ML20040E377

Forwards marked-up Excerpt of FERC Initial Cecision from 820121 Public Hearing Re Town of Messona,Ny

ML20040E377
Person / Time
Site:	Indian Point
Issue date:	01/22/1982
From:	Mantell N AFFILIATION NOT ASSIGNED
To:	Carter L Atomic Safety and Licensing Board Panel
References
ISSUANCES-SP, NUDOCS 8202040247
Download: ML20040E377 (8)

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Adge Louis J. Carter # Cpj

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Dear Mr. Carter:

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Pursuant to our conversation at the Peekskill-Indian Poin public hearing on 1-21-82 I enclose herewith a copy of several pages of the 55 page Initial Decision by FERC ~W6ge Raymond M. zimmet in the matter of Town Of Messdna, New York V.

Niagara Mohawk Power Corporation and the Power Authority of the State Of New York (Issued Nov 21, 1980) l In order to save time and expense I copied only these few p3ges which I hope will serve to snterest you in the possibility that a complete copy of the decision may be useful in your questioning of PASNY's witnesses. I assume that you can readilly obtain the complete copy. To this layman it appears that this decision is importantly relavent to the current Indian Point matter in that it reflects upon PASNY's lack of credability and might serve as

! a basis for some of the questions to be posed to PASNY's witnesses.

I expect to receive some additional copies of the FERC decision in about ten days if you have not already received your copy by that time.

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,4 5 Sincerely

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INITIAL DECISION FINDING STATUTORY # # ' #

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AND LICENSE VIOLATIONS ' ( ' ' ' a.'. ", r ,,

J~~h (Issued November 21. 1980) -

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Bernard D. Fischman, Michael Lesch, Arthur D. Felsenfeld ~ C O and Bryan J. Hughes for Niagara Mohawk Power Corporation 2 -*J

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Thomas R. Frey, Scott B. Lilly, Vito J. Cassan, Vincent J. Tobin,-

Jordan Newman and Charles M. Pratt for the Power Authority of the State of New York Wallace L. Duncan, Philip L. Chabot, Jr. and James D. Pembroke for the Town of Massena, New York '

John D. Whitler, Glenn A. Stover and Irving Rosner for the U.S.

Department of Justice Barbara K. Kagan and Michael E. Small for the Staff of the Federal Energy Regulatory Commission ZIMMET, Presiding Administrative Law Judge. -

Niagara Mohawk Power Corporation and the Power Authority of the State of New York (PASNY) are the targets of this show cause proceeding which was initiated by the Federal Energy Regulatory Commission af ter the town of Massena, New York had petitioned for relief. Massena, located in the no. thernmost region of New York state on the shore of the St. Lawrence River, has been trying without success for over six years to start its own r retail distribution system selling electricity to ultimate consumers within the town. If it succeeds, Massena would supplant Niagara Mohawk -- an investor-owned utility engaged in the three discrete fungtions of generating, transmitting, and distributing electricity.

Niagara F;> hawk holds electric retail distribution franchises in a number of communities in the northern and western portions of New York state, including Massena and areas surrounding Massena.

A few of these franchises were acquired from communities which SEL DC-A-1

Supporting Massena in this case are the. commission's Staff and the Antitrust Division of the U.S. Department of Justice. At the same time that Niagara Mohawk, PASNY, and Massena filed -

written testimony and supporting data, the S taff and the. Justice Department each did the same in aid of Massena. Although Niagara Mohawk and PASNY then had the opportunity in advance of the u

, hearings to file rebuttals to the presentations of Massena, the Staff, and the Justice Department, neither elected to do so. .

Finding that Niagara Mohawk and PASNY had adequate notice of the charges.against them and the right to defend themselves in this show cause proceeding, it is concluded for the reascns below that contract NS-1, not S-6, is the relevant contract here and that the present customers clause -- which is not cured by the mutually agreed clause -- violates Section 205 (b) of the Federal Power Act. The present customers clause must be eliminated from the contract. PASNY, as a party to the NS-1 contract and having made no firm arrangement to transmit the power it has allocated to Massena, has violated Section 10 (h) of the Federal Power Act~

and its responsibilities under the Niagara license _ and 16 U.S.C.

S S 83 6 (b) (1) and (4).

As for Niagara Mohawk's belated of fer to wheel power to

- Massena under certain terms and conditions, not only do the circumstances surrounding the offer raise serious questions concerning the good faith of the company, which in turn implicates PASNY, but the terms and conditions themselves are unduly l

discriminatory and anticompetitive. In any event, the terms and conditions -- a unilateral gesture by Niagara Mohawk that was i never agreed to by PASNY -- fail to satisfy the requirements ,

of the mutually agreed clause. ,

I A

1. This case has its roots in events leading to the signing of two contracts between PASNY and Niagara Mohawk --

S-6 covering the St. Lawrence project (on March 1, 1957) and NS-1 covering the Niagara project (on February 10, 1961). These events, which occurred well before Massena tried to establish its own distribution system, shed light on why a present customers

. clause is found in NS-1, but not in the earlier S-6. They also help explain one of the critical reasons Massena has been having so much trouble obtaining the necessary transmission of power f rom Niagara Mohawk and PASNY.

_ _ _ _ _ _ _ . _ .0._

Consequently, in contrast with the St. Lawrence project, even when PASNY sold all of the power from the Niagara project,

• investor-owned utilities as Niagara Mohawk that were to purchase ,

power from the project knew that some of this power -- which was earmarked " withdrawable" -- might eventually be taken away from them and diverted to municipally-owned distribution systems (Tr. 2356-59; 3007-12). Communities, whose residents were being served at retail by Niagara Mohawk or the other investor-owned utilities, were among the potential recipients of the withdrawable power -- if any such communities decided to start their own distribution syncess.

To transmit power allocated from the Niagara proje at, PASNY was directed by Congress to provide or arrange for this service

-- specifically to " acquire by purchase or other agreement, the ownership or use of, or if unable to do so, construct such transmission lines as may be necessary to make the "power and energy generated at the project available . . . . (16 U.S.C.

S 836 (b) (4)) . This statutory transmission oblicatiqn was tracked by the Commission in Article 23 of the Niagara license which it issued to PASNY (19 FPC at 194). ':

" To . fulfill its treasmission obligation, PASNY ~ (as in the case of the St. Lawrence project) turned to the investor-owned utilities to provide the service as its wheeling agents. Once again this was natural because the utilities' transmission lines already reached and served existing municipally-owned distribution systems -- which previously had been served by the utilities at wholesale. Then, too, the utilities' transmission lines already reached and served communities whose residents were being served by the utilities at retail. These communities might elect in the future to start their own distribution systems.

Contract RS-1 was signed by PASNY and Niagara Mohawk on February 10, 1961, with the company agreeing, among other matters, to wheel power allocated from the Niagara project. In line with contract S-6, Niagara Mohawk did not undertake a firm duty to wheel under NS-1, placing the same excess capacity limitation --

"to the extent that [ Niagara Mohawk] has available transmission '

capacity in its system" (Article IX, paragraph 1) -- on its obligation (p. 7, supra). Thus, Niagara Mohawk has no responsibility to incur any capital expenses to expand the ,

capacity of its existing transmission facilities to wheel power to PASNY's municipal customers.

l Despite such a safeguard from Niagara Mohawk's viewpoint, the company and PASNY agreed to yet another limitation in

' Article IX, paragraph 1 of NS-1, which was not found in S-6 --

the present customers clause (p. 3, supra). By limiting wheeling to PASNY's municipal customers existing as of the date of the 4

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_9 contract, the clause could impair the opportunities for

- municipally-owned distribution systems that might be formed in the future to have delivered to them as preference customers the  :

withdrawable power they were statutorily entitled to from,pbe Niagara project. .

The potentially restrictive nature of the present customers (also clause was tempered somewhat by the mutually agreed cinuse contained in Article IX, paragraph 1), which held out the possibility that Niagara Mohawk might wheel not only for present customers, but also for other loads and customers of PASNY as might be mutually agreed between Niagara Mohawk and PASNY (pp. 3-4, supra).

Following the signing of contract NS-1, there are indications that in the mid-1960s PASNY itself was prepared to shut out as its municipal customers any communities not operating their own distribution systems at the time PASNY signed wheeling contracts with investor-owned utilities -- where these communities' residents were being servad at letail by its wheeling agents.

t Thus, in responding to an inquiry from a group of upstate New York communities (including Massena) as to the possibility of establishing their own distribution systems and purchasing power l from PASNY, the then-chairman of PASNY held out no prospect for l obtaining such power -- never advising them about the possible availability of withdrawable power from the N iagara pro jec t ,

Moreover, in responding to another inquiry

,(Exhibit 187).

concerning the possible establishment of a New York municipal distribution system and the purchase of power from the Niagara project, another PASNY official cited as a barrier a present customers clause akin to the one in contract NS-1 -- stressing that because of the clause there was no means to deliver electricity to a newly-formed municipal system (Exhibit 189;.

2. Against this background, the history of Massena's efforts to start its own distribution system can be recounted.

In 1973 Massena officials hired the engineering and consulting firm of R.W. Beck and Associates to study Beck'sthe feasibiltty of

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l l establishing a municipally-owned system. analysis, through a report issued in November 1973, was that such a system was feasible and that ultimate consumers within the town could realize substantial cost savings if they removed Niagara Mohawk as their distributor (Exhibit 19). This conclusion rested on the assumptions that the town would take over the necessary distribution facilities of the company; that power would be l

purchased f rom PASNY (which had not yet made an allocation to l

the town); and that Niagara Mohawk would wheel the power for about a two-year period -- during which time the town would be erecting its own transmission facilities so that it would eventually connect directly with PASNY (pp.17-18, inf ra) . 7/

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earnest in November 1978 -- shortly after the PASNY-Massena contract was signed and the New York Court of Appeals ruled against Niagara Mohawk (Tr., e.g., 9737-42; 9940-41).

The terms and conditions spelled out in the letter, as' agreed to by PASNY's staff -- but not yet approved by the board

. of trustees -- would aid Niagara Mohawk in the antitrust case, this show cause proceeding, and in the company's fight against Massena in the condemnation proceeding. Though the letter carries the date of February 12, 1979, that date is inaccurate for the letter was not finalized until months later in June 1979 --

a fact which neither Niagara Mohawk nor PASNY explained until Niagara ~ Moha'sk was questioned about it. 28/

At the end of July 1979, Niagara Mohawk attempted to file the letter with the Commission as part of a proposed tarif f. A few days later in early August 1979, Niagara Mohawk -- as it first announced it would wheel to Massena under certain terms and conditions -- introduced the letter in the District Court antitrust action and then in this show cause proceeding as proof of its longstanding policy or practice to wheel to PASNY's municipal customars, including Massena (p.15, supra).

Since that time, the Commission on a number of occasions has refused to' accept the letter for filing as a tariff, noting that PASNY's board of trustees has never approved it. 29/

As f or P AS NY , it did not ob]ect to Niagara Mohawk's ir.troduction of the so-called February 12 letter at the outset of this show cause proceeding. Nor did it at subsequent hearings on the matter volunteer the fact, until questioned, that its staff had helped to draft the letter -- only pointing out that its board of trustees had not taken the requisite scep to approve the letter, as it sought to cut off inquiry into the letter and its background (Tr., e.g., 2962-68). Yet in ene Commission's docket where Niagara Mohawk had tried to file the letter as a tariff, PASNY had remained silent -- never informing the Commission that its coard of trustees had not approved the letter (Tr. 10,908-l?; 10,923-25). Only after the Commission rejected the letter for filing in that docket did PASNY indicate in this show cause proceeding that the letter was a nullity and it was about to renegotiate with Niagara Mohawk the entire contents of the letter (Tr. 11,006-09).

Consequently, aside from PASNY's role in the drafting of the so-called February 12 letter and its curious stance before the Commission concerning the letter, two important facts arise from the discussion o:.' that letter. First, there is no document on file with this Commission setting forth terms and conditions under which Niagara Mohawk will wheel to PASNY's municipal customers. Second, there is no evidence that PASNY's coard of trustees nas ever agreed to the terms and conditions under wnich Niagara Mohawk has offered to wheel power to Massena. The offer is a unilateral proposal iTr. 590-92; 608-14: 625-29; 10,o37-44: .

II A .

Having f ailed in their ef forts, first, to throw out Massena's .

complaint and, then, to moot the case by advancing new theories i

.since the issuance of the Commission's show cause order, Niagara Mohawk and PASNY now seek to scuttle the case by contending that i

l-they were not adequately apprised of the charges against them. 30,/ There is no basis for these contentions.

The Commission's order issued in this case on August 1, 1979, directed Niagara Mohawk and PASNY to show cause at hearingr to be held why -- in view of the restrictive nature of the

~i present customers clause of contract NS-1 -- each had not violated its statutory or license obligations. When at the subsequent prehearing conference each announced -- in their respective ef forts to moot the case -- new theories from the ones they had previously taken in this docket, the Presiding Judge directed these parties to file written testimony and supporting data concerning their theories. Both parties, as well as Massena, were also directed to file .other written testimony and supporting data regarding questions which arose from the Commission's show cause order. All parties were afforded the .

chance to file any other written testimony and supporting data they chose to respond to the show cause order, including filing rebuttal testimony and data (Presiding Judge's order of September 25, 1979).

In short, rather than mooting the case, the new positions taken by Niagara Mohawk and*PASNY at the conference prompted a need to explore those positions, as well as the matters raised by the Commission's show cause order. 31/ Massena, the Staff, and the Justice Department understood this, filing the necessary l

written testimony and data in advance of the hearings and then ,

l preseitting and exploring these matters at the hearings themselves. Only Niagara Mohawk and PASNY professed not to understand the issues or the charges against them.

In their efforts to nullify this case, Niagara Mohawk and

- PASNY take. inconsistent positions. According to Niagara Mohawk, ,

l the hearings could not explore the new positions which the company and PASNY announced at the prehearing conference because the Commission's earlier show cause order had not directed that those positions be examined (Tr. 276-78; 593-601). 32/ PASNY, on the other hand, contends that only its new position could be explored at the hearings, for the issues specified in the Commission's show cause order did not " survive" after the Presiding Judge somehow overrode them and directedNeither that PASNY's party new position alone be examined (Tr. 132-36). 3 3,/

i is correct.

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g PASNY, in essence, forces New York communities such as t

Masgena to run two gauntlets (Tr. 3099) . While the first

. appears necessary, the second is much more dubious. The first is to try to obtain from PASNY an allocation of power, giving any investor-owned utility which could be adversely affected by an allocation its rightful opportunity to fight such an -

allocation. The second gauntlet is that even if an allocation is granted, PASNY sends the community back to try to obtain the necessary wheeling from the very utility which may have opposod the allocation. It is especially during this' second phase that PASNY acts is little more than a bystander in the disputa -(Tr. 9250-52), even though it has been charged by Congress with making power' available to municipal distribution systems by arranging or providing for transmission.

Nor is PASNY above taking what appear to be expedient.

actions which can deflect attention f rom the arrangements _ it has entered into with investor-owned utilities. In this case PASSY has flip-flopped at least twice while staking out its

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positions. rirst, in aavancea a new tneory arter the snow cause order was issued as to why contract NS-1 was not relevant here, which theory was altogether dif ferent -- as PASNY admitted --

from the position it had taken earlier in this same proceeding (p.15, supra). Se cond, after describing its own present customers clause in NS-1 as " obnoxious," PASNY tried to put a gloss on the clause tn show that it supposedly serva.s the public interest (p.33, supra) .

Perhaps the most contradictory positions taken by PASNY relate to its arguments before the Second circuit in the Penn Yan case, in contrast with its arguments before the Commission in the case at bar. The Court in Penn Yan, while remanding the case to the Commission for an oral hearing, noted that PASNY, as NYSEG, had requested a hearing before this Commission (Slip opinion, pp.5937; 5947). Yet in this show cause proceeding, not only has PASNY tried to avoid such a hearing when the '

Commission called for it (pp.15; 22-25, supra) ; it has also argued that the Commission lacks jurisdiction over PASNY and its contracts. To support its argument, PASNY has cited two cases, one in a state court, Airco Alloys Division, Airco, Inc.

v. Niagara Mohawk Power Corp. , 65 A.D.2d 378, 411 N.Y.S.2d 460 (4th Dep't 1975), and the oth'er in a federal court, PASNY v. FERC (Civ. No.79-310, W.D.N.Y. Feb. 22, 1980). 55/ .

Those are the same two cases which NYSEG cited to the Second Circuit in Penn Yan as it contended unsuccessfully that the Commission lacked jurisdiction over the contracts in question because of the presence of PASNY (Slip opinion, pp.5927-28). For purposes here, it is enough to rely upon s,

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