\
and thus do not require an FPC license.
- 4. The FPC's eminently sensible approach should equally be applied by this Commission, we submit, in con-
- b. sidering the reach of the statutory phrase " activities
- ( under the license" in Section 105c of the Atomic Energy
.(. Act as amended in 1970. General system operations of the . applicant utility are not subject to licensing under the
, Atomic Energy Act. They should therefore be excluded .(
i , A- - . -,
r s I r-i from this Commission's Section 105c scrutiny, and left [ to the generally applicable procedures for enforcement t of the antitrust laws. The Justice Department and the Intervenors assert that general system operations should be considered "under i
! the license" for purposes of AEC review under Section 105c t
because such operations are necessary to the operation of { the licensed facility. But such an analysis turns the applicable standard on its head. The test is not whether i the overall system has an impact on the licensed units , I but instead whether the construction and operation of the l licensed unit would so dominate general system operations f i that the effects are indistinguishable. In the absence of such a pervasive and determinative impact of the 1' licensed units upon general system operations, to read Section 105c as authorizing AEC review of such operations 3 would expand the meaning of the statutory language beyond i t recognition and beyond any reasonable inference of legis-lative intendment. 7 L B. The Legislative History of Section 105c Confirms that Congress Intended to Limit Scope of This f Commission's Antitrust Review Authority. s
- 1. Prior Antitrust Review Standards
.t The legislative history of the antitrust provi-sions of the Atomic Energy Act confirms the clear meaning
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- l -
of Section 105c, i.e. , that the Commission's antitrus t
,, inquiry must be confined to the direct substantial conse-quences of activities under the license. '~
The original Atomic Energy Act of 1946 broadly directed dhe Commission to maximize competition in the exploitation of nuclear technology. Congress' concern was that the nuclear industry, which had been created through massive Federal effort and expense, would not become dominated by a handful of monopolistic firms to the ex-i clusion of comparatively smaller entrepeneurs . While the ( distinction is admittedly difficult to apply with precision, [ it seems clear that Congress was focusing not on competi-tion in the industries in which nuclear technology might be
. applied but rather on access to the technology itself, which 1 4./
was not to become the proprietary preserve of the few. 'I {' ;4 / _ The original Atomic Energy Act of 1946 provided: L "Where activities under any license might serve to maintain or to foster the growth
of monopoly, restraint of trade , unlawful competition, or other trade position in- ' imical to the entry of new, freely competi-tive enterprises in the field, the Commis-sion is authorized and directed to refuse to issue such license or to establish such
[' conditions to prevent these results as the L Commission, in consultation with the Attorney General, may deterndne. " S 7 (c) , F 60 Stat. 764. L 4 i.
i The Commission's responsibilities were modified
,_ considerably by the 1954 Act. The statutory revision first proposed in that year by the Joint Commission on Atomic Energy would have eliminated entirely the obligation of the Commission to consider or apply antitrust policy in licensing proceedings.--5/ Upon the protest of several JCAE members a.td the Department of Justice, an alternative proposal was advanced under which antitrust considerations would have etntinued to be controlling, but with the power l
to make the requisite antitrust determinations removed from the AEC and given to the Federal Trade Commission. The version initially passed by the Senate was similar but would have made the Attorney General the final antitrust arbiter. The feature common to all these proposals was extinguishment of the Commission's authority to decide antitrust issues . Yet as finally enacted, the 1954 statute f did preserve an antitrust role for the Commission. The new { statute required the Commission, in commercial-licensing
~-
5/ H.R. 8862, 83d Cong., 2d Sess. (1954); S. 3323, 83d Cong., 2d Sess. (1954).
~~
6/ H.R. 9757, 83d Cong., 2d Sess. (1954); S. 3690, 83d { Cong., 2d Sess. (1954). L
,-- - - , - - - - , ._---n - - - .-
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i
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cases, to obtain the views of the Attorney General as to "whether insofar as he can determine, the proposed license Kould tend to create or maintain a situation inconsistent with the antitrust laws" (68 Stat. 938). The range of the Commission's inquiry thus was narrowed considert.bly, and its former duty to treat competitive considerations as dis-positive was eliminated. But the statute still provided
- I f
no explicit standards. The 1954 provision, like its predecessor, was
.l-never invoked. No applications for commercial licenses were filed prior to the 1970 amendments , and the Court of Appeals held that neither the 1954 provision nor antitrust policy in general required the Commission to take account , of the antitrust laws when issuing research licenses.
Cities of Statesville v. AEC, 441 F.2d 962 (D.C. Cir. 1969). .I'
- ( 2. The 1970 Amendments ir Congressional dissatisfaction with the workings
-l" of the research-commercial dichotomy eventually led to the 1970 amendments to Section 105c. The three competing bills proposing changes in the Atomic Energy Commission's anti-
- !s. trust review obligations were S. 212 (the Anderson-Aiken
.j ' f r. l p-w .
t I i _7_/ 8/ r, bill); H.R. 8289 (the Holifield-Price bill) ; and the Atomic Energy Commission's bill, H.R. 9647 (also intro-9/
- duce $ in the Senate as S. 1883).
Each of these bills eliminated the distinction between research licenses and commercial licenses. Both ,I the Anderson-Aiken and Holifield-Price proposals would have authorized the Attorney General to advise, and the
- Commission to consider, whether " activities under any license would tend to create a situation inconsistent with the anti-trust laws." H.R. 9647, dhe Commission's bill, provided for the Attorney General to advise the Commission whether l
" issuance of such license or activities for which the i
i license is sought would tend to create or maintain a situa-tion inconsistent with the antitrust laws." l The Department of Justice endorsed H.R. 9647, even though the bill specified no precise criteria for the Commission's application of antitrust principles . t The Department testified merely that the bill "would
~
assure the applicability of the antitrust standard to r I _7/ 91st Cong. , 1s t Sess . (1969).
! _8/ 91st Cong. , 1st Sess. (1969).
L _9/ 91st Cong. , 1st Sess. (1969). 1 L I
l r all significant nuclear utilization and production facil-ities," including supply arrangements for the proposed units (Hearings on Prelicenej.ng Antitrust Review of Nuclear Powerplants Before tne Joint Comm. on Atomic Energy ( " Hearings ") , 91st Cong., 1s t Ses s . , pt. 1, at 119 t' (1969-70) .' Acting Assistant Attorney General Comegys)) . The apparent absence of guidelines for the 1 Commission in the proposed legislation troubled the Committec. One member of the Committee staff nr.,-ed:
" [T]here apparently are no other statutes ,
and no court decisions based thereon, to I which the AEC could look for guidance in implementing and interpreting section 105c. The only analogous statute as i fe..r as I am aware , is the one you [the t Acting Assistant Attorney General] men-tione d , the Federal Property and Adminis-trative Services Act. For the reasons indicated earlier it probably would not af ford nuch guidance. " Hearings, pt. 1, at 125. After the JCAE hearings on the hills concluded, i' but while the bills were still pending before that Commit-i tee, the proposals for AEC antitrust review were raised for discussion during hearings before the Senate Antitrust t
& Monopoly Sdacommittee. Apparently in response to criti-cisms such as the foregoing, the spokesman for the Depari-
- ment of Justice testified that while:
~
" antitrust review would consider the con-
, tractual arrangements and other factors governing how the proposed plant would
.,..v.., , - ,
O l' (. be owned and its output used *** (,n]o broader scope of review is contemplated, We do not consider such a licensing proceeding as an appropriate forum for wideranging scrutiny of general industry affairs essentially unconnected with the plant under review." Hearings, pt. 2, 4 at 366. This testimony was put into the JCAE hearing
< record by the American Public Power Association, as part r of its written response to questions propounded by the 't JCAE. Also called to the attention of the JCAE by the I
( public-power groups was the testimony of the AEC's General t. Counsel that, under the pending bills , "' the antitrus t auth-(
. ority of Commission [ sic] will be an appropriate complement i to the authority of the Attorney General and, it would i seem, should not be used by the Commission to duplicate authority already held by the Attorney General'" (Hearings, pt. 2, at 365-66).
The intended scope of the Commission's Section j 105c inquiry is further illuminated by the Justice Depart-ment's choice of specifics in giving an example of the I s kinds of antitrust issues the Commission would be expected t. to consider. Commenting upon " issues which are of parti-(~ cular concern to the electric utility industry at this s time," the Department's spokesman testified: ( L~ "Specifically, the industry is now going through a considerable controversy over the extent to which, and the means by
- which, small systems should have access to large new generation and transmission t'
i-
9 i r' '\ / facilities. As to this , I think anti-trust law provides some general guidance. Companies acting together to createoor i control a unique facility may be required by application of the rule of reason, to grant access on equal and nondiscrimina-t' tory terms to others who lack a practical (1 alte rn ative . " Hearings, pt. 1, at 127-28 (emphasis added) . Similarly, when the Justice Department was sub-sequently asked to comment on the bill reported by the JCAE, s the Assistant Attorney General endorsed the bill and observ-j~ ed that it would enable the Commission to condition the license fcr a " joint venture" nuclear power plant -- that is, one owned by two or more companies. 116 Cong. Rec.
\
S 39623 (December 2, 1970) (emphasis added) .
\ The central feature of this example is that it raises antitrust issues on its own terms, without reference to the general system operations of any utility. By selec-ting joint venture facilities as an example of the problens to be considered by the Commission under the proposed anti-trust review provisions of Section 105c, the Justice Depart-
[ -- ment impliedly represented to the JCAE that it need not fear an open-ended interpretation of those provisions which would resultin extension of the Commission's anti-t. trust review authority to encompass the entire system of I, L which the licensed facility would be a part. A simi.lar implied disclaimer that the proposed l_
\. - . ,- - , - - -.- - . . , , - - . ,,, , , , , . , . . _ , . . , . . , .
4 i r s ! t .I provisions would be made the vehicle for inquiry into the general characteristics of a utility 's operations may be found in the Justice Department's comment on the implica-tions of membership in power pools. When pressed as to whether the Department's purportedly narrow concern with joint ventures was broader than it seemed, by reason of \ the possible argument that the owner's membership in a i power pool would make a joint venture out of a nuclear
** facility nominally under single ownership, the Department assured the JCAE that pool membership per se would not be
. seized upon to subject a single-owner facility to antitrust i review as if it were a joint venture. Hearings, pt. 1, at i 134. r Thus, the consistent tenor of the Justice De-partment's assurances to the JCAE in judging enactment of this legislation was that its impact would be limited to antitrust issues inherent in the terms on which the t licensed facility would be owned and its energy output taken. Broader inquiries were forsworn . [ The bill which ultimately emerged from the JCAE I and was enacted (H.R. 18679) must be interpreted in the L . light of these Department of Justice comments as to its
/-
L, limited scope. The reported bill expressly restricted the
; Commission's inquiry to whether " activities under the license
{
{', f P would create or maintain a situation inconsistent with the
.. antitrust laws" -- a somewhat more limited standard than o that contained in prior bills . Senator Aiken, an advocate 4
of broad review authority, commented with respect to the reported bill that the effort "to cut back on the scope of the AEC consideration of antitrust issues *** is t reflected to some extent in this bill" (emphasis in orig-
/
10/ inal). After the JCAE compromise was passed by the House in reliance upon the Justice Department's reassurances , the { Cepartment sought to lay the groundwork for a broader inter-i pretation by providing expansively worded letters to some i, Senators in the course of that body 's deliberations . When j these ler.ters were introduced into the Congressional Record i by Senate proponents of broad antitrust review, Rep. Hosmer , (the co-author of the reported bill) rose on the House floor ! to remind the Congress that the language of the new legis- : i
- y lation was a compromise
l l "Thus, the views and opinions expressed Io in the letters from the Antitrust Division l '- of the Department of Justice are not necess-arily authoritative, and may or may not b f Jg/ " Dissenting Views on H.R. 18679" (draf t dated Sept. 14, l( 1970), p.2, attached as App. A. to " Reply of the Dep ' t '. of Justice on Issues Other Than Disqualification", filed June 9, 1972 in this proceeding. ( i I 1 l 1
l
\
7., 6 accurately represent the intent" [of the t 116 Cong. Rec. H 39819, Dec. 3, bill]. 1970). i The compromise , middle-of-the-road, nature of the legislation was brought directly to the Senate 's attention s ' as well. As Senator Pastore , the floor manager of the bill, told his colleagues:
"The committee and its staf f spent many, ,,s many hours on this [ antitrust] aspect of ! the bill, and I can assure the Senate that \
we consider very carefully the consider-able testimony, comments and opinions we received from interested agencies , associ-ations, companies and individuals , includ-ing representatives from the Antitrust Division of the Justice Department, from ( privately owned utilities , and from public and cooperative power interests . The end
,- product, as delineated in H.R. 18679, is a carefully perfected compromise by the
\ committee itself; I want to emphasize that it does not represent the position, the prefer-ence or the input of any of the special pleaders
[ s inside or outside of the Government. In the committee's judgment, revised subsec-r tion 105(c) , which the committee carefully put together to the satisfaction of all of its members , constitutes a balanced, mode-rate framework for a reasonable licensing review procedure." 116 Cong. Rec. S 39619
. (December 2, 19 70) (emphasis added) .
I Thus, the 'act -- heavily relied on by the Justice ,i ! Department in the present proceedings -- that Senator Aiken f -l threatened to dissent if the JCAE adopted the proposals then
\. . ,f being advanced by the investor-owned utilities, and that he i- ultimately concurred in the JCAE recommendation, does not establish that his own broad-ranging proposal was adopted, l.
i s. 6 L
'\
i [t ! To the contrary, the Senator expressly recognized that the
}
- opposing view "is reflected to some extent". This, together l
with the willingness of his opponents such as Rep. Hosmer f' t to accept the version ultimately adopted, establishes that the 1970 amendments were indeed a compromise rather than q the total victory which the Justice Department and the Inter-f venors now claim.
'I
\ Acceptance of this compromise by both sides was essential, moreover, to enactment of any amendatory legis-lation on the antitrust issue at all. Again and again in
- (
. '( the hearings, in the Joint Committee report, and in the floor
,. debates on the 1970 amendmen ts , JCAE members and other L Senators and Representatives expressed their deep concern that the AEC licensing process shou]d not become so pro-
't tracted as to delay bringing nuclear generating facilities
( on stream which might otherwise be operating. The dura-( tion of a full-scale monopolization case is well known and, ,- even in the context of judicial proceedings for the direct l i+ , enforcement of the Sherman Act, is widely deplored. It is r, inconceivable that a Congress so hostile to delay in the i' , (, licensing process would have authorized precisely such I full-scale antitrust litigation, in which the " defendant's"
/
L operation of a nuclear facility is not even the central fact but a mere jurisdictional basis for the proceeding. , (, ~ 1 i i i. ?
(~
\
f; - 24 -
. \.
We submit diat the legislative history of Section 105c, taken as a whole, unmistakably requires that provision to be read as a compromise. The bounds of that compromise are pricked out by the Justice Depart-
\
ment's assurances to the JCAE..1.2/ The Congressional in-tent revealed by this history requires that the AEC and its Licensing Boards limit their antitrust inquiries to issues arising directly from the operation of the nuclear
, power facility. We shall show that in the Louisiana Power i
and Light proceeding the Commission has so held. In the
- f' ordinary course, that inquiry will be limited to the ques-(
tion whether competitors will be permitted adequate access l' to the power generated by the facility. ( I C. The. Foregoing Construction of the 1970 Amendments Has Been Adopted by die Commission in its LP&L Order,
, The Commission's Memorandum Opinion of October 1 1973 in the Louisiana Power and Light Company proceeding, adopts the relatively narrow construction of the .1970 Amend-ments suggested by the statute's legislative history, and
's' thus provides significant guidance for the proper scope of
, 11/
Cf. Section 105 (a) ; 116 Cong. Rec. H 34318 (Septem-
, Eer 30, 1970) (remarks by Representative Price) .
L.
--12/
In the Matter of Louisiana Power & Ligh t Co . , AEC Dkt. No. 50-382A. d. N 9 m a -,r
-mn- -- -,
ys- -< - m-_,.,m, p._.y g-g---m ,- p yw.,, ,,,n, ,p, 4 ,,. 9
t.,
\ ~ 25 - l f !
i decision in this proceeding. i The LP&L order holds that the proper scope of inquiry under Section 105c is not the entirety of Consumers {- Power's generation, transmission, bulk power supply and re-t - tail distribution activities, but the lawfulness of specific j arrangements for providing access to the power generated by the particular nuclear generating units . The Department
' of Justice and Intervenors have contended that, because the Midland unit will become a part of Consumers Power's '[(
total electric utility system, every aspect of that system and its operation is subject to antitrust review in this
'(
proceeding. However, in LP&L the Commission emphasized (, (p. 3) that a nexus must be established between any alleged antitrust issues and, for example, the operation of, and power generated by, the Midland units . As the Commission ,I stated (p.5): .(- t l ,
" [Section 105c] does not authorize an unlimited inquiry into all alleged anticom-petitive practices in the utility industry.
The statute involves licensed activities and
, not the electric utility industry as a whole.
If Congress had intended to enact a broad remedy against all anticompetitive practices throughout the electric utility industry, it would have been anomalous to assign review s responsibility to the Atomic Energy Commission, where regulatory jurisdiction is limited to
/ nuclear facilities. It is the status and ro'le L of these facilities which lie at the heart of antitrust proceedings under the Atomic Energy Act."
L l l
( ' r-1 Thus, it is clear at the outset that the Commission,
, in its first substantive statement on its new " antitrust" i
review proceedings, has rejected the basic position of the [' Department of Justice and the Intervenors . It remains to be considered what more limited rules or guidelines should
- govern the scope of the decision in these proceedings ,
under the teaching of LP&L. To that, we now turn, l i 1. The Commission's LP&L Memorandum and Order f; provides an authoritative construction of the scope of AEC "antitrus t" proceedings in the light of the paramount Congressional purpose in enacting the 1970 amendments. The Commission emphasized that focus must be placed on access ( to nuclear facilities, which it defined as access to power j from the specific licensed facility at cuch time as it goes into operation. Any alleged inconsistency with the antitrust f laws must have a sufficient " nexus" with the issue of future access to warrant AEC consideration. i s While the Commission also emphasized dhat the
< proper scope of review must be determined on a case-by-case basis, its order provides guidance by announcing certain f governing principles, which can be set out as follows : \
(a) The purpose of The 1970 amendments was i
; to insure insofar as possible widespread access to " power ; produced by nuclear facilities" (Order, p. 4) . Alleged I.-
1 1 7 _k - _ . - . __,, ,_ ,_ . _ , .
<m k
I
, r anticompetitive practices with no direct bearing or effect on the question of future access to the power of a partic-i ! ular licensed facility are irrelevant, and not subject to - review .
~\ (b) Matters such as pooling, wheeling, and interconnecting (involving access to transmission) are "more appropriate for consideration" in instances where .I i the system in question was built in conjunction with the proposed nuclear facility, and not "long before" (Order, p.6). Not every alleged antitrust violation involving i other aspects of the utility 's operations (e . g. , trans-s mission or other generation) is necessarily within the ( scope of the statute. (c) The fact daat a nuclear generating g facility will be interconnected with other generating I facilities, as part of an integrated system, does not of 'k itself supply a " nexus" requiring review of alleged anti-trust inconsistency not directly involving the " activities under the license ," i .e. the construction and operation of the nuclear generating facility (Order, p. 7) . ( (d) There must be a " substantial", or (
" meaningful" , or " reasonable" " nexus ' or " connection" be-tween the alleged antitrust inconsiscency and the operation--13/
I 13/ In this proceeding, as well as in everp other of which we are aware , no antitrus t issues have been presented
, regarding the construction oer se of a nuclear cower facility.
k---------__.__
l'
\
r 28 - r j of the licensed facility (Order, pp. 7-8). That is, an
,... alleged antitrust- violation which, even if established,
<f could not prevent others from obtaining access to power
', from the nuclear generating plant involved would be irrele-i vant. Thus , alleged past refusals by an applicant to in cerconnect, to wheel power, or to coordinate development of non-nuclear facilities would be .rrelevant, unless it i could be shown that these alleged refusals would somehow j block or prevent dhe complainants from adequate access te
( such power from the plant to be licensed. i Applying the foregoing guidelines to the allega-s ,. tions and factual circumstances of the instant case, we
't s ubmit that the only substantial and relevant question to
( be decided here is what form of access to the Midland plant's power (including wholes ale purchases at ra* ; '_ __ _ .'
?
on average system costs) will be adequate r..d appropriate, ( taking account of all pertinent laws and facts . I i Firs t , only two of the license conditions sought
; by the Department o-f Justice or the Intervenors bear on this issue -- namely, the demand for unit power purchases from the Midland units and the (possibly alternative) demand for equity participation in the Midland units . Consumers ! Power contends , and will seek to prove, that its regulated, wholesale rate (which given effective rate regulation by b
h L. . -
1 (' i r j the FPC on a reasonable cost basis will incorporate all
,. benefits derived from large-scale nuclear power generation) \
provides a fully adequate form of access. We also contend that the forms of " access" sought by the Department of 1 Justice or the Intervenors are not only not required by 5- the Act, but are actually anticompetitive, undu'ly dis-criminating, wasteful and potentially unlawful. The
- s Department and the Intervenors contend otherwise.
Restricting the decision to this single issue will greatly simplify the task of deciding this proceeding. Most j of the evidence which will be presented by the Department of Justice and by the Intervenors will involve Consumers Power's i relationship with neighboring utility systems over a fourteen-( year period, including alleged refusals to interconnect or to coordinate development, as well as other allegedly anti- '( compe titive practices . None of these prior events , we submit, has a sufficiently " substantial," " meaningful" or " reasonable" connection or nexus to the issue of what form of access is required in the future to carry out the intent of Jangress in enacting the 1970 amendments . I, Second, the Consumers Power electric utility (. system is a maturt, highly integrated bulk power and dis-i tribution network which long antedates the application here in issue. Addition of Midland will require the con-L
\
f ( r j struction of only 28 structure miles of transmission lines, compared with the 4661 miles which Consumers Power will have in service. The addition of the Midland units - given the ,. large scale of the existing system -- cannot basically change , the configuration or modus operandi of the system, nor can it I substantially affect its interface with adjacent systems. / ] Hence, applying the Commission's guideline that " denial of ., access to transmission systems would be more appropriate for ) consideration where the systems were built in connection with a nuclear unit than where the systems solely linked non-nuclear facilities and had been constructed long before application for i an AEC license" (LP&L Order, p.6), it can be seen that "no / meaningful tie," in the statutory sense, exists between Midland ( and the alleged ar.ivities involving Consumers Power's exist- \ ing transmission system (ibid.). We submit that the following topics, inter alia, a which will be extens'ively treated in testimony and exhibits, i are not within the proper scope of this proceeding: ( ( (1) The nature of the original 1962 Michigan Pool agreement (,. (2) The amended 1973 Michigan Pool agreement { (3) Access to the Michigan Pool ks \ t
g.
,7 i'
e
< (4) Applicant's interconnection agree-ments with Lansing, Holland and the
{~ Muni/ Coop pool (5) Applicant's interconnection agree-ments with Ontario Hydro and the j NEIO Group (6) Applicant's alleged refusal to 1 interconnect, and required terms
, of interconnection i
(7) Applicant's course of dealings l with neighboring utilities, inclu-ding agreements, understandings, MPSC rulings involving retail
) customer allocations, and related N topics
'jt (8) Most aspects of retail competition between Applicant and other utilities (9) Most aspects of wholesale competition between Applicant and other utilities ( (10) Applicant's alleged acquisition { policies (11) All issues connected with wheeling, j except issues possibly arising with V respect to wheeling of a power entitle-ment from the Midland units
$ (12) Comparative costs of nuclear and fossil fuel generation, future fuel availa-bility (13) The viability of self-generation as an alternative bulk power source for t the Intervenors . \
The issues to be decided under the LP&L ruling [ all relate to whether Consumers Power's wholesale rate t. provides an adequate form of access to power from the
\
l Midland units, or whether a more specialized and prefer-erttial form, i.e., unit power purchase or equity partici-L
(. ( f' I r. pation, is required by the statute. The sub-issues j include, inter alia: I
' (1) Relevant market analysis, but only insofar as it is germane to the ' foregoing issue Physical and economic structure of 4
(2) the electric utility industry but i only as it relates to the foregoing
- issue r
(3) Competitive viability of Applicant's t customers under its wholesale rate
"' (4) Costs of the Midland . unit compared ' with makeup of Applicant's whole-s' sale rate (5) Adverse impact of unit power sales
{ from the Midland unit on Applicant's other customers and the public interest ( (6) Adverse impact of second party equity participation in the Midland units on f Applicant's other customers and the i public interest. The Board has reserved judgment on the proper t scope of this proceeding, indicating that it prefers to j resolve the issue following a hearing during which all parties will have an opportunity to offer evidence germane under the much broader scope argued for by the Department Under this procedure , of Justice and the Intervenors . i 4- Consumers Power must perforce address issues which we We should not be taken thereby believe are irrelevant. to have waived our position on scope, however, and we t k, s'_.
p. t
- p. (
,c. earnestly request the Board, at the ti:ne of its decision, to give careful censideration to scope in the light of [' LP&L and of the other available evidence of Congressional intent, unswayed by what we believe will be a question-begging and largely irrelevant evidentiary record.
, II. A " SITUATION INCONSISTENT WITH THE ANTITRUST LAWS" w WITHIN THE MEANING OF SECTION '105c IS A SITUATION RESULTING FROM CONDUCT BY THE LICENSE APPLICANT (a) WHICH- VIOLATES THE ANTITRUST LAWS OR (b) ~ WHICH
,y WOULD VIOLATE SUCH IAWS BUI FOR FAILURE TO SATISFY SOME TECHNICAL OR JURISDICTIONAL PREREQUISITES TO STATUTORY COVERAGE. - The finding required of the AEC by Section 105c
, in a licensing proceeding is whether the activities under
( the license will create or =aintain a " situation inconsis-( tent with the antitrust laws." That standard first entered the Atomic Energy Act in 19 54, as the criterion for the Attorney General in advising the AEC on the antitrust in-plications of proposed co==ercial licenses . It was borrcw-i ed from the principal existing statutory provision for antitrust advice by the Attorney General to other federal agencies, i.e., Section 207 of the Federal Property & Administrative Services Act of 1949 (40 U.S .C. 5488). When the Atomic Energy Act was further a= ended in 19 70 to require { an explicit antitrust finding by the AEC, the standard theretofore applicable solely in the formulation of the (_ Attorney General's advice was carried over as the standard i b v __ - - ,_ _ _
.(' -
34 -
~i
~~
on which the Commission's explicit finding was to be based. The standard has never been interpreted by the ( courts , in any of its formulations . But the legislative
,. history of the 1970 amendments demonstrates that Congress i
3 was concerned with actual violations of the antitrust laws resulting from the grant of a license; proposals to grant free-wheeling authority to the AEC to fashion its own 4
,' s tandards for allegedly pro-competitive conduct, indepen-dently of the existing antitrust laws, .were rejected. .s The JCAE report on the amendatory legislation refers to the " established policies of the antitrust laws" as a further criterion for the Commission to apply; this, we s ubnit , simply enables the Commission to overcome what,
.: ( in a proceeding for the direct enforcement of the anti-( trus t laws , might be insuperable jurisdictional or tech-
- f nical defenses not going to the merits of the charge.
First, the statutory phrase in the abstract -- t
" situation inconsistent with the antitrust laws" -- would be difficult to construe as referring to anything more than the result of an actual antitrust violation. While f
ti
-- 19 As we discuss below, the 19 5 4 s tatute re ferred to tendency to create or maintain an antitrus t incon-sis ten t -situation, while the 19 70 amendments do not.
t l l l1 l L. l ! .W ._ - _
, - , _ _ - . . - , , . . . . _ . + _ . - .,- -
i j ". I { - 35 - { I' the legislative history of the Surplus Property Act (where the phrase originated) is not explicit on the point, it F
; seems likely that the draftsmen referred to the resulting .- " situation", rather than to violative conduct as such , si= ply i ' because the proceedings under the Surplus Property Act are not proceedings to punish or prohibit private conduct of any description. They are proceedings to determine the proper disposition of particular surplus government prop-erty, and the purpose of requiring antitrust advice from i the Attorney General is merely to give the selling agency an opportunity to avoid contributing to or effectively t
participating in a private antitrust violation. So it is with the Atomic Energy Act. The purpose ( of requiring the Attorney General's advice, and (since 1970)
\
a finding by the Commission, is simply to alert the Commis-
- ( sion to any possibility in a given case that by granting a license the agency will enable the applicant to violate
~
the antitrust laws or to continue reaping the fruits of a past violation. It would have been anomalous to require a finding of antitrust violation as such, because the AEC does not enforce the antitrust laws as such. i ' The statutory language thus speaks of the " situ-ation" because it is the " situation" (and not the conduct which caused the " situation") with which the Commission is e t
%* , , . -~
/, ' 1 I
t (. s I concerned. l But there is nothing in the statutory reference 7 to " situations" which suggests that the Commission should
-concern itself with " situations" not resulting from con-
[ duct in violation of the law. i Second, there is evidence that Congress so under-l { stood the phrase " situation inconsistent with the antitrust
, laws", i.e., to mean a situation resulting from conduct in violation of those laws. The 1954 Act had required the f
Attorney General to advise whether a proposed commercial license "would tend to create or maintain a situation in-l consistent with the antitrust laws" (emphasis added) . In 1970, discussing the legislative history of this 1954 provision, the JCAE report on the 1970 amendments noted [. that one draft of the 1954 version had omitted the words
" tend to". The resulting language of that draft, which I
was identical in this respect to the bill reported in
, 1970 by the JCAE and ultimately enacted, according to the i
JCAE "was intended to be the equivalent of actual violation f. of the antitrust laws" (H. Rep. No. 91-1470, 91st Cong., 2d Sess. 11 (1970)). The Committee in which the 1970 legislation originated thus advised the Congress that the statutory i language in question had first been proposed some sixteen years earlier, and had then been intended by its author L. I t .. s.
- P
-i F :s 'e to refer solely to situations resulting from actual anti-trust violations. This is powerful evidence, we submit, r' that Congress in 1970 also intended this sensible and 9 appropriate meaning, rather than to create an oppor-i tunity for speculative and wholly discretionary interpruta-tions on the part of this Commission unbounded by the peri-meters of existing antitrust legislation. I Third, the 1970 JCAE report is unequivocal in i its rejection of proposals to confer such breadth of f 1, discretion upon the AEC to make, in a legislative sense, antitrust policy for the electric utility industry. The testimony before the Committee had been that retention of t,.e 19 54 tes t of tendency to " create or maintain a sit-t uation inconsistent with the antitrust laws" might author-t l ize the AEC to range more widely in condemning situations 7 as improperly non-competitive than would be authorized by the antitrust laws themselves . E.g., F.carings, pt. 1, at 90 ( AEC General Counsel) ; id. at 122 (Justice Department) . The Committee chose not to confer such open-ended authority I on the AEC , and instead deleted the words " tend to" from
, the *.ew s tatutory standard.
b The report on the bill is explicit in its ex-planation for this choice : i
" At the opposite pole (from the view that the AEC should ignore antitrust matters]
L. L:
c. (' i
- r to refer solely to situations resulting from actual anti-trust violations . This is powerful evidence, we submit, r
that Congress in 1970 also intended this sensible and appropriate meaning, rather than to create an oppor-i tunity for speculative and wholly discretionary interpreta- ., tions on the part of this Commission unbounded by the peri-meters of existing antitrust legislation. Third, the 1970 JCAE report is unequivocal in its rejection of proposals to confer such breadth of
, discretion upon the AEC to make, in a legislative sense, antitrust policy for the electric utility industry. The.
( testimony before the Committee had been that retention of the 1954 test of tendency to " create or maintain a sit-( uation inconsistent with the antitrust laws" might author- -f ize the AEC to range more widely in condemning situations
, as improperly non-competitive than would be authorized by the antitrus t laws themselves. E.g., Hearines, pt. 1, at 90 ( AEC General Counsel) ; id. at 122 (Justice Department) .
t. The Committee chose not to confer such open-ended authority i l on the AEC, and instead deleted the words tend to" from ,, the new statutory standard. i The report on the bill is explicit in its ex-planation for this choice : s
-"At the opposite pole [from the view that the AEC should ignore antitrust matters]
t
\
L 4, y ~ - w- g , -
,- \
i l k i f i ( is the view that the licensing precess should be used *** to further such com-r petitive postures, outside of the ambit of the provisions and established policies of the antitrust laws, as the Commission might consider beneficial to the free i enterprise system. The Joint Committee ( does not favor, and the bill does not satisfy, either extreme view." H. Rep. f 91-1470, supra at 14. Thus , it is only the provisions of the antitrust laws and the established policies of the antitrust laws which the AEC is authorized to consider in determining ( ( whether a " situation inconsistent with the antitrust laws" ( would be created or maintained by activities under a ( Jicense. In no event is the Commission authorized to go beyond those provisions and es tablished policies , or to i condemn a situation as " inconsistent with the antitrust { t laws" when it does not result from breach of those provi-g sions and established policies. Any suggestion that the Commission may condemn a situation resulting from conduct l which falls short of such a breach is in conflict with l 1 this clear expression by the JCAE as to the meaning of i the statute it authorized. The Commission itself has acknowledged moreover,
~
t that its concern under Section 105c is limited to actual l breaches of the antitrust laws and of their established l\ policies. In its Statement of General Policy on the con- ,, duct of licensing proceedings such as this (10 C.F.R. L L , _. -- n .- . , -----w .- - - w ' * '
r-t F i r Part 2, App. A, Par. X(i)), the Commission has directed ,. that any finding of antitrust inconsistency "be based on reasonable probability of contravention of the antitrust
- laws or the policies clearly underlying these laws" 4
(emphasis added) . No lesser showing, therefore , can suffice to bring Section 105c remedies into play. Nor is the reference to " established policies i of the antitrust laws" in the JCAE report a back door r through which the limitations so clearly imposed on this i~ Commission can be escaped. What Congress legislated ( with one hand, it should not be assumed to have undone i with the other. If the quoted language in the JCAE report i is anything more than tautological rhetoric, it must mean i- simply that the Commission is not bound by the technical or jurisdictional elements of the various antitrust offenses in determining whether conduct by the applicant for a license has or will result in a " situation inconsistent with the (. an titrus t laws". r The antitrust laws themselves provide a useful analogy. For example, Section 7 of the Clayton Act (15 U.S.C. S18) forbids anticompetitive acquisitions of the stock or assets of corporations. Anticompetitive acquisi-f 1 tions of partnership assets are not prohibited by that
, statute, no matter how anticompetitive. Similarly, Section t.
n._ - , - . .
. r-f l 7-.
; =!
2 (f) of the Clayton Act (15 U.S.C. 513 (f) ) prohibits in-ducement and receipt of unlawful discriminations in price r i but not of unlawful discriminations in promotional ~ allow-ances or services.
\
i The Federal Trade Commission is_ authorized by Section 5 of the PIC Act (15 U.S .C. 545) to apply the poli-L cies of the antitrust statutes by enjoining, not only actua) 4 [ violations of their precise prohibitions , but also conduct which would constitute such a violation but for failure 5- to satisfy this sort of technical prerequisite. E.g., PIC
' v. Fred Meyer, Inc., 390 U.S. 341 (1968) ; Beatrice Foods i
Co., 67 F.T.C. 473, 724-26 (1965), aff'd as modified per consent, 19 67 CCH Trade Cas . 572124 (9 th Cir. 1967). Yet no one has suggested that. Section 5 can be used to " circum-i vent the essential criteria of illegality prescribed by the express prohibitions of the Clayton Act", or that under s Section 5 " economic activity, once lawful, [may] suddenly [be] brought within the prohibition of the antitrust laws" (Grand Union Co. v. FTC, 300 F.2d 92, 98 (2d Cir. 1962)). ( The JCAE was presumably aware of this aspect
'~
of Section 5 of the PIC Act, which it listed among the statutes by which the AEC was to be guided. In making i clear that the AEC =ay take account of the established policies of the antitrust laws, as well as their precise
- E b
J.
r-i 1 r prohibitions, it is reasonable to conclude that the JCAE did no more than authorize the Commission similarly to disregard technical jurisdictional matters in determining whether a situation is "incons ;.: tent with the antitrust [ t laws." So construed, the reference to " established poli-cies" in the JCAE report does not undermine and repudiate i the principal purpose of the report to delimit the scope l ( of the AEC's antitrust authority, as the free-wheeling, un-
, confined, quasi-legislative power attributed to this commis-sion by the Justice Department and the Intervenors would do.
Moreove r, to seize on the reference to " established policies" as authority for the Commission to roam at large i through uncharted waters of competition theory would be
,- wholly inconsistent with the fundamental character of this 1
l agency's regulatory responsibilities . It is no denigration f of the importance or difficulty of the AEC 's mission, nor of the thoroughness of its expertise, to suggest the sheer I ( unlikelihood dhat this technology-oriented agency -- rather
, than the economics-oriented Federal Power Commission or i FTC -- would be selected by Congress to conceive and exe-cute new antitrust policies , explicitly expressed nowhere
- s. .
in existing statutes , for the electric utility indus try , i! A mandate to consider and give weight to the
, prohibitions of existing antitrust statutes is one thing; s.
I L ti_ -
f* [' the roving commission urged by the Justice Department and the Intervenors , under which new frontiers of competition f l policy for the electric utility industry as a whole woul'd be explored in the guise of a proceeding to license one I particular type of generating facility, is quite another. The invitation extended by the Department and the Inter-t venors to infer such a commission, and to act accordingly , should be declined. III. IN DETERMINING WHETHER A " SITUATION" IS TNCONSIS-
! TENT WITH THE ANTITRUST LAWS", THE AEC -- LIKE THE l
COURTS IN ANTITRUST ENFORCEMENT ACTIONS -- MUST BE GUIDED BY .THE DOCTRINES OF PRIMARY JURISDICTION, f ACCOMMODATION OF ANTITRUST AND REGULATORY POLICIES, ,1 IMMUNITY OF GOVERNMENTAL ACTION FROM ANTITRUST CHALLENGE, AND CONSTITUTIONAL FREEDOM TO SEEK g GOVERNMENTAL ACTION BY ANY OTHERWISE-LAWFUL MEANS t (THE NOERR-PENNINGTON DOCTRINE). Unlike the industrial context in which antitrust l issues usually arise, the electric utility industry is ( characterized by close and pervasive governmental regula-t tion at the federal, State and even local levels. This f i. cardinal fact of economic life is of profound importance
,. in any antitrust inquiry relating to the industry. For i it means that decisions purely private in other industrial contexts are here subject always to governmental review and concurrence. As a result, the application of the anti-trust laws in this industry must be guided by certain fundamental principles.
i
S F l 7 First, statutory policies and objectives, equal in i legal dignity and force to those of the antitrust laws, yet sometimes in conflict with them, must be recognized and implemented to the maximum extent possible along with { the rules of antitrust; Second, some issues 'should be left for resolution k to the regulatory rather than to the antitrust tribunal; Third, action taken by a State regulatory author-ity or pursuant to its direction is not subject to antitrust t
- attack; and
( Fourth, private parties, including the regulated i utilities thems elves , are Constitutionally privileged to seek [~ to influence governmental regulatory policy and action by [ all means not inherently unlawful, and to press unrestrain-l~
) edly for adoption of a desired result no matter how anti-s competitive that result may be alleged to be.
( In deciding whether a '" situation" is "inconsis-I tent with the antitrust laws" for purposes of Section 105c ( in a reactor licensing proceeding, the AEC no less than any It court in an antitrust enforcement action is bound by these principles. A judicial judgment that the antitrust laws
. have been violated by certain conduct cannot stand unless r
that judgment is reached without infringing these principles.
'~
No " situation" resulting from challenged conduct can be u .. L. I i 6=
1 l 44 - p condemned by this Commission as " inconsistent with the I-antitrust laws", dherefore, unless these fundamentals ( are first similarly taken into account by the Commission. t j A. The~ Doctrine of Regulatory /Antitrus t Accommodation, ( and of Primary Jurisdiction , Require the AEC (1) to Recognize that Utility Rates and Practices Approved by the Federal Power Commission as Necessary to I. Effectuate the Regulatory Purposes of the Federal Power Act are not Subject to Antitrust Attack on the Merits , and (2) to Leave to the FPC the Deter-i mination Whethar Rates and Practices Should be { Approved or Disapproved. 9 The Federal-Power Act il6 U.S.C. S791 et seq.) i sets forth a comprehensive scheme for regulation of the
! wholesale sale and transmission of electrical energy, t
FPC v. Southern Calif. Edison Co. , 376 U.S . 205 (1964); I ( FPC v. Florida Power & Light Co., 404 U.S. 453 (1972). j That scheme is subordinate neither to the antitrust stat-utes, which also are simply enactments of Congress ar.d not manifestations of some higher law, nor even to the regulatory provisions of the Atomic Energy Act. f
- t In accordance with accepted principles of statu-7 tory construction, these overlapping statutory schemes l
i
- must be construed and applied so as to give the greatest possible scope to each and to carry out each of the legis-t lative objectives reflected in the various plans . E.g.,
if l [, United States v. Borden Co., 30 8 U.S . 188, 198 (1939). The agplicat. ion of the antitrust laws to any regulated L. t l. L. < i
f industry is therefore substantially altered, and in some e respects may even be precluded, by the regulatory scheme. -l '; E.g., Ricci v. Chicago Mercantile Exchange, 409 U.S. 289 (1973); Silver v. N.Y. Stock Exchange,.373 U.S. 341 (1963); 15/ j i Pan American Airways v. United States , 371 U.S . 296 (1963). Because of this, certain types of questions arising in antitrust litigation affecting a regulated industry are appropriately decided, not by the antitrust tribunal, but by the regulatory agency responsible for 'I t administering the applicable regulatory scheme. The
; most frequent applications of this " primary jurisdiction" principle have been when the propriety of regulated rates
- f has been challenged (e.g. , Texas and Pacific Ry. v. Abi-lene Cotton Oil Co., 204 U.S. 426 (1907)) , particularly
. under the antitrust laws (e.g., United States Navigation
( Co. v. Cunard S.S. Co., 284 U.S. 474 (19 32) ; Far Eas t i Conference v. United States , note 15, suora) .
! Inquiry into the proper level of utility rates t
is uniquely appropriate to a regulatory agency charged i with rate responsibilities. As the Supreme Court stated f L 14' As the cited decisions demonstrate, this is so even in the absence of explicit statutory provisions granting I antitrust immunity for certain conduct if approved by the regulatory agency, such as in the Shipping Act (see Far East Conference v. United States , 342 U.S. 570 (1952)) u, and in the Aviation Act (see Hughes Tool Co. v. Trans World Airlines, Inc., 409 U.S. 363 (19 7 3) ) . is
\. .
r 1 . p in a leading railroad-rate decision (Great Northern Ry. I
- v. Merchants ' Elevator Co. , 25 8 U.S . 285, 291 (1922)):
I "[T]ne inquiry (into the reasonableness of a rate] is essentially one of fact and of discretion in technical matters ; and uni-formity can be secured only if its deter-
; mination is left to the (Interstate Commerce]
Commission." The strong continuing authority of these principles was comprehensive.ly summed up last Term in Ricci v. Chicago
, Mercantile Exchange , supra, where the defendant Exchange 's membership rules were challenged as in violation of the antitrust laws. The Court noted that "the argument that the Commodity Exchange Act to some extent limits the app-l licability of the antitrust laws and may limit diem in l this case is plainly substantial *** (409 U.S. at 303).
t For that reason, it held, the initial determination of the exclusionary purpose and effect of the rules, and
- of their role in the workability of the regulatory scheme, should have been made by the agency responsible for admin-istering that scheme and fully familiar with the industry.
The Court reached this result even though "the area of administrative authority (under the Commodity Exchange Act] does not appear to be particularly focused on competi-tive considerations", in contrast to other regulatory schemes I (id. at 303 n.13) , and despite uncertainty as to whether
; the party allegedly injured by the rules could participate L
I
4 T' I t-l [ in the administrative proceeding (id. at 304-05 n.14) . 1. The reluctance of the courts to adjudicate I, matters falling within the authority of a regulatory agency is greatest, however, where the issues are at the heart of the agency's subject matter jurisdiction. At issue in Carter v. American Tel & Tel . Corp . , 365 F.2d 486 (5th Cir. 1966), cert. denied, 385 U.S. 1008 (1967), a private antitrust action against certain telephone companies , were
, tariff terms which permitted conversion of telephones into
.' two-way radios only with certain company-supplied equipment.
- The tariffs had been filed with dhe Federal Communications l'
Commission and were, there fore , the only terms on which the defendants could lawfully render service. The court
, proceedings were stayed pending FC- _e,iew of the plain-tiff's objections to the tarif fs .
The court of appeals found the tariff to be "in-i escapably at the center of this controversy" (365 F.2d at 492). The pervasiveness of telephone company regulation by the FCC (record-keeping, rates, conditions of service,
, interconnection, etc. ) demonstrated that the lawfulness of the defendant's tariffs could not be considered separately without reference to its regulatory status , and that the f FCC rather than the antitrust court was the proper forum to undertake that consideration:
1 . _ _ __
l l, "Against this intricate statutory structure in which scarcely a single business act is free from continuous regulation or at least administrative governmental revi ew, one thing emerges clearly. It is that Tariff No. 132, its meaning, its scope, its appli-
, cability, its validity for any or all I
governmental purposes, is ever present. ***
***0n any hypothesis, of course, a sig-
nificant thing will- be the FCC determination of the validity of Tariff No. 132. If, as the law clearly permits , the monopolistic and antitrust implications of the practices compelled by the Tariff were among the factors considered and evaluated by the FCC, a Court would be hard put in either contriv-ing or thereafter verbalizing a concept which,
)
- l. in a sort of now-you-see-it, now-you-don't sleight of hand, would allow the Tariff to be valid and yet invalid at one and the same time. "
f 365 F.2d 495-96 (footnotes omitted) . The regulatory responsibilities of the Federal j Power Commission over electric utilities are similarly pervasive, and it too is obligated to consider antitrust principles as among the factors to be balanced and accom-modated in the execution of those responsibilities. Gulf I States Utilities Co. v. FPC, 411 U.S. 747 (1973). As the court of appeals noted in Atlantic Seaboard Corp. v. FPC, 404 F.2d 1268, 1273 (D.C. Cir. 1968) (a gas case), where proposed partial requirements contracts were challenged t' before the FPC as anticompe titive :
"the hard problem [which the FPC must answer] ,. is not whether competition may hurt but rather j where and how to draw the lines of acceptable range of competition and hurt, in response to the economic characteristics and interrelation-L.
ships of the industry that require regulation in the first place. " 64
V I
, r- . The otter Tail decision makes clear that the i.
answer to this question is dispositive when antitrust and f' I regulatory principles intersect, and that the answer should be provided not by an antitrust court but (when electric utilities are involved) by the FPC. There, the Supreme Court justified its affirmance of an antitrust decree which ordered the defendant utility to interconnect with municipal electric systems by noting that the rates and terms of
, the interconnections would be subject, under the terms 1s I of the decree, to FPC approval. Otter Tail Power Co. v.
' United States, 410 U . S . 366, 376-77 (1973). And the Court conceded that such a decree otherwise appropriate as a f
'[ matter of antitrust law night be improper if the result would be to erode the defendant utility 's capacity to
- meet its utility obligations (id. at 381-82).
, The force of these principles is not diminished t.
by the circumstance that two administrative agencies, rather ,7-than a court and an agency, are involved. Because this m Commission's mandate under Section 105c is to prevent t ( 'I l u the unnecessary creation or maintenance of situations l inconsistent with the antitrust laws, and not (as we have shown) to formulate novel competition policy, its function is pro tanto that of a court before which an antitrust enforcement action is pending. If an antitrust court i. E v 4 , , , _ _ ,, __
f' l l 1 r t r u would be required to take account of the principles of , r- regulatory / antitrust accommodation and of primary juris-I diction which we have described, then to deny the appli-cability of those principles to the AEC would simply exalt an irrelevant distinction of form over substantive policy. I Other administrative agencies have recognized,
. moreover, that these doctrines may be applicable when I their own responsibilities intersect with matters predom-inantly within the concern of another agency. In National h
Ass'n of Women's & Children's Apparel Salesmen , Inc., CCH Trade Reg. Rep. [1970-1973 Transfer Binder) 11953% at
, p. 21,609 (FTC 19 71) , aff'd, 19 73-1 CCH Trade Cas. 174511 i- ( 5th Cir. ) , cert. denied, 42 U.S .L.W. 3270 (1973), the ,; Federal Trade Commission held itself bound by an explicit determination of the National Labor Relations Board that the respondent in the FTC proceeding was not a "labcr
[
, organization", a status which would have immunized the ss respondent against the antitrust allegations involved.
In so holding, the FTC ruled that: 1.
"The Board's action has a direct relevance to this proceeding, for an organization found disqualified by the NLRB from acting as a labor organization cannot shelter behind labor's antitrust exemption. That / result follows, since the applicability of L the labor antitrust exemption is to be deter-mined on the basis of a joint consideration ; of the antitrust and labor laws in order to J
i, harmonize the policies embodied therein. [ Foot-(
f 7-51 - r- note o=itted.] We agree with res pon/ents that we should defer to the firding o.# t2 Board on the issue, since, after all, : t is the n national agency charged with the ad=inis tra-
', tion of federal labor law. [Footuote c=ittei. ] "
Similarly, the Federal Co==unications Cc-4 ssion e 7 has held that it will " defer" to the Federal Trade Co==is-sion in determining what is false or deceptive broadcast I advertising. :
"We therefore normally have not made, and i do not intend to make, judgments whether particular advertise =ents are false and
=isleading. While we may indeed act in a clear, flagrant case, we shall continue our practice of generally deferring en these =atters . to the FTC. "
Center for Law and Social Policy, 32 F.C.C. 2d 400, 23 Radio Reg. 2d 187, 19 3 (19 71) . See also FCC Public Notice 1 65-9 65, Radio Reg. (Current Serv.) 511:402:
"in determining whether a licensee is operating in the public interest, we will take into consideration ... any ~
findings and orders to cease and desist
' of the FTC [regarding audience ratings] . "
These precedents illustrate the proper rule for acco==odating tne statutory responsibilities of separate s regulatory agencies when they intersect under cirec= stances like those giving rise to the doctrines of . regulatory / anti-
" trust acco==odation and of primary jurisdiction. In such circumstances, involving (a) concurrent jurisdiction over the s a=e f acts , (b) a highly co= plex and heavily regulated industry, o
9 d see 4
f, ii l and (c) independent statutory policies serving disparate statt-p, tory objectives, the same criteria used in delineating the I respective roles of court and agency are appropriate in
. determining which of two agencies should decide particular i.
issues. It seems plain that, pursuant to the logic of the rule applied in the conventional court / agency context, each agency should be allowed to make those determinations which
- t. are so basic to its responsibilities that control over daem j is necessary to further its regulatory purposes.
4 As noted previously, the FPC has broad responsi-bility for regulating the transmission and sale of electric power. Lying at the base of that Commission's authority i L is its jurisdiction over wholesale rates and its power to order, under certain circumstances, interconnection between utilities on prescribed terms . Control of these . factors , particularly of rates , is critical to the FPC's function. See, e.g., Montan a-
- i. Dakota Utilities Co. v. Northwestern' Pub. Serv. Co., 341
! U.S. 246 (1951); McLeran v. El Paso Natural Gas Co. , 357 F. Supp. 329 (S.D. Tex. 1972). It is neither critical nor even relevant, however, to the regulatory purposes of the Atomic Energy Commission. This disparity between the /
i i purposes of the two regulatory schemes speaks strongly l for allowing the FPC to determine and to assign the appro-Li:
~
lt
i f priate weight to the antitrust implications , if any, of those matters relating to electric utility rates and prac- 'l 16/ i tices which are within its explicit statutory authority.-- l The Department of Justice seens to have recog-1 nized as much, we submit, in one of its more recent " advice letters" to this Commission under Section 105c. In conclu-ding that no antitrust hearing need be held on Connecticut i Light & Power Company's Millstone 3 application (AEC Dkt.
. No 50-42 3A) , the Department noted that " complaints ***
i about wheeling rates are more appropriately made to the
. FPC, which exercises jurisdiction over such rates" (38 s
Fed. Reg. 22249, 22251 (19 73) ) . Whether the rates in question are wheeling rates, wholesale rates , or any other regulated rates , the same principles should govern. I The proper allocation of responsibility between 3 this Commission and the FPC is suggested by the result reached by the Court of Appeals in the Gulf States case, where cer- [ 16/ The Fif th Circuit decision in National Ass 'n of Women's
\ & Children's Apparel Salesmen, supra, suggests that the question may be not merely which agency has " primary
/ jurisdiction", but whether one agency has any juris-
,, diction at all (1973 CCR Trade cas . at p. 94294-95).
I l. l
% v v -
- e
1 4 .f !.
,_ tain municipal electric systems had sought to present l
their antitrust claims both to the FPC and to the Securi-
, ties & Exchange Comission. Each of the two agencies had refused to consider the municipals ' allegations of anti-l competitive activity in the course of approving the proposed ,. issuance of securities by Gulf States. The court found that i
the FPC should have considered the allegatic,ns., but daat the
, SEC, lacking any operational authority over the operations of the utility, was justified in its refusal (City of (s Lafayette v. SEC, 454 F.2d 941, 955 (D.C. Cir. 1971), aff'd in part sub nom. Gulf States Utilities Co. v. FPC, 411 U.S.
'747 (19 73) ) :
i "Where an agency has some regulatory juris-( ' diction over operations , it must consider whether there is a reasonable nexus between the matters subject to its surveillance and n those under attack on antico=petitive grounds. But the general doctrine requiring an agency to take account of antitrust considerations does not extend to a case like the one before
. us where the antitrust problem arises out of operations of the regulated company (past and projected) and the agency,. here the SEC, has i
not been given any regulatory jurisdiction over operations of the company. " The present circumstances are closely analogous to those involved in Gulf States. The " defendant" is an f
. electric utility, over whose operations the FPC has author-c ity and this Commission does not. Charges of matico= peti-L.
lI r
.I..
5 - ,
t
,- 12/ ; tive activity are being pressed in both forums. The regu- .
latory purposes of the AEC, like those of the SEC, will s
; fully be served if its antitrust inquiry focuses on the operation of the Midland facility, and does not extend to
- 51 Consumers Power's system-wide rates and operating practices.
g The regulatory objectives of the FPC, on the other hand, require control over rates and operating practices . This Commission should therefore implement the doctrines of regulatory / antitrust accommodation and of
primary jurisdiction by leaving rate matters to the FPC i for appropriate consideration in the pending rate case, or some other proceeding before that agency, as the FPC 1,
1 itself may determine. i /, B. Neither the Actions. of the Fuchigan Legislature i and of the Michigan Public Service Commission, Nor any Actions of Consumers Power Pursuant to their Direction, Can Properly Be Held to Create or Maintain a Situation Inconsistent with the Antitrust Laws. 'l The breadth of Congress ' power to regulate local i activity when necessary to implement its power over inter-
$ state commerce, coupled with the Supremacy Clause of the l
tt I ,. 17/
~~
A number of municipal and cooperative systems , inclu-i ding some of Intervenors here, have raised substantially l- similar antitrust challenges to Consumers Power's mos t recent rate filing at the FPC (Consumers Power Co. , FPC Dkt. No. E-780 3) . [.. . a
'l. .
. 4 --- s w - - , -- % - ., ._ ,, ,,-y, . . , _ , , , - ~ _ _
0 l \ Constitution, might superficially suggest that the federal antitrust laws operate with full force regardless of any purported conflict with state regulatory legislation or (( administrative action. The Supreme Court has consistently \ held, however, that such is not the case. The Court has j uniformly interpreted the federal antitrust laws as being wholly inapplicable to official State action, and also to , private conduct undertaken pursuant to State direction. In the most celebrated application of this prin-l ciple, the Supreme Court held the antitrust laws inappli-cable to an industry-wide combination to maintain the price of California grown raisins by setting and allocating I ( production and marketing quotas , under a scheme created c and supervised by State officals but planned and adminis-tered each year (as well as adhered to) by the raisin [ producers thems elves . Parker v. Brown, 317 U.S. 341 (1943).
.LB]
This decision and others like it are based on the f unda-( mental principle, never called into question by the Court, s 18/ For example, antitrust challenges have been barred 'i by the Court at the threshold in cases involving y State-created private cartels of harbor or river pilots. Olsen v. Smi th , 19 5 U. S . 332 (1904); cf. i Kotch v. Bd. of River Pilot Comm'rs, 330 U.S. 5 52 (' (1947). 4
;~
i ) (' .[ e- that in enacting the federal antitrust laws Congress did l not intend to pre-empt the freedom of the States to impose 'I a regulatory regime on private conduct in fields subject t to concurrent State and federal jurisdiction. While fed-I
- t eral regulatory statutes might have such a purpose, these decisions establish that the federal antitrust laws were
,1 I V intended to operate only where otherwise-valid State reg-I; ulatory programs are absent, and thus leave private con-duct, subject also to the federal commerce power, uncon-trolled so far as the State is concerned.
- p There can be no doubt that this principle is fully
/
l - applicable to State electric utility reculation. Gas Light j Co. of Columbus v. Georgia Power Co. , ,40 F.2d 1135 (5th t Cir. 1971), cert. denied, 404 U.S. 1062 '19 72) , was an anti- , trust suit by a gas utility against an e):3ctric utility m for allegedly discriminatory rates and other acts asserted 1
. to be unfair competitive practices intended to discourage i the use - of gas . Each of the rates and practices under I
attack had been approved by the State utility commission, t ( which in many instances had required modifications before approval. In reliance upon the Parker doctrine of immunity .( for State-directed conduct, the court of appeals found that State regulation of the electric utility 's practices ' k.. exempted them from federal antitrust attack, whatever -l (. . 3,~_ ._. , - - . _ ~ ._. . . _ , . , _ _ _ - _ . - - _ . _ - _ . . -, - . _ . _ . , . _ . _ . . . - - _ _ . _ .
s i-s . f' i\ ~58-their theoretical legal status under the Sherman and Clayton Acts : I-
"Our view is that the Parker exclusion applies to the rates and practices of
{ public utilities enjoying monopoly status ( under state policy when their rates and practices are subjected to meaningful regulation and supervision by the state {, to the end that they are the result of the considered judgment of the state regulatory authority * **. " 440 F.2d ,
- f. at 1140.
S. Washington Gas Light Co. v. Virginia Elec.
! & Power Co., 438 F.2d 248 (4 th Cir. 1971), is even stronger / testimony to the inapplicability of the federal antitrust
(- - laws in fields covered by State regulation. The practice
! complained of was an electric utility 's program of free
-( installation of underground lines for builders who supplied only electric appliances, to the exclusion of gas appliances,
, in their subdivision hones . Other builders , who refused to set up "all-electric" homes to the exclusion of the plaintiff gas utility, were required to pay substantial l.
charges for underground installation, which was an impor-( (, tant competitive advantage to builders offering it and l- which in some areas was required by local building codes. (, 1 The electric utility 's discriminatory charges if were subject to regulation by the State regulatory commis-b sion, but were not actually investigated by the agency ( 1 until three years after they went into effect. The Commis-c <L
e-l_
,- \
p sion thereaf ter approved the practice, but subsequently I, required its modification. 'f The court of appeals rejected the argument that the electric utility's utilization of this practice had i i violated the antitrust laws at least for the three years prior to its approval. Even inaction in a field over o which a State regulatory agency clearly has authority I is tan tamoun t, the court ruled, to a decision that the i practice in question should continue. A fortiori, explicit [ approval of the practice by the State commission was dispos-r itive of any claim that the practice was in violation
'i of the antitrust laws.
l In the present case, therefore, practices of ( Consumers Power which the Michigan Public Service Commission is responsible for approving, disapproving, or modifying are wholly outside the scope of the federal antitrust laws. The Michigan Commission has statutory authority over "all j rates, fares, fees, charges, services, rules, conditions of service and all other matters pertaining to the formation, operation, or direction of such public utilities." The
)'
--19/ Mich. Stat. Ann. S22.13(6) (in Ex. ABB-13) . (For the Board's convenience, citations to Fichigan legal mate-( rial will include the exhibit number under which they will be introduced into the record.)
?
k-4
t~ l r
\
f Commission is further authorized to regulate "all matters pertaining to or necessary or incident to such regulation ( 20/ .I of all public utilities."--' Other statutory and consti-
, tutional provisions of Michigan confer perpetual franchises upon Consumers Power for its retail distribution operations in a number of communities; require a showing of inadequate service by the utility already serving an area before f another utility will be allowed to compete therewith; , and restrict the rights of municipal electric systems )
to expand their service areas beyond the municipal bound-aries. See pp. 174-178 infra. ( Pursuant to its statutory ' mandate to implement j this regulatory scheme, the Michigan Commission has adopted further policies designed to limit and control competition among the State's electric utilities (see pp. 178-180, infra). j These policies, like those explicitly set by State statute, i embod' a determination that unrestricted competition will i 3 not best serve the public interest in this industry, and that the practices of electric utilities in Michigan,
- s. including the level and design of their retail rates, e should be controlled by governmental officers rather than h
by competitive pressures. The federal antitrust laws y 20/ Mich . S tat. Ann. 522.152 (in Ex. ABB-1).
/
I-i
I s n ( were never intended to displace or supersede this " con-sidered judgment" (Gas Light Co. of Columbus, supra) of -{
! the Michigan Legislature and its delegate the Public Ser-vice Commission. \'
It follows, there fore , that a " situation" which the State of Michigan has chosen to make noncompetitive, and in which Consumers Power's rates and practices are [
; subject to review and correction by an agency of the , State, is not " inconsistent with the antitrus t laws" h
merely because it is noncompetitive. Nor has Consumers
'~
violated the antitrust laws merely by adhering -- as in-l. deed by State law it is required to adhere -- to the State ( Commission's directives and policies . E.g., E.W. Wiggins
, Airways, Inc. v. Mass. Port Authority, 362 F.2d 52 (1st Cir.), cert. denied, 385 U.S. 947 (1966); Alabama Power I Co. v. Alabama Elec. Cooperative , Inc. , 394 F.2d 672 (5 th i.
Cir.), cert. denied, 393 U.S. 1000 (1968). Because, as noted above , the Atomic Energy Commission under Section 105c stands at most in the shoes of an antitrust court, and can go no further than such a court in the implemen-( tation of the antitrust laws, no allegedly noncompetitive w. features of the wholesale or retail electric energy market i i regulated by the State of Michigan can justify a finding of " inconsistency with the antitrust laws" within the . i
\,
1 1
i' l
- g. .
l.
~
meaning of Section 10Sc. 7 C. Political Efforts to Secure Favorable Federal or
), State Governmental Action , Whether Lagislative or Regulatory, Are Protected by the First Amend-ment to the United States Constitution and There-
- f. fore Cannot Be Relied Upon to Deny or Condition i a License Under Section 10 5c.
, Much of the activity relied upon by the Justice }
Department and the Intervenors to support their antitrust allegations against Consumers Power is purely political f in. nature. Cited as evidence of Consumers ' allegedly L monopolistic conduct have been legislative and constitu-tional proposals, communications with elected officials, ( and the activities of citizen or taxpayer committees. Such actions are Constitutionally protected. s They can neither be punished or enjoined as violations of the antitrust laws, nor can they justify conditioning i the license sought by Consumers Power in this proceeding. When Consumers Power participates in the political I or legal process on behalf of its shareholders, it exercises rights lying at the core of our Constitutional system.
/
- t. The Supreme Court has held that efforts to persuade executive, e legislative, administrative, and judicial bodies and officials are protected by the First Amendment and are therefore immune
$ to challenge under the antitrust laws, no matter how anti-i.
competitive the underlying intent. Specifically, efforts 1 (, k j-
( f 4 {. I (including corporate efforts) before governmental entities to maintain or improve an economic position at the expense of a competitor are immune against antitrust attack. Eastern R.R. President's Conf. v. Noerr, 365 U.S . 127 (1961); U'nited Mine Workers v. Pennington, 381 U.S. 657 (1965); California Motor Transport Co. v. Trucking Un-limited, 404 U.S. 508 (1972). The antitrust laws, as the f Court explained in Noerr, are aimed at " essentially dis-similar" commercial practices, not at participation in the political or other governmental process (365 U.S. at 136-37). I
\
The contrary view set forth in United States v. Otter Tail Power Co., 331 F. Supp. 54, 62 (D.C. Minn. ( 1971), rev'd in part, 410 U.S. 366 (19 73) , was clearly laid to rest by California Motor, as is evident from the i Supreme Court's remand of Otter Tail for reconsideration ( r ,i 21/ See also Sierra Club v. Butz, 349 F. Supp. 934 (N.D. Cal. 19 72) . The challenged practice was an active l'.. campaign for governmental action to abrogate a lumber ls company's contract rights . The court rejected the l challenge, declaring that: l< " [ A]11 persons , regardless of motive , are
- guaranteed by the First Amendment the right to seek to influence the government or its 'offic-ials to adopt a new policy, and they cannot be
! required to comoensate another for loss occasioned v by a change in pulicy should they be success ful" (349 F. S upp . a t 9 3 8) .
'( f
i' l f i in the light of that intervening decision. The " sham" exception, as noted in Noerr, extends only to: f
*** situations it. which a I publicity campaign, ostensibly direc-
- ted toward influencing governmental action, is a mere sham to cover what is actually nothing more than an l attempt to interfere directly with the business relationships of a competitor and the application of f
1 the Sherman Act" (365 U.S. at 144). The essential elements of the exception were spelled out k in California Motor, where the central allegation was s. an agreement among defendants to oppose any and all certifi-I cate applications by non-member truckers such as the plain-tiff on all conceivable grounds , no matter how frivolous . i.
~
This program of baseless and repetitive litigation was explicitly- intended, according to the complaint, to dis-g courage non-members from applying for certificates in the first place, and was thus not true utilization of the govern-i mental process but rather a device to block such utilization by others. Such activity was found not to be protected by
/
t the Noerr-Pennington rule,
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22/
~~
The Otter Tail district court's recent unappealed
} decision adhering to its prior ruling in reliance s upon the so-called " sham" exception to the prin-ciple (360 F. Supp. 451 (D. Minn. 19 73)) is , we ! s ubmi t , clearly erroneous.
I s i
t, !r I ( ( Lower-court decisions both before and after ( California Motor have made clear that corruption or sub-version of the governmental process, or an attempt to deny others access to that process, is an essential prerequisi-te to invocation of the " sham" exception. Struggle within the framework of the governmental process, in which a 4 political or regulatory decision is the objective, is not f " sham". As the court of appeals put it in Israel v. , Baxter Laboratories , Inc., 466 F.2d 272, 278 (D.C. Cir. \ 1972), it is the sole function of the " sham" exception to insure the " integrity of the regulatory process": i "No actions which impair the fair and impartial functioning of an administra-tive agency should be able to hide behind the cloak of an antitrust exemption. " We do not understand the allegations against Consv 2rs Power in the present proceeding to encompass 1 ( any such charge. It is tru'e, as the Justice Department i and the Intervenors assert, that the very nature of Con-sumers Power's operations as a public utility in Michigan I serves to thrust it into the politict., and governmental t. process with great frequen cy . In the first place, Con-l sumers Power is subject to pervasive federal and State , executive, legislative and administrative regulation.
\
Second, Consumers Power serves many local jurisdictions only at the sufferance of the elected officials and/or t 6 t . _ _
6 t { l. the voters of such jurisdictions. Third, =cs: of its
.f wholesale custorers and several of its neighboring util-I ity syste=s are publicly cwned, cperated, and financed.
.{ Fourth, various public power entities (including but not limited to the Intervenors in this proceeding) the=selves j frequently resort to political and legal processes to achieve goals which i=pinge en Censumers Pcwer's opera-i' tions. For exa=ple, the Michigan =unicipals and their i Association -- a p arty herein -- have recently Icbbied actively for constitutional revision of the 25 percent
, li=itation en =unicipal sales outside of =unicipal boundaries.
s Thus, through its frequent interaction with various executive, legislative , ad=inistrative and judi-cial foru=s and officials , Consumers Power inevitably participates actively in the political, regulatory and 4 legal arenas . But this activity is neithdr corrupt, ex-clusionary as to others , nor unteward in any way. To the contrary, in seeking to cbtain political, regulatory and legal decisions favorable to its interests, Censu=ers
, Power utilizes the gover.. ental prccess in precisely the s .
way and for precisely the purposes for whic'- -5" prccess l' t is intended. The facts of Sinke v. Enid Autcrobile Dealers 1 s - F
/
1 Assoc'n, 456 F.2d 1361 (10 th Cir. 19 72) , are analogous . A
! licensed used-car dealer alleged that licensed new-car ,- dealers had taken legal proceedings to prevent him from
'\ filling orders for new cars, in a jurisdiction where separate licenses were required to sell new and used vehicles. The court of appeals ruled that such action j was fully protected by the Noerr-Pennington doctrine, despite its unmistakably "anticompetitive" intent. California Motor was viewed as establishing that { " the term ' sham' in this context would appear to mean nuisance or corruption of the legal process. Therefore , the utilization of the court or administra-I tive agency in a manner which is in accordance with the spirit of the law f- continues to be exempt from the anti-i trust laws." 456 F.2d at 1366.
, The same principles govern in this licensing proceeding, and preclude the Atomic Energy Commission from finding a " situation" to be " inconsistent with the anti-
~
trust laws" which has been brought about by Noerr-Pennington s protected activity. We have shown above that a " situation"
, is not " inconsistent with the antitrust laws" within the t meaning of Section 105c unless it results from conduct in r
violatf.on of those laws, and the precise holding of Noerr-Pennington and California Motor is that honest political activity is not such a violation no matter how anticompeti-tive in purpose or effect. Moreover, it is equally imper-s o'
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S
, missible under the First Amendment to deny or condition a governmental benefit in response to the exercise- of First i
Amendment rights as it is directly to punish or enjoin such exercise. The essence of First Amendment " protection" is that no consequences shall ensue from the exercise of a protected right, not merely that some consequences are barred. The applicability of this principle when govern-mental benefits are at stake is well established. Neither the federal nor a State government can Constitutionally deny a benefit otherwise grantable because the beneficiary has engaged in Constitutionally protected activity, and a grant cannot be conditional on forbearance iz:om such activity. E.g. , Speiser v. Randall, 357 U.S. 513 (1958); Sherbert v. Verner, 374 U.S. 398 (196 3) ; United States v. Rob el , 389 U.S. 258 (1967). Thus, it would plainly be unconstitutional for this Commission to deny the Midland license (or to deny
, it free of undesired conditions) , on the ground that Con-sumers Power had engaged in allegedly anticompetitive gs activity, when that activity is protected by the First L
Amendment. Administrative tribunals are bound to respect r { the First Amendment as firmly as courts and legislative 7, bodies. Scientific Mfa. Co. v. FTC, 124 F.2d 640 (3d Q9 n b (~ t
N mC m D =E
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H :D fn 4
r I~ IV. STATEMENT OF RELEVANT FACTS. 6 The purpose of this statenent is not to detail r 't the evidence to be presented by Consumers Power in this proceeding, but to give the Board an advance indication 7 6 of the Company's view of the facts and factual issues F which will be raised at the hearing, depending on the Board's ultimate ruling as to scope. While this Statement I i is in part repetitive of material covered in the argument
, portions of this brief, we believe that a single, integ-I rated summary account may be useful to the Board in com-
/ ing to grips with the relatively complex factual background here involved. ( A. The Place of the Midland Units in the Consumers Power Sys tem. As stated at the beginning of this brief, Consumers l Power is a large utility company. Its system, integrated [ . through high voltage transmission lines , is comprised of 29 generating stations operating internal combustion, gas turbine, steam, and hydroelectric units . Through these
- t. facilities, Consumers Power is able to take advantage of the considerable economies of scale which characterize the generation and transnission of electric energy.
( The operation of the Midland units is predicated upon the existence of Consumers Power's entire system, includ-t. r ..
6 f I ing all the generating units and all the transmission lines i of which the system is composed. The units will be suppor-l ted by Consumers Power's entire generation and transudssion system, and the relatively small amount of transmission i associated with the Midland unit will be planned as an f' integral part of the total transmission system. Midland thus is made possible partly by the mix I . j of generation in Consumers Power's system, including small, medium, and large units -- base load, intermediate and
! peaking units -- which permits reliable operation of the t Midland units as a part of the system. The project is also made possible by the complex of transmission lines which tie the entire system into a unified whole.
{ The Midland units are wholly owned by Consumers t Power Company, and all of their output will be integrated j into the Company's system 28 structure miles of high I voltage transndssion lines . Thus, Midland is being plan-( ned as simply another facility in Consumers Power's in-t tegrated electric system. t B. Consumers Power's Neighbors. A total of 41 electric utilities serve within , or adjacent to Consumers Power's franchise territory. These l include three large investor-owned systems to the east and south (The Detroit Edison Company, Indiana & Michigan Elec-k. I s-L -. - . . -. .
If ' PM i r it tric Company, and Michigan Power Company) , and two smaller investor-owned systems to the north (Edison Sault and Al- , I pena Power Company). ir Among the Company's other neighboring electric i' utilities are twenty-three municipally owned systems , the f' largest of which are those of the Cities of Lansing and Holland. There are, in addition to the municipals, 12 F
.i rural electric cooperatives in the area, organized and g financed pursuant to the Rural Electrification Act of l
1936 (7 U.S.C. 5901 et seq.) . Ten of these cooperatives
.I distribute electric energy at retail; two are generation and transmission cooperatives, which supply the entire it
(. bulk power requirements of all but three of the distri-bution cooperatives. 'l None of these neighboring systems is isolated. { Rather, each is interconnected with at-least one other i system under terms negotiated by the parties and, in most 1 instances, approved by appropriate State and/or federal
- f. regulatory authorities. Consumers Power is directly L Interconnected with most of its neighboring systems, either (a) through interchange arrangements in which each i
L. system supplies energy to the other under certain terms [ and conditions, or (b) through wholesale bulk power arrange-ments in which Consumers Power supplies firm power but t. Il e L I
'.L ._ .-_ _ .
- .. .- - - . - . . . _ - . . . - - . , . -~ -. . - - - .
I' ( 'f L receives no energy from the other system.
C. Consumers Power's Interchange Arrangements .
I Consumers Power has direct interchange interconn- '(' ections with The Detroit Edison Company, the City of Lansing, and the City of Holland, and has recently signed an inter-change agreement with the four Michigan Municipal and .I Cooperative Power Pool ("MMCPP") members -- Northern Michi-i gan Electric Cooperative, Wolverine Electric Cooperative, .ft the City of Grand Haven, and Traverse City. In addition, Consumers Power Company and The Detroit Edison Company as
, one party (collectively called the " Michigan Pool") have 't similar interconnections with Ontario Hydro and four util-ities in Michigan, Indiana, Illinois and Ohio (the "MIIO" companies) -- Indiana & Michigan Electric, Toledo Edison, Commonwealth Edison, and Northern Indiana Public Service.
-I
- ( Each of the interchange agreements with these r systems includes provisions for reciprocal emergency support, i.e., emergency capacity and energy available I with a high degree of probability for utilization by each 4
L of the parties during periods of temporary deficiencies. 'I L Each also provides for various other forms of coordination r- between the systems. The specific terms and conditions of each agreement vary, however, reflecting the considerable give-and-take of the negotiating process which led to the s I u. 1
e 'l p. l :7 agreement and reflecting the unique needs and relationships of the particular parties to each agreement. Thus, it may be I misleading to compare given provisio.is of any two agree-
/ ments , since Consumers Power may have agreed to, say, a
- i low short-term energy charge in exchange for a major con-if^ cession in another provision of the agreement.
An example of this give-and-take process is the i reserve criterion established by Consumers Power and De-I troit Edison in the present Michigan Pool interchange ( agreement. Under this agreement, the systems have agreed I to share reserves on an equal percentage basis , even r though Detroit Edison accounts for about 60 percent of F i the combined load while Consumers Power's share is only
- r 40 percent. Because of such factors as the size of each system's large units, and the sharing of transmission I grid and pool dispatch costs on a 50/50 basis, the parties concluded that the agreement was nevertheless equitable I
s and mutually beneficial. 7 It is Consumers Power's policy to consider inter-
' change arrangements with any system which has (a) enough generation to carry its own load reliably, and 0a) reserves e
sufficient to enable participation in mutual exchange t transactions. Of course, before consummating such an
- arrangement, the Company must be satisfied that it is i.
I s i.
i
!, [ mutually beneficial to each side, i.e., that the costs I
attributable to the arrangement are exceeded by the bene-l fits that will be derived therefrom. Where a system be-lieves that Consumers Power's policies in this regard i are inequitable, the Federal Power Commission is empowered i to review the matter and to order an interchange arrange-ment in accordance with the terms it deems in the public i j interest. 7 On some occasions, neighboring systems have been i unable to satisfy Consumers Power's criteria, and conse-( quently interchange arrangements with them have not been I completed. On other occasions , where Consumers Power has l' agreed to such arrangements, it has included provisions in the agreement providing for the maintenance of certain f levels of installed and/or spinning reserve, in order to l assure it that emergency support will continue to be avail-l l able from the other system with a high degree of probability. lf , s. In all cases, the criteria have been' reasonably and consis-l tently applied, and have differed only to the extent that '( l ti the technical characteristics of the neighboring systems - l I t differ.
- Similarly, the Michigan Pool signatories --
f Consumers Power and Detroit Edison -- have agreed to inter-E connect as one party with other systems provided that cer-b (
-] .p l
I tain conditions are met. For example, the Pool agreement I provides that to be eligible the proposed third party must have the ability "to meet the installed reserve capa- { bility responsibility criteria then applicable to the parties hereto (without prejudice to the right of the parties hereto, upon the entry of an applicant, to propose such changes, if any, in the terms and conditions of said participation as may be necessary to allocate equitably all costs and benefits of said participation between the 23/ ( applicant and the parties hereto) . "~~ It should be noted that to date no other systems have sought to participate in the Michigan Pool. The fore-I mentioned " third party" criterion was developed in the ( negotiations between the Department of Justice and Detroit Edison which resulted in a "no hearing" advice letter con-cerning Detroit Edison's Fermi plant application to this Commission. . P D. Consumers Power's Supply Arrangements . t In addition to its interchange agreements, Con-l sumers Power is interconnected with a number of neighbor-I ing systems for the purpose of providing firm bulk power l at wholesale to these systems , which in turn distribute to l' r> lt l t 23/ Electric Coordination Agreement between Consumers Power l [' Company and The Detroit Edison Company dated May 1, 1973, ,, Article 1, Section 6. f I L _
.e - ,r
( il their retail customers. The terms and conditions of these 9 wholesale arrangements are subject to the jurisdiction of
- ) the Federal Power Commission and have been sanctioned by
- 7- the Commission. Under these arrangements , Consumers Power i'
assumes the same public-utility responsibility for supply-ing firm power as it does for its own retail customers; the purchasing system does not commit itself to provide any energy to Consumers Power. Of the 23 municipal systems operating in or adja-cent to Consumers Power, in 19 72, seven purchased their
;( total power requirements from other utilities . Of these l
seven, four purchased their requirements from Consumers
- g Power; two purchased from other investor-owned systems; and one obtained almost its entire requirementa (about 98%) from Consumers Power, supplementing this with a small purchase from a cooperative. The remaining sixteen muni-
,l cipal systems all generate at least a portion of their re-r ,{ ! quirements . Of these systems , in 1972 four generated all of their requirements and four others met the majority of ,( their needs through self generation. (( Although Consumers Power has actively promoted il bulk power sales to municipal systems since 19 60 - and j has affirmatively responded to all requests to supply wholesale power -- it has had only limited success in
- l.
s. !i i
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competing with self-generation and with other bulk power suppliers for this business. Although some smaller systems have increased their purchases from Consumers Power and a few have discontinued generation in favor of purchased power, others are today installing new generation and reducing their power purchases. Thus, the most significant competition for Consumers Power's wholesale sales comes from self-generation, and in general the larger municipal systems continue to rely nuavily on this source to meet their total requirements. Since 1960, Consumers Power has also sought to supply the bulk power requirements of many of the rural electric ooperatives, and (as with the municipals) has affirmatively responded ?.o all of their requests to serve. However, the Company has had little competitive success in this regard. Consumers Power sells bulk power to only two cooperatives (Northern Michigan and Southeas-tern Michigan) , and these sales are only a small part of these systems ' . total requirements. Seven of the nine remaining distributor cooperatives purchase all their { requirements under fif ty-year agreements with the two G&T i cooperatives (Northern Michigan and Wolverine.) The re-i maining two systems either purchase bulk power from other suppliers or self-generate. The two G&T cooperatives 4
%~ - - . . , . . , ,. , --
-t have indicated that they expect to continue to function as self-sufficient generating entities. t Consumers Power has a policy of providing whole-sale bulk power to all systems (or proposed systems) loca-ted within its service area at rates based upon system average cost. Moreover, Consumers Power competes vigor-ously for the opportunity to serve at wholesale -- whether the competition is self-generation or other bulk power suopliers. But the Company faces tough competition in { this regard. For example, during the 1960 's the Company lost most of the wholesale business of Southeastern Michi-i gan Rural Electric Cooperative, to Detroit Edison , and was unsuccessful in an offer to serve a wholesale cus-tomer (the Village of Paw Paw) then served by Michigan l'
! Power Comoany.
The rates at which Consumers Power sells at whole-sale are uniform for like servicg are regulated by the Fed- { eral Power Commission, and have been. historically formulated c to achieve certain objectives : (1) produce stable levels of f [. revenue; (2) cover costs including a reasonable rate of return on investment; (3) maximize sales , diversity , and system load factor to achieve lcwer overall costs; and (4) effectuate a rate design which is acceptable to the customer, and to regulatory authorities. t P i
F-r i t Consumers Power bases both retail and wholesale rates on its embedded system-wide average cost of- service.
" Embedded" refers to the fact that certain of the Company's cos ts (chiefly debt capital cos ts) are fixed by contract at given levels for long periods of time. " System-wide average I
costs" means that all costs are considered, and no customer or customer group is assigned either particularly burden-i some or particularly favorable costs associated with
, specific facilities of the Consumers Power system.
Consumers Power's Wholesale for Resale Rates are J~ offered under two basic re te schedules : (1) a full require-1 ment rate, and (2) a partial requirement rate. Both rate schedules include provisions for several adjustments to r the basic rate (for such things as supply voltage, meter-t ing voltage and changes in fuel costs), to the demand and energy measurements , to the capacity charges , and to the energy charges . Both basic rate schedules contain monthly k i minimum charges. A full requirements customer must pay at I l
, least the capacity charge involved in the rate. A partial requirements cus tomer must pay at least the capacity charge ; ; included in the rate applied to the capacity reservation in l effect in the contract (the amount of capacity Consumers I Power guarantees will be available to the customer) . The 4
monthly billing demand in both schedules has a lower limit ( I i- . _ _ . . - - _ _ -_. _, , , . , - - - - _ - _ . _ _ _ _ -._- .
F , 1 i l set by the application of a 60 percent demand ratchet. This ratchet, which is similar to those in Intervenor's retail rates, operates in such a way that the monthly billina de-j mand cannot be less than sixty percent of the highes t bill-ing demand for the previous eleven months . Consumers Power's wholesale contracts contain pro-visions respecting capacity reservation. These exist to f assure the Company that it will be compensated for the cap-
; acity it must provide, and to assure the customer that the l-capacity on which it must rely will be sva ' lable . These provisions do not restrict the size of loads served at retail by the customer. All wholesale contracts provide I
{ for increasing the reserved capacity on written request if r Consumers Power has the capacity available. 'l The " average system cost" basis adopted by the Federal Power Commission for establishing wholesale rates means that to the extent Consumers Power achieves economies f of scale through large scale generation, multi-system inter-
,. change arrangements , or nuclear technology, these benefits L
will be " passed through" to the Company's customers via ( their wholesale purchases . Cos t-based pricing also tends i to guarantee against a " price squeeze" in which wholesale rates are set so near (or above) the level of Consumers Power's retail rates that it would be impossible for a i s e- , -
, ,, _ _ _ _ _ - - . - _. --. _ . ,, . , _ . _ . _ ~ , , . , . . .
i-r- ! purchasing system efficiently to perform distribution and customer service functions and still earn a reasonable i l t return. The Company's wholesale cus tomers can purchase
- power via wholesale rates, resell it at a rate equivalent to or below Consumers Power's retail rates , and earn a reasonable rate of return. For example, as of January 1, 1973, the average retail bills of the eleven municipal
, systems which obtain the greater part of their power through wholesale purchases from Consumers Power are all k lower than the Company's bills for each customer class : by 9. 8 percent in the residential class ; 14.8 percent in the commercial class; 16.3 percent in the small-industrial class (300 kw and under) ; and 11.2 percent in the large-industrial class. The principle of average-cost pricing for both wholesale and retail rates makes wholesale purchase arrange-ments a more appropriate form of access to Consumers Power's generation and transnission system than other proposals such ,. as ownership participation, unit power salec or wheeling. With regard to ownership participation and unit power, j' economic inefficiency and unwarranted discrimination among \ customers can be expected to result, unless the terms which govern the sharing of new generating unit capacity take into , account the relative size of the participants simply yields iv k . I i t.- , - - . . , , _ _ _ _ _ __ . _ _ . . . _ . .
~
l r I 1 r -- l 1 ' t
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the same result as sales at average cost based wholesale rates. t In addition, when prices are bas 4 on the average cost of serving a group of retail customers, some customers 1 will be more profitable for a utility to serve than others. j Wheeling, by making possible competition in an area where one competitor has no general obligation to serve, is likely to lead to cream-skimming, i.e., competing away
, the most profitable customers of the utility which is obligated to serve the entire territory. A second diffi-culty is that with average-cost pricing there is no assur-ance that any rivalry among neighboring bulk power supp-liers which might be opened up by wheeling would yield an economically desirable result; in these circumstances ,
wheeling may in fact result in a substantial misallocation and waste of economic resources . In s ummary , Consumers Power's evidence will show f that wholesale bulk power purchase by the Company 's neigh-boring utilities constitutes reasonable and adequate access 'l t. to whatever advantages of scale, interconnection and nuclear technology Consumers Power enjoys, and that other proposed I forms of access are neither necessary nor desirable. I i. r~
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4 ) t , l Retail' Competition Between Consumers Power and its f' t E. Neighbors. j' Except within the boundaries of two Michigan muni-t cipalities (Bay City and Traverse City) , there is little f retail competition between Consumers Power and the systems within or adjacent to its franchise territory. The twenty-t three municipal electric systems involved serve approxi- [ mately 120,000 customers within their city limits . Con-I sumers Power serves approximately 9,400 customers in these r { cities , of whom 8,978 are in Bay City and Traverse City t
-- leaving only 417 in all the others. In general, the u latter are located in areas where Consumers Power was franchised and serving and which were subsequently annexed by a city.
l Consumers Power serves no customers within the corporate limits of 10 of the 23 cities having municipal I 1 systens. With the exception of the few annexed areas , Consumers Power has no general right to serve in 20 of the 2 3, and does not seek to serve new or existing cus-tomers in these 20 municipalities unless requested to do so by both the prospective customer and municipal authori-ties. Largely through historical accident, there is a complete duplication of facilities in Bay City and in Traverse City, where the combined share of retail power sales made by Consumers Power is about 56 percent. i s. L
I [ Each of the municipal systems serves some custom-t ers outside its corporate limits , to the extent of approxi-1 {- mately 30,000 (or 20 percent of their total) customers. Since Consumers Power is generally franchised and serving in the areas which surround these municipalities, extension f i of service beyond corporate limits by these systems may be in direct competition with the Company 's service, f [ The most significant municipal competition for new loads beyond municipal boundaries again involves Bay City and Traverse City. Elsewhere there is little competi-tion either because facilities are only rarely duplicated or because few new customers appear in these areas. In addition, the Michigan Constitution prohibits a municipal system from serving outside of its limits more than 25 l, percent of its total load within the city limits. Cons umers Power possesses perpetual franchises to serve about one-half of its retail load. Moreover, the basic economies f of the electric industry together with applicable regulatory
, policies all but preclude the possibility that another system i'
will construct duplicate facilities to compete for these cus tomers , k~ There is substantial competition, albeit limited in some important ways , between Consumers Power and its cooperative neighbors. The Company 's franchised service m ( L .- h-u.
r.
- s r
86 -
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{~ area overlaps, in whole or in part, the service areas of ( nine of the distributing cooperatives . This does not g { imply a duplication of facilities and retail competition throughout these areas, however, since Consumers Power
! does not have facilities in all parts of every township in which it is franchised. Competition between Consumers Power and the cooperatives is further limited by the Mich-g, igan Public Service Commission's " single-phase" rule and "three phase" policy - guidelines for determining which of two utilities operating in the same area will be per-mitted to serve new residential and small commercial customers.
The MPSC also administers the Michigan certifica-tion statute, which requires a system seeking to serve an area already served by another to demonstrate, among other 24/ r things , -- that the latter is not providing adequate ser-i vice. This statute, and the decisions of Michigan courts l interpreting it,--25/ reveal that Michigan does not favor ,t 24/ Mich. Stat. Ann. S22.145 (in Ex. ABB-28) .
--25/ Panhandle Eas tern Pipe Line Co. v. Michigan Public Service Commission, 328 Mich. 650, 44 N.W. 2d 324
- ' , (1950) (in Ex. ABB-29) ; Huron Portland Cement Co. v.
l Michigan Public Service Commission, 351 Mich. 255, L 88 N.W. 2d 492 (1950) (in Ex. ABB-4) . E. , t
e .c i .P l .r- 'j4 duplicative competition for retail customers by public utilities subject ot its jurisdiction. ti Finally, federal law (7 U.S . C. 5913) forbids the cooperatives to initiate service in communities with a population of more than 1,500. To dhe extent that retail competition can legally and practicably exist between Consumers Power and its smaller neighboring systens, these systens -- particularly those r 1 which are wholesale customers of Consumers Power -- do com-L pete successfully. The average bills of the systems which meet the greater part of their requirements via wholesale purchas es from the Company are substantially below Consumers Power's bills in each customer class. So are the average bills of the nine municipals which self-generate the greater i part of their requirements . Even the cooperative systems, { saddled with low-density territories and high-cos t long-term bulk power requirements contracts 'with the G&T [ cooperatives , offer commercial and small-industrial bills
, averaging 12 to 19 percent below Consumers Power's .
I Another index of the neighboring systems' competitive viarjility is the fact that retail sales. of the adjacent municipals , cooperatives, and small investor-l [ owned systems during the period 1961-1971, taken together,
; have increased at a rate somewhat exceeding Consumers i
L. l.
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r-l -l f~ P ver's sales gain, particularly for the Company's whole-t sale customers . Commercial and industrial sales, presumably
, the most sensitive to competitive pressures, have increased considerably more rapidly for the cooperatives than for Consumers Power during the period 1966-1971.
One factor explaining the financial and competi-tive success of the municipal and cooperative systems is [ tha t they enjoy substantial tax and capital-cost advantages
, compared to Consumers Power. Consumers Power pays federal )
I and State income taxes, State franchise taxes , and local property taxes . In contrast, cooperative systems are free from federal income tax and from Michigan franchise t tax, while municipal systems generally pay no federal, State, or local taxes of any nature. Even assuming "in-lieu-of-tax" payments made by municipal systems to the gen-eral fund of their city equivalent to the local tax burden borne by Consumers Power, the municipals and cooperatives have a tax burden (or its equivalent) of less than half the magnitude of Consumers Power's direct tax burden. I L Cooperative and municipal systems also enjoy sig-l, nificant advantages in the raising of capital. Cons umers l' Power's total capital costs amount to almost 22 percent df cost of service. In sharp contrast, the cooperatives -- 1 l which until recently have been able to meet their capital I l I l l l
I i c. l 89 - requirements by way of government loans at a fixed 2 per-cent interest rates -- bear capital costs which are only j about one-third those of Consumers Power. Similarly, municipal systems raise capital through tax-free bonds ; as a result, their embedded capital cost level is about _, one -half the level borne by the Company. ( These tax and cost-of-capital subsidies permit the municipal and cooperative systems to compete with -- and often undersell -- Consumers Power to the extent the economics of the industry and public policy permit such competition. But the competitive advantage thus gained is, in economic terms, entirely artificial. The avail-4 ( l ability of these advantages is in nc :<ay related to the
, efficiency of these systems relative to Consumers Power's t
efficiency. The price of the increased competition would !{ 4 be an alteration of the competitive balance which could induce inefficiencies of resource misallocation. I _t These inefficiencies are directly related to the opportunities of customers to substitute a subsidized i L product for its unsubsidized competitor. The relief j sought in this proceeding by the Justice Department and L by the Intervenors would maximize these opportunities ,
- and thereby maximize the inefficiencies associated with , subsidies, while offering little or no prospect for off- ~
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y. setting gains in real efficiency. Such relief is unnec-essary, moreover, because Consumers Power's policy of offering i wholesale bulk power supply and reasonable interchange arrange-
- r ments to all neighboring clectric systems permits such
- }
systems to remain financially and competitively viable. As a result, any efficiency gains which might be derived from yardstick and potential competition in these markets are presently enjoyed, along with the well-recognized efficiencies of regulated enterprises taking advantage of economies of scale. The relief being sought by the Depart-ment and the Intervenors is therefore clearly inconsistent with the antitrust laws, and with the public interest as well. k 1j I
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. V. THE EVIDENCE WILL FAIL TO SHOW THE EXISTENCE OF A SITUATION INCONSISTENT WITH THE ANTITRUST LANS WHICH WOULD BE MAINTAINED BY CONSUMERS POWER'S ACTIVITIES
'l.. UNDER THE LICENSE APPLIED FOR IN THIS PROCEEDING. A. Neither the Ownership Arrangements for the Midland Facility Nor the Proposed Disposition of its Output t, Raises Antitrust Issues Cognizable in this Proceeding. We have shown above (pp. 4 - 33 , supra) that the scope
~
of this Commission's antitrust inquiry under Section 105c ex-il tends only , as the Commission itself recognized in LP&L, to matters having a " substantial" or " meaningful" or " reason-able" " nexus" or " connection" with the construction and ,; operation of the licensed facility. The matters believed t s. 1 _L_.
~. _.e.
I. I _ 92 - t by Congress to enjoy that nexus, we have further demonstra-te d , are solely those relating to the ownership arrangements for the licensed facility (i'. e . , the possible implications r- of joint ownership by the applicant and selected others) and to the disposition of electric energy generated by the licen-sed facility (i.e. , whether the applicant's competitors are denied access to power from the facility inconsistently with p. [ the antitrust laws) , r There is no dispute that the Midland facility for which a license is here being sought is to be owned and oper-l ated solely by Consumers Power Company, the applicant in this proceeding. As the evidence at the hearing will show, r l Midland is a " joint venture" neither in name nor in fact. No corporation or other entity besides Consumers Power will hold any equity interest in the assets comprising the facil-ity; its operations will be fully integrated into those of the existing Consumers Power system; and the entire output of the facility will be marketed solely as undifferentiated electric energy produced by the system as a whole, there being no arrangements of any kind with any other entity con-( ferring any entitlement to any part of Midland output. L. The fact that Consumers Power is a member of the r {. Michigan Pool does not make the Midland facility a joint venture, or otherwise authorize enlargement of this Commis-f L. f
. r- -1 1 93 - I sion's antitrust review. 1. Firs t , the Department of Justice unequivocally advised Congress in 1970 that under its pro-posed antitrust review, " joint venture criteria" would not be applied where access to a nuclear facility " wholly owned by a single public utility" is sought, "quite apart from what pooling agreements the latter entered into" (Hearings,
- p. __, supra, pt. 1, at 134) . Thus , when asked whether p
(' "if X electric utility with its own funds, acting by itself, builds and operates a nuclear powerplant, if it enters into a pooling arrangement with other utilities , a mere l~ i pooling arrangement, this then would put it in the category f of joint venturer", the Justice Department's spokesman [ replied, " [M]y answer would be no to that" (id. at 133-34) . 6 Second, the evidence at the present hearing will show that Consumers Power's decision to build the Midland facility was entirely independent of its participation in the Michigan Pool. Specifically , the evidence will estab-t y lish that the facility would be added to the Consumers r Power system even if the Company were a member of no pool whatever. This.is not, in other words, a case in which j " staggered construction" or any other form of coordinated development relating to the licensed facility can arguably be relied upon to characterize the facility as a " joint
, venture". Compare Hearings, pt. 1, at 134.
l. L e
, __m-, e . _ _ , . . . -
I' (. i 94 . r-t Accordingly, this Commission is authorized to t consider the question of. access for the Intervenors to i power from the Midland facility only if a right to some r form of access in addition to ordinary wholesale bulk purchase can be established under the criteria of Section
~
.I 2 of the Sherman Act (15 U.S.C. 52) , which is the anti-i trust statute prohibiting unilateral monopolization. I' (f Those criteria, as explicitly explained to Congress in 1970 by the Department of Justice, impose on one seeking access "a higher standard *** when you are dealing with / a single owner" than do the criteria of Section 1 (15 U.S.C. S1) where a joint venture is involved (Hearings, f ( pt. 1, at 133). To establish a right to access "when
, you are dealing with a single owner *** would require 't I- a showing, the traditional showing under Section 2, which is one of monopoly plus something else, deliberateness of intent or something of that nature" (ibid.).
I
- g. The succeeding portions of this Brief will demon-strate that no such showing is possible in the instant case.
7 I- As the evidence at the hearing will show, Consumers Power
!, has never exercised monopoly power in any relevant market.
L In fact, moreover, the Company does not possess such power, I wholly apart from the fact that no such power has ever been exercised. No actual or potential competitors have been L
\
a ke ._
l f~ r ,
\ \ 95 -
l l I?
, unreasonably excluded by Consumers Power from any relevant 7_ market, whether by exclusion from a " regional power exchange" i or otherwise; Consumers Power possesses neither the power l
{' ( to control prices nor the power to exclude competition l from any relevant market; and its market positions are ; r ' the result of the inherent economic characteristics of 1 the industry and of State regulatory policy favoring the ! (.
,l efficiencies and economies of scale and nonduplication. .I
[. B. Consumers Power Has Not Unlawfully Monopolized Any o Relevant Wholesale or Retail Electric Energy Market.
- 1. The Relevant Markets In This Proceeding.
- a. The purpose of defining relevant markets in this proceeding and the definitional criteria to be applied.
, Identification of a relevant market is " essential i
to a finding of unlawful monopolization" under Section 2 of the Sherman Act (Telex Corp. v. International Business Mach. Corp., CCH Trade Reg. Rep . No . 91, Sept. 24, 19 7 3 , Pt . f, L II, at 60 (N.D. Okla., Sept. 17, 1973). This is because "the [- ~ ultimate consideration" in monopolization cases, as we dis-cuss more fully below (pp . 10 9 - 113) , is "whether the defen-( dants control the price and competition in the market s. for such part of trade and commerce as they are charged t with monopolizing", and because " control in the above sense
<' *** depends upon the availability of alternative commodities L
f L ., r
l' 1 i (" _96_ l' i for buyers" (United States v. E.I. du Pont de Nemours & Co., ['i 351 U.S. 377, 380 (1956)). The rule is that " commodities reasonably interchangeable make up that 'part' of trade or l' commerce which S2 protects against monopoly power" (Un ited States v. Grinnell Corp. , 384 U.S. 563, 571 (19 66) ) . The reference in Section 2 to "any part of *** p trade or commerce" also has a geographical significance, in addition to requiring definition of a product market. The relevant geographic market in a monopolization case is "the market area 'to which the purchaser can practicably s turn for supplies '" (Case-Swayne Co. v. Sunkist Growers , Inc., 369 F.2d 449, 457 (9 th Cir. 1966), rev'd on other I' grounds, 389 U.S. 384 (196 7) ) . n/ The definition of that ) area, like the definition of the relevant product market, t. must correspond to commercial realities. As Mr. Justice [, Clark (sitting in the district court by designation) p pointed out in Marnell v. United Parcel Serv. of America, t Inc., 1971 CCH Trade Cas . 573761, at p. 91214 (N.D. Cal. I 1971), the question is , v "where a potential buyer looks for ser-i vice -- what is dhe geographical area in (. which the buyer would have a real choice as to price and alternative services, , absent a monopoly?" i U 26 L. __/ Quoting Tamoa Elec. Co. v. Nashville Coal Co. 365 U.S. 320, 327 (1961), a S3 Clayton Act case. I
, - - - -- n-- - -
a _ . f' ( 97 - o The third dimension to be considered in defining a relevant market is the class of customers included with- ! in it. Substantial differences in the characteristics of i particular customer classes may preclude lumping them to-gether in a single relevant market for purposes of. Section 2 analysis. United States v. Chas . P fizer & Co . , 246 F. Supp. 464, 469 (S.D.N.Y. 1965); United States v. Yellow i
- s. Cab Co . , 332 U.S. 218, 228-29 (1947); International Tel. &
Tel. Corp. v. General Tel . O Electronics Corp. , 351 F., Supp. 1153, 1174-80 (D. Haw. 1972), appeal pending, No. 73-1513, 9 th Cir. (a S7 Clayton Act case) . s. As with customer classes, the existence of sub-stantial disparities in the competitive characteris tics g of local geographic areas may preclude their considera-t tion in the aggregate as a single geographic market. The question is whether there are factors " influencing the choice of suppliers by *** consumers which can effective-
, ly segregate *** producers in one area from those in f another" (United States v. General Dynamics Co rp . , 341 F. Supp. 534, 556 (N.D. Ill. ) , prob. juris. noted, 409
[ U.S. 1058 (19 72) (S 7) ) . Not all the local areas encompass-t ed by a map's boundaries are necessarily in the same geo-r L graphic market for antitrust purposes , unless the map is
.- shown to be "a meaningful measure of the relevant geo-t
(_ t
\
( ( _ 98 _ f graphic market" (ibid. ) . Nor is a market necessarily defined by the total area over which the defendant does l busines s . United States v. Pabst Brewing Co. , 384 U.S. f' 546 (1966)(S7). r Convers ely, it may not always be possible to i subdivide a broad relevant market into submarkets for purposes of Section 2 analysis. The only submarkets i
! which will be recognized for purposes of Section 2 are
( those which "are separate economic entities" (United 1 States v. Grinnell Corp. , supra, 384 U.S. at 572). To qualify under Section 2, an alleged relevant product sub-s. market must include all products which are reasonably in-
! terchange able . For power over price and competition in a
; "part of trade or commerce" is inherently impossible when reasonably interchangeable substitute products, outside the alleged monopolist's control, are available. S ubmar-ket analysis , in other words, cannot be made a vehicle to
.. escape the fundamental criteria for any monopolization
' charge.
(
- b. The relevant markets in this proceeding.
f In its Requests for Admissions, the Department (. of Justice described three markets as relevant to this pro- [. ceeding: (1) firm retail sales by Consumers Power, by muni-cipal utilities, and by cooperative systems in the area i c.
-e ,
!~
( j t ' i generally within the outer perimeters of Consumers Power's i
;- service area; (2) firm wholesale bulk power supplied by f
{ Consumers Power for distribution at retail by the Company or these adjacent systems; and (3) the market for coordin-7 1 ating power and energy in an unidentified geographic area I whose size is determined by the application of certain s enumerated factors. The evidence at the hearing will (
} show, however, that these proposed market definitions fail to correspond to the commercial realities of the 7
1 indus try . The proposed retail and bulk-power markets improperly aggregate separate markets with distinctive i competitive characteristics, while the proposed "coordin-l ating power" market is merely an integral part of the
, over-all bulk power markets as properly defined.
s (i) Retail markets. The broad retail market proposed by the Justice Department is in reality an aggregation of competitively
- distinctive separate markets , lumping together markets in which Consumers Power's market share is exclusively 7
1
- attributable to State and federal regulatory policies ,
l [ and markets which Consumers Power shares with vigorous com-i petitors. As we discuss elsewhere in this Brief, (pp . 5 5 - t-62, supra, the rule is well-established that possession of State-conferred monopoly power does not violate the Sher-I. o L
i' f. (' ( - 100 - man Act. It would subvert this principle of antitrust juris-
, prudence, and to our knowledge has never before been attempted, Y
to seek to show unlawfully-attained monopoly power through ( proof of a large share of a " market" where the percentage represents the average of (1) market shares which are high (~
; but nonetheless consistent with the antitrust laws, and (2) , lower shares in other markets which reflect vigorous and i
effective competition.
/
The evidence at the hearing will show that, in I every area in which Consumers Power operates , it either (1) 4 possesses a high market share attributable exclusively to State or federal action, or (2) faces vigorous and effective
! competition. The Company 's average " market" share of the , aggregate of these two types of markets cannot, we submit, prove monopolization under Section 2 of the Sherman Act.
Instead, each of three distinct constituent markets in the Justice Department's aggregate retail " market" must
- i. . be dealt with separately. First is the market comprised
[ of those areas where direct retail competition has been authorized by governmental policy despite significant >t natural impediments , and is facilitated by subsidies which i overcome these natural barriers . The second market is t comprised of those areas served by only one utility, whose market position is attributable both to the sigaificant l. t
.e
~ n- - - , . - . - - . - - , .
F 7 .. 1 t 101 - natural barriers to competition which inhere in the distri-f bution function and to limited-term State-created barriers.
$ The third market consists of those areas where a single utility serves and where the possibilities of competition face virtually insurmountable State-created barriers.
(a) The first of these markets com-prises Bay City and Traverse City, the fringe areas sur-I rounding municipalities served by their own electric util-
< ity, and sales to new three-phase customers in those areas ) .
wher'e Consumers Power's service area overlaps directly with that of a cooperative. Fringe-area competition with muni-i. cipal systems is limited, however, by the fact that they
! may sell beyond their corporate limits no more than 25 percent of the power they sell within their corporate
--27/
limits. Duplicative competition with cooperative { systems is limited by the Michigan Public Service Commis-i sion's " single-phase" rule and by its consistent policy with regard to "three-phase" competition (described at pp. 178-79, infra. New duplicative corupetition with municipal 1 systems is unlikely to arise because of the widely-recognized { uneconomic character of such competition. ( t' 27/ Mich . Cons t. , Art. 7, S24, (in Ex. ABB- 6). l.
\
t_
(
- 10 2 -
r,
' (b) The second market comprises areas
(' served by only one utility, whose market position is attri-I butable to the significant natural barriers to competition
! inherent in the distribution function and to limited- ,. term State-created barriers to entry. These include both i
e the areas in which the sole supplier operates without benefit of a perpetual franchise, and the areas of overlap i between Consumers Power and a cooperative in which the I systems compete for new single-phase customers . The barriers to new competition in these areas are subetan-tial, although not insuperable. The State-created barriers in this retail market are the consequences of franchises granted by local govern-ntal authorities, which are not in terms exclusive but which are nevertheless impediments to entry by reason of official reluctance to grant duplicative rights. The natural economic barriers to competition are also signifi-can t. As even a strong advocate of 'the role of competition in this industry has noted, duplicative competition for f retail loads is "so wasteful as to be undesirable, and e 1 ( even on the margin, such competition is probably not worth 2.E/ r promoting." Potential competition in this retail market t t 28/ Meeks , Concentration in the Electric Power Indus try: The Impact of An titrus t Policy , 72 Colum. L. Rev. 64, { 95 (1972). t i w
I
- 103 -
p ( also plays a limited role, because many municipalitica are
- p. too small to establish an electric system which could effi-I ciently perform the distribution function; because current depreciated costs may exceed the average historic costs which underlie existing rates , with the result that the public interest favors retention of the existing supplier
, rather than replacement by a new supplier with higher costs and rates; and because local distribution costs
,{~ may exceed average costs over the larger area on which ( the rates of the existing supplier are likely to be based. (c) In the third retail market in
, this proceeding, comprised of areas where a single utility 1 ! operates under a perpetual franchise, there are virtually insurmountable economic and State-created barriers to com-petition. The utility serving such an area theoretically i
J, faces potential competition in the form either of a dupli-cative distribution system or of total supplantation by i
'. another system. In fact, however, the inherent economies
( of retail distribution and the intervention of local and I State governments have made the possibility of duplication
/
1 or supplantation remote. ( Establishment of a duplicative distribution
. system is discouraged from the outset by the whole range of natural economic barriers described above. The waste t
t. L
r-( - 104 - [ of resources which inevitably would accompany duplicative competition is so well recognized, moreover, that these (~ barriers have been reinforced by requirements of law.
, Before a private or cooperative utility may begin serving ! in an area already served by another utility, it must j- first obtain a franchise from the local community and a certificate of convenience and necessity from the MPSC.
As we show elsewhere in this brief (pp. 177 - 178 infra) , c the issuance of a franchise for the purpose of duplicating [ an existing service is unlikely, and the granting of such a certificate even more so. Similarly, a utility operat-ing under a perpetual franchise can be supplanted only through condemnation both of the franchise and of the utility 's facilities . In Michigan, as noted below (pp. i L 180 - 1811n .ra) , the statutory prerequisites to such a condemnation make its occurrence extremely unlikely.
,i The foregoing three retail. markets are thus so distinctive in their competitive characteristics that
(
, their aggregation into a single " market" would foreclose any meaningful economic analysis. Each of them must there- )
fore be considered separately if it is to be determined [ whether Consumers Power Company does in fact possess mono-t poly power and whether, if so, that power has been willfully I t. i L A
- P t-( - 105 -
acquired or maintained in violation of Section 2 of the p Sherman Act.
' Wholesale' bulk power markets.
(ii) The Justice Department suggests that non-firm, or coordinating, power is not in the same product market as firm bulk power sold at wholesale, and that there is
, consequently a " regional power exchange" for non-firm }
s power which constitutes a relevant market. This attempted f distinction is untenable. It ignores the fact that power I from any single source is non-firm, so that these alleged-ly different forms of bulk power are as a practical matter interchange able . Under the " reasonable interchangeability"
\ ! criterion for defining a product market in monopolization i cases, they cannot be separated into distinct markets according to the " fi rmnes s " o f s upply . } (a) Firm vs. coordinating power. As the evidence at the hearing will show, power from a single source is by definition non-firm. It gains reliability only when
( supplied to customers in combination with power from other sources. The requisite degree of " firmness" for retail sale may be attained either by purchasing combined-source f (and thus " firm") power at wholesale, or by obtaining i the ingredients of " firm" power from a variety of sources. g Thus, a system may generate power itself; it 'l s. k
d ' " ( ( - 106 - f may obtain power pursuant to a mutual amergency support interconnection; or it may obtain power on an exchange ( basis pursuant to a staggered construction or economy-e- energy interchange arrangement; or it can combine any or
\
all of these modes. The range of possible combinations j is almost infinite, and the choice among them will be ( determined by a variety of factors unique to the utility I in question. The end result is the same -- power of suff-icient " firmness" for retail sale.
}
The evidence at the hearing will further show ( that lower Michigan's municipal and cooperative systems, L including Intervenors in this proceeding, have in fact t
} treated these various power supply arrangements as func-c tionally interchangeable , an'd have employed them in vary-l ing combinations as dictated by current circumstances.
( Nothing in the experience of these utilities can support any suggestion that even the sole supplier of any one par-i [ ticular form of bulk power supply could exercise the power over price and entry which is the essence of monopoly 7 L power. The various forms of bulk power supply do compete, as the evidence will show, and they must consequently be grouped together in defining a relevant product markets ( for Section 2 purposes. (b) Like the aggregate retail " market" proposed L 5.
s - r i
, - 107 -
- 7. . .
j by the Department of Justice, however, the alleged bulk power " market" combines areas in which there is substantial 7 s and effective competition, with areas in which Consumers Power has a large percentage share by reason of inherent industry economic characteristics plus governmental action. Rather than a single market which aggregates these two distinctive types of areas , as contended by the Department of Justice , there are two separate bulk power markets { which can meaningfully be analyzed only in separation. l~ The first is the market for bulk power to be distributed (*
- in areas served by Consumers Power. Second is the market t.
for bulk power distributed to the retail customers of i small municipal, cooperative and investor-owned systems , adjacent to Consumers Power. ( (1) Bulk power for retail distribu-tion by Consumers Power cannot be supplied by the Inter-venors because of the unique degree to which governmental i action has limited the possibility of competition. Coop-( erative systems are prohibited by federal law from initia-ting service to any community of 1500 population or more, I which is where almost all of Consumers Power's retail ( sales occur (see pp. 181 - 182 infra) . Thus, the great portion f [. of the area served at retail by Consumers Power legally could , not receive bulk power from a cooperative supplier. I-Similarly, municipal systems are forbidden by s
V
- 108 -
law to sell outside their corporate limits more than one-fourth as much power as is sold within their corporate limits (pp.179 -180 supra) . Many municipal systers in Michigan have already approached this ceiling. The very substantial economies of scale in the bulk power supply market, moreover, constitute a significant natural barrier to any effort by a small system (private or municipal) to meet the bulk power needs of Consumers Power's retail distribution. In this market, competition has been precluded not by anticompetitive conduct of Consumers Power, but rather by governmental action and by inherent industry economics. (2) None of these considerations is applicable to the market consisting of bulk power purchases by the smaller retail distribution systems adjacent to Consumers Power. Competition for sales to these systems is possible and, in fact, occurs. As with the three retail i 23/ It is not suggested by any party here that Consumers Power is likely to look to utilities such as Detroit Edison for any significant part of its own bulk power requirements. Cf. United States v. International Tel. 4 Tel. Corp., 324 F. Supp. 19, 27 (D. Conn. 1970), appeal dismissed, 404 U.S. 801 (1972) ; United States v. Associated Press, 52 F. Supp. 362, 374 (S . D . N.Y. 1943), rev' d on other grounds , af f 'd. in other respects, 326 U.S. 1 (1945). e
c' b ('
- 109 -
(' [~ markets, however, no meaningful conclusions can be drawn ( from mere statistical averaging of this highly competitive i wholesale market together with the first-described whole-sale market, in which competition is limited or precluded I by governmental and economic factors. Instead, the two wholesale markets must be analyzed in separation if econ-L. omically significant conclusions are to result.
- 2. Consumers Power Neither Possesses Nor Has Exercised Monocolv Power in Any Relevant Marke t.
f
- a. Without power to contrc prices or to ex-clude competition, there can be no monopoly
, power, and statistical computation of market L shares is merely a foundation from which an inference may be drawn in the nonregulated
, industrial context.
" Monopoly power" is an essential element of the monopolization of fense prohibited by Section 2 of the Sher-
-i man Act. United States v. Grinnell Corp., 384 U.S. 563 (1966); United States v. E.I . du Pont de Nemours & Co.,
351 U.S. 377 (1956). It has uniformly been defined as "the power to control prices or exclude competition." United ( States v. E.I. du Pont de Nemours & Co., supra at 391; \ United States v. Grinnell Corp. , supra at 571. f
.[ Without monopoly power there cannot be monopoli-7-
zation. Thus, a failure to show monopoly power -- for ex-(" ample, failure to show a predominant market share where that (t_ showing could be the basis for an inference of power over L
-Y, + .- , .- , , , - - .,, , , . . , - - - - ,--- ,. -- -- - , - - -
p i 7, (
- 110 -
r
, price and entry - ends the search for monopoli:ation.
United States v. E.I. du Pont de Nemours' & Co. , supra; (. Times-Picayune Pub. Co. v. United States , 345 U.S. 594
< (1953); United States v. Columbia Steel Co., 334 U.S.
495 (1948). i Like the ingredients of any offense, monopoly power ( may be proven either directly or circumstantially. For ex-t
; ample, where the circumstances of a particular industry
( justify the inference, the existence of monopoly power "may 1 be inferred from the predominant share of the market." United l States v. Grinnell Corg. , s upra at 571; American Tobacco Co.
- v. United States, 328 U.S. 781 (1946). In each such case,
; however, proof of market dominance is treated as circum-stantial proof of monopoly power -- never as its substitute.
Like any circumstantial proof, evidence of a stat- 'I istically predominant market share can stand as proof of monopoly power only to the extent that the circumstances f f_ justify the inference. "Obviously no magic inheres in num-bers; 'The relative effect of percentage command of a market varies with the setting in which that factor is placed'" ( (Times-Picayune Pub . Co. v. United States , supra at 612, L quoting United States v. Columbia Steel Co. , supra at 52 8)). I ( While a court "gives some weight to the *** percentage ***
, (, it] considers other factors as wcll" (United States v.
t.
?
L
r T' g - 111 - r United Shoe Mach. Corp. , 110 F. Supp. 295, 343 '.D. Mass. (- 1953), af f ' d pe r curiam, 347 U.S. 521 (1954)).
- s. The fact is that the Supreme Court has never per-r mitted nonopoly power to be inferred from a statistically predominant market share except in industries where prices t
j and competition are regulated solely by competition. Ameri-( can Tobacco Co. v. United States , supra; United States v. Grinnell Corp. , supra; United States v. Aluminum Company p of America, 148 F.2d 416 (2nd Cir. 1945). In an industry regulated solely by competition, proof of power over the only restraining force may be equated with proof of unres-t trained power. It is equally clear, however, that pervasive ( extra-market regulation of prices and competition would powerfully influence the significance of a particular competitor's share of the market. Thus , a spokesman for f the Justice Department has recently stated: i "I am concerned about monopoly, without r necessarily equating monopoly with large size. A monopolist is one who does not have serious restraints on his market be-p havior; *** ."30/ Nothing could be more central to the question whether a particular market share can support an inference \. L~ 30/
~~
Address by Donald I. B ake r , Director of Policy Planning,
, Antitrust Division, Dep' t of Justice , Before Ass 'n of Bank Holding Companies Conference on State Legislation, Sept. 10 , 1973, p.7.
i
- i. , _
'i . . . . ,
c' l F 1 ( - 112 - r i of monopoly power over prices and competition, than the r- fact that regulators have removed that power from the marketplace. For not even possession of a predominant market share can prove monopoly power over price and entry, if the marketplace is not where that power resides. The t [ courts have therefore expressly held that pervasive Govern-mental regulation of rates precludes a finding of private monopoly power. Nankin Hosp. v. Fichigan Hosp. Serv., { 361 F. Supp. 1199 (E . D. Mich. 19 73) ; Travelers Ins . Co. i
- v. Blue Cross of Wes tern Pa. , 19 72 CCH Trade Cas . 173811 (W.D. Pa. 1972). As the court stated in Travelers (id.
at p. 91429): L
"*** Blue Cross is not a monopolist, for it not only lacks control over ! the ratemaking effects normally i incident to lawful competition, but is without power to establish t its own rates; *** " .
(~ A further consideration in evaluating the signif-f l u. icance of market share is "the strength of the remaining ' competition" (United States v. Columbia Steel Co., supra f at 527) . Where competitors of a firm whose market share is substantial retain their ability to compete because of par-- T-ticular industry characteristics , market share is not deter-minative of Sherman Act issues (id, at 530). -- It could not be clearer that the industry involved L. in the present case is one where prices and competition are u (, . _ _ _ . . _ _ , _ - . - - _ _ - - --
. - . v. - -
f"~- l . c.
- 113 -
t r not regulated solely by cc= petition. As the evidence will show, no industry could be .cre thoroughly regulate I as s to both prices and corpetition than the electric utility
- indus try. Under these circu= stances , the law does not permit renopoly power to be inferred frc= mere statistical r
, predominance in sore market. Moreover, the suructure of t
the electric power industry is such that Consumers Power does in fact face strong, substantial actual and potential
. cc= petition wherever legal and econcaic factors make such w
cc= petition reasonably possible.
- b. In the only relevant markets in this pro-ceeding in which ec= petition is legally and econcracally possiole , Censumers Pcwer's
=arket share would not under any circunstances ; support an :nference of =cnopoly pcwer.
f Of the five markets relevant to this proceeding i (pp. 99 - 109 supra) , industry econcaics and goverhrental e t action have precluded any significant pessibility of ec=- perition in all but two . In those two, Censumers Power's
; =arket share is so low that no inference of =cnopoly pcwer
, could possibly be drawn.
The = cst frecuently cited guide to the inference which may be drawn from =arket share, for purpcses of Sec-t tien 2, is the statement in Alcoa that rcre than ninetv
- i lt percent of the market will ordinarily justify an inference of noncpoly pcwer; "it is doubtful whether sixty or sixty-l four per cent would be enough; certainly thirty-three u
i 't [^ ( - 114 - t {, per cent is not." United States v. Aluminum Co. of America, r 148 F.2d 416, 424 (2d Cir. 1945). I The evidence in the case will show that in the only bulk power market where competition is reasonably i possible, (the second of the two described above) Cons umers { Power's share is a mere 17.1 percent. As the expert testi-
, mony at the nearing will confirm, that figure is far too 6
low to justify any inference of monopoly power even if this were an industry where such an inference from statistics r would be reliable. In the only retail market in which significant competition reasonably is possible (the first of the three L , described above), the evidence will show that the available r market share data refute any inference of monopoly power. t It proved impossible to obtain sufficient data from Inter-venors and the other utility systems in the market to com-
, pute precise market shares for the market as a whole. Even L
this , however, permits a negative conclusion, i .e. , there r is no statistical evidence from which it could be inferred that Consumers Power possesses monopoly power in this market. t. There is evidence for Bay City and Traverse City. In each of these, Consumers Power faces a single competitor. The Company's average market share in those two cities is e 56.5 percent -- almost precisely what would occur in a per-t
\,
(^ l
.t' b - 115 -
p. l fectly competitive two-firm market -- and that share is
. not increasing.
A Most of Consumers Power's Bay City sales , more-f over, are to a single industrial customer which alone is ( bigger than the entire competing Bay City municipal system. ( Consumers Power's market share of the remaining Bay City { market is only 43.6 percent, compared to 56.4 percent for i the competing municipal system. And in Traverse City, the [ Company's market share is only 24.8 percent, with the l municipal sys tem enjoying three times Consumers Power's I sales. The Company's share of the' combined Bay City / t Traverse City segment of the market excluding the above-i described extraordinary industrial customer is 37.1 per- [ cent, again far less than could ever support an inference i of monopoly power. f c. The direct evidence of economic realities i in the present case will demonstrate that Consumers Power can neither control prices I nor exclude competition in any relevant i market. l
- i. Consumers Power's rates are deter-nined by the Federal Power Commission
. at the wholesale level and the Michi-gan Public Service Commission at the retail level, .\
(a) Federal regulation. The Federal ( Power Commissior, is charged with comprehensive regulation
< of Consumers Power's wholesale rates to ensure that they 4.
L I s, 1+ - . -
... - , . . , ,n.,,, -- - - - , . , - . - - , - - ... ,
f' i ( l - 116 - r i are just, reasonable and nondiscriminatory. Section 205 T' of the Federal Power Act (16 U.S . C. 5824d) provides that: i
"(a) All rates and charges made, , demanded, or received by any public
'{ utility for or in connectin with the transmission or sale of electric energy subject to the jurisdiction of the {. Commission, and all rules and regula-( tions affecting or pertaining to such rates or charges shall be just and t reasonable, and any such rate or g charge that is not just and reasonable is hereby declared to be unlawful. >I . "(b) No public utility shall, L with respect to any transmission or sale subject to the jurisdiction of the Commission, (1) make or grant any undue t preference or advantage to any person or subject any person to any undue pre-t judice or disadvantage, or (2) maintain
; any unreasonable difference in rates, charges, service, facilities, or in any other respect, either as between locali-f ties or as between classes of service. "
r Except with the extraordinary permission of the t Commission, the terms or conditions of Consumers Power's l wholesale service cannot be changed except on 30 days ' L~ public notice. N A hearing on the lawfulness of the proposed rates under Sections 201(a) and (b) may be held, t '. either on complaint or on the Commission's own initiative.w L I t 31/ Section 205 (d) , 16 U.S.C. S824d(d) .
,- 3]/ Section 205 (e) , 16 U.S.C. S 824d(e) .
L i (,
r-l I' ( - 117 -
- All persons with an interest in the matter may intervene in 33/
- such a hearing.-
A (b) State reculation. The Michigan I Public Service Commission has similarly comprehensive { control over Consumers Power's retail rates . Under Michi-f gan law, the PSC "is vested with power and jurisdiction l to regulate all rates, fares, fees, charges, services, i rules, conditions of service and all other matters per-taining to 6.a formption, operation or direction of such public utilities."-~ The agency has general control and supervision, moreover of the business of transmitting and supplying electricity through the public places of 7
- l. the state. Except where rates are filed in a franchise i awarded by local authorities, no public utility supplying i
electricity in Michigan may operate under any rate which
- --35/
has not been authorized by the MPSC, which has the power to fix or change retail rates on its own motion af ter 36/
-~ <- affording interested parties an opportunity for hearing.
I
,. 33/ 18 C.F.R. Sl.8.
i 34/ Mich. Stat. Ann., S22.13 (6) (in Ex. ABB-13) . ( _3_5/ Mich. Stat. Ann., 522.152 (in Ex. ABB- 1) . 36/ Id. 37/ Mich. Stat. Ann., S22.157 (in Ex. ABB- 1) . s
I ( - 118 - t Whenever Consumers Power seeks to amend its tariffs j so as to increase its rates and charges to any of its customers, l notice must be given throughout the affected area and the MPSC must hold a hearing.2 a/ Municipalities such as the present Intervenors , regularly intervene in these hearings , and Michigan counties have a constitutionally granted right of intervention. And, like the Federal Power Commission, the MPSC is obligated by law to investigate complaints as 40/ to rates and services , or' as to any other matter.~~ ii. The Federal Power Commission and the Michigan Public Service Commission ( have authority to order Consumers Power to interconnect on specified g terms, and thus frustrate any attempt j~ to exclude a potential wholesale or retail competitor. I Section 202(b) of the Federal Power Act ( 16 U . S . C . l. S824a(b)) provides that the Federal Power Commission may, I on finding such action "necessary or appropriate in the public interest," order the interconnection of two elec-tric utilities. With regard to this' s tatute , the Commis- [' sion has acknowledged its obligation to use its power i
" to as sure ' an abundant supply of electric energy through-out the United States ' , an d * *
- to compel interconnection
[
?
{. 38/ Mich. Stat. Ann., S 22.13 ( 6 a) (in Ex. ABB-5). i r L 32/ Mich. Const., Art. VII, 515.(in Ex. ABB-6).
, 40/ Micn. Stat. Ann., S22.157 (in Ex. ABB-1).
s.
r~ l
- 119 -
4 and coordination when the public interest requires it."_1_/ The Commission is further empowered to prescribe, consis-I tent with other Federal Power Act policies, the terms of the interconnection and to provide for reasonable i 42/ compensation. - The "public interest" standard of this statutory provision plainly authorizes the FPC to mandate interconnections much more broadly than would the anti-t trus t laws with respect to a district court (or this Commission). $ The Federal Power Commission's power and respon-sibility with regard to interconnections is complemented by the powers of the Michigan Public Service Commission. First, the MPSC may order a bulk power supplier to deliver [ pcwer suitable for distribution, at a suitable primary i voltage, to any city , village or township through which its transmission lines run. Second, the MPSC may order i 41/ Elbow Lake v. Otter Tail Power Co. , 46 F.P.C. 675, j' 678 (1971). 42/ 16 U.S.C. S824a. f 43/ Conversely , the Supreme Court noted in Otter Tail Power Co. v. United States, 410 U . S . 366, 373, 382 (1973), that in a section 202 proceeding "although antitrust considerations may be relevant, they are not determinative", and that even the antitrust laws must give way to a Commission finding that interconn-ection would contravene "the policies embodied in the Federal Power Act." 4j/ Mich. Stat. Ann., S22.157 (in Ex. ABB 1 ) . L
I i r-k - 120 - i service to be rendered by the electric utility to such a r municipality wherever such an order would be reasonable. Thus , if Consumers Power's transudssion system extends into a municipality, the MPSC may order it to connect with and sell power to any distribution system the muni-f cipality may choose to establish.
, iii. Consumers Power faces strong actual l and potential competition in whole-sale bulk power supply.
Consumers Power Company is by no means the only i source of bulk power to those municipal, cooperative and t-
- small investor-owned utility systems which operate in or adjacent to the company's general service area. Vigorous competition comes both from self-generation and from other bulk power suppliers. The vigor of that competition demon-strates both the availability and the reasonableness of the
$ alternatives available to Consumers wholesale customers.
(a) Self-generation. Of the 2 3 I.. municipal systems which are in or adjacent tc the company 's [ service area, seven purchase their full requirements from i' bulk power suppliers . Of these, Consumers Power supplies e i the total requirements of four and the great portion of the l __45/ Ibid. k i u.
- 121 -
. requirement of a fif th. Sixteen, on the other hand, generate all or part of their own requirements. Seven of
. these purchase part of their requirenents from Consumers
+
Power, while six purchase part from other investor-owned utilities or G&T cooperatives and three are completely
, self-s uf ficient.
Of the total bulk power requirements of these 23 I~ sys tems , 79% -- by far the predominant share -- is provided through self-generation. Fourteen percent is purchased from Consumers Power, and seven percent is purchased from other bulk power suppliers. L Notwithstanding Consumers Power's active promotion of bulk power sales to these systems, this competition has not merely survived but prospered. From 1960 to 1972, Con-i sumers Power increased its sales as a percentage of the individual system's requirements in only seven -- fewer than one-third -- of the 23 municipalities (Petoskey, Charlevoix, St. Louis, Portland, Marshall, Union City, and Hillsdale) . During the same years , however, Consumers Power's sales as b a percentage of Coldwater's requirement declined, and its
, efforts to sell bulk power to Traverse City, Hart, Grand i
Haven, Lowell, Zeeland, Holland, Lansing, South Raven f and Paw Paw were unsuccessful.
, The dramatic success of self-generation as a com-I ko
I' , - 122 - petitor in the market place thus cannot be explained away by reference to any unwillingness on the part of Consumers I to sell wholesale power. Rather, the competitive success of self-generation must be traced to the fact that the sys tems thems elves , and their consulting engineers, often I conclude that self-generation is the most economical source of bulk power. Consumers Power sometimes disagrees, but that does not alter the fact that these competing systems generate their own power because they believe self-genera-tion to be the path of greatest economy. e i (b) Alternative suppliers . Moreover, l. other bulk power suppliers are equilly competitive with self-generation as is Consumers Power. The municipal systems of Hart, Lowell, Petoskey, Traverse City, Grand i i Haven, South Haven, Paw Paw, and Portland, the Southeastern Michigan Rural Electric Cooperative , and possibly others , have all been the subject of such competition. Consumers i Power's competitors for those cities have included the Wolverine and the Northern Michigan Electric Cooperatives
'- (both of which are the beneficiaries of substantial govern-ment subsidies unavailable to Consumers Power) , I &M Electric Company, and Fuchigan Power Company.
r In summary , the systems with which Consumers Power may be said to compete for Istail distribution O f
- 123 -
business neither must, nor in fact do, rely exclusively on Consumers Power Company as a source of bulk power. i Competitive sources of bulk power, chiefly self-generation, 7- are vigorous and economical. Additionally, those alterna-( tive sources are often the beneficiary of substantial sub-sidies unavailable to Consumers Power. Both history and the structure of the bulk power market in which Consumers I' g, Power's retail competitors obtain their supply refute any suggestion that competitive systems must rely on the Com-I pany for bulk power. [' iv. Substantial subsidies and tax exemp-tions available to the Intervenors but not to Consumers Power strengthens r their competition disproportionately ( to their relative size or share of the market. 3 The municipal and cooperative systems with which t. Consumers Power must compete are provided with unique com-I ( petitive advantages through a variety of subsidies and tax exemptions. These artificial advantages , unavailable to i applicant, give the municipal and cooperative utilities a competitive strength far beyond what their absolute size f might imply. l i Competitive strength is the strength with which r one firm defends and expands its operation in the face of others. In industries free from discriminatory subsidiza-tion, the measurement of market shares is one way of deter-k.
Ie r 1
- 124 -
e ,(, mining competitive strength. But the unique availability
,. of subsidy advantages to existing and potential municipal and cooperative systems significantly adds to their compet-itive strength by lowering the barriers to entry and expan-i sion they face. These subsidies negate any inference that f Consumers Power possesses monopoly power, in precisely ,_ the same way as would the presence of numerous large
- i. competitors.
1 (a) Tax subsidies. Consumers Power
\
pay federal and State income taxes, State franchise taxes, and local property taxes . In 19 72, annual charges equal t. to 14 percent of Consumers Power's total cost of service [ were attributable to its direct tax burden. Municipal and cooperative systems in Michigan, however, are free t~ from most if not all of these burdens. f Cooperative systems are entirely free of federal income tax and Michigan franchise tax. In 1971, taxes of [ all types were equal to only 5.1 percent of the coops ' overall costs.
\
Michigan systems generally pay no federal, State f or local taxes. Some payments or service donations , cate-t gorized as tax equivalents , are made. But even if each I L municipal system contributed to the local community the same portion of its costs that Consumers Power pays in W b,
1 t - 125 -
<~
{ local taxes, freedom from federal and State taxes would leave it exposed to a total tax burden less than half that
\-
borne by Consumers Power. fi (b) Costs-of-capital subsidies. Coop-t erative and municipal systems also enjoy significant govern- ' I' ( ment subsidies in the raising of capital. Consumers Power's
, total capital costs amount to 21.7 percent of its overall cost of service. In sharp contrast, the coops have been
( able to obtain their capital requirements by way of govern-i. LL/
- ment loans at a fixed 2 percent interest rate, and thus
- bear total capital costs less than one-third those of Consumers Power.
C l Municipal systems raise capital through tax-free bon ds . As a result, embedded capital costs for the muni-i cipal systems adjacent to Consumers Power are about one-5 t half Consumers Power's cost level.
, (c) Consumers Power's total annual Il <. tax and capital costs equal 35 percent of its overall cost l
j' of service. For the municipal and cooperative systems ad-4 g jacent to Consumers Power, however, the tax equivalents
, f' i t.
[ -- 46/ For the future, under recently enacted legislation,
- l. the government interest rate will be 5 percent --
still far below the rate which Consumers Power will
, be required to pay in today's inflated markets.
L. 1
,_-,e -- . ,.- ,--,-,,-n.- , - - - ., . , - - , , - . - - - - - - , - - , , - , . - - - -r-g- ,..,e..v._ . - - - ,n -, ., - . ,
..i_...~,. ._.
f^
- 126 -
'{ and capital costs are less than half that figure. These p differentials enable those subsidized systems to compete with Consumers Power as if their costs of service, all i else being equal, were 20 percent lower. By any criterion ( this is a significant competitive advantage which cannot r { be ignored in evaluating the vigor of competition in Con-
, sumers Power's markets .
- 3. Consumers Power has not Unlawfully Foreclosed or Restricted the Intervenors ' Access to the
( Regional Power Exchange Market. I
- a. There is no principle of antitrust law
, which prohibits a trader, in sole and l
exclusive control of a facility, from denying his competitors access to the facility if the basis for the exclusion ,i is reasonable, nor which prohibits him from allowing access only on reasonable terms , even if the facility can be char-acterized as " unique" or " essential" . i Throughout this proceeding the Department of Jus-( ( tice has pictured the Sherman Act as regtiring the possessor of a " unique" or " essential" resource to make it available l
- v. to his competitors, or to make it available on particular terms, if granting access on such terms would competitively
(' advantage those who seek such access. But that is not the law. l There is no such principle of antitrust jurisprudence, and ( no court has ever so held. The decisions cited by the De-1 partment establish a much more limited rule, under which (1) competitors may not combine to exclude other competitors (.
pm.
- 127 -
from such a resource if the exclusion is anticompetitive in purpose or unreasonable in its effect, and (2) a single ( firm possessing monopoly power may not deny access to
- g. such a resource for the purpose of maintaining its power.
(1) Thus, in United States v. Terminal R.R. Ass 'n , 22 4 U.S . 383 (1912), a combination of competing railroads controlling the sole means of rail access to St. ( Louis was held to be precluded under the Sherman Act from unreasonably denying use of the crucial facilities to other t competing railroads. And in Associated Press v. United States, 326 U.S. 1, 13 (1945), a combination of newspapers s operating a wire service was held to violate the Shernan Act by excluding other newspapers from membership (and hence from use of the service) as well as by agreeing ( among themselves not to deal with non-members , for the { purpose and also with the effect of " seriously *** t. limit [ing] the opportunity to (compete}".
) Similarly, in Gamco, Inc. v. Providence Fruit &
Produce Bldg., 194 F.2d 484 (1st Cir. ) , cert, denied, 344 ( U.S. 817-(1952), the court of appeals ruled only that [ " reasonable criteria of selection" (194 F.2d at 487) were L. required when an organization of competing produce whole-f salers sought to terminate the membership of one of their 7 number and thus to deny him use of warehouse facilities, l-m L. t _L_
s i ("
., - 128 -
controlled by the organization, with unique access to a railroad. Inability to use the organization's facili-ties was competitively disadvantageous, if not fatal, I because the cost of operating at alternative locations ( was impractically high. Still, the court expressly recog-( nized that the physical characteristics of the facilities
- (
, might justify denial of access as a matter of " reasonable i
business requirements" (id. at 488), although in the case
; before it the court found that the defendants had failed t
to make the ner essary showing of reasonableness and that the plaintiff had demonstrated prima facie that his ex-
,, clusion resulted from fear of price competition.
..- (2) Nor is a single firm possessing monopoly
. power by reason of controlling a particular resource required to grant access to that resource, except where denial of access is unreasonable. Such a firm's obligations to deal f
is no broader than its general obligation to refrain from I s any conduct of any description amounting to willful mainten-r ance of monopoly power. Banana Distributors , Inc. v. United l Fruit Co., 162 F. Supp. 32, 37 (S.D.N.Y. 1958), rev'd on { other grounds , 269 F.2d 790 (2d Cir. 1959). Each of the few decisions holding that a particular unilateral refusal to L deal violated Section 2 of the Sherran Act have involved a refusal motivated by monopolistic or predatory intent, and [
\
t I
s - .-.. I r f
- i. - 129 -
I' therefore by definition unreasonable. ~( The most recent of these decisions, which exemp-f f, lifies the lot , is Otter Tai 1~ Power Co. v. Uhited States, f 410 U.S. 366 (1973). The crux of the case was the defen-i daat's absolute refusal to deal with municipal distribution systems established by vote of the citizens in towns which the defendant had previously served at retail; Otter Tail
,3
( " refused to sell the new systems energy at wholesale and refused to agree to wheel power from other suppliers of
'- wholesale energy" (410 U.S. at 371 (emphasis added)). ; Without either wholesale purchases from Otter Tail or the i.
use of its tu insmission system to wheel power from other W i euppliers , no such municipal system could exist (id. at 370). Otter Tail's absolute refusal to deal was intended, 4-the Court found, " solely to prevent municipal power systems { from eroding its monopolistic position" in the retail mar-ket (id. at 378 (emphasis adder, i The authorities ,o 3 e A . con by the Otter Tail
.41l Court -- Griffith, Lorain ocurnal, and Eastman Kodak --
f s, I 47 g
--/ United States v. Gri f fith , 334 U.S. 100 (lo 48) ; Lorain Journal Cs . v. United S tates , 342 U.S. 143 (1951); East-r man Kodak Co. v. Southern Photo Materials Co., 273 U.S.
',t 359 (1927).
)
l-I L
+ . ..
I C ! - 130 - c' { make clear the principle for which that decision stands. Monopoly power in one market may not be used for the pur-t pose of foresta11ing or destroying competition, or gaining [' a competitive advantage, in another. Nothing in Otter Tail 1 or any other decision under Section 2 goes further than this. No decision has yet' suggested th'at a unilateral refusal to deal which is not anticompetitive in purpose , and which is ( justified by reasonable' business requirements , is unlawful merely because a willingness to deal would in some way benefit the defendant's competitors . To the contrary, "it is settled that mere refusal to deal is not a violation per se of Section 2" (Daily Press , ! Inc. v. United Press Int'1, 412 F.2d 126, 134 (6 th Cir. ) , ce rt . denied, 396 U.S. 990 (1969). As stated in Lorain ( Journal, even the possessor of monopoly power may lawfully f refuse to deal "[i]n the absence of any purpose to create 48/ or maintain a monopoly" (342 U.S. at 155).-- Refusal of
, access to allegedly unique resources by the possessor of j monopoly power has therefore been expressly upheld where
(' there is no monopolistic purpose, even though the result I is to some degree anticompetitive : l. ( i' 48/ Quoting United States v. Colgate & Co., 250 U.S. 300, 307 (19 19). i L h e , , -, ., ,
\
(- 1 .( .(,
- 4
- 131 -
"It frequently happens that a first
.{ competitor in the field will acquire
', sites which a latecomer may think more desirable than the remaining available i sites, but the firstcomer is not re-quired to surrender any, or all, of
- ( its desirable sites to the latecomer simply to enable the latecomer to compete more effectively with it."
}
t American Football League v. National' Football' League, 323 F.2d 124, 131 (4th Cir. 1963). A ' fortiori, refusal to e' ( grant access on unreasonably preferential or discriminatory (but competitively advantageous) terms is not unlawful. Daily Press, Inc. v. United Press Int'l, supra. s The reason is that Section 2 of the Sherman Act merely prohibits monopolization; it does not authorize the I dissolution of monopoly power as such. The rule contended
, for by the Justice Department -- that the owner of a " unique" 4
or " essential" resource must per se grant his competitors ( access on the most favorable terms demanded -- is simply ( not the law. Whether the Department of Justice in this pro-f ceeding is concerned with access to a so-called " regional power exchange" in which Consumers Power and its neighbor-( ing utilities are all direct participants, or with access ( to Consumers' Power's wholly-owned transmission system, the ( Sherman Act obligates no one to deal with lower Michigan's municipal and cooperative systems in exactly the way the L L l'
t
- 132 -
latter think most advantageous. Those systems are not under any circumstances entitled to terms which are un-g reasonable , and a refusal to accede to particular demands
, they may make will always be lawful if justified by rea-sonable business requirements . With this guiding prin-ciple in mind, we now turn to the facts of this case as
( they will be proven by the evidence at trial. { b. The municipal and cooperative systems
, enjoy access to bulk power supplies , , including the " regional power exchange",
j on terms which are entirely reasonable. r Consumers Power has two types of interconnections
, with other electric utilities . One is a wholesale inter-connection, through which the other party rec. fives energy from Consumers Power to serve all or part of its load.
In i these cases , Consumers Power assumes the same , firm public-t utility responsibility for non-interruptible service as it f s does for its own retail service cus tomers . Others are inter-change interconnections , where the other party has enough generating capacity to serve its own load, as well as . re-serves sufficient for it to engage in mutual-support arrange-ments which will yield reasonable cost savings to both parties. 4 ( Throughout the period involved in this proceeding, Consumers Power has always been willing to enter into both k wholesale and interchange interconnections en reasonable j terms. For utilities without the capacity to enter into i 1 L
,_e. .. .. . - ~ , - --. ._
.m , , . . . , - - - .#.
- 133 -
mutually supportive interchange agreements, wholesale bulk power purchases from Consumers Power provide full access
, to the advantages of large-scale generation on the most , favorable terms which can be justified (1) economically t
and (2) as a matter of Federal Power Act regulatory policy. Consumers Power's unwillingness to provide additional, dis-t criminatory advantages is not merely consistent with, but ,r ( required by, regulatory policy and the public interest.
- i. Wholesale bulk purchases from Consumers Power, under rates and conditions regu-l lated by the FPC , is a reasonable form of access presently utilized by the municipal and cooperative systems .
As we have previously explained (pp. 115-117 supra) , Consumers Power's wholesale sales are comprehensively regula-ted by the Federal Power Commission to insure that the rates 1
. and the terms and conditions of service are just, reasonable
{ and nondiscriminatory. The substance of this regulatory ( seneme is an assurance that rates to wholesale customers will be as low as possible while still covering all af Consumers { Power's reasonably incurred costs , including its. investment
- costs.
In the course of FPC regulation, Consumers Power's l costs for its various services are first determined from actual costs experienced in a recent test year as adjusted r for known and measurable changes for the succeeding nine i L 1
(" f 3 - 134 - (.. I t mon ths .Q These actual costs are reflected in rates 7, which, by statute, must be reasonable and nondiscriminatory. In approving such rates, the Federal Power Commission f is required by law and by the Federal Constitution to ( set them at levels which, in the aggregate, will give the Company the opportunity to recover its total costs , re as on-50 /
-~
ably incurred, of providing its regulated service. (, Hence, preferential (below average costs) rates
; can be granted to some of Consumers Power's customers
-- either by assigning to daem the costs associated with a particular, relatively low-cost facility or by treating them as marginal customers -- only if the Company 's rates
(
) are increased to the balance of its customers . , This regulatory scheme permits the organization of the industry so as to take advantage of the sdastantial
( economies of scale which characterize the generation and I transmission of electric power. Of equal importance , it { permits all of Consumers Power's customers -- including those wholesale customers operating competitive distribu-tion systens -- to share equally in the benefits of large scale generation and transmission, in the benefits of i ,I 49/ 18 C.F.R. 515 4. 6 3 (e) (2) . 50/ Bonbright, Principles of Public Utility Rates 66-81 (1960). t E..
.=
P-f - 135 - .I s nuclear technology, and in the benefits of coordination arrangements such as the Michigan Pool. That 2.s , an i average-cost-based, wholesale rate passes on to the pur-e chaser any and all cost savings derived from inter ties, ( coordinated development, or large scale facilities. Thus, f ( no intervenor in this case has been denied access to its share of those benefits. (, As explained elsewhere in this Brief (pp.166 -
; 171 infra), the evidence will show that wholesale power i
sold at average cost has always provided, and will continue to provide, a mechanism which permits any existing or poten-tial distribution system to compete effectively with Con-( sumers Power as long as its efficiency, taking account of its subsidies , are a match for Consumers Power's unsubsidized efficiency and scale economies. Actual . competitive experience { confirms the reasonableness of this form of access, which ( in addition implements the regulatory policies of the Federal Power Act.
, ii. The evidence will demonstrate Consumers
- Power's willingness to enter into inter-i change agreements on reasonable and nondiscriminatory terms.
k (a) Consumers Power's present and proposed interconnection terns. Consumers Power is at t present a party to interchange agreements with Detroit Edison, the City of Lansing, the City of Holland and the i
F (- f - 136 - ( r Michigan Municipal and Cooperative Power Pool ("MMCPP"). s The members of MMCPP are Northern Michigan Electric Coop-
- i. erative, Wolverine Electric Cooperative, the City. of Grand r Haven, and Traverse City, and other municipalities are interconnected with its Pool. In addition, Consumers Power I
and Detroit Edison jointly have interconnections with L Ontario Hydro and with the Michigan, Indiana, Illinois ( and Ohio ( "MIIO ") companies (Indiana & Michigan Electric, Toledo Edison,' Commonwealth Edison, and Northern Indiana Public Service) . Each of these interchange agreements in-cludes provisions for reciprocal emergency support, i.e., t emergency capacity and energy, available with a high de-( gree of probability, for utilization during periods of temporary deficiencies. The econonde feasibility of such agreements is i determined by a variety of costs which are incurred as the ( direct result of the agreement. These include the very ,; substantial cost of the engineering studies which Consumers l l- Power must perform for each of its interconnections as part I- of its East Central Area Reliability ("EC AR" ) Group respon-l t
/
t. 'i k _-
l - 137 -
--51/
sibilities. An interconnection is economically justifiable r only if the resulting benefits exceed these engineering an'd [ other costs. r The basic measure of the benefits derived from an i interconnection is reflected in increased reliability and in f reduction in the generating reserves maintained by the ( parties and available for reciprocal emergency support. I ( That is, interconnections can be substituted for generating g reserves, and vice versa, and any interconnection proposal ( must be evaluated to determine whether the parties involved f will obtain a net benefit over the costs incurred, when s compared with alternative means of supplying the same r s j]/ The East Central Area Reliability Group consisted in 1970 of 26 operating utilities (19 systems) which fur-nished about 95% of the power requirements of the re-gion. (1970 National Power Survey, p. II-2-5 8) . It s is composed of all systems in the region which are directly connected to at least one other participant,
, which operate in synchronism pursuant to specific agreemen ts , and whose system performance could have a significant effect on the reliability of the bulk power , supply of the participants. The purpose of the Agree-I ment is to augment reliability of the parties ' bulk i power supply through coordination and appraisal of the planning and operation of the parties ' generation I and transmission f acilities . Parties to the Agreement t participate in the National Electric Reliability Council and observe the Council's generation, transndssion and operating criteria in appraising their existing systems and planning expansions .
-l . 4 (. i
r f F [ - 138 - r j degree of system reliability. The terms of Consumers i Power's present agreements, and its position in discussing i future agreements, reflect a reasonable assessment of r' benefits in increased reliability or in reserve reduction i to be derived from a particular interconnection proposal. f . For example, Consumers Power's " Electric Coordina-( tion Agreement" with Detroit Edison is an example of a close i knit, detailed power pooling arrangement between two inventor-F owned utilities of roughly comparable size. The purposes of i the agreement are broader than that of the usual emergency interconnection agreement, and its stated objectives (Art. I, Paras . (3)-(4)) are to obtain the greatert possible t economies in the construction and the operation of the combined systems. The agreement was originally entered into in 1962, and was then referred to as "The Michigan Pool Agreement". In its original form the agreement provided that particular generating units built by either i s party could be denominated as " pool units " , and that power
, in excess of the owner's requirements would be sold to the other party for relatively brief periods at the incremental 52/ For the sake of simolicity , both the original and the present agreements will be referred to as the Michigan Pool Agreement, except where it is necessary to dis-tinguish be tween them.
c. 4 9 w. f-l
r~ ) ( j - 139 - !^
- cost allocable to these units .
t This concept soon proved unsatisfactory, because i of the substantial technical and engineering difficulties r encountered by both parties in the early stages of operation of new generating units, including both nuclear and fossil-f
- fired units .- Accordingly, when the Michigan Pool Agreement was renegotiated in 1973, the pool unit concept was dropped s in favor of the sale of surplus power on the basis of an r incremental cost formula.
The present agreement, like the earlier one, f provides for joint system dispatch, cost-sharing for t certain high voltage transudssion facilities used by both f [ parties, and a sharing in the cost and benefits of inter- < connections between the combined systems and all the en-tities such as Ontario Hydro or MIIO. Partly in response f to a request by the Department of Justice, the present i agreement contains express provisions for the entry of i i third parties into the agreement. The agreement also
, provides dhat either party to it may interconnect with a third party independent of the agreement.
Under the existing agreement, each party is res-t ponsible for meeting its own peak load, and for maintaining reserves at an adequate level to insure system reliability.
- Although Detroit Edison's load accounts for about 60% and L_
i s ..
F t { - 140 - I l Consumers Power's load constitutes about 40% of the combined load, the parties have agreed to shsre reserves on an equal {_ percentage basis. This is partly because the parties have 7- also agreed to share pool transmission and dispatch costs i on a 50-50 basis, and the arrangement provides a roughly equitable sharing of the cost and benefits. t' i The Consumers Power-Detroit Edison interconnection 1 agreements with Ontario Hydro and with MIIO serve much more limited purposes than the existing Michigan Pool Agreement. I These agreements do not provide for joint dispatch, jointly owned transmission, staggered construction, or other forms of coordinated development. Their primary purpose is i t to provide emergency support, economy interchange , and, from time to time , short or intermediate term sales of ( surplus energy. Neither agreement specifies a reserve { requiremen t. However, through annual planning committee l review of capacity additions, load levels , and reserve I levels, a detailed evaluation of reserve adequacy is main-tained. The objective of this evaluation is to insure i
\
that each of the interconnecting parties maintains equiva- [ lent system reliability so that the benefits derived from i the interconnection are roughly equal and neither party ( i s I 't L
o 7 1 i f I - 141 - r " leans" on the other through interconnection. s3/ {
. Consumers Power's present interconnection agree-ment with the City of Lansing, which became effective in I February 1973, is an example of a coordinating arrangenent i
between two electric power systems with substantial dis-( parity in size. This recently adopted agreement, 7 was a modification of an earlier agreement which at Lansing's t request had restricted each party's emergency support obli-( gation to the provision of 35 megawatts over a 46 kilovolt ( interconnection. Several years ago, Lansing authorized construction of a new 160 megawatt unit the sudden loss 7 of which would overload the capaci.ty of the intertie. i The new agreement established a 138 kilovolt interconnec-tion, and includes provisions for short term and supple-( mental power and energy as well as economy energy trans-t actions. l' l The agreement does not provide an installed re-lt serve requirement, but rather an operating reserve require- !I i l,!; 33/ The concept of system reliability involves more than installed or generating reserve capability, but also !' includes such considerations as adequacy of trans-mission grid, forced outage rates on generating units ,
/
and dispatch and emergency control capabilities . Thus , the degree of reliability maintained by an electric power system cannot be measured solely by the percent-l' age of reserves maintained, but must take into account (, a sophisticated appraisal of these other factors. l < t a w
} - 142 -
I ment, which is presently set at 70 megawatts upon commence-
, ment of commercial operation of the new 160 megawatt unit.
k This reverts back to 35 megawatts on September 1, 1977, [ because of Lansing's belief diat it will be unable to supply energency support at a level above 35 megawatts in ( view of its load growth through the intervening period. However, Lansing is also contemplating installation of an additional large unit some power from which may be avail-
; able for sale to Consumers Power or other parties.
[' In contrast to the operating reserve requirements r to be maintained by Lansing, Consumers Power's present oper-ating reserve is approximately 350 megawatts. Thus , as a
.. practical matter, Lansing derives substantially greater emergency support protection through the enlarged intertie than does Cons umers Power, and is only required to maintain reserves which are substantially below the capacity of its largest unit. Thus, the interconnection agreement provides t
i much greater benefits for Lansing than for Consumers Power, y although Consumers Power does benefit therefrom and its adoption by the Company was thus warranted. Consumers Power's present interconnection agree-l. ment with the City of Holland is an example of an arrange-l ment between two electric systems of enormous disparity in size, under which the smaller system receives greatly dis-t
- 143 -
proportionate benefits from the arrangement, but where there is a net benefit to the larger system which justifies its entering into the agreement. This can be sinply seen from the fact that Holland is presently required under its agreement with Consumers Power te maintain only 25 megawatts 1 of installed reserves , while its largest unit at present is 32 megawatts. Thus, Holland is not required to provide reserves against the forced outage of its largest unit, and is therefore incapable of maintaining its own system 4 reliability . It is in a sense " leaning" on the Consumers Power's system at all times, and obtains very substantial
,, benefits from the agreement. However, Consumers Power was willing to enter into the agreement because its calcu- +
lation of the costs of its investment in the interconnection (including all planning, accounting and operating costs) indicated that there would be some benefit to it from I the interconnection, although , in this ins tance , the benefit If li is quite small. l h The interconnection agreement signed by Consumers Power and the MMCPP in September 1973, as a result of nege-tiations commencing in March 1970, provides an example of interconnection arrangements between two electric power systems of substantial disparity in size, although not as great a disparity as exists, say, between Consumers Power t .
f
- 144 -
f and Holland. The agreement provides for emergency support, interchange of seasonal capacity and energy, maintenance capacity and energy, economy energy, and incidental energy. The agreement does not provide for equal percentage reserves; t rather, the MMCPP reserve responsibility is defined by I l a formula which requires the maintenance of installed reserves equal to one-half the capability of its largest unit, plus one quarter the capability of its next largest unit, plus 10% of its forecasted peak load. 'his results at the present time in a reserve requirement of about 19%. Consumers Power's reserve requirement under the
, existing agreement with Detroit Edison at the present time is about 24%. Thus, the agreement is more beneficial to the MMCPP Pool than would be an equal percentage arrange-ment at the present time. The MMCPP also is able sub-f stantially to increase the size of its generating units
( under this agreement, without incurring significant reserve penalties. Thus, the agreement is highly beneficial to the MMCPP. At the same ti:ae, it provides some net benefit to the Consumers Power's system. ( (b) The ' reasonableness of equal percentage' reserves . Although the equal-percentage reserves i standard provides rough equity between the parties in the circumstances of the Consumers Power-Detroit Edison agree-t
__m.- . 'l
/ /
/,-
- 145 -
ment, this is not always the case. To the contrary, auto- [ matic application of an equal-percentage reserves standard
-- whether in the setting of the Michigan Pool or of a , separate interconnection -- often produces unreasonable and discriminatory results. Consumers Power's rejection of a =echanical application of that approach is entirely t.
reasonable, as the evidence at the hearing will show. In connecting two systems, an equal-percentage reserve requirement may clearly yield an unreasonable and I i inappropriate allocation of reserve responsibility. The percentage reserves of each system subsequent to the inter-connection should depend on (1) the circumstances existing I prior to the interconnection, and (2) the co=parative charac-t teristics of the syste=s in several i=portant respects.
. Consider the following hypothetical example:
Two isolated systems wish to interconnect. System A has five 100 megawatt units and System B has twenty-five 20 negawatt units , so that each system has 500 megawatts of capacity. All
. units have a six percent forced outage rate and an average outage duration of one day, although the larger units usually would be expected to 9
have a higher forced outage rate than smaller units of similar type. Adequate trans=ission L T
- 146 -
is available both internally and in the connec-tions. Using Consumers Power's standard cri-terion of reliability, System A would require 370 megawatts of reserve as an isolated system, while 160 megawatts of reserve would be required for System B. i The sum of the reserve requirements for both systems in isolation thus would total 530 megawatts. A reserve level for the combined systems on the same basis of
; reliability would total only 418 megawatts following adequate interconnections. Thus , a total reserve savings of 112 megawatts would result from the interconnection. An equal split of these reserve savings would result in each system reducing its reserves by 56 megawatts :
i (1) Before Coordination & Reserve Split
' System A System B Total Capacity 500 500 1,000 , Load Carrying Ability 130 340 470 b- Required Reserve . 370 160 530 Percent Reserve Required 285% 47% 113%
t i .. (2) After Coordination and Equal Split of Total Reserve Savings System A System B Total Capacity 500 500 1,000 Load Carrying Ability 136 396 582 Required Reserve 314 104 418 Percent Reserve Required 169% 26% 72% k'
1-
- 147 -
. System A's percentage reserves are therefort reduced by the interconnection from 285 percent to 169 percent, while
. System B's reserves are reduced from 47 to 26 percent. The combined reserves of the two systems are reduced from about 113 percent to 72 percent.
P The effect of Systems A and B maintaining equal-i percentage reserves can be seen in the following table: System A System B Ccro. A&B
. Capacity 500 500 1,000
- j. Load Carrying Ability 291 291 582 Required Reserve 209 209 418 Percent Reserve Required 72% 72% 72%
In these circumstances, System A would reduce its reserves t- [ by 161 megawatts although the total saving as a result of
. the interconnection was only 112 megawatts . System A would then maintain only 72% reserves (the same percentage as the combined systems) . But System B would then also be re-quired to maintain reserves equal to 72%. This would re-t quire System B to increase its reserves, by 49 megawatts , above the level required prior to the connection.
To turn from this hypothetical example to the case of .91CPP, we have computed probability analyses ~or the years i 1971 and 1972 to determine the reserve requirements which would have resulted under an interconnection agreement with
, the MMCPP members employing an equal-percentage fo rmula.
l b= r -r-- - w - w
r'
- 148 -
The analyses, using the same methodology to evaluate relia-bility as under the Consumers Power-Detroit Edison agreement,
' yield the following results:
1971 CP-DE MMCPP Comb . Sys tems
.I Capacity 10,876 205 11,081 1971 Peak Load 9,746 147 9,893 Reserve Requirement 2,803 89 2,860 Percent of Load 28.8% 60.5% 28.9%
The combined systems ' reserves requirement is 32 megawa.tts less than the total requirements of the separate I systems. If each party were awarded 16 megawatts saving, the CP-DE reserve requirement would be 2,787 megawatts, l- or 28.5%, and the MMCPP reserve requirement would be 73 megawatts or 49.9%. The reserve requirement of the combined systems would be 28.9%. f But if each party were to maintain a reserve per-centage equal to the percentage reserve requirement of I. the co:.bined systems -- 28.9% -- then MMCPP would be entitled r- to reduce its reserves by the entire reserve savings of 32 megawatts , plus a further 14 megawatts . CP-DE , however, would have to increase its reserves by 14 megawatts in order e. to reach the combined percentage and to assure adequate reliability of the combined systems. i u-e
, ---w-. ,, - -w ,-
i y. i - 149 - .I 1972 s CP-DE MMCPP Comb. Systems i Capacity 12,239 230 12,469 1972 Peak Load 10,475 158 10,633 l ( Reserve Requirement 3,396 97 3,477 Percent of Load 32.4% 61.4% 32.7% The combined systems ' reserve requirement is 16 ( megawatts less than the total for the separate systems . For MMCPP to reduce its reserve requirement to 32.7% (the per- [ centage reserve requirement of the combined systen:s) would mean reduction of its reserves by 45 megawatts . Thus, MMCPP / would absorb the entire 16 megawatt savings of the combined systems, as well as an additional .29 megawatts which CP-DE would be required to add, if each system were to maintain
, the same percentage as the combined systems.
I (c) The Gainesville decision. In its insistence that an equal percentage reserve require-ment is nevertheless the only reasonable basis for an inter-f [ connection, the Department of Justice has sought to charac-terize the Supreme Court's Gainesville decision .4.lE. (1) as h a substantive antitrust decision, in which (2) the Court ,/ required a large electric utility to interconnect with (- f i 54/ Gainesville Utilities Dep' t v. Florida Power Corp. , , 402 U.S. 515 (1971), rev' g Florida Power Corp. v. t. FPC, 425 F.2d 1196 (5 th Cir. 1970).
, -y c- -
F l t
- 150 -
[" \ a very small one, on (3) an equal-percentage-reserve basis. In fact, the decision is none of these things. r 3
- 1. The Gainesville proceeding arose under Section t
202 (b) of the Federal Power Act (16 U.S.C. S 824a) , which i provides dhat the Federal Power Commission may, on a finding l that such action is "necessary or appropriate in the public i interest", order the interconnection of two electric util-
) ities. The Commission is empowered, moreover, to prescribe , (within certain limits) the terms of the interconnection and to set reasonable compensation.
In applying Section 202(b) so as to order Florida Power to interconnect with Gainesville, the Commission pre-l scribed . die following terms and compensation : (1) Gaines ville would pay the entire cost (about $3 million) of the facilities t needed for the interconnection; (2) Gainesville would maintain [ reserves at a level which would, in fact, as sure that Gaines- \ I ville did not disproportionately rely on the interconnection; .i; s.. (3) until it installed its own tie line bias control equip-ment, Gainesville would pay its share of Florida Power's costs of frequency regulation; and (4) energy sold across 5 t the interconnection would be priced equally for both parties. The Presiding Examiner had concluded that the total savings achieved under interconnection should be split 50/50, but this was rejected by the Commission, as was Florida Power's L I
, . _ . . - . . _ . _. m_.., ..
l' r (, - 151 - I request for a " stand-by" charge to be paid by Gainesville, l. Although the Commission held that the benefits l' (, to be derived from the interconnection by each party were f irrelevant to the proper decision of the case, it found as i i a fact that both parties would receive' substantial benefits ( from the interconnection. On appeal, however, the Fif th
\.
Circuit characterized the benefits to Florida Power as t (, " imaginary" (425 F.26 at 1203) and the compensation pre-scribed by the Commission as therefore unreasonable. En-i forcement of the order was denied insofar as it failed to require payment of a stand-by cha ge to Florida Power. i The Supreme Court reversed. The validity of the [ Fif th Circuit's conclusion, it held, " depends upon whether the court correctly read the record as showing that Florida i Power ' receives no benefit' and that Gainesville incurs ' no
; real obligations . ' The Commission's findings are squarely
( conurary." 402 U.S. at 526 (emphasis added) . I (, The court of appeals had held that the Commission 's findings with regard to the benefits to be received by Florida ,f i Power, because made in the alternative in light of the primary
/ rationale, were "not fact findings protected by the umbrella of the substantial evidence test" (425 F.2d at 1203 n.20) .
The Supreme Court rejected that conclusion: l ll i l, " Insofar as the Court of Appeals ' opinion lr implies that there was not substantial ! 't n - -
- , , , . , - - - , , -,.,--7 --n , , , , e - - -
T' ( r (\ - 152 - [' evidence to support a finding of some s benefits, it is clearly wrong. And insofar as the court's opinion implies that the res-I. ponsibilities assumed by Gainesville in com-
$ bination with benefits found to accrue to Florida Power were insufficient to constitute /~ ' compensation ... reasonably due , ' the Court
( of Appeals overstepped the role of judiciary. Congress ordained daat that determination should be made, in the first instance, by I the Commission and in the record in this t case, the Court of Appeals erred in not deferring to the Commission's expert I judgment." 402 U.S. at 527.
- 2. Thus , the crux of the Supreme Court's decision is I
'l that (1) because substantial evidence supported the Commis- ,. sion's finding that Florida Power would receive benefits from the interconnection, and (2) because the statute l
explicitly entrusts to the Commission the judgment as to ( what terms and compensation are reasonably due with respect (
; to an interconnection ordered under Section 202(b) , (3) the ,- Commission's conclusion should in this instance be sustained.
Neither the Supreme Court nor the court of appeals in that ( scope of review case dealt with the substantive requirements s. of the antitrust laws -- or even with the substantive require-f ment of Section 202(b) of the Federal Power Act. Nor had the Federal Power Commission applied the l antitrust laws when it ordered interconnection on the terms described above. Section 202 (b) authorizes an interconnec-tion order whenever such an order is "necessary or appro-priate in the public interest." That standard mandates ([- 'I i . . - . _ -
I~
\
- - 153 -
'~ interconnections much more broadly than the antitrust laws. As the FPC said in Elbow Lake v. Otter Tail Power Co. ,
46 F.P.C. 675, 678 (1971) , in words quoted approvingly by the Supreme Court in Otter Tail Power Co. v. United States, 410 i U.S. 366, 380-81 n.10 (1973): i "The public interest is far broader than
,, the economic interest of a particular power supplier. It is our legal respon- , sibility , as the Supreme Court made clear I in Pennsylvania Water and Power Co. v. FPC, 343 U.S. 414 (1952), to use our statutory authority to assare ' an abundant supply of
( electric energy throughout the United States ' ,
\ and particularly to use our statutory power under Section 202 (b) to compel interconnec-tion and coordination when the public interest , requires it. The exercise of that authority may well require, as it does here, that we order a public utility to interconnect with J an isolated municipal system. The private company's lack of enthusiasm for the arrange-ment cannot deter us, so long as the public l' interest requires it."
( Indeed, the Court expressly noted in Otter Tail that in ( Section 202(b) proceedings "although antitrust considera-tions may be relevant, they are not dete rminative" (410 7
' U.S. at 373) .
- 3. In determining the reserves which Gainesville would be required to maintain, the Commission concluded that 15 per-1
( cent installed and 10 percent spinning reserves over estimated annual peak hour demand would be sufficient. Florida Power k had urged imposition of a 25 percent minimum reserve require- / ment on Gainesville. The 15 percent level ultimately adopted l' (
- 4. ,
A
p.
. - 154 -
(~ j was based upon "a documented survey of capacity reserves s actually installed and planned by members of the Florida t i Operating Committee for the 1961-1969 period, and upon ( studies relating to the specific characteristics of the ( Florida Power and Gainesville systems such as load charac-(' s. teristics, capacity of generation, size of individual gener-ating units, forced outage rates and scheduled maintenance
., requiremen ts . " This evidence showed, according to the f Presiding Examiner in a finding adopted by the Commission, i
that 15 percent would provide Florida Power with " sufficient assurance" that Gainesville would not disproportionately rely on the interconnection. l
, Nowhere, however, did the Commission suggest that p Florida Power was not entitled to that assurance except as P
a fortuitous byproduct of the percentage equalization of reserves. The finding was not tha t something in Florida
\
Power's conduct required rejection of its request for im-(~
,. position of a 25 percent requirement, but rather that 15 percent actually provided the assurance to which Florida Power was entitled. And nothing in the Commission's 55/
~~
Gainesville Utilities Dep' t v. Florida Power Corp. , 40 F.P.C. 1227, 1257-58 (1918) (Initial Decision) . f 1 4.s t
I~ .155 - 1 7' decision raised the slightest question as to that entitle-( ment.
?
j Moreover, the Commission's finding that 15 percent s actually provided the necessary assurance neither was nor ( could have been based on wooden application of an equal-percentage reserves formula. Any such approach would assure against disproportionate reliance only if, contrary to common experience, fundamental differences between the interconnected systems as to load characteristics, generation capacity, unit i y size and forced outage rates have no effect whatsoever on the extent to which one system or the other is likely to rely on the interconnection. Nothing in the Commission's j decision remotely suggests endorsement of so astonishing a premise. g To the contrary, the Commission's decision in f- Gainesville to impose only a 15 percent requirement was (- based on a particularized factua.'. analysis of "the specific f characteristics of the Florida Power and Gainesville systems such as load characteristics , capacity of generation, size ( of individual generating units, forced outage rates and scheduled maintenance requirements" (note 55 supra) . To '\ suggest that the.Intervenors in the present proceeding
; need only offer to equalize percentage reserves in order.
1 to justify interconnection, without further showing that 4 i 4 l
f li F - 156 - i , percentage equalization will assure Consumers Power that i' Intervenors would not " lean" (disproportionately rely) on [ the interconnection, is to apply only one of the two essen-1 tial criteria mandated by Section 202 (b) of the Federal t- { Power Act; it ignores the statutory requirement that the compelled interconnection impose no " undue burden" on the I utility. And in insisting that equal-percentage reserves l is not automatically required when a municipal or cooperative system seeks an interconnection, Consumers Power asks only f that it be allowed to take into account the same factors relied on by the FPC in Gainesville. s In summary, then, the Federal Power Commission's opinion in Gainesville rests primarily on a finding of fact (not a conclusion of law) that in the circumstances before the Commission the particular terms of interconnection there adopted, taken as a whole, benefitted both parties. l To the extent the decision reflects legal standards, it i reflects the unique and explicit standards of Section 202(b) of the Federal Power Act, not the antitrust laws . Finally, f' even in its specialized domain, Gainesville does not prohibit, but rather requires, consideration of precisely those facts ( \ which Consumers Power seeks to take into account. t t
7 r-
- 157 -
[ c. The terms on' which' the municipal and cooperative systens may join dhe Michigan
- Pool have been app?oved by the Department
! of Justice as reasonable' and non-discrim-inatory.
Consumers Power's present agreenent with Detroit Edison which became effective May 1,1973, explicitly pro-l vides for the admittance of third parties. There can be
. no question that the criteria and terms of admittance are I
beyond reproach, they were specifically approved by the Department of Justice as sufficient to justify dispensing with an antitrust hearing on Detroit Edison's presently I
; pending licensing application to this Commission for its new Fermi nuclear units . -
4 Under these approved provisions, a third party ( is eligible to become a party to the Michigan Pool Agree-s ment if it can " meet the installed reserve capability res-
; ponsibility criteria then applicable to the parties hereto (without prejudice to the right of the parties hereto,
- s. upon the entry of an applicant, to propose such changes ,
. if any, in the terms and conditions of said participation as may be necessary to allocate equitably all costs and i
benefits of said participation between the applicant and the parties hereto) " (Art. I, Para. 6) . The Pool Agreement i L. thus treats all prospective third-party members equally with (' the original parties to the Agreenent. Moreover, and of L 5.a s I_
- 158 -
{
'~
broader significance, the Agreement as sanctioned by the ( Justice Department embodies precisely the concept of equi-l' { table allocation of costs and benefits which Consumers Power
,. seeks to employ in negotiating each of its interconnection
( agreements , as described elsewhere in this Brief.
- d. The forms of preferential access sought by
< Inte rvenors , such as unit power, ecuity participation, and wheeling, are inherently unreasonable and inconsistent with the
) antitrust laws.
In addition to the wholesale power and interchange 7 arrangements to which they already have access , the Inter-t venors in this proceeding are also seeking preferential
\
access to Consumers Power's generation and transmission i facilities in the following forms : (1) unit power from _j Midland; (2) equity participation in Midland; and (3) ( wheeling. Consumers Power has never unreasonably refused r to grant any of these forms of access. Until the Depart-( ment of Justice as part of its preparation for this proceed-ing contacted various municipal and cooperative systems as to their interest in these forms of access , Consumers Power f ' I had never been asked to provide any of them. The most that f can be said is that Consumers Power has not volunteered ! (~ a willingness to enter such arrangements under any and j all circumstances, no matter how -injurious to it or its
- w Cus tomers .
/
I L-
(
,'I - 159 -
( It is inherently reasonable for Consumers Power ( to seek terms for such arrangenents which are fully compen-satory and which do not discriminate against its other customers. These are duties the Company owes to its share-
/
( holders, to its customers , and to the public interest as e- expressed in applicable regulatory policies. Unwillingness to breach these duties cannot be properly characterized [ as " unreason able . " Furthermore , the public interest would not be r
, served by requiring Consumers Power to provide these addi-j tional, discriminatory forms of access. Such a requirement would cause an unjustified udsallocation of society's re-
[ sources and give rise to serious unfairness among customers. s Each of these consequences would be inconsistent with funda-t
,[ mental antitrust principles .
. (1) Misa11ocation of resources. In the
(- electric power industry, natural competition has proven it-( self an unreliable guarantor of economic efficiency and fairness among purchasers . Reliance is therefore now placed '/ on pervasive regulation, supplemented by competition such as that provided by the heavily-subsidized Intervenors b in this proceeding. ,; This form of subsidized competition would serve in iL two basic ways to keep Consumers Power working to improve t u a L
- 160 -
( its service and to minimize its rates ,- even assuming other incentives did not provide this spur.56! In many local r' areas, Consumers ' user faces existing and highly effective competition from its subsidized neighbors. In others, Con-I sumers Power is subject to the potential competition of future municipal systems which might wholly displace it. t Existing competition faced by Consumers Power is I of two varieties . Duplicative competition exists where, by historic accident or unconventional regulatory policy, two utilities extensively duplicate one another's facilities ( and engage in direct competition. This is the case in Bay s City and Traverse City, where Consumers Power is engaged in street-to-street competition with the respective municipal systems. Fringe-area competition is present when customers can be easily reached by either of two adjacent systems.
/
Except as limited by Michigan regulatory policies and re-i quirements, Consumers Power faces this competition wherever it abuts another system. Potential competition exists whenever a utility I t faces the threat of total displacenent by another. The i L. 56/ Interfuel competition, regulatory pressures , and pro- ,j fossional and managerial standards provide spurs to efficiency that exist independently of the subsidized yardstick. L u
.a.
{
}
l - 161.- voters of a municipality hold the power to establish a publicly-owned municipal system by taking over the facili-(_
, ties of the private utility serving them. Similarly, the r- voters may decide to sell a municipal system to a private t '
utility. Thus, while impeded by significant legal obstac-les, potential competition works in two directions. It t encourages privately owned utilities to improve their ser-t vice and rates so as both to preserve existing markets and 7 to attract the business of those cities which operate muni-4 cipal systens. The benefits of this existing and potential subsidized competition are carried to all of Consumers (, Power's retail customers by the requirement that it set rates on a uniform basis throughout its service area. The t Company therefore cannot discriminate in favor of customers I in those areas where it faces competition, and to the extent ( that Consumers Power is induced by any actual or potential I, competitive pressure to lower its rates or improve its con-ditions of service, all its customers banefit equally. With insignificant exceptions, the existing i L. 57/ Consumers Power faces a ndnimal amount of fringe-area l competition from non-subsidized utilities , f I L L
\'
.l.
r ( - 162 - and potential competition faced by Consumers Power is pro-vided by heavily-subsidized municipal systems, and by coop-l. t eratives created under the federally-funded rural electri-r- fication program. While the vitality of competition may be impaired in other industries when one firm is far larger than all others, the size of Consumers Pcver's subsidized competitors poses no threat to their effectiveness. Espec-
}
ially where the rates set by the unsubsidized competitor f must be area-wide , as in the case of Consumers Power, a subsidized competitor capable of establishing non-uniform I rates (such as the municipal systems in lower Michigan) need not be of comparable size to be a core than effective
- 7. .
- s. competitor.
Unjustified expansion of a heavily subsidized f competitor at the expense of an unsubsidized rival results,
, moreover, in an unqualified waste of society's resources.
( The dynamic pressure of this subsidized competition may provide sone measure of social benefit, but only at a price. This is because the rates che.rged by subsidized competitors do not accurately reflect their relative economic efficiency
- in using (and conserving) scarce resources. To the degree L
dhat subsidy allows reduction in the rates of the subsidized ( competitor, or obviates pressure to increase rates, buyers , will be attracted even if the subsidized entity inefficiently W s.. t
i l r- - 163 - (
'~
uses more of our increasingly scarce resources for each
\
unit of output than does its more efficient but unsubsi-dized competitor. Thus, a balance must be struck between the social ( benefits of subsidized competition and dhe social costs of
. subsidization. The presence of significant governmentally-created barriers to duplicative, fringe-area and potential competition in the electric power, industry demonstrates both the subsidiary role which has been accorded to any form of
{ competition in this industry, and the firmness with which r the balance has been struck in favor of reliance on regu-lation. r It is as necessary that this balance be struck in [ enforcing or interpreting the antitrust laws as in other I ( forms of social regulation. The Intervenors in this pro-ceeding, for all their emphasis on the virtues of competi-I tion, are not natural (unsubsidized) competitors whose size and vitality ara the chief guarantors of efficiency and fair-s. ness in this industry. They are subsidized competitors which, at some cost in wasted resources , can be said to supplement pervasive regulation with a competitive prod. Supported by i"' the requirement that Consumers Power's rates be cost based and area-wide, they are doing their jobs. As the evidence will show, these subsidized competitors are competitively s_ u r
I F-i
- 164 -
I viable and fully capable of charging rates lower than Con-s sumers Power's . In view of (1) the inherently limited i [ role of subsidized competition, and (2) the vitality with 7 which the heavily subsidized Intervenors are fulfilling that role, it cannot be said that the public interest would f be served by altering the competitive balance further in i their favor by conditioning the Midland license as they e-f propose.
,. (ii) Unfairness among customers. Consumers c
I i Power's subsidized competitors already enjoy access to the i Company's generation and transnission system through its regulated, cost-based, non-discriminatory rates . To grant F
\
them additional forms of access not available to other cus-
. tomers would not only waste scarce resources , as we have
( shown above, it would also give rise to serious unfairness F mmong customers. i' The threatened unfairness is of two sorts . One ( is " cream-skinning" and its attendant discrimination against w 1 unfavored customers . The other is Intervenors ' effort to have themselves declared in this proceeding the " marginal ( customers" entitled to preferential rates, which at best t~ would result in artificially high prices for all of Consumers Power's other customers. Cream-skinning made possible by artificial advant-u t i. L
i i
- - 165 -
~
ages can only result in discrimination against all customers \ served by the utility not artificially favored. Where the I
- unregulated status and the subsidies enjoyed by Consumers
- r. Power's competitors would permit them to attract the most i profitable customers, Consumers Power with its regulated
(' public-utility obligation would be left to serve the rest. ( Because the rates which Consumers Power must charge its r- < f remaining customers are based on average costs , the loss of a relatively low-cost load inevitably results in higher I rates for those who remain. Thus, when artifical advantages F are allowed to produce lower rates for some customers, they i necessarily produce higher rates for others , contrary to I established regulatory policy. ( The Midland equity participation or unit power t purchases sought by the Intervenors in this proceeding
- would give rise to further unfairness among all customers
( seeking their fair share of the benefits from the Midland plant. Consumers Power's wholesale and retail rates are based broadly on average costs, uniformly applied and close-lc ly controlled by regulatory requirements . By reflecting ( system-wide average costs, these rates necessarily distribute the benefits of the Midland project to all customers in fair proportion . To grant Intervenors a preference in the enjoy-ment of these benefits, either through unit power or through u t. ( L
e t 166 -
'~
equity participation, must result in higher rates for all of Consumers Power's other customers since the Company r is constitutionally entitled to a fair return on its in-
,,, vestment.
4 The question, stated most simply, is whether r- Intervenors may declare daems, elves to be the " marginal r customers" entitled to preferential prices at the expense I of higher prices for Consumers Power's other customers. The irony of this attempt is that, if successful, it
! surely would create a situation inconsistent not only with p regulatory principles but with the antitrust laws as well.
i e, The Intervenors 'present competitive viabil-
,- ity demonstrates that forms of access to I large scale bulk power, in addition to J L those now available, are aeither " essential" nor " unique" in assisting them to compete,
[ and that reasonable access is already being L enjoyed.
,- In evaluating the reasonableness of allegedly anti-i competitive conditions of dealing, it is appropriate to ex-amine the viability of the allegedly disadvantaged competitor, s.
Evidence that competitors are not " unduly handicapped" des- [. pite' the challenged practice, but instead are "doing well",
; has been held to establish the reasonableness of the condi-(* .
tions for antitrust purposes . E3 ., Times-Picayune ~ Pub. Co. f v. United States, 345 U.S. 594, 619-21 (1953). t In the present case, an electric utility system's
\
L 4 L
r ,, - 167 - e competitive viability may be assessed in terms of (1) the 1 competitiveness of its rates, (2) its return on inves tment, i and (3) the relative rate at which its sales are growing.
- The evidence will show that Consumers Power's municipal \
competitors, according to each of these criteria, enjoy r remarkable vitality. The rural cooperatives suffer to some i degree from the low population density of the territories they serve. But Consumers Power plainly cannot be held
,r . responsible for that condition. And in any event the l
cooperatives ' rates are lower than Consumers Power's for [ the class of customers they seek most vigorously. s. (1) Eleven municipal systems in Consumers 7.. [ Power's service area have historically met the greater part _. of their requirements via wholesale purchases from the Com-l p any . The average January 1, 1973 bills of these eleven systems are lower than Consumers Power's bills for each of the four customer classes : by 9. 8 percent in the residen-r tial class, 14. 8 percent in the commercial class ,16.3 per-cent in the small-industrial class (300 kw and under) , and 11.2 percent in the large-indus trial class. of the nine municipal systems which historically L. have self-generated the greater part of their requirements , the rates of only one system exceed those of Consumers Power e in even a single customer class. Thus in 35 of the 36 com-L
\
L r L
i i
?
j - 168 - r parisons (9 systems times 4 classes of customers) the muni-cipal systems' average monthly bill to retail customers was r ( lower than the Company's. Moreover, the average January 1,
- r. 1973 residential, commercial, and small-industrial and large-industrial bills for these nine municipal systems I are lower than those offered by Consumers Power, by 14.1
( percent, 14.8 percent, 16.1 percent and 10.1 percent res-pectively. 7 The picture for the cooperative systems is differ- [ ent, reflecting the different characteristics of coop terri-f tory, coop clientele, and coop bulk power supply. In 1973, L. the residential bills of these systems averaged 21.2 per-( cent higher than those offered by Consumers Power, due in r large part to the higher distribution costs as.cociated with L the low population density of the territories served. The { coops' commercial and small-industrial bills , however, were t respectively 19.1 and 12.2 percent below Consumers Power's. r The substantial competitive viability of the muni-cipal and cooperative systems thus demonstrated is the pro-
)
L- duct of a trend of long duration. Consumers Power has pre-( pared a study of bills in 1960, 196 5 and 19 70 , as well as L in 1973. It is clear from that study that the municipals' I { and cooperatives ' bills have become substantially more
, competitive during the past thirteen years. There is no )
L i' .{
I i 169 - ( f~ reason, moreover, to doubt that the trend will continue. s-(2) Rates'of return. An examination of (* [ profits reveals that, as a group, the fourteen municipal 7 systems which historically have purchased the greater part of their requirements either from Consumers Power or another investor-owned system earned in 1972 a gross rate of return of 12.35 percent. These systems are thus able to cover their cost of capital, to contribute funds to their res-pective localities at a rate equal to the local tax paid I by Consumers Power (if they choose to do so) , to charge retail electric bills below those offered by Consumers {~ L P ower , and still to have surplus earnings of over six per-cent of their revenue. It must therefore be concluded that reliance upon wholesale purchases as a means of access to the benefits of large scale coordinated bulk power supply has enabled 'these fourteen systems to function as viable
~
competitors. While the nine self-generating municipals have done somewhat less well -- with an average gross return
,_ of 4.56 percent -- they are in basically the same posture.
l They too can cover their cost of capital, contribute sone [~ tax-equivalent funds to their respective localities , and f still offer retail electric bills below Consumers Pover's { a in each customer class. Like the fourteen wholesale L i L L
( ( - 170 - municipals, their competitive viability is therefore in-disputable. ( The cooperatives ' af ter-tax profits cover their
- p. historical 2 percent cost of capital, but fall short of l
the 3.5 percent which is typical of what the MPSC has approved for those sys tems. The shortfall is less, however, than that of Consumers Power, whose 1972 earnings are well below the return to which the MPSC has ruled Consumers 7 Power to be entitled. (3) Sales growth. The municipal's and { cooperatives' s ales as a whole increased during the period ( 1961-1971 as quickly as or faster than Consumers Power's r-- [ own gains . This sales picture has improved significantly
, during the last half of this period, moreover, in parti-cular for Consumers Power's wholesale customers. The "~
municipals' and cooperatives ' commercial and industrial sales, presumably the most sensitive to competitive
!^
pressures , have kept pace with Consumers Power and, for the period 1966-1971, exceeded Consumers Power's gains, f
' By all three criteria of competitive viability, g' therefore , the Intervenors have remained viable under the t
very conditions of access to large-scale bulk power gener-( ation of which they now complain. This fact demonstrates
, that Consumers Power has met whatever obligation the anti-L_
( L .L
7 l ( - 171 - l }r trust laws may impose, so far as " access" to " unique re-
, sources" is concerned. The Intervenors seek alternative,
( allegedly more profitable, forms of " access", but these j are in no sense " essential" within the meaning of the l principle for which they contend.
- 4. Consumers' Power's Market Position Is'the Inevitable Consequence of the Economic Characteristics of the Electric Power Industry and of Governmentally-Imposed Regulatory Requirements , Rather tian Unlawful Monopolization.
- a. The antitrust laws do not forbid the existence per se of monopoly power, but only its willful acquisition or L.
mainten ance . .
,. The offense of monopolization under Section 2 of the Sherman Act has two elements . Proof is required not
{ merely that the defendant possesses monopoly power in a l relevant market, but also that the power was willfully
) \.
acquired or maintained, "as distinguished from growth or development as a consequence of a superior product, busi-I L ness acumen, or historic accident" (United States v. t Grinnell Corp., 384 U.S. 563, 570-71 (1966)). Practices f which~ a~re "the inevitable consequences of ability, natural ( L forces, or law" are not forbidden, even where nonopoly power is the result (United States v. United Shoe' Mach'. Corp., 110
, F. Supp. 295, 344 (D. Mass. 1953), aff'd per curi'am, 347 , U.S. 521 (1954)).
, L. i i -
., , _ _ _ _ . , . _ , . _ . . _ _ , ,- .. ._ ,c_ _ _ , . , . , , . _ , , - . _ . . . _ . , . - _ ~
9._ . _m ,
r r
- 172 -
- {
Numerous varieties of monopoly power without nono-polization have been identified in the decisions under Sec-tion 2.
- governmental intervention; w
Includedismonopolypowerresultingfrompubosive from economies of scale;
' 19/
I from the lack of more than one entrant; and from changes in costs or in consumer tastes which drive all but one com-petitor from the market. f (~ Monopoly power may also lawfully result from 6
, " superior skill, foresight and industry."g As the Eighth Circuit said in rejecting a Section '2 charge against the surviving competitor after one of two motion picture theatres L.
in a community closed its doors, " healthy, successful com-petition, the object of which is not to restrict trade, is t 58 United States v. United Shoe Mach. Corp., supra; United
/
States v. Grinnell Corp. , 2 36 F . S upp . 244 (D. Mass. - 1964), aff'd, 384 U.S. 563 (1966). f 59/ United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945); Union Leader Corp. v. Newspapers of New
' England, Inc. , 284 F.2d 582 (1st Cir. 1960), cert, denied, 365 U.S. 833 (1961).
60 American Tobacco Co. v. United States , 328 U.S. 781 (1946).
/
[ 61/ United States v. Aluminum Co. of America, supra.
'L g/ United States v. Aluminum Co. of America, supra; see also United States v. United Shoe Mach. Corp. , supra; ih '-
United States v. E.I. du Pont de Nemours '& Co., 118 F.. Supp. 41, 214-17 (D.. Del. 1953), af f' d on other grounds , ~~ 351 U.S. 377 (1956).
- L
, ., ,>-r, , - - --.a.,. , - , ,- ..v,,,.,.n.+,-. , - , - - - - , - - - , . , - - , r n w-- .,.-.,.--,.,-~-,,,-...n,-., ,,.,e,. , , . , , - - , - -
( l - 173 - I to be encouraged, not condemned. " John Wright & Associates , , Inc. v. Ulrich, 328 F.2d 474, 478 (8th Cir. 1964). l ( Similarly, competition for entry into or survival {~ ina natural monopoly market is not prohibited by Section 2 \ merely because it can be foreseen that the survivor will (
- possess monopoly power. Lamb Enterprises Inc. v. Toledo Blade Co., 461 F.2d 506 (6th Cir. ) , cert. denied, 409 U.S.
1001 (1972); United States v. Harte-Hanks Newspapers , Inc., r 170 F. Supp. 227 (N.D. Tex. 1959). "In other words , a natural monopoly market does not of itself impose restric-( tions on one who actively, but fairly, competes for it, l any more than it does on one who passively acquires it" (Union Leader Corp. v. Newspapers of New England, Inc. , supra, 284 F.2d at 584). As stated by District Judge Higgenbotham (formerly a member of the Federal Trade Commissiod in Phila-delphia World Hockey Club, Inc. v. Philadelphia Hockey Club, Inc., 351 F. Supp. 462, 511 (E . D. Pa. 1972) : ( t, "'[T]he natural monopolist is entitled to compete vigorously ard fairly in a g struggle for a market which cannot support more than one supplier. ' l (emphasis added) "bJ/ i L j --63/ Quoting Ovitron Corp. v. General Motors Corp. , 295 F. t Supp. 373, 378 (S . D.N.Y . 1969). t l. t L
I (
; - 174 -
I Nor does Section 2 require the lawful possessor of monopoly power thenceforth to refrain from " active, enter-i g prising, and dynamic" business activity and remain in a s tate of " passive stagnation" (Att 'y Gen . Nat'l~ Comm.' Antitrust Rep. k 60 (1955)). Indeed, where natural-monopoly characteristics I of an industry preclude direct competitive stimuli, it is t especially important to encourage rather than discourage innovative and dynamic activity by the e isting firm. Cf. United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 372 7 (1963). And where competition for survival in a natural-monopoly market does arise, nothing in the Sherman Act "can limit a defendant's right to defend itself" (Union Leader Corp. v. Newspapers of New England, Inc., supra, 284 F.2d
, at 587) . "When one has acquired a natural monopoly by 4 means which are neither exclusionary, unfair, nor predatory, l'e is not disempowered to defend his position fairly."
American Football League v. National Football League, supra, 'f , . 323 F.2d at 131. L.
- b. The noncompetitive characteristics of the relevant markets in this proceeding are
- imposed by State and federal regulation in furtherance of particular governmental policies.
(i) State regulatory policies. As the Supreme Court has recently observed, regulation and competi-tion in the electric power industry operate "within the W%' h.'
, .--, . ~ . . . . -. , , , , _ .9.
.f I
- 175 -
'F confines of a basic natural monopoly structure" (Gulf States Utilities Co. v. FPC, 411 U.S. 747, 759 (1973)). Because of this, and to ensure that the public interest is most effici-ently served, Michigan law and the regulatory requirements k
of the Michigan Public Service Commission severely limit the nature and quantum of competition which will be per-mitted. Consumers Power is required to serve in those areas where it is already franchised. It will, as a prac-r tical matter, be forbidden to initiate service where another utility is presently serving. Michigan's Constitution requires that in order to transact local business a utility must obtain a franchise from the appropriate city, village or township. That franchise not only confers the utility's right to serve in a given area, but also obligates the utility (a) to supply the requirements of its customers and (b) to extend service to those who request it, subject to the Company 's t uniform and nondiscriminatory rates and rules of service as filed with and approved by the Michigan Public Service i 64/ Mich. Const. Art. 7, S29 (in Ex. ABB-6) . m P h M W n- - , - - - - , , , - . , , . , , --- , -.
(
- 176 -
Co==ission. Similarly, in any co=nunity through which ,r - one of Consumers Power's transnission lines passes, the i i Co:. .J.ssion may order Consumers Pcwer to construct expand 66/
-~
, or =aintain a distribution systen. Thus, wherever i Consu=ers Power presently Jerves, the MPSC =ay order it to continue serving, and wherever it is franchised it is obligated to serve all co=ers unless prevented by statute l-or by MPSC regulation. As a general =atter, moreover, a utility will not be permitted by the .'CaSC to serve where another utility is already serving. First, a city, village or township =ay g. si= ply refuse to grant utility franchises where to do so i ! would create unwanted duplication of facilities and ser- [ vices. Second, even if a franchise were issued, an electric t utility seeking to begin service within a =unicipality in r' which another utility already serves =ust in most cases, [ with only a few exceptions none of which apply to Consumers L 65/ City of Saginaw v. Consumers Power Co. , 182 N.W. 146, 154 (19 21) (in Ex. ABB-21) ; Michigan Consol. Gas Co. v. Township of Austin , 373 Mich . 123, 125 S.W. 2c 491, 499 (196 4) (In Ex. ABB-22) ; Traverse City v. Consumers Power
' Co., 340 Mich. 85, 64 N.W. 2d 894, 899 (195 4) (in Ex.
ABB-23). 66 Mich . S tat. Ann., 522.156 (in Ex. ASB-1) . _/ L
i - 177 - m 6.1/
- Power, obtain a certificate of public convenience and 68/ ,
necessity from the MPSC.-- 1 In such certificate proceedings, the Commission is required by statute to consider the service being render-ed by the utility then serving the area, the inves tment al-ready made by that utility, the benefits (if any) which the public will receive in lower rates, and "such other matters 69/ as shall be proper and equitable". The Michigan Supreme Court has expressly held that the requirement of a certifi-cate empowers the Commission to prevent needless multipli-cation of companies serving the same territory and to avoid o 70 / . wasteful duplication of capital facilities.-- The Commission's policy in considering an application for authority to enter 67
-~
/ Municipal systems are not subject to the jurisdiction of L the MPSC and therefore may begin serving their own or an adjacent municipality without a certificate of public convenience and necessity from the Commission. (If ser-ving outside.its own limits, however, a municipal system L is required to seek a franchise.) Nor would duplicative competition be restricted by the certificate requirement where (a) the second utility began service in the muni-
" cipality prior to 1929, or (b) where the second utility is a rural cooperative which began service in the muni-i
, cipality before the recent assertion by the MPSC of jurisdiction over the REAs.
68 Mich. Stat. Ann., S22.142 (in Ex. ABB-28).
/
_ 69/ Mich. Stat. Ann., S22.145 (in Ex. ABB-2 8) .
]p/ Panhandle Eastern Pipe Line Co. v. Michigan Public Service
, Commission, 328 Mich. 650, 44 N.W. 2d 324 (1950) (in Ex.
ABB-29); Huron Portland Cement Co. v. Michigan Public Ser-vice Commission, 351 Mich. 255, 88 N.W. 2d 492 (1950) (in Ex. ABB-4). 9
- 178 -
into competition with an existing utility would therefore be to keep total investment of all utilities at the lowest ! figure consonant with satisfactory service, while ndnindz- + ing the cost of capital by reducing utilities ' exposure to risks caused by unnecessary competition. Fringe-area competition between two adjacent utilities is similarly restricted by the rules and policies of the Public Service Commission. This is seen most clearly in its regulations governing the extension of single-phase electric service in areas served by two or more utilities. I~ Under the Commission's " single-phase rule", an existing single phase customer may not transfer from one utility [ to another. A prospective customer must take service from the nearest utility, moreover, unless that customer is either (a) less than 300 feet from the distribution facili- [ ties of two or more utilities or (b) more than one-half mile from the distribution facilities of all utilities . In those cases -- and in those cases alone -- the customer may be entitled to choose the utility from which he will
~~71/ In the Matter of the Adoption of Rules Governing the Extension of Single-Phase Electric Service , No. U-2291 (MPSC, March 2 4, 1966) (in Ex. ABB-31) .
L m W
,- =- --+ a
e
- 179 - - 72/
take service. Proposed extensions of three-phase service are restricted in a similar, if less formal, way. When the I' Commission staff has become aware of proposed extensions i of three-phase service which tend toward duplication, it } $. has informally tried to discourage such extensions, especi-ally in cases where one utility would be providing three-phase service to a customer receiving single-phase service i from another. Further, the Commission staff is presently considering a recommendation to the Commission that it adopt a three-phase rule patterned after the single-phase i t- rule. These State-mandated restrictions on fringe-area L. competition for single- and three-phase loads expressly i L apply both to privately owned utilities and to rural elec-f tric cooperatives. They do not apply to municipal systems t. which are beyond the reach of the Commission's jurisdiction. ' Municipal systems are, however, subject to the provisions of the Michigan Constitution which limits their service outside P 72/ Even here the customer may be foreclosed in his choice
~
by MPSC regulatory policy. When a prospective customer is more than one-half mile from the distribution facili-ties, and the utility which he selects would be required [ to extend its facilities to within one mile of another utility's distribution system, the other utility may file an objection with the Commission. mee
f' r-l - 180 - r-1 I their corporate limits to 25% of the power they furnish 73/
-~
within their boundaries. Finally, State regulation restricts potential
. entry into the market by a municipality through termination ~
of an existing utility's right to serve, and subsequent ac-quisition of its facilities by eminent domain. First, the Michigan Constitution requires a municipality seeking either i to acquire or to sell a public utility to obtain the approval i E of the voters. Second, where a private utility is given the right to serve by a valid franchise confirmed by a vote of the local electorate, that right cannot be terminated except where (1) the franchise is of fixed duration and is I t not renewed when it expires, (2) it is condemned through
~
the processes of eminent domain, or (3) held revocable for cause such as, perhaps, material breach (by analogy to the c law of contracts). The eminent-domain power is not, hwoever, a mean-ingful vehicle for entry by Michigan municipalities. Under 73,/ Mich. Const., Art. 7, $24 (in Ex. ABB-6) . 74/ The approval of three-fifths of the electors voting must be obtained before the city or village may acquire any public utility furnishing heat, light or power. It also provides that the sale by a city or village of a g public utility must be approved by a majority of the electors voting. Mich. Const., Art. 7, S25 (in Ex. ABB-6). W
.--,--,e= m ,n . - - , p.
I l r { - 181 - Michigan law, the facilities or the franchise of a privately-owned public utility may be condemned only after a showing, l to a j ury , that the condemnation was "necessary". This burden of showing " necessity" to a jury of laymen would be extremely difficult to sustain, absent a showing that the service of the privately-owned utility was grossly in-adequate or its rates demonstrably unreasonable. Michigan I , thus stands in sharp contrast with other States, under whose statutes either the condemning authority or the agency by which it is regulated is empowered to make its own deter-mination, on a standard not of " necessity" but of "public pu rpos e" , subject to judicial review only for fraud, abuse ( of discretion or the like. (ii) Federal regulatory policies . The rural cooperative systens involved in this proceeding have their genesis in the Rural Electrification Act of 1936 (7 U.S.C. 5901 et seq.) , which was enacted to facilitate extension of
- _ electric service to the 90 percent of the nation's farms
, which did not then enjoy such service. Private utilities f- had found it difficult to finance and economically justify extension of their lines to isolated farm areas because of the low potential revenue and high costs involved, especially in the Depression of the 1930 's. The rural electric cooper-ative program, financed by low-interes t federal loans , was W W
r l - 182 - F
; designed to meet this need.
r- Competition between the cooperatives and private utilities, however, was never contemplated by Congress. Under the Act, no loan can be made unless the proposed customers to be served under the loan live in rural areas (defined as areas not within a municipality having a pop-ulation of more than 1,500) and receive no central-station f.. ( electric service (7 U.S.C. SS90 4, 913) ) . As the Eighth Circuit has said, as a " general proposition *** Congress [in the rural electric ooperative program] is not interested in using governmental power to supplant private enterprise." REA v. Northern States Power Co. , 373 F.2d 686, 695 ( 8 th Cir.), cert. denied, 387 U.S. 945 (1967). The policy of the Rural Electrification Adminis-tration in making loans for the. construction of cooperative f generation and transudssion facilities has similarly been to discourage competition with privately owned utilities. Pursuant to Congressional mandate, the REA will not grant
<c G&T loans unless the terms on which bulk power is other-
~
wise available to the distribution cooperatives are found to be unreasonable and no modification of such terms can be obtained. See S. Rep . No. 49 7, 88th Cong., 1st Sess. 8
.. (1964).
Once a G&T loan is granted, however, privately M L_ _. _ _ _ _ _ . . _ . _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ - . _ _ _ _ _ _ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . . _ _ _ _ _ _ _ . _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ - _ _ _ _ _ _ _ _.Jt.___ _ _________
i
- 183 -
{ owned bulk power suppliers are substantially foreclosed from competition for the distribution cooperatives ' business. The distribution cooperatives to be served
; by the G&T are required, as a condition of the G&T loan,
{ to sign long-term exclusive dealing contracts with the G&T (in Michigan, 50 years) whose significant features are as follows: , (a) The distribution coop is required to pur-chars all of its electric power needs from the G&T coop, to the extent that the G&T has such power available. The f Cistribution coop may continue to purchase energy from k other sources only until the G&T is in a position to meet the former's requirements . (b) The distribution coop must terminate its
- contracts with other suppliers when it may legally do so, at the request of the G&T with the approval or at the u
direction of the Administrator. If the distribution coop l fails to do so, the G&T or the Administrator shall have the right to enforce the obligation through legal processes.
- (c) The distribution coop purchases its power at rates which must be reviewed annually by it and the G&T coop; agreed-upon revisions are ineffective until approved ~
by the Administrator. These long-term exclusive-dealing contracts have L i
f n
- 184 -
been challenged as violative of the antitrust laws. In Alabama Power Co. v. Alabama Elec. Cooperative , Inc. , 39 4 F.2d 672 (5 th Cir. ) , cert. denied, 393 U.S. 1000 (1968), however, the court of appeals ruled that imposition of these loan conditions was within the discretion of REA (as a federal agency exempt from the antitrust laws) no matter how anticompetitive the result.
<, REA policy frowns , moreover, on direct retail competition between the cooperatives and neighboring pri-vately owned utilities. In 1961, the Administrator of the agency declared it to be bad business for a cooperative "to depend upon any power company which invades a borrower's ', 75/
(. territory or pirates away its customers . "~~
- c. Consumers Power's business conduct since 1960 has been well within the limits allowed by Section 2 of the Sherman Act, even if the Company were found to possess monopoly power in a relevant marke t.
None of the documentary exhibits filed by the Department of Justice or the Intervenors in this proceed-c ing suggests that Consumers Power has engaged in any activ-L 75/ Address by Norman Clapp, in Rural Electrification, October 1961, p. 16. L 1
l t
- 185 -
r ity _lf proscribed by Section 2 or any other an~titrust l _ statute in the retail or bulk power supply markets in which it serves. r The fact that Consumers Power and another electric system may compete at retail in no way af' fects Consumers Power's proposals or policies concerning whole-sale power supply. The company not only supplies bulk i power to many systems with which it competes at retail, it also readily assists these competitors in many ways
-- e .g. , with engineering advice and as sis tan ce , loan ,
rental or sale of equipment, testing services, etc. -- to operate more efficient systens and thus be more f~ l efficient competitors . To the extent that competition with some neighboring systems has been more vigorous than with others , this is explained by the impact of the State franchise laws , by Michigan Public Service Commis-sion regulc tions , and by the differing competitive prac-tices of Consumers Power's neighboring systens . j3V Under Section 105c, the Commission is charged with examining only the applicant's activities "when the license is issued or thereafter." H. Rep. No. 91-1470, 91st Cong., 2d Sess. (1970). Thus, many of the activi-ties referenced in these exhibits, particularly those L. relating to events which occurred more than ten years ago, are "too remote to have sufficient probative value i to justify burdening the record ***." Continental ore Co. v. Union Carbine & Carbon Corp., 370 U.S. 690, 710 TI962). l
,wv- , ~ _ --
~ l r I f - 186 - r l l Nor has Consumers Power engaged in any anti-competitive activity in the bulk power supply market. To the contrary, it has actively solicited, and never [ declined, the opportunity lawfully to supply wholesale ( bulk power to neighboring systems on terms which permit such systems to be financially and competitively viable.
. The Company's competitors in the bulk power supply market have included large neighboring investor-owned utilities with whom it is interconnected. Thus ,
in 1966 Consumers Power offered to serve the Village of Paw Paw with wholesale bulk power, even though Paw Paw r is outside of Consumers Power's franchised service area and was then receiving wholesale service from Michigan Power Company. At approximately the same time, the t" Company sought to persuade the Southeastern Michigan cooperative, then an all-requirements wholesale customer of Consumers Power, not to switch to Detroit Edison for L most of its bulk power supply. In neither of these ( instances were Consumers Power's competiti0e efforts b~ success ful . The most vigorous competition which Consumers Power faces in the bulk power market, however, is the self generation capability of its neighboring systems. c In the course of its healthy, enterprising competition in this market, Consumers Power has on many occasions
~
/ L
I J - 187 - sought to persuade neighboring systems that their best interests would be served by purchasing wholesale power
, rather than by initiating or expanding their generation c capability. However, many of these systens , particularly the larger municipals and cooperatives , have chosen to U
rely upon self generation to satisfy their bulk power L; needs , so that Consumers Power's share in this market has not significantly changed during the past decade. Recently, even some smaller systems have begun an expansion of self-generation capability -- despite previous trends in the other direction -- thus suggesting that Consumers Power's share of this market may well diminish. Self-generation is an attractive alternative for many of these sys tems , in part because of their L s ubsidies and in part as a result of interchange arrange- { ments which Consumers Power has consummated with them on ( terms which are reasonable, non-discriminatory, and'which permit them to be financially and competitively viable in the retail market. ! 1 During the 1960 's Consumers Power purchased two small municipal systems and one small investor-owned system and offered to purchase two others. However, neither the intent nor the result of these acquisitions was in any way anticompetitive or otherwise unlawful. Rather, it has been I I L
r 4 1
- 188 -
the Company's policy to pursue negotiations for the acqui-sition of a system only after a request from officials of that system. r Since the mid-1960 's the Company has declined to consider acquiring municipal systems where the proposal [ lacked the unanimous support of municipal authorities and the overwhelming approval of the citizenry. Moreover, Consumers Power has declined to pursue acquisition pro-
~
posals unless convinced that the acquisition will be mutually beneficial. Thus , in 19 70, the Company declined to offer to purchase the system of Eaton Rapids despite that municipality 's request to do so, and in fact, has not offered to purchase any electric system for the past six years. The result of Consumers Power's three acquisi-E tions of systems serving a total of less th an 5,0 0 0 cus-tomers has not adversely affected retail competition among the electric utilities of lower Michigan. During the past decade, especially within the past seven years, Consumers Power's ne ignbors have demonstrated their ability to compe e successfully with the Company, and have maintained a sales growth pattern on average higher than that of Consumers Power. Thus , neither the intent nor the result of these three acquisitions can be charac-l
- terized as anticompetitive or otherwise inconsistent with
' the antitrust laws. L 4 L.
F l
- 189 -
It is true that Consumers Power has , on occasion, sought to dissuade federal governmental authorities from financing what the Company deemed ill-advised ventures by the generation and transnission cooperatives. In parti-cular, the Company in 19 64 met with officials of the Rural Electrification Administration to present its view about a proposed REA loan to fund a costly and uneconomic expansion of the cooperatives ' generation capacity. As previously explained, the federal government subsidizes rural electric cooperatives by exempting them from federal tax liability and by lending them millions of dollars at interest rates only a fraction of the prevailing rates in f the private capital market. As a corporate taxpayer and citizen, Consumers Power has a Constitutional right to make L its views about such matters known to appropriate govern-mental authorities; indeed, REA itself insists upon explor-ing alternatives such as wholesale purchase from the Com-u pany, which should hardly be disabled from participating in that process . The Noerr-Pennington doctrine assures the co mpany that such expressions of views will have no adverse consequences in an antitrust context. l
~
! In sum, the record is clear that in both the retail and bulk power relevant markets, Consumers Power's conduct has been well within the limits of Section 2 of the Sherman Act and of the other antitrust laws -- even for a firm in lawful possession of monopoly power. Contrary to the sugges-L -
( l - 190 - tions in the Justice Department's advice letter requesting the present hearing, the Company has engaged in entirely lawful " active, ente rprising, and dynamic" business conduct throughout the period involved in this proceeding ( Att'y Gen. Nat'l Comm. Antitrus t Reg. 60 (1955)). Thus , its conduct has not only been fully consistent with the anti-trus t laws, but also clearly mandated by the Company 's obligations to its customers as a public utility. Respectfully submitted, Wm. Warfield Ross J oel E . Hoffman i Keith S. Watson Gerald B. Wetlaufer Wald, Harkrader & Ross 1320 19 th Street , N.W. Washington, D. C. 20036
- Harold P. Graves James B. Falahee i Consumers Power Co.
I 212 West Michigan Avenue Jackson, Michigan 49201 l Of Counsel 1 l November 20, 1973 L
UNITED STATES OF AMERICA ATOMIC ENERGY COMMISSION In the Matter of )
) Docket Nos. 50-329A CONSUMERS POWER COMPANY- ) and 50-330A (Midland Units 1 and 2) ) ~
CERTIFICATE OF SERVICE I hereby certify that copies of PREHEARING BRIEF
- FOR APPLICANT dated November 20, 1973, in the above-captioned matter have been served on the following by deposit in the United States mail, first class or air mail, this 20th day r-of November 1973:
Jerome Garfinkel, Esq. Dr. J. V. Leeds, Jr. Chairman P. O. Box 941 Atomic Safety and Licensing Houston, Texas 77001 Board Atomic Energy Commission William T. Clabault, Esq. Washington, D. C. 20545 Joseph J. Saunders, Esq. David A. Leckie, Esq. Hugh K. Clark, Esq. Public Counsel Section P. O. Box 127A Antitrust Division Kennedyville, Maryland 21645 Department of Justice t Washington, D. C. 20530 James Carl Pollock, Esquire 2600 Virginia Avenue, N. W. Washington, D. C. 20036 s Joseph Rutberg, Jr., Esq. Antitrust Counsel for
- AEC Regulatory Staff Atomic Energy Commission Washington, D. C. 20545 ~
Wallace E. Brand, Esq. Antitrust Public Counsel Section P. O. Box 7513 Washington, D. C. 20044 Atomic Safety and Licensing Board Atomic Energy Commission Washington, D. C. 20545 Wm. Warfield Ross W 2}}