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ADJUDICATORY ISSUE 1
(Affirmation)
For:
The Commissioners j
From:
James A. Fitzgerald
-)
Assistant General Counsel
Subject:
REVIEW OF ALAB-646, IN THE MATTER OF ALABAMA POWER CO. (ANTITRUST), AND ALABAMA POWER COMPANY'S APPLICATION FOR STAY PENDENTE LITE Facility:
Joseph M. Farley Nuclear Playt, Units 1 and 2 i
Purpose:
o recommend that k
Review Time Expires:
September 30, 1981, as extended l
Discussion:
5 I.
Introduction i
This paper focuses on two separate matters for decision with respect to antitrust conditions ordered by the Appeal Board in l
ALAB-646 (June 20, 1981) on Alabana Power Company's (APCO) license for the Joseph M. Farley Nuclear Plant.
The Commission must, as usual, decide whether review of the decision is warranted -- here CONTACT:
Marjorie S. Nordlinger, OGC 4-3214
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l informatica in this record vias ddeted in accordance vi,th the fre; dom of info mation Act, exem tion's __US A[I Y
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2 review is sought by two of five parties. 1/
Also pending is APCO's motion for a stay of the effectiveness of the antitrust conditions while ALAB-646 is being litigated. 2/
Because the background of Parley is. lengthy -- going back to 1971, the record voluminous, ~3/ and the questions for decision inter-related, we believe the review and stay questions are best addressed in one paper.
Af ter presenting the background common to both questions and highlighting those areas where ALAB-646 disagreed with the decision below (Part II), we turn to the issues presented by the petitions for review (Part III).
In brief, APCO's allega-tions of error lie in five key areas:
(1) scope of Commission antitrust review pursuant to section 105c of the Atomic Energy Act; (2) designation of relevant product and geographic markets; (3) findings of monopoly powers (4) findings of anticompetitive conducts and (5) appropriateness of license conditions.
MEUA claims a finding that it is not a competitor in the wholesale for resale market is erroneous, and that a denial of due process occurred when the Licensing Board excluded if from the remadv phase of the evidentiary hearing. 4/
t 1/
The applicant Alabama Power Company and an intervenor, Municipal Electric Utility Assn (MEUA), seek review, the former complaining of the license conditions, the latter complaining that they don't go far enough.
Another intervenor Alabama Electric Cooperative (AEC), the Department of Justice (DOJ) and the NRC staff (Staff) all oppose review.
All five parties had appealed from the decision of the Licensing Board.
See ALAB-646, slip op. at 8, for description of size and activities of the parties.
2/
As the Solicitor's memorandum of July 29, 1981 (SECY-81-461) advised, APCo has sought review of ALAB-646 in the 5th Circuit Court of Appeals, and has moved the Commission for a stay during the pendency of litigation.
3/
The Appeal Board decision and pleadings related to both review and stay questions have already been provided to Commissioners.
ALAB-646 alone is 164 pages and there are easily again that many pages of pleadings pending.
To keep this paper physically manageable we have arranged with SECY to provide separately any additional copies the Commissioners may request.
4/
MEUA incorporates a request to consider new information in a reopening of the remedy phase of the hearing.
It appears that this matter could have been raised before the Appeal Board (see 10 CFR 2.786(b)(4)(iii)), but in any event is inconsequential.
3 EY.i
. recommended}['
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In Part IV, APCO's application for a stay is discussed.
APCO failed absolutely to show irreparable injury or to make a strong showing on any of the other three factors enumerated in 10 CPR 2.788(e).' [fonsistent with our recommendation ~
EY.C II.
Background
A.
Relevant Chronology Date Even t October 10, 1969 APCO's application 'to construct 860 megawatt nuclear reactor at Farley June 26, '970 Amendment to application to permit construction of a second reactor at same location December, 1970 Atomic Energy Act amended to provide prelicensing antitrust review August 6, 1971 Attorney General's statutory advice letter recommends hearing September 2, 1971 AEC petitioned for leave to intervene February 23, 1972 MEUA petitioned for leave to intervene June 2 8, 1972 Commission issued notice of antitrust hearing and appointed a Board July 21, 1972 -
Prehearing conferences on scope, issues; September, 1973 commencement of discovery 5/
See 10 CFR 2.786b(4) set forth in relevant part infra in section IVD.
4
4 August 15, 1972 Construction permit issued subject to outcome of antitrust proceeding.
Percits recited that they were gra-N ' without prejudice to any subsequent licensing action, specifically includ-ing impositica of antitrust conditions May 23, 1974 Board granted APCO's motion to bifurcate hearing; phase one was to determine whether issuance of the license would create or maintain a situation inconsistent with the antitrust laws with phase two to determine remedies, if necessary December 4,1974 -
Evidentiary hearing on phase one April 26, 1976 November 22, 1976 Oral argument April 8, 1977 Licensing Board decision finding a situation inconsistent with antitrust laws, LBP-77-24, 5 NRC 804.
The Board urged the parties to try to reach a settlement in lieu of proceeding with phase two and to report on whether they had been successful in doing so.
April 22, 1977 Parties reported failure to reach settlement May 9-17, 1977 Evidentiary hearing on phase 2, excluding MEUA based on Licensing Board's finding that MEUA was not a competitor in the wholesale market, and that retail competition where MZUA was a competitor was so inframarginal as not to invoke antitrust protection June 2 4, 1977 Licensing Board decision on license conditions.
LBP-77-41, 5 NRC, 1482, most notably requiring unit power 6/ for AEC July, 1977-1978 Appeals and cross-appeals taken by all parties; briefs and reply briefs filed December, 1977 Commercial operations began March, 1979 Oral argument before Appeal Board l
6/
Unit power is a percentage of the output of the plant, as opposed to participation in ownership of the facility.
1
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5 June 30, 1981 Appeal Board Decision, ALAB-646 June 30, 1981 APCO filed petition for review in 5th Circuit at Atlanta July 22, 1981 APCO timely filed 7/ application for a stay pendente lite July 27, 1981 APCO and MEUA filed petitions for review July 30 -
The parties filed responses to review and stay August 11, 1981 requests.
B.
The Appeal Board's Decision ALAB-646 reviews in painstaking detail a two-phase Licensing Board decision in what is only the third fully litigated antitrust proceed-ing in AEC-NRC history. 8/
The Appeal Board divided its opinion into six parts:
1.
Background and Summary, 2.
Applicant's Arguments Against Antitrust Scrutiny, 3.
Relevant Markets, 4.
Monopoly Power, 5.
Monopolization, 6.
Remedy.
Under those headings we sketch the 164-page decision in broad outline, noting particularly any major Appeal Board disagreement with the Licensing Board.
1.
Background and Summary The Licensing Board found that there was an anticompetitive situation in the wholesale market and required the imposition of license conditions which among other things allow AEC to purchase unit power and require APCO to wheel power.
In the absence of an application for a stay, those conditions became effective.
As the Appeal Board emphasized, the decisions in both the liability and remedy phases of the opinion below were rendered before the Midland and Davis-Besse opinions and thus without appellate 7/
APCO requested and the Commission granted in part an extension of time in which to file application for stay and petition for
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review.
In light of exceptional circumstances where a quorum of the ALAB-646 Appeal Board was no longer in the Commission's employ, the Commission considered it proper for APCO to file its stay-related motions with the Commission.
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The two previous decisions were:
Consumers Power Co. (Midland Plant, Units 1 and 2), ALAB-452, 6 NRC 892 (1977) and Toledo Edison (Davis-Besse Nuclear Power Station, Units 1, 2 and i
3), 10 NRC 265 (1979).
In each case, the Commission declined to review the Appeal Board decision.
1
6 guidance.
The Appeal Board found that the Licensing Board's opinions did not fully accord with the principles subsequently set out in Midland and Davis-Besse with the " upshot... that Alabama Power's opponents are entitled to a somewhat more favorable result than they obtained below."
Specifically, "AEC should be afforded ownership access to the Parley units and... the municipals are entitled to access to applicant's transmission system." (slip op. at 5).
2.
Applicant's Arguments Against Antitrust Scrutiny Applicant had interposed three broad legal arguments against anti-trust scrutiny:
(1) that because it is pervasively regulated it cannot possess monopoly power, (2) that only future or prospective activity may be considered, and (3) that actual violations of the laws or clear policy underlying them must be found and not just anticompetitive conduct.
The Appeal Board rejected all three relying on Midland, Davis-Besse and other Commission and Federal caselaw.
It found no cause to disagree with the Licensing' Board on these matters.
3.
Relevant Markets Here, there was a major disagreement between the Licensing and Appeal Boards.
The Licensing Board held that the market for wholesale power was a relevant market and the only relevant market for the proceeding; it did not designate the geographic boundaries of that market, specifically rejecting the APCO's service area as the geographic market.
The Appeal Board, relying on Midland, found that there were also markets for coordination services 9/ and retail power, and that all these markets were in Central and Southern Alabama, APCO's service area.
With respect to the coordination services market, the Appeal Board criticized the Licensing Board's analysis of the holding of United States v. Grinnell Corporation, 384 U.S. 563 (1966), on which the Licensing Board had relied in rejecting that market.
9/
Coordination services include "various arrangements among utilities for reserve sharing, emergency exchange of power and energy, economy exchange of power and energy, mainten-ance scheduling, seasonal capacity exchange and staggered i
construction."
While these services are not necessarily interchangeable with one another, all serve to facilitate the production of firm power with cost and reliability benefits by taking advantage of otherwise surplus power.
(Slip op. at 30 and 39.)
1 l
7 The Licensing Board appeared to read Grinnell as establishing a rule that products must be interchangeable with one another to be in the same market.
The Appeal Board itself analyzed Grinnell at length, concluding that all services need not be directly interchangeable one for the other in order to be in the same market.
A " bundle of services" could comprise a market, such as a bundle of banking services, or as in Grinnell a bundle of pro-tection services, or as here a bundle of coordination services.
Interchangeability remains an issue, but the question is:
are there market alternatives to the bundle of services?
The staff had taken a position before the Licensing Board that there was not such a separate market.
However, after Midland, the staff changed its position, conceding before the Appeal Board that there is a separate market for coordination services.
Regarding the determination on a retail power market, the Appeal Board found that the Licensing Board erred because it wrongly interpreted Otter Tail Power Co. v. United States, 410 U.S.
366 (1974), and because it had "one fundamental problem... :
it simply did not believe there was sufficient actual (or potential) competition at retail to justify antitrust analysis." (slip op, at 58).
The Appeal Board found franchise, individual load and yardstick competition all present to some degree -- and sufficient to merit antitrust analysis.
4.
Monopoly Power The Appeal Board explained that it is necessary to ascertain in each market whether APCO has a monopoly because business practices undertaken by monopolists may be unacceptable even where the same practices are permissible if undertaken by those without market domin an ce.
The Appeal Board concurred with the Licensing Board that APCO has monopoly power in the wholesale market.
Because the Licensing Board found only the wholesale market to be rele-v an t, it did not make findings with respect to either the coordi-nation services market or the retail market.
The Appeal Board on the basis of evidence of record held that APCO possessed monopoly power in those markets as well.
APCO's predominant control of transmission and generation give it monopoly power over the sale of coordination services.
At retail, APCO has a market share of 88% which, considered with its transmission and generation dominance, give it monopoly power.
5.
Monopolization The Appeal Board praised the Licensing Board's " unusually thorough job of marshalling, discussing and analyzing the sometimes compli-cated facts surrounding the various transactions" (slip'op. at
8
- 86) in order to determine whether to sustain any of the specific charges of monopolization.
The Licensing Board sustained five (see slip op. at 86, n. 55 for enumeration) and rejected ten additional categories of charges (see slip op at 87-88 n. 156).
The Appeal Board concurred in the five, but substituted its own judgment for that of the Licensing Board to find two additional anticompetitive situations.
The Appeal Board noted the role of two factors in arriving at a result dif ferent from the Licensing Board's.
First,.having found that APCO is a monopolist in two additional markets, the Appeal Board had to judge APCO's conduct under a stricter standard than would be applied to the actions of a less dominant concern.
Second, the Appeal Board explained that evidence must be viewed in its entirety and "not with the eye focused only on isolated segments as though they are independent of each other."
( slip op. at 8 9).
Proceeding in this fashion, the Appeal Board found that APCO selectively used low wholesale rates to discourage AEC from constructing its own generating stations, and that APCO refused to extend an ownership interest to AEC.
The Appeal Board said that, in light of APCO's dominance in three markets and properly viewing the evidence as a whole, it could permissibly have found "any number of additional alleged instances to have been part of 6
an anticompetitive pattern" (slip op. at 90), but deferred to the Licensing Board except in the two areas noted where the record
" compelled" findings of anticompetitive conduct.
Anticompetitive use of low whoicsale rates a.
to discourage AEC from constructing its own generating stations The Appeal Board said its only difficulty with finding that the low rates were anticompetitive was from unease at adopting the notion that AEC could suffer a legally cognizable injury from having a low rate of fered, not to one of its competitors, but to itself.
The Appeal Board found, however, that as a practical matter AEC did not have the economic freedom to reject wholesale power at low rates and proceed with construction.
This was true in large part because government loans otherwise available for construction would not have been approved where there was a low rate purchase opportunity (slip op at 98 et seq.).
Moreover, to find APCO's use of low wholesale rates was anti-competitive, the Appeal Board considered, among other things, evidence of anticompetitive intent exhibited in activities other-wise protected from antitrust liability by the Noerr-Pennington
9 doctrine.10/ In this respect the Appeal Board's analysis differed from the Licensing Board's.
b.
Denial of ownership. access to Farley The Licensing Board specifically accepted the testimony of APCO's president, Mr. Farley, that APCO does not take the position that it would not sell ownership.
The Appeal Board assessed the record differently and concluded that "although the applicant never explicitly stated it was absolutely rejecting the possibility of selling an ownership share in Farley to AEC, it fully intended not to make such a sale unless forced to."
(slip op. at 101).
This was tantamount to a refusal.
The Appeal Board then determined that such a refusal by a monopolist was anticompetitive.
In this section the Appeal Board also rejected MEUA's claims that it was a competitor in the wholesale market and that it had been subjected to a price squeeze at retail.
In the former determina-tion the Appeal Board concurred with the decision of the Licensing Bocrd; in the latter it decided a matter not addressed by the Licensing Board because the Licensing Board had not found a rele-vant retail market.
Nonetheless, the Appeal Board's decision on MEUA's claim at retail relied on and was consistent with factual findings of the Board below.
In declining to find a price squeeze the Appeal Board said that the Board below found no evidence that APCO's rates have been kept unjustifiably low and nothing in MEUA's brief convinced it that APCO's wholesale rates are set unfairly high.
6.
Remedy The remedies provided by the Licensing Board to redress the five instances of anticompetitive action that it found were principally license conditions to provide benefits for AEC:
(1) Farley access in the form of unit power; (2) transmission services to make effective use of that power; and (3) backup bulk power to cover situations when Farley is down.
All parties save APCO argued to the Appeal Board that these remedies were insuf ficient.
--10/
In a nutshell, Noerr-Pennington stands for the principle that lobbying activities and other appeals to the government are shielded from antitrust liability even when they are plainly an ticompe titive.
Nonetheless, the Supreme Court has pointed out that evidence of the protected activity may be admitted to show evidence of intent.
There is additionally a " sham" exception to the Noerr-Pennington rule where legislative effort or litigation are frivolous and merely a sham to attempt to shield anticompetitive behavior.
10 In light of the Appeal Board's findings that went beyond those of the Licensing Board, i.e. relevant retail and coordination services markets, and additional instances of anticompetitive practices, the Appeal Board found it proper to address directly the issue of what license conditions would be appropriate to the situation it found rather than evaluate those provided by the Licensing Board and then in effect.
The Appeal Board then reviewed the scope of the Commission's remedial authority as explicated in Midland and followed in Davis-Besse, finding that the Commission has wide discretion in fashioning appropriate license conditions where necessary to rectify anticompetitive situations.
It next addressed the consid-erations which the Commission may factor into the decision of what is appropriate, noting that the Board below considered not Culy antitrust factors but other "public interest factors".
While agreeing that public interest factors were to be considered in arriving at appropriate license conditions and accepting that "need for power" is such a factor, the Appeal Board found that the Licensing Board had wrongly balanced the public interest in various respects.
For example, the Licensing Board had seen the public interest in "grandfathering" as a mitigating factor.
By "grandfathering" it meant that because the licensee's applica-tion and planning had preceded the Congressional mandate for formal antitrust review it was due some leniency in the imposition of license conditions.
The Appeal Board reasoned that the Appli-cant was on ample notice that it should not violate the antitrust laws, and that the public interest in competition manifest in our antitrust legislation overrode a public interest in grandfathering, if there were any.
In conclusion, the Appeal Board mandated ownership participation in Farley for AEC with shares based on the ratio between their respective peak demands during 1976. 11/
It rejected unit power because that result would deprive AEC of benefits of advantageous financing of ownership that Congress had ordained for cooperatives.
The Appeal Board also required access to transmission services to AEC and to KEUA because it had found that APCO placed anticompeti-tive restrictions on MEUA's right to pursue other bulk power supply options.
The Board further ordered removal of any offensive contrac-tual provisions still in force between APCO and any member of MEUA.
11/
The Licensing Board had allocated unit power based on the ratio of respective demand at the time of APCO's peak demand.
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III. Petitions for Review of ALAB-646 A.
Catalogue of Pleadings with respect to Commission Review 1.
Alabama Power's Petition for Review and Request for Oral Argument, July 27, 1981.
2.
Municipal Electric Utility Association's Petition for Review, July 27, 1981.
3.
Alabama Electric Cooperative's Opposition to Alabama Power Ccmpany's Petition for Review, July 31, 1981.
4.
Alabama Electric Cooperative's Opposition to the Municipal Electric Utility Association's Petition for Review, August 3, 1981.
5.
Answer of the Department of Justice in Opposition to Alabama Power Company's Petition for Review of ALAB-646, August 11, 1981.
i 6.
Answer of Department of Justice Opposing Petition for Review Submitted by the Municipal Electric Utility Association of Alabama, August 11, 1981.
7.
Answer of the NRC Staff in Opposition to Petition for Commission Review by Alabama Power Company, August 11,,1981.
8.
Answer of the NRC Staff in Opposition to Petition for Commission Review by Municipal Electric Utility Association, August 11, 1981.
9.
Opposition of Municipal Electric Utility Association of Alabama to Alabama Power Company's Petition for Review, August 11, 1981.
- 10. Alabama Power Company's Answer to the Municipal Electric Uti} '.ty Association's Petition for Review, B.
Standard for Review The Commission's standards for review of an Appeal Board decision are set forth at 10 CFR 2.786(b)(4).
That section provides in relevant part:
12/r ex.S O
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12 The grant or denial of a petition for review is within the discretion of the Commission, except that:
(i)
A petition for review of matters of law or policy will not ordinarily be granted unless it appears the case involves an important matter that... constitutes an important antitrust ques-tion, involves an important procedural issue or otherwise raises important questions of public policy; (ii)
A petition for review of matters of fact will not be granted unless it appears that the Atomic Safety and Licensing Appeal Board has resolved a f actual issue necessary for decision in a clearly erroneous manner contrary to the resolution of that same issue by the Atomic Safety and Licensing Board (iii)
A petition for review will not be granted to the extent that it relies on matters that could have been but were not raised before the Atomic Safety and Licensing Appeal Board.
A matter raised sua sponte by an Appeal Board has i
been raised before the Appeal Board for the purpose of this section....
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C.
Issues Presented for Commission Review,-
Positions of the Parties and Suggested Resolution The parties' ; r,itions on the five areas in which APCO alleges error in the Arpeal Board decision and on the two main points made by MEUA in its petition for review are set forth below.
1.
Scope of antitrust review APCO raised the so-called " nexus" issue, alleging that the Appeal Board erred in refusing to limit the scope of the antitrust review to matters that have a substantial connection with the nuclear facility.
In particular APCO challenged the Appeal Board's right to consider past conduct, specifically APCO's pricing and marketing activities going "as far back as 1941, 1946, 1950 and 1962-1963" in finding that APCO's activities under the license will create or maintain a situation inconsistent with the anti-trust laws.
13 AEC argues that adoption of APCO's reading, giving section 105c i
a forward thrust only, would render that section meaningless, and that Wolf Creek (ALAB-279, 1 NRC 559 (1975)) settled the issue of the Commission's ability to consider past conduct contrary to APCO's position.
MEUA notes that even APCO concedes that it is a
" natural monopoly" and thus, it is irrelevant whether the Appeal Board limited its examination to the present market context or considered APCO's "well documented history of exclusionary and anticompetitive activities." f'~
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r' DOJ urges that APCO's contention on scope of antitrust review is
" totally contradicted by firmly established precedent", and that a " determination that activities would maintain an anticompetitive situation manifestly requires that such an anticompetitive situation 67 :
have preceded the present one." Staff's argumen't's are similar to those'of DOJ.
GC concludes that'
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694 2.
Designation of relevant geographic and product markets APCO asserts error in the Appeal Board's designation of the relevant product and geographic markets, particularly in " reversing" the Licensing Board with respect to coordination services and retail power sales market.
APCO also alleged error in the finding that the relevant market was in central and southern Alabama.
AEC contends that the Appeal Board did hot reject the underlying f acts found by the Licensing Board but rather used them to reach
14 different conclusions.
It said that the Licensing Board had recog-nized the importance of the cluster of product factors that the Appeal Board designated as a coordination services market, but its misreading of Grinnell led it to a wrong conclusion on the market.
In like fashion, misreadings of the law led the Licensing Board to reject a retail market.
MEUA states that the Appeal Board's findings on market designations are fully supported by the record l
and are not clearly erroneous.
DOJ asserts that APCO's claims of error in designating markets does not raise any important antitrust question, procedural issue, or public policy cuestion and accordingly does not merit Commission i
review.
- 9. 3 Staff argues that Ehe ditsrmination Bf maiket~~iE~hsl~d ' to
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be a necessary factual determination in litigating antitrust
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problems, and as a factual determination should not be reviewed unlesF " e issue of fact was resolved in a clearly erroneous 4trary to the resolution of that issue by the Licensing manne; Board.
An this case the Appeal and Licensing Boards agreed that there was a relevant wholesale market, but disagreed on the retail f~
and coordination services market.
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c' Accordingly, in our view 3.
Findings of monopoly power APCO alleges error in the Appeal Board's finding of monopoly power principally because APCO is subject to pervasive regulation.
The gist of the argument is:
because APCO cannot set prices it cannot be considered to possess monopoly power.
APCO additionally asserts that the Appeal Board erred in finding that APCO had control of transmission in the face of a record showing that AEC owns 1,000 miles of transmission lines, has interconnections with Georgia Power and has lines close to other systems.
APCO claims, moreover, that the Appeal Board wrongly found monopoly power based on predominant market share of sales and control of generation and transmission.
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AEC quotes the Appeal Board in reference to the " pervasive regula-tion" argument, calling APCO's position " timeworn and discredited" and noting further that both boards rejected APCO's view that as a factual matter it cannot have monopoly power.
AEC cites exten-sively to the record showing the Licensing Board's thorough consideration of the transmission control issue. T'
~MEUA f
asserts ~ th~at' the Appeal Board 's ~ conc 2usion rnat KPCD~has monopoly power in the relevant markets today is plainly correct and amply sunonrted by the record.
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DOJ maintains that APCO's legal argument that regulation can immunize its conduct from the,, reach of the antitrust laws has been " firmly rejected by th'e ':ourts".
Ev.(
Stait~a'dviles'thah the~~"peivasivs regu- ~
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1ation" argumsnE ~hasleen consistently rejected by the courts since the Supreme Court's decision in Otter Tail.
With respect to transmission, the Appeal Board affirmed the Licensing Board's findings that AEC's transmission system consisted of facilities of 115 KV or less and constituted only 15 percent of the trans-mission mileage owned by APCO, thus the Appeal Board's finding was not inconsistent with the record facts regarding AEC's trans-mission capability.
Staff further notes that APCO's allegation that monopoly power was based on predominant market share failed to show why this factual conclusion should form the basis for Commission review t
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[Obcconcludesthat recommended on this issue. /
jgy, g' 4.
Findings of anticompetitive conduct APCO argues that the Appeal Board erred in rejecting testimony by Mr. Farley that had been accepted by the Licensing Board and some "uncontroverted evidence
- that the allegedly anticompetitive rate decreases came about as a result of requests by the Rural Electrification Administration (REA), and further erred in affirm-ing a variety of factual findings by the Licensing Board.
APCO claims that error resulted from use of the wrong standard, i.e.
that applicable to dominant unregulated enterprises.
16 2
AEC asserts that~th* Appeal Board did not reject Mr. Farley's 1
testimony, but rather based its finding of APCO's anticompetitive refusal on Mr. Farley's testimony viewed against the record of APCO's conduct.
AEC argues that the Appeal Board gave detailed consideration to the record in reaching its conclusions on the low anticompetitive rate question, and in its affirmances of factual findings of the Licensing Board.
AEC says APCO's raising the issue of the correct standard is the argument, in another guise, that regulated industry cannot monopolize.
MEUA believes the Appeal Board properly considered the law and the f acts and that no important issues are raised.
DOJ argues that the contested findings are based on substantial evidence in the record viewed as a whole.
Particularly with regard to denial of access, the Board expressly based its conclu-sion in part on its view that Mr. Farley, under oath, did not deny specific allegations that AEC had been refused ownership access to Farley.
Regarding the low rate reductions, Justice alleges a pattern which, when viewed in light of consistent use of judicial and administrative processes to oppose AEC ownership of generation, provides a more than adequate basis for the Board's finding.
Other alleged errors relate to affirmations of findings below j
which are thus not subject to review.
Staf f points out that the Licensing Board concluded that APCO's purpose in lowering the rates was to avoid losing AEC as a whole-sale customer, and that the Appeal Board agreed with the Licensing Board and further concluded that the rate reductions were part of an overall effort.
Moreover, staff argues that petitioner failed to make a concise statement of why it believed the Appeal Board's decision to affirm the Licensing Board's decision in various respects is erroneous, as it is required to do by rule.
/ OGC concludes that D.!
ricommend 5.
Appropriateness of license conditions APCO alleges that the Appeal Board erred by imposing license conditions without proper findings of liability and without deter-mining whether the conditions are necessary to protect the public interest and have a nexus to the license.
Specifically, APCO says it is wrong to hold that APCO should be required to wheel
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for agy municipally owned distribution system when only MEUA t
17 intervened and there are other municipals that are not members of MEUA.
And it is also wrong and in contravention of the Rural Electrification Act of 1936-to require APCO to share Farley with AEC in order to enable AEC to maximize its use of tax immunities and subsidized capital arrangements available through REA.
AEC contends that APCO's complaints relative to the license i
conditions are based on mischaracterizations of the Appeal Board's articulated grounds for imposing the conditions, contain serious e
errors of law and raise no matters warranting review.
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~ "The shallow-ness of APCO's claim's 6f error with respect 'to Taredy is typified t
by its complaint that the Appeal Board took into consideration the directive of Section l_ of the Atomic Energy Act in its remedial determination."
APCO had criticized the Appeal Board's considera-tion of the aim of the Atomic Energy Act to use atomic energy so as to " strengthen free competition in private enterprise" in reaching-r its conclusions.
MEUA says that the Appeal Board properly found that the conditions it imposed are required "as a minimum" to achieve the purposes of the Atomic Energy Act, and with one exception -- the exclusion of MEU; from the remedial portion --
had before it a more than adequate basis for finding liability on the part of APCO.
DOJ relates APCO's assignments of error to its misunderstanding of the scope of the commission's remedial power as well as the purposes of section 105c which grants broad discretion in fashion-ing relief.
Staff views the license modifications as correct and appropriate to deal with the situations the Appeal Board found to be inconsistent with the antitrust laws.
Staff said the Appeal Board found that a condition requiring APCO to provide trans-mission services for any municipally owned distribution system was necessary to cure the situation inconsistent with the anti-trust laws reflected in APCO's dealings with the municipal systems
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comprising MEUA.
The need for ownership access to Farley in place of unit power was explained in great detail in the context of this record.
-m OGC concludes that l
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1 51.5 6.
MEUA's allegation of error in not finding that it is a competitor at wholesale MEUA bases its appeal of the Appeal Board's affirmance of the Licensing Board's finding that MEUA is not an actual or potential competitor at wholesale on a recent factual development, the establishment of an Alabama Manicipal Electric Authority for the express purpose of permitting municipals jointly to acquire funds and operate generation facilities.
MEUA claims that this develop-ment warrants reopening and further alleges that it could not have brought this matter before the Appeal Board because the statute authorizing the Authority was not passed until May 18, 1981.
APCO argues that the recent developments relied on by MEUA do not change MEUA's status in the alleged wholesale market and in any event occurred too late for consideration in this proceeding.
AEC asserts that MEUA has no legal or equitable basis for urging commission review or reopening on the basis of the new developments it alleged inasmuch as MEUA had six weeks to bring the matter to the attention of the Appeal Board hafore ALAB-646 issued.
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DOJ advises that throughout the proceeding it had taken the position that MEUA is a potential competitor, but it acknowledges that both Boards made factual findings to the contrary and thus review is unavailable.
gy. (
Staff asserts that the passage ot the AI&Dama legislatibn does not constitute significant new information that warrants reopening the record in that the evidence to be submitted on reopening was not of sufficient significance to change the grounds relied on by the Appeal Board in deciding this issue and thus it was unlikely that the result would be changed.
While staff found the request untimely, it believed that ground alone would not warrant rejection.
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_m 7.
MEUA's allegation of a denial of due process MEUA claims that the Licensing Board's improper exclusion of MEUA from the remedy proceedings was a denial of due process warranting Commission review and a reopening of proceedings on remedy.
It complains that the Appeal Board's determination that MEUA's offer of proof contained nothing which would have changed its mind was insufficient in that HEUA was deprived of the right to cross-examine witnesses and additionally that Justice and Staff were prevented from presenting evidence relative to remedy for MEUA.
APCO argues that MEUA's allegation is devoid of merit particularly where its offer of proof in the hearing from which it was excluded related only to remedies for anticompetitive activities in the wholesale or coordination services markets and not to remedies relevant to the retail market which are at issue r
G.'. -
as AEC says there is no denial of due process and furthermore, the alleged importance of the deprivation of the right to cross-examine is first mentioned on review and not developed in any fashion to show what relevant evidence MEUA might have developed through cross-examination of phase II witnesses.
DOJ does not comment explicitly on the denial of due process issue, but urges there is no need for a remand.
O O
4
20 Staff argues that there is no denial of due process but only a failure of persuasion on the part of HEUA.
The Appeal Board had stated that the rgeord of the liability chase largely shaped its views on remedy, Q-TGCbelieves 3
/
[.D recommending D.
Conclusion 1
r-p.,'
IV.
Application for Stay of ALAB-646 A.
Catalogue of Pleadings with Regard to Stay Motion 1.
Application for an Order Staying Pendente Lite the Ef fectiveness of Antitrust Conditions and Request for Oral Argument, July 22, 1981.
2.
Alabama Electric Cooperative's opposition' to Alabama
'tcear Company's Stay Application, July 30, 1981. 13/
3.
Answer in opposition of the Municipal Electric Utility Association of Alabama to Application of Alabama Power Company for an Order Staying Pendente Lite,the Effec-tiveness of Antitrust Conditions, July 30, 1981.
13/
By letter of July 20,'1981, counsel for AEC informed the Clerk of the Fif th Circuit Court of Appeals that it intends to oppose any application for a stay filed by Alabama Power Company in that court.
21 4.
Answer of Department of Justice in Opposition to Alabama Power Company's Application for an Order Staying Pendente Lite the Effectiveness of Antitrust Conditions, August 6, 1981.
5.
NRC Staff's Answer Opposing Alabama Power Company's Application for an Order Staying Pendente Lite the Effective-ness of Antitrust Conditions, August 6, 1981.
B.
Standard of Review Section 2.788 of Commission regulations sets out the standard to be applied in reviewing a request for a stay.
The following factors must be considered:
(1) whether the moving party has made a strong showing that it is likely to prevail on the merits; (2) whether the party will be irreparably injured unless a stay is granted; (3) whether the granting of a stay would harm other parties; and (4) where the public interest lies.
The burden of persuasion on these factors rests on the moving party. 14/
While no single factor is dispositive, the most impor tan t factor is whether irreparable injury will be incurred by the movants absent a stay.15/
In addition, an " overwhelming showing of likelihood of success on the merits" is necessary to obtain a stay where the showing on the other three factors is weak. 16/
Moreover, where an applicant is asking "as a prelimin-ary matter for the full relief to which [it) might be entitled if 14/
Public Service Company of Indiana (Marble Hill Nuclear
~~
Generating Station, Units 1 and 2), ALAB-493, 8 NRC 253, 270 (1978).
15/
Public Service Company of Indiana (Marble Hill Nuclear
~~
Generating Station, Units 1 and 2 ), ALAB-437, 6 NRC 630, 632 i
(1977), citing Permian Basin Area Rate Cases, 390 U.S. 747, 773_(1968).
16/
Florida Power and Light Company (St. Lucie Nuclear Power
~~
Plant, Unit 2 ),. ALAB-4 04, 5 NRC 1185, 1186-89 and ALAB-415, 5 NRC 1435, 1437, (1977).
~
E t
i
22 successful at the conclusion of [its) appeal
[it] has a heavy burden indeed to establish a right to it." 17/
Positions of the Parties on the Four Factors 18/
C.
1.
Irreparable injury APCO contends that it will suffer irreparable injury if the condi-tion requiring it to sell AEC an ownership share is not stayed.
Initially, APCO argues that the sale will so substantially affect its existing property interests as to warrant a stay.
APCO sets forth further injury in that (1) it is unclear whether in the event of a successful appeal APCO will be able to recover the substantial costs it will incur, (2) it is not assured that the sale could be undone, (3) it is probable that requirement of a sale will be used along with a MEUA proposal to influence the Alabama Public Service Commission to rule unfavorably to APCO in a pending rate case.
APCO also alleges that it will be injured by a failure to stay the conditions requiring it to provide coordination services to AEC, MEUA and other municipals because the "possible loss of load" resulting from those conditions "will likely have an unfavorable effect for APCO in the credit markets."
AEC urges that APCO has shown "no special burden, let alone irreparable injury", citing Davis-Besse, LBP-77-7, 4 NRC at 4 62 (denying stay of antitrust license conditions), affirmed and quoted with approval in ALAB-385, 5 NRC 621, 628.
Even absent a lack of merit, AEC maintains that APCO's claims must be rejected because APCO was put on notice in its construction permit that permission to construct and operate Farley was conditioned on APCO's willing-ness to accept whatever license conditions might be determined to be appropriate.
The notice explicitly warned that the Applicant should conduct itself acccrdingly in planning and conducting its affairs.
MEUA sees APCO's entire argument as pure speculation that compli-ance would cost some money and be inconvenient.
It asserts that there is no evidence whatsoever that compliance with the license conditions would make moot APCO's appeal because the injury to APCO could not be undone.
DOJ asserts that APCO's examples of irreparable injury are too speculative to rise to the level 17/
Toledo Edison Company (Davis-Besse Nuclear Power Station,
~~
Units 1, 2 and 3), ALAB-385, 5 NRC 621, 625-626 (1977).
18/
OGC's analysis and conclusions will be found in the attached draftorder[
l g,f,
~~
4 4
23 necessary for a stay, noting that in Davis-Besse the possibility of unrecouped costs was raised as irreparable Lajury and rejected.
Staff,,too, finds that APCO's arguments to support its claim of irreparable injury are mere speculation, and that APCO has failed utterly to establish any actual injury from a denial of the stay, let alone irreparable injury. 19/
2.
Harm to other parties APCO takes the position that parties will not be harmed by a stay.
First, APCO says AEC will be unharmed because its financing is not dependent on the private credit markets and further that AEC currently has excess capacity so that receiving and paying the costs of substantial Farley capacity would work to its short term d e trimen t.
As to MEUA, APCO implies that there is no reasonable expectation that APCO would fail to accommodate a request for transmission services.
AEC protests that APCO errs in saying that it will not be harmed.
A stay would permit APCO to continue its unlawful anticompetitive conduct found to be harmful to AEC with the situation aggravated by APCO's continuing to retain the advantages of having both Farley units in operation.
AEC says that the Farley capacity it would receive would only prove nonremunerative if APCO were per-mitted to refuse to wheel.
AEC also alleges that its financing for Farley would be harmed by a stay, contrary to APCO's assertions.
MEUA says it would be injured without wheeling.
And if APCO intends to comply with the requirement to wheel it will not be injured by permitting the requirement to remain in effect.
DOJ asserts that there is sufficient evidence in the record to support the Licensing Board's and Appeal Board's findings that APCO's past practices have disadvantaged AEC and the municipals.
Thus permitting the situation inconsistent with the antitrust laws j
to continue would have a serious adverse effect on AEC and the municipal systems.
Staff takes substantially the same position as Justice, i.e. that the record supports a finding of harm to AEC and the municipals.
Staff notes that AEC and the municipals continue to allege harm and dispute APCO's claims in their stay oppositions.
---19/
As a practical matter OGC understands that negotiating a sale could take a year or so and thus the sale might not be concluded before a judicial decision issued.
In any event, any sale should be able to be drawn in such a way that it could be
" undone" in the event of a court's reversing the Appeal Board r equirement.
24 3.
The public interest APCO argues that because ALAB-646 will likely be reversed in whole or in part and implementation of the conditions will irreparably harm APCO with no demonstrable harm to other parties or their ratepayers, the public interest favors a stay.
APCO also says that in the event of a TMI-type accident, problems could arise if AEC as part owner is unable to raise funds to cover its share of the costs.
AEC finds that a stay would be contrary to the public interest because it would continue and reward APCO's illegal course of conduct.
MEUA says the public interest requires that the license conditions remain in effect and supports that view with a reference to the intent of Alabama's new legislation that MEUA members form a joint power supply agency.
Thus MEUA urges that it is not in the public interest for the municipals to remain captive customers of APCO.
DOJ says that APCO's TMI related argument is highly speculative and APCO presents no other public interest arguments.
Thus the public interest expressed in the Atomic Energy Act that access to nuclear facilities be widespread and that private monopoly of nuclear power be avoided prevails.
Staff reasons that APCO's argument -- that because the other three stay factors favor a stay it must be in the public interest --
deprives the public interest criterion of any independent vitality.
Staff, like Justice, finds that the TMI related argument is highly speculative.
Thus, it concludes that APCO has not met its burden.
Furthermore, Staff advises that the Davis-Besse case (ALAB-385, 5 NRC at 630) properly identified the public interest with the Congressional purpose underlying the Atomic Energy Act's antitrust provisions.
That purpose was to establish procedures to ensure that when a license is issued it is conditioned as necessary to correct or avoid a situation inconsistent with the antitrust laws.
Thus, Davis-Besse found that the public interest militates against staying antitrust conditions, particularly at the operating stage.
4.
Likelihood of success on the merits APCO asserts that ALAB-646 is fundamentally flawed and cites as reversible error the following:
the Appeal Board's finding of monopoly power in the face of pervasive regulation; the Appeal f
Board's application of the wrong standard for judging the conduct of a monopolist in a regulated industry; the requirement for access rather than unit power in the face of~ legislative history that shows it was not intended that the only form of access should be by ownership participation and no basis in the record for the coordination services license conditions.
25 AEC asserts that APCO's claims of error are either based on factual claims twice rejected or are clearly insubstantial.
They not only do not make the strong showing required for a stay, they do not even merit review.
MEUA argues that APCO is wrong on the facts and the law, and notes the Appeal Board said that it was deferring to the Licensing Board's findings of fact except where there was clear error or else it could likelv have found more instances of anticompetitive conduct.
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DOJ says that APCO primarily argues that the Appeal Board will be f
reversed because it failed to take into account the effect of
~
pervasive regulation, and relies on two 1980 Fifth Circuit anti-trust opinions in support of that view.
However, Justice criticizes APCO's reading of those cases and asserts that the holdings support affirmance of the Appeal Board.
The cases require only that the regulatory scheme be considered by the trier of fact in assessing DOJ contends that a utility's ability to exercise monopoly power.
the record is clear that the Boards both considered the effect of regulation.
Similarly, DOJ maintains that the cases cited by APCO do not require a different standard for judging APCO's conduct from the one applied by the Appeal Board.
Nor does Justice believe that APCO will have any success in sustaining the " mixed bag" of other factual and legal objections it makes in light of the extensive record and thoroughly documented opinion.
Staff argues that mere establishment of possible grounds for appeal does not meet the stay standard which requires a strong showing of likely success on the merits.
Staff further asserts that the opin-ions of the Licensing Board and Appeal Board that APCO has monopo-lized markets in violation of the antitrust laws should be accorded a presumption of validity and APCO has submitt.ed nothing that would overcome that presumption.
Staff, like Justice, states that the Appeal Board's findings were based on a comprehensive review of the record and thus staff finds them entitled to substantial deference.
D.
Conclusion E/. S~
(. w/-)
"Y es A. Fit erald
/ ssistant General Counsel A
Attachment:
Draft Order
r 26 Comissioners' coments or consent should be provided directly to the Office of the Secretary by c.o.b. September 24, 1981.
Comission Staff Office coments, if any, should be submitted to the Comissioners NLT September 17, 1981, with an information copy to the Office of the Secretary.
If the paper is of such a nature that it requires additional time for analytical review and coment, the Comissioners and the Secretariat should be apprised of when coments may be expected.
6 This paper is tentatively scheduled for affirmation at an open meeting during the week of September 28, 1981.
Please refer to the appropriate Weekly Comission Scheadle, when published, for a specific date and time.
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