ML20070U473

Brief of City of Holyoke Gas & Electric Dept Opposing Exceptions

ML20070U473
Person / Time
Site:	Seabrook
Issue date:	01/24/1991
From:	Bardin D ARENT, FOX, KINTNER, PLOTKIN & KAHN, HOLYOKE, MA
To:	FEDERAL ENERGY REGULATORY COMMISSION
Shared Package
ML20070U421	List: ML20070U420 ML20070U444 ML20070U473 ML20070U481 ML20070U494
References
NUDOCS 9104090077
Download: ML20070U473 (30)

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Attachment 5 UNITED EfI'ATES OF AMERICA BEFORE TIIE FEDERAL ENERGY REGULA'IORY COMML9SION Northeast Utilities Service Company) -

Docket -Nos. EC9010 000 (Re Public Service Company of New) ER90143 900. Fit 90144 000 Hampshire) ) ER90145 000, and EL90 9 000 c

BRIEF OF TIIE. CITY OF fiOLYOKE GAS & ELEC'IRIC DEPARTMENT OPPOSING EXCEPHONS D FID J. BARDIN Y F.NE J. MEIGHFJL S'Im4N R. MILES NOREEN M. LAVAN VANGEL L. PERROY Arent, Fox,' Kintner, Plotkin & Kahn

-1050 Connecticut Avenue, N.W. -

Washington,' D.C. 20036-5339 (202) 857-6089

.Attnrneys for the City of Holyoke

,, Gas & Electric Department

- January 24, 1991 4

9104090077 910401 PDR ADOCK 05000443 M PDR

!3 BIUEF OF HG&E OPPOSING EXCEPTIONS Table of Contents Page Table o t' Con t e n t s . . . . . . . . - . . . . . . . . . . . . . . . . . . . . 1 Table of Authorities , , . . . . . . . . . . . . . . . . . . . . . . . . 11 EXCICPTIONS OPPOSED . . . . . . . . . . . . . . . . . . . . . . . . 1 BEBUTTAL OF POIJCY CONSIDERATIONS CLAIMED 'IO WARRANT COMMISSION REVIEW . . . . . . . . . . . . . . . , . . . . . . . . 2

SUMMARY

OF THE BRIEF .. .... ................ 2 STATEMENT OF THE CASE ..................... 4 a ARGUMENT , ................... ,....... 4 L A MERGER TARIFF TRANSITIONAL RATE OF $22.89 PEF KW-YEAR FOR FIRM TRANSMISSION SERVICE WOULD BE MUCH TOO HIGH, ANT 1 COMPETITIVE, UNJUST, UNRE4.3ONABLE, IMDULY DISCRIMINATORY AND INCONSISTENT %Trh THE PUBIJC INTEREST; A RATE OF $11 WOUT D ALSO EE TOO HIGH FOR NON FIRM TRANSMISSION SERVICE . , . . . . . . . . . . . . . . . . . . 4 A. The Transmission Rate Analysis Underlying the $22.89 Is Unreliable ........,................. 5 B. More Recent Staff Analyses of NU " Firm" Transmission Costs Indicate Significantly Lower Cost Based Rates . . . . 10 C. Any Rate Higher Than NU's $1 '.79 Rate (Agreed to in Late 199p) for Super Firm Service to CMEEC Would Be Unduly Discriminatory and Anticoupetitive. . . . . . . 13 D. The Non Firm Transitional Rate of $11 Is Also Too High. . 13

. E. Any Transitional Rate . Higher Than NEPCO's $8 9 Tariff Rates would Be Out of Line. . . . . . . . . . . . . . . . . 14 F. The Appropriate Transitional Rates for Merger Tariff Transmisalon Service Are the NEPOOL Agreement PTF Rates Rather Than the Higher Transitional Rates Proposed in the Merger Tariff . . . . . . . .-. . . . . . . 15 IL THE A1J CORRECTLY PRESCRIBED APPOINTMENT OF AN OMBUDSMAN DURING THE FIRST FIVE YEARS OF THE MERGER........................ . . . . . 17 HI, DISAPPROVAL, RATHER THAN CONDITIONA} APPILOVAL. IS THE NORMAL REMEDY FOR AN ANTICOM" 71TPTE MERGER SUCH AS THIS ONE , . . . . . . . . . . . . ........22 CONCLUSION . ............................25 r

lO TABLE OF AUT!!ORITIFJ O

JUDICIAL CASES Ash Grove Coment Co. v. F.T.C., 577 F.2d 1368 (9th Cir.

1988), cert. denied, 439 U.S. 982 (1978) . . .. . . . ........24 Atlantic Refining Co. v. Public Service Commission of N.Y.,

ss0 U.S. 378 (1959), motion denied, 361 U.S. 801. . . . . .13, 15, 16 O California v. American Stores Company, _ U.S. , 110 S.

Ct.1853 (1990) . . .....,,.,,......... . .. . . . 23 Delaware & Hudson Railway v. Consolidated Rail Corp,, 002 F.2d 174 (2d Cir.1990). ........................4 FPC v. Sierra Pacific Power Co., 350 U.S. 348 (1956), motion t amend denied, 351 U.S. 946 . . . . . . . . . . . . . . . . . . . 15 O Fort Pierce Utilities Authority of the City of Fort Pierce

v. FERC, 730 F.2d 778 (D.C. Cir. 1984) . .... . . .. . . . . . . 14 Kansas Power & Light Co. v. FPC, 554 F.2d 1178 . . . . . . . . . . . 23 New England Power Co. v. New Hampshire, 455 U.S. 331 (1982). . . . 21 Pennsylvania v. West Virginia, 262 U.S. 553 (1923) . . . .. .... . . 21 Public Service Co. of Indiana v. FERC, 575 F.2d 1204 (7th T. Cir. 1978) . . . . . ..........................13 Standard Oil Co. v. United States, 337 U.S. 293 (1949). . . . . . . . . 24 Tasty Baking Co. v. Ralston Purina. Inc., 653 F. Supp.1250 (E.D. Pa. 1987) . .......... ...............24 United States v. E. I. duPont de Nemours & Co., 366 U.S. 316 (1961), motion denied, 366 U.S. 956 (1961) . .. . . .. . .. . . . . 23 v West v. Kansas Natural Gas Co., 221 U.S. 229 (1911) .. . .. . . . . 21 Yamaha Motor Co. v. F.T.C., 657 F.2d 971 (8th Cir.1981) cert, denied su@ nom. 456 U.S. 915 (1982) . ... . .. . .... . . 24 ADMINISTRA'ITVE ORDERS AND ODINIONS O

Central Maine Power Co., 53 FERC 1 61,465. . . . . . . . . . . . . . 10 Florida Power & L'ght Co., 8 FERC 1 61,121 (1979),

reh'n denied,- 9 FERC 1 61,015. . . . . . , ,.. . .. . .... . . 22 Northeast Utilities Service Co., 52 FERC 1 61,097 (1990), reh'c denied, 52 FERC 1 61,336 (1990),

O petition for rev. filed sub nom City <.f Holyoke Gas &

Electric Department v. FERC, No. 90 1565 (D.C. Cir.

'S 18, 19, 2 0 appeal filed Nov. 26, 1990) '. . . . . . . . . . . . . . . . .

Northeast Utilities Scrvice Co., 53 FERC 1 63,020 (1990) . ... .1, 7, 13, 17, 20, 21 Pacific Gas & Electric Co., 53 FERC 1 Gi,146 (1990) . ... ......6 O Utah Pcwer & Light Co., 45 F.E.ILC.1 61,05, 47 F.E.R.C. 1 61,209 (1989), petition for re .

filed sub nom Environmental / ction et al. v. I'ERC, No. 89 1333 et al . . . . . . . . . . . . . . . . . . .. .. . . 22, 23 0

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' STATUTIE AND REGULA'I10NS l OF -

. Administrative- Dispute Resolution . Act, P.L. 101 552, 5 U.S.C.

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. 9 581 note (November 15, 1990) . . . . . . . . . . . . . . . . . . . . 19 I Clayton Act- I 7,15 U.S.C. 6 2 (1988). . . . . . . . . . . . . . . . . . 24 Federal Power Act 6 203,16 U.S.C. 6 824b (19881 . 3,14,17. - 21, 22, 23

- Federal Power Act 6 205,- 16 U.S.C. 6 824d (19881 , . . . . 8, 10, 15, 22 Federal' Power Act i 206,' 16 U.S.C. 6 824e (19881 . . . . . . . . . . 22

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18 C.F.R.' I 35.13(aX2) (1990) . . . . . . . . . . . . . , , . . . . . . . 9, 10

- 18 C.F.R. 6 - 385.711. (1990) -. .......................1 MISCELIANEOUS

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Public Utilities Fortnightly, -Oct. IS, 1988. . . . . . . . . . . . . . . . 17

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3 UNITED STA'IES OF AMERICA 3 IlEFORE 'IEE FEDFJtAL ENERGY REGULATORY COMMIfEION Northeast Utilities Service Company ) Docket Nos. EC9010 000, (Re Public Service Company of New) ER90143 000, ER90144 000 Hampshire) ) ER90145 000, and EL90 9 000 q"

DIUEF OF TIIE CITY OF HOLYOKE GAS & EIlXTfftIC DEPARTMENT OPPOSING EXCEP'ITONS Pursuant to Rule 711 of the Rules of Practice and Procedure,18 C.F.R. G e

_g . 385.711, the City of Holyoke Gas & Electric Department (*HG&E") hereby files its brief opposing exceptions to the December 20,1990, Initial Decision ("I.D.") of the Presiding Adminictrative Law Jadge ("ALJ"). HG&E is also joining in the BRIEF OF g PRINCIPAL NEW ENGLAND INTERVENORS ("PNEI") OPPOSING EXCEPTIONS.1/

EXCEITONS OPPOSED In this brief, HG&E opposes the following exceptions:

Execaalve Mercer Tariff transitional _ transmission rates C,

HG&E opposes Staff Exception 3, insofar as Staff expressly advocates transitional merger tariff rates of $22.89 per kW year (or $1.9075 per kW month) for Firm Transmission Service ("PI'S") or $11.06 per kW year (or $.9217 per kW month) for Non-Firm Transmission Service ("NTS"), as well as any other exception which may, impliedly advocate such rates, which appear in Eastern REMVEC Utilities Br.2/

d 1/ That PNEI Brief on Exceptions referenceo Part II of this brief and individur41 Intervenors similarly plan to reference Part I of this brief. In addition, Counsel authorize us to state that (a) the Massachusetts Municipal Electric Company

("MMWEC") joins in Parts I cnd II, (b) the Towns of Concord, Norwood and Wellesley, Massachusetts join in Parts I and III, and (c) the Vermont Department of Public Service and Vermont Public Service Board, the Rhode Island Public Utilities O Commission, the Massachusetta Department of Public Utilities, the Maine Public Utilities Commission, the New Hampshire Electric Cooperative, and the MACTTow 4 (comprising the City of Chicopee, Massachusetts, Municipal Lighting Plont, Town of South Hadley, Massachusetts, City of Westfield, Mas,achusetts Ons & Electrb -

, Department, and Towr of Wallingford, Connecticut) join in Part ' of this brief.

fr, 2/ As used herein, " Br. at _" refers to a named party's brief on exceptions j and the page number, par 6 or appendix in that brief.

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at Appendix A, Sched. II, Page No. 2, it 1,a. and 2.a.; Ten Eastern REMVEC Utilities Br. at Appendix, Sched. II, Page No. 2, it 1.a. and 2.a.; Staff Br. at 77 78.

9 Ombudsman HG&E opposes Northeast Util..ses Service Company ("NU") Exception 2-i unnumbered last bullet.

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[7; HG&E opposes Eastern REMVEC Util'. ties Exception 15.

HG&E opposes Connecticut Derm.nent of Pub.ic Utility Control ("CTDPUC")

Exception C.

Erroneous legal Presumption Anaumed to Favor Approval j HG&E opposes NU Exception 2.

EXCFPITY ,F OTilfM 3 Dor %D U t HG&E HG&E adopts Bangm Wdro Electric Company and Maine Public Service

-v Company Exception (5).

REBIJIT. ~ OF POLICY CONSIDERA110NS CLADdED Tu WARRANT COMMISSION REVIEW 3 The exceptions opposed oy HG&E should not be granted. A proposed Merger Tariff firm transmission rate of $22.89 per kW year would be grossly excessive, anticompetitive, inconsistent with the public interest, unjust and unreasonable and J unduly discriminatory; even $11.06 is excessive for non firm transmission. The AIJ's provision for an ombudsinan during a transition peried for implementation of the mergcr and conditions thereto is fully justified. Contrary to NU's presumption, 3 disapprc . A .ather than conditional approval, should be the nottn for an anticompeutive morger such as NU's proposal.

SUMMARY

OF TIIE BRIEF 3 If there is to be an interim Merger Tariff (as HG&E recommends), it would be erroneous to use Staff's proposed $22.89 per kW-year firm transmission rate either g

O 3-O as a transitional rate to be collected o een temporarily by NU or as o refund floor.

A lower Merger Tariff rate (based on NEPOOL Agreement formulae) should be O collected; if NU wishes to substitute any hi@cr rate, it should be required to shew under Section 203 of the Federal Power Act ("FPA' r,r "the Act") that such rate will have no anticompetitive effect, as urged in the Drief on Exceptions of Bangor Hydro O Electric Company and Malne Public Service Company (which HG&E adopts); if NU wishes to put into effect its own Merger Tariff rate, then it should be collected subject to refund with no refund floor or, at most, with a refund floor based on g NEPOOL Agreement fonnulae.

Staff's witness here could not explain or justify the $22.89 per kW year (which was intended for a firmer type of service than the Merger Tariff contemplates). Moreover, in a subsequent NU transmission rate proceeding, Staff la g

presenting an analysis that is strikingly different from the one in this case, and the same Staff witness who sponsors the $22.89 rate here is now proposing a much lower rate: $9.39 per kW year for nrvice which NU characterizes as " firm" preferred. In addition, $22.89 is f ar out of line with NU's most recent rate for far firmer service (to CMEEC) as well as the tariff rates charged by New England Power Company

("NEPCO") as set out and explained in this record. Even the $11 transitional rate is O

excessive for non-firm transmission service under the Merger Tariff.

The AIJri provision for an ombudsman should be retained a3 a modest

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contributor toward mitigating anticompetitive effects of the merger. In the O

alternative, if the Commission is persuaded that appointment of such ombudsman by 4

j NU would be undesirable, the Commission should relieve NU of the duty to appoint and make the appointment itself, O

The Commission has no duty to "save" anticompetitive mergere. E'O has not p

slown any public interest reas6n for "saving this anticompetitive merger. The 0

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record refutes the theses that this merger is essential to bring a viable Public

' Service Company of New Hampshire ("PSNII) out of bankruptcy or to manage the O Seabrook nuclear power plant efficiently. This mercer will cost many New England utilities and their customers dearly. Therefore, following Supreme Court guidance, this merger application should be denied.

O STA'IEMENT OF THE CASE HG&E adheres to the Statement in its Brief on Exceptions.

ARGUMENT I. A MERGER TARIFF TRANS1'ITONAL RA'IE OF $22.89 PER KW-YEAR FOR O FIRM TRANSMISSION SERVICE WOULD BE MUCII 'IDO EDGH, ANTICOMPlJITI1VE, UNJUST, UNREASON ABIE, UNDUIN DISCRIMIN A'IORY AND INCONSISTENT WITII TIIE PUBilC IN'IERESI'; A RA'IE OF $11 WOULD AISO BE 'IDO HIGH FOR NON-FIRM TRANSMHUON SERVICE El A8 NU Witue88 Kalt admitted. I post merger transmiasion rates that are too O

high will discourago or block efficient transmission, th~ having an anticompetitive effect directly comparable to denial of transmission service.El As r ;ently noted by the Court of Appeals for the Second Circuit:

there need not be an outright refusal to deal in order to find that denial of an essential facility occurred. It is sufficient if the terms of the offer to

., 7 deal tre unreasonable.El O al Counsel advise that MMWEC, the Towns of Concord, Norwood and Wellesley, Massachusetts, the Vermont Department of Public Service and Vermont Public Service Board, the Rhode Island Public Utilities Commission, the Massachusetts Department of Public Utilities, the Maine Public Utilities Commission, the New Hampshire Electric Cooperative and the MACT Towns (compris.ing the City of Chicopee, Massachusetts, Municipal Lighting Plant, Town of South Hadley, Massachusetts, City of Westfield.

O. Massachusetts Gas & Electric Department, and Town of Wallingford, Connecticut) join in this Part I.

4/ Tr. 2148; linen 4 8 Ex. 55-F.

g/ See Brief of HG&E on Exceptions ("HG&E Br.") at 19.

O g/ Delnware & Hudson Rv. v. Consolidated Rail Corp.,902 F.2d 174,179 80 (2d Cir.

1990).

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.5 iO-The power to overcharge is the power to deny access. And the power to overcharge over a protracted transitional period, even subject to refund, is also a source of Q. competitive concern.2/ Transitional rates, exceeding $22 per kW year, incorporated in a : Merger Tariff for firm transmission service ("ITS"),8/ are much too high.

A. . Ihe Transmission Rate Analysis Underlying the $22.89 la Unreliable

Q In supporting an FTS transmission service rate of $22.89 per kW. year,2/

Staff did not prepare or present any study of the applicability of its costing methodology to NU's circumstances.lSI Nor did NU.U./ Staff contended that -its g costing methodology had been used by the Commission in the past, but did not refer to any merger case, contested or uncontested, in which the Commission had selected l- Staff's approach as an appropriate methodology.3El Staff evpports its analysis by l

stating that witness Whitfield " developed these proposed rates by using the best date lO -

-available at the Ltime her pre filed testimony was completed and the standard i

II. In this regard, the Commission may wish to note that m the rate proceeding

. instituted to impkment conditional approval of the PacifiCorp merger in 1968 a Third O Pre Hearing Conference was held on November 11,1990, and a Procedural Schedulo L has not yet been set. Se_e order issued January 23,1991, by Presiding Administrative L 2 Law Judge Zimet in. Docket Nos. ER89 493 and ER89 494.

8/ Staff Br. at 77 78. See also. Eastern REMVEC Utilities Br. at Apptmdix A,

. Schedule II,' Page No. 2,11.a. l$1.9075 per kW month x 12 months per year = $22.89

,0 per kW yearl; Ten Eastern REMVEC Utilities Br. at Appendix, Schedule II, Page No.

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?! : Ex. 611 A.

e/ Tr. p. 6616, line 4 p. 6622, line 21 (Whitfield cross).

,0 l 111 It should -be clear that NU's case in chief did not advocate selection of -

L ' transmission rates in this merger proceeding. Ex.14 at 49 (Noyes). - NU - did

recalculate Staff's amount (Ex.14 at 56), but failed to spell out any justification for

. Staff's methodology.

l lgl 32/ . Nor did the witness refer to any other NU case in which the methodology had-been in lasue and determined to be appropriate for NU under section 205 of the Act.

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Commission policies. . . ."M/ However, the " standard ... policies"M/ and the data employed by Ms. Whitfield result in an artificially high rate.

O Specifically, in calculating an FTs -ate, Ms. Whitfield used a rigure for NU investment costs that was far higher than the cost of NU's Pool Transmission Facilities (PTF), but could not explain or identify the sources of the difference (a 9 discrepancy amounting to 31% of Staff's transmiasion investment costs).M/ She justified using NU's Form 1 costs (which are 45% higherM/ than the PTP costs used in the NEPOOL Agreement rates) on the stated ground that NU commonly used those Form 1 " rolled in" costs in formulating contract rates for firm service flowever, she 9

admitted Inat NU, in calculating a non firm transmission rate, uses the lower PTF co,ts, instead of the higher Form 1 costs on which Staff relied; and ar,e could not n explain NU's varying cost selections, which she found " unexpected."U/

v M/ Staff Br. at 78.

M/ In Opinion No. 356, the Commission r.:cently reversed another ALJ's decision to be guided by this same " standard" or 'more traditional" methodology where the O record "did not explore the merits" of the methodology to be selected "but focussed instead" cn whether a different, "subfunctional methodology was implemented properly " pacific Gas & Elec. Co., 53 FERC 161,146 (1990) at 61,524. Here, intervenors have challenged the appropriateness of the " standard" methodology which l Staff and NU faded to justify on this record.

O M/ Tr. p. 6614, line 1 - p. 6618, line 18.

M/ Tr. p. 6615, lines 1-12: 45% = 31% divided by 69%,

i H/ Tr. p. 6615, line 1 - p. 6618, line 18. (In fact, NU does not universally use l " rolled in" costs in " firm" contracts. E.r., NU uses only PTF costs in its " firm"

!O contract for trrmmission of New York Power Authority power from the New York border to HG&E. Ex.123RR, Attachment 1, p. 2, second line RATE ($/KW YR) 9.83, and NOTE 4, type of service, last page " Firm Service." Ex. 385, p.1, part B. See FERC Rate Schedules Holyoke Water Pcwer Co. No. 43 and related affiliate rate l schedules.)

O Having used Form 1 data, which e'.imittedly may inlude more than PTF costs, the Staff witness was at a loss to explain the specisic sources of difference. For example, PTF investments comprise facilities cperated at 69 kV and above whereas

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O Furthermore ". d's costs included non network facilities (e.g., radial tranemission line e which tie a single generator to the networkdf/ even though Mr.

O Krezanosky the policy witness, testified that, in the future, such costs should be excluded from the rate and imposed directly on the customer:

I am proposing to treat those facilities that are necessary just to interconnect that new generating source to the system, which are not used a" to serve other customers, just that new generating source, to treat those as the responsibility of that new generating source.M/

No party disputed Staff's position as to the future. I.D. at 30. The only reason given to justify rolling in costs of past radial lines was that they " generally O constitute a small portion of the total" cost.2p/ Yet Staff's cost witness had "no idea" how much of the shecific transmission costs in Staff's computation in this case are for radial lines.2_1/ That information was not available from the Form 1 annual O reporti an which Staff relied or, so far na witness Whitfield knew, from any other report regularly received by the Commission.2_2. /

17/(... continued)

O Erm 1 might include lower voltage facilities. Ilowever, NU witr ess Schultheis had testified that all of NU's transmission facilities operate at 69 '.V or above and only PSNH operates some of its "trensmission" facilities at 34 kV. Tr. 2796 97 and 2799 (Schultheis cross); cf. Tr. 1, 6615-1d (Whitfield cross). And PSNH's total transmission costs, includmg tacilities operated at 69 kV and above, represented only 19 percent of the total used by the witness (Ex. 614, p.1U, NET C.O.S. Ibe, $22 O mnlion compared with $122 raillion); accordingly, Form 1 facilities onerated at voltages below 69 kV could bar ty account for anywhere near the unexplained 31'Te difference for NU and PS'iH combined.

El Tr. p. 6611, lum ?d - p. 6613, line 2; p. 6594, line 21 p. 0595, line 7 (Krezanosky cross).

O 1_9/ Tr. p. 6595, lines 15 - 23. Ex. 608, Schedule II,1 2.

{0/ Tr. 6595, lines 8 17.

21/ 1 Tr. p. 6613, lines 3 14.

O 22/ Id., lines 15 - 25.

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o 8-0 l Similarly, Staff's denominator, by which it allocated the co::ta between transmission customers and NU's retail native load, as too low. Relying, in part, Q on NEPCO witness Iligelow, MMWEC witness Russell concluded that a denominator restricted to demands" (of NU's retail native load plus one of the TDUs) was too low, inconsistent with long standing NEPOOL prsatice, and would deny NU's g cetr.petitors a level playing field.M/

In addition, transmission cost must relate to service quality. A s M r.

Schulthals and Mr. Meany testified, significant changes in the priorities of service might necessitate a different costing methodology.D/ Staff's cost determinations (of 422) were made in the context of propoeing a service of the firmest sort - equal in quality to that rendered to NU's firm native load - and transferrable to third parties.2, q/ The Merger Tariff now proposed by Staff and most intervenors(inch dng g

HG&E) would provide service that would be subordinatt.J to certain priorities on the NU system. (And the so called " firm" transmission service that NU now provides and proposes to continue after merger is even less firm than the firm service in the u

Merger Tariff.) Cost based rates for such subordinated service shoul*1, therefore, be lower in realistic recognition of those priorhics. 1 0 23/ Ex. 368, p, 8, line 1 p. 9, lire 14 (Russell cross rebuttal). In this proceeding, Mr. Russell suggested using kilowatts of generating capacity connected to NU's transmission network plus kilowatts of firm wheeling demands NU had contracted to serve as an allocator (instead of the lower demand, used by Staff). Mr. Russell's recommendation here was similar to the method presented by Staff in several more recent Section 205 rate cases through witness Zero. See Part I.B., below. However, O in that proceeding, Mr. Russell is using a somewhat different allocation method and derives a rate of $12.97 per l'W year for preferred transmission service by NU.

M4/ Tr. p. 3396, line 6 - p. 3397, line 21 (Schulthels cross) and Tr. p. 3088, lines 17 p - 23 (Meany cross).

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y 2 3 Ex. 601, p. PL, lines 9 20 (Krczanosky direct).

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Above all, transitional transmission rates need to be viewed in the competitive context of this proposed merger, It is essential that the Commission O consider the competitive dMadvantage to which transmission customers of NU/PSNH would be placed if compelled to pay such rates.

Especially troubling, tha Merger Tariff transitional Base Rates are so high as

g' to threaten customers and competition long beyond any assumed transitional period.

They may persist for muny years. Those Base Rates match (or "irtually match)

evels in most recent NU _ contracts,2g/ which appear to be the rn . levels NU now g

plans to include in its own tariff proposals after, consommation ci the proposed merger.2.2/ Although Staff would require NU yomutly to file replace. ment rates (fcr the transitional rates), one must doubt whether NU would seek to change the high transitional rates proposed at all. For example, if NU filed increased replacement rates, it would bear the burden of proof. However, if NU adhered to the same rater,

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in its post merger rate filing, or requested only a modest reduction, objecting parties would bear the burden of proof and could be denied any meaningful r .e f.

O _i Moreover, under the se circumstances, NU could avoid filing a full justification for its new rates under the Commission's Rules.2g/ That would be an enormous and unfair shift'of the b>.rden (inasmuch as NU bears the burden of proof in this proceeding).

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In tne interests of preventing any such unfair result, any order issued herein

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j- establishing transitional transmission ratas should require NU, in filing. any l

!O 26/ E&, Ex.123-RR, p. 2 (1990 Forecast), NEP (ALTRESCO), TERM START 05/01/90, FORECAS.ED TRANS. RATE ($/KW.YR) 24.27, NOTE 2: Preferred Service (Ex. 123 RR, p. 15). A very recent - exception is the preferential, post record.

Transmission Service Agreement ("TSA") with CMEEC, priced at $14.79 per kW-year addressed in Part I.C., below,

g. l2.2/ Ex.123, p.182; Tr. p. 3397, lines 2 21 (Schultheis cross).

28/ 18 C.F.R. s 35.13(a)(2) (1990).

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O superseding rate schedules, to comply fully with the filing requirements imposed by 18 C.F.R. s 35.13 and not to permit NU to avail itrelf of the abbreviated filing O requirements provided for in Section 35.13(a)(2).M/

B. More Recent Staff Analyses of NU ' Firm" Transmission Costa Indicate Significantly Lower Cost-Based Rates As previously ob..?rved (ilG&E Br at 1718). Commission Trial Staff has O

recently presented testimony recommending (St at proposed NU " cost based" rates for eupposedly " firm" NU transmission services be reduced. We referred to analyses performed by Staff witness Zero in two Section 205 rase cases (involving CL&P O service to Aetna Life Insurance Company and WMECO service to UNITIL Power Corporation.)3El This analysis differs so markedly from the approach presenteel here, as to further illustrate that $22.89 is unacceptable.

O Since filing its brief on exceptions, ilG&E has learned that, even more recently, Staff -- through the self same witness who sponsored the $22. ate in this case - has presented a cost based rate af 39.39 per kW year for NU in two O additional Section 205 rate cases less than halff titell _erger Tariff transitional rate M/ The issue is by no means hypothetical, since the Rule is implemented in ordinary Section 205 rate cases (not following on the heelk of a merger).- M Central Maine Powei On., 53 FERC 161,465, order it. sued December 28,1930, in O Docket No. ER90 539 000 g a,1. implementing the Rtle despite the plea of Maine Public Service Company (slip opin, at 14).

30/ See Prepaled Direct Testimony of Donald J. Zero ("Zero Test.") filed November 1,1990, in Northeast Utils. Serv. Co., Docket Nos. ER90 390 000 g al. Both Aetna and UNITIL are NU customers involved 3n purchases from cogeneration facilities.

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here.3.,1/ NU characterizes its services at issue in those two cases as " firm" and

" preferred" whereas Staff treats them as less than firm.

O Mr. Zero found that the Aetna and UNITIL proposed rates were unreasonable because they used a coincident peak demand allocation methodology appropriate only for firm transmission service, and the service offered was of lower priority than that g offered to NU native load customers.12/ Mr. Zero recommended that if the transmission service offered:

is at a priority level just below that for firm power service to wholesale and retail customers, I would allocato costs based on the capability of NU's q* .

transmission system as measured by its generation capability and firm purchases. . . .

On the other hand, if the transmission service is allowed to be interrupted because of the importing or exporting of economy power to benefit NU's native load customers, I would allocate costs on a completely different basis. NU would, in effect, be providing service . . . only until it n needs to utilize its transmission facilities solely for NU's native load U cuetomers. I would then allocate only incremental O&M costs to the service.351/

Interestingly, Mr. Zero quoted NU witness Schultheis' testimony in this proceeding to support his conclusion that the transmission service offered by NU to D

non native load customers is of a lower priority than firm service 9:i/ Mr. Zero concluded that, because the priority of the service being offered was between firm i

O' 31/ - Responsive Direct Testimony of Wendelin W. Whitfield (" Whitfield Resp. Test.")

filed November 27,1990, in Northeast Utils. Serv. Co., Docket Nos. ER90 390 000 e_t al2; Responsive Direct Testimony of Donald J. Zero ("Zero Resp. Test.") filed November 27,1990, in Northenst Utils. Serv. Co., Docket Nos. ER90 390 000 e, t al.

These cases involve NU service transmitting power from New York State to MMWEC j and iJm0cd Illuminating Compar.y ("UTCO*), purchasing from the New Yoric Power

O Authority and Niagara Mohawk Power Company, respectively.

3_2/ Zero Test, at 8 9.

t 3_3/ Zaro Test. ct 10.

g 3(/ Zero Test, at 11 - 12.

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and non firm, transmission costs should be allocated based on NU's transmission i system capability (measured by generation capability and firm purchases).M/

O Unit rates for Aetna and UNITIL transmission service were recalculated by Mr. Zero for illustrative purposes, implementing Staff recommended changes in demand allocation (to comport with priority of service) and transmission revenue g credit procedures. The recalculated rate for Aetna (based on 1986 C14P cost data) was $15.91 per kW. year (reduced from NU's proposed $26.45 per kW year); the recalculated rate for UNTI'IL (based on 1988 NU cost data) was $11.85 per kW year g (reduced from NU's proposed $24,67 per kW year).2SI As noted above, the most recent Staff analyses, contained in the November 27 tcstimonies filed by Staff witnesses Zero and Whitfield, yield a recommended rate

, based on 1989 NU cost data of $9.39 per kW-year for NU's allegedly " firm" J

transmission service to MMWEC and UICO. Mr. Zero referred to his previous (November 1 Aetna and UNITIL) testimony in recommending adjustments to the demand allocation procedure (again, to comport with actual priority of service) and made a similar adjustment to tne transmission revenac credit procedure.3_Il Ms.

Whitfield, the sponsor of the $22 per kW year rate in this proceeding, recalculated NU's transmission facilities carrying cost and, incorporating Mr. Zero's adjustments, O

which included increased revenue credits and a reduced return on equity, producea the $9.39 per kW year rate.

O _35/ Zero Test at 12 - 13.

36/ Zero Test, at 19 20, 31/ Zero flesp. Test, at 9 - 10, 12 13. In that proceeding, MMWEC witness Russell, applymg a somewhat different methodology, still derived $12.97 for NU's O service on behalf of MMWEC - far lower than $22.89 per kW year.

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Clearly, in light of these more recent Staff analyses of NU cost based transmission rates, the $22 per kW year is unreasonable, ir. supportable, and 'out of O line. g8/

C. Any Rate Higher han NU's $14.79 Rate (Agreed to in late 1990) for Super-Firm Service to CMEEC Would Be Unduly Discriminatory and Anticompetitive O The transitional rate sept orted by Staff also does not take into account the Transmission Service Agreement ("IEA") between NU and CMEEC fi'ed in this proceeding at the end of November 1990.3_9/ That TSA provides for a cost based transmissi n servi r te f $14.79 per kW year. That coct based rate is for super-0 firm service, h, service equivalent in priority to NU's native load.9/ It is, therefore, firmer than service under the proposed Merger Tariff. This cost based gV NU.CMEEC TSA rate raises a presumption that any higher rates are unduly discriminatory.il/-

! D. %e Non Firm Transitional Rate of $11 Is Also Too liigh Given the recent Staff prepared testimony finding $9.39 per kW year to bc lv l NU's cost for rendering an intermediate-quality transmission service whch NU l alleges to be " firm" (Part LB., above), the transitional rate for n9tn firm service (as characteri7ed by NU) certainly should not be an even higher $11.06 - as the Merger lO l

l 38/ See Atlantic Refining Co. v. Public Serv. Comm'n of N Y., 360 U.S. 378, 391 (1959), motion denied, 361 U.S. 801.

3_9/ S_e,,,e I.D. at 50 and HG&E Br at 18. The TSA was filed in this proceeding on

O November 29 or 80,1990, and was subacquently tendered for filing, with a requested January 1,1991, effective date, as an FERC Rate Schedule amending, restating, and superceding FERC Rate Schedule Nos. CL&P 217 and Supplements 15, WMECO 180, Holyoke Water Power Co. 31, and Holyoko Power & Electric Co. 21. Notice dated January 17, 1991, in Docket No. ER91-209 OOO.

O 40/ CMEEC TSA at Section 1.1, p. 3.

4,1/ Public Serv. Co. of Indiana v. FERC. 575 F.2d 1204,1212 (7th Cir.1978).

O-

-.- - . .. . - . - . - . - . - - . - - - . . . . - . ~ . - . .- -. ~

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Tariff proposes. Indeed, as explained in Part 1.E., below, NEPCO's tariffs for both

" firm" and "non firm" service also provide rates in the neighborhood of $8 9 and O NEPCO offers a service which is at least as reliable as (and possibly firmer than)

NU's firm service. In these circumstances, there can be no justification for NU to start at $11 for the Non Firm Transmission Service ("N'IS") under the Merger Tariff, O. much less for a refund floor at that excessive level.

E. Any Transitional Rate Higher 'Ihan NElWs $8 9 Tariff Rates Would Be Oct of Line NEPCO charges transmission tariff rates of just over $8 per kW. year for "non firm" service 12/ and about $8 - $9 per kW year, for " firm" transmission service. del Moreover, Mr. Bigelow indicated that NEPCO provides a service at least as reliable as (if not firmer than) NU's " firm" or " preferred" service,ill even though

O i FU che.rges roughly three times NEPCO's prien.iEl 't here is no satisfactory explanation in this record for the discrepancy beween NEPCO's actual tariff rates and the transitional Merger Tariff rates proposed for NU. Especially considering the O fact that these transmission serv'."w 'all take place in the context of the " tight" NEPOOL power pool,iEl as well as the section 203 reawns for a Merger Tarif', there 4_2/ Tr. p. 4585, lines 2125 (Bigelow cross). Ex. 261 I, Schedule II, p.1 (NEPCO

,O

Tariff a).

43/ Tr. p. 4536, lines 14 - 17 (Bigelow cross).

Ex. 261-D (NEPCO Tariff 4).

4_4/J Tr. p. 4661,--line 11 - p. 4662,- line - 1 (Bigelow cross).

=

iO 15/ Comparing Ex.123 RR, p. 2, MOTE 2 I" Preferred Service"I rates ($24.27 per kW-L yr) with Tr. p. 4596 .($8 9; Bigelow cross).

l ..

l' 46/ See Fort Pierce Utils. Auth, of the City of Fort Pierce v. FERC,730 F.2d 778,

- 784 (D.C. Cir. 1984).

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O-must be a reasoned explanation for setting transitional rates in the Merger Tariff that would be so far out of line with NEPCO's standard tariff rates.ill O F. The Appropriate Tranaltional Rates for Merger Tariff Firm Transmission Service Are the NEPOOL Agreement PTF Rates Rather 'than the Higher Transitional Rates Proposed in the Merger Tariff ,

In contrast to the artificially high transitional rates proposed by the Merger g Tariff, the NEPOGL Agreement formulae transmission rates (b, those which would 4 apply were the Merger Tariff governed by that Agreement) are fair to NU, as well as its customers, and pro competitive.M/ These NEPOOL rates, which NU is using

,. today for transmission of power from Pool planned units, also raise the presumptior.

v that higher rates, such as those in the Merger Tariff, are discriminatory.$/

The NEPOOL Agreement "EUV PTF" transmission rate for power received and delivered at 345 kV only is now $2.75 per kW year; for transactions effected over NU's 115 and/or 69 kV lines, the ' Lower Voltage PTF" rate is now $5.70; and a total

(- transmission rate of $8.4f; applies where transactions use both EllV and NU's Lower L Voltage pool transmite!on facilities.M/ (In case of inwcr voltage deliveries or (Q

deliveries on non networL .acilities, there may be an adder under sectica 13.7 of the 4_I/ The situation is directly analogous to that raised under the Natural Gas Act, at L a time when the Commission was r,till trying to regulate independent producers of

'O. natural gas on a company by company cost of service basis. Atlantic Refining Co.,

360 U.S. at 391.

48/ NU has argued that the NEPOOL transmission rate formulae were adopted to ancourage New England utilities to participate la Pool planned generating units by the pricing of transmission from such units. NU Reply Br. to AIJ at 50 51. By the g same token, of course, such rates will encourage transmission access, to overcome anticompetitive effects of the merger. And there is no evidence that such NEPOOL Agreement rates are so low as to be contrary to the public interest (within the meaning of ,F,,P, C v. Sierra Pac. Power Co., 350 U.S. 348, 355 (1956), motion to amend

' denied, 351. U.S. 946) or, even, outside the band of reasonableness.

0; 49/ See Part I.C., above.

M/- Allen Ex. 385, p.1, part C. ("Other transmission agreements"), NEPOOL. Ex.

603, pp.116 :127, il 13.3,13.4,13.5 (NEPOOL Agreement).

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NEPOOL Agreement.) While the Lower Voltage 115 and 69 kV rates may vary ,

slightly depending on the delivering utility, tbc EiW rate does not. Its use is 1 0 Supported by witt. esses Russell, Ell Moskovit '.r ' , . Me.M/

The NEPOOL Agreement rate fo- _ +

.made answers to the transitional taciff rate issue. They are .* t o' . withM/ NU% TDU transmissi n rates under the CMEEC TSA (viz. $14.79 per kW year for

• super-firm" O

service) or the transmission tariff rates charged by NEPCO: yiz. just over $8 per kW year for "non firm" service g5/ and about $8 - $9 per kW year, for " fir n' g transmission service, which, as explained in Part 1.E., above, provide a higher quality, b, firmer " firm" service than the so called " firm" or " preferred" service offereo by NU The day after the Merger Tariff takes effect, NU will be free to propose a higher rate if it believes it can support that rate under FPA Section 205 and the applicable merger conditions. NU could also request the Commission to impose only a nominal suspension of NU's superseding cate.

'Ihus, implementation of the NEPOOL Agreement provision is reasonable to wJ all parties, and avoids need fo. detailed determinations by the Commission in this proceeding.

i fs 5_1/ Ex. 368, p. 9, lines 7 - 10.

l l g2/ Ex. 477, p. 29, lines 14 - 18 and p.15, line 16 p.18, line 6.

lO 5_3/ Ex. 479, pp. 21 22, 54/ See Atlantic Refining Co., 360 U.S. at 391.

55/ Tr. p. 4585, lines 2125 (Bigelow cross). Ex. 261-1, Schedule II, p.1 (NEPCO Tariff 3).

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'O H. 'ITIE AIJ CORRECTLY PRESCIUBED APPOIN1MENTOF AN OMBUDSMAN DUIUNG TIIE FTRST MVE YEAHS OF 11IE MERGER 59/

NU, Eastern REMVEC Utilities and Cons.scticut DPUC criticize the AIJ's

'O requirement that NU appoint a post merger ombudsman. NU Br. at 102 103, Eastern REMVEC Utilities at 31, CT DPUC Br. at 50 54. Their arguments against such condition are exceptionally unmeritorious. The AIJ's modest but innovative condition As the CT DPUC admits:

(I.D. at 48;49) should be affirmed.

... the Initial Decision finds that "NU's past transmission policies did produce criticisms from those who were (or wanted to be) customers," and that an ombudsman can help to achieve the goal of anniating potential anticompetitive effects in connection with the O- offer of wheeling service.

CT DPUC Br. at 51 (footnote omitted). And as the AIJ found: -

The merged company - with vast power over transmission and control of surplus power must offer viable wheeling service in C order to alleviate potential anti competitive con. sequences. The presence of an ombudsman can help to secure that goal.

1.D. at 48. As observed by the AIJ, "at least one natural ' gas company" has

" favorably used" an ombudsman.E2/

5g/ Counsel advises that MMWEC joins in this Part D.

5,2/ I.D. at 48. National Fuel Gas Company elected, for the sake of better management of custome relations, to appoint an ombudsman. Public Utilities O Fortnightiv. Oct. 18,1988, p. 79. In that instance, the ombudsman acts on behalf of retail customers; here, the ombudsman would act on behalf of wholesale and transmission customers. The ombudsman condition, as originslly proposed land with the portion deleted by the AIJ's amendment bracketed), would provide: "NU Companies rtall appoint and pay for an Ombudsman for interests of Customers for NU salen or transmission services subject to the jurisdiction of the Commission O (includmg long term or short-term sales of surplus power). 'Ihe Ombudsman will be a person experienced in electric bulk power matters who is not an employee of NU Companies. The Ombudsman will be available to assess Customer complaints of NU Company non responsivenu:n d Custon et needs. NU Companies shall notify each present and future Customer or the nurse, address and phone number of the Ombudsman (NU Gempanies-shallennually.6le+ith tboCommiessee wepert by4he

-O Ombadamaa 4ogethee wipi NU'* reepoasee + hereto.1 This merger condition will remain t effect for five calendar years fcilowing the Commission's order herein, unless extended by further order under secion 203 eif the Federal Power Act,"

(continued...)

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-0 NU criticisms. NU does not address the Initial Decision's stated reasons for the conditions, quoted above; instead, NU would arbitrarily narrow the issue, arguing

O that the condition should be set aside because it was proposed by llG&E,M/ based on HG&E experiences with NU, and because the " Commission has already quite firmly ruled" that pertinent allegations are baseless.El NU is doubly wrong

NU carefully

'of overlooks the widespread experience of utilities throughout New England with NU which prompted the AU's condition. Moreover, NU misrepresents the significance for this issue of the Commission's conclusions as to treatment of IIG&E, g The record evidences NU's " onerous," domineering and dilatory tendencies as experienced by other utilities, in addition to llG&E6 pl Even if the merger is approved with seemingly adequate conditions, NU will find some room to delay or dominate, if . it can, Given NU's history and _its FERC protected customers' perception of that history, creating a mediating ombudsman role to address disputes promptly makes eminently good sense. Contrary to NU's argument (NU Br. at 103),

' NU willingness to commence deliveries promptly will not avail if the price charged is

. too high. Access can be denied by onerous rates, terms and conditions just as much 57/(... continued) l_ >

HG&E Br. to AU at 5. The Ombudsman is to be a single individual. De Ombudsman should not be a present or past employee of NU. De Ombudsman should

!O respond only to Customers, meaning those who purchase or seek FERC regulated

= services, not 'retall Consumers.

5_8/ To resist a salutary. message, NU ' attacks the messenger.

Oj 59/ The full citation for the " ruling" on which NU relies is Northeast Utils. Serv.

_ Co.. 52 FERC 161,097 (1990), reh'c denied, 52 FERC 161,336 (1990), petition for l

rev. filed sub nom City of Holyoke Gas & Elec. Dept. v. FERC, No. 901565 (D.C.

j Cir. appeal filed Nov. - 26, 1990).

'60/ See testimony of Messrs. Bigelow (NEPCO, Tr. 4540 ); Ex. 261A, response to g MPUC Data Request 1); McKinnon (MMWEC, Ex. 269, pp. 36-7; Russell (MMWEC, Ex.

313, pp. 22, - 27 37; Krezanosky (Staff, Ex. 601, pp. 22 23).

lo' l

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1 19 -

V as by blatant refusal to deal,fd ' or by the need for recourse to protracted or costly administrati/c or judicial proceedings. The AlJ's creative ombudsman condition.

O which would assign a single expert ar d objective critic to look over NU's shoulder (and comment) at the behest of NU'a FERC protected customers, is in harmony with the findings of the new Administrative Dispute Resolution Act signed by President O_

Bush on November 15,1990.El NU's recalcitrant opposition to this moderate condition says more about NU's will to dominate than about the actual condition; MU here illustrates how difficult it probably will be to secure implementation of major C

y pro competitive conditions.

What is more, the Commission's discussion of IIG&E'c experience in the case cited by NU also supports the ombudsman condition. %ere, NU had more than quadrupled (almoct quintupled) a transmission rate abruptly and took two years to cut back the increased rate to merely double what it had previously collected; the Commission expsly noted with approval the NU " concessions" that twice reduced NU's original increased rate.El hus, that case involved an opprensive action by a,

NU which required . correction, and, after this merger proposal came before the Commission, NU was amenable to mitigate the rate increase it had imposed in the effort to "ceduce controversy" and avoid a contested rate increase, which the O- .

61/ S_ec HG&E Br at - 19; PNEl Br. Opposing Exceptions, Parts II,E., III.C.1.

6,2/ P.L.101 552, 5 U.S.C. 6 581 note. Section 2 of that Act finds that: "(1) administrative procedure ... is intended to offer prompt, expert, and inexpensive O means of resolving disputes as an alternative to litigation in the Federal courts; (2) administrative proceedings have become increasingly formal, costly, e ad lengthy resulting in ... a decreased likelihood of achieving consensual resolution of disputes;

. . . (4 ) . . . alternative means can lead to more creative, efficient and sensible outcomes; ..."

O 63/ 52 FERC at 61,487.

Y u

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)

Commission order noted.Ed/ However, after the merger there would be less reason to anticipate NU willingness to oblige if " controversy" arose once more . any, as *.o

)

) interpretation or implementation of merger conditions. Accordingly, an ombudsman could be particularly useful in post merger circumstances to resolve controversy without regulatory proceedings, just as the Al.1 anticipated.

) Criticisme of 'E .ern REMVEC Utilities.' Eastern REMVEC Utilities ch: llenge the condition (Br. at 31) as adding 'an unt'e';esaarily burdensome and costly layer of regulation" and as " inappropriate since it Joca not mitigate the anti-competitive harms of the merger

• These challenger, misa the mark. (a) The

)

cond'.uon does not add any layer of regulation at all; the ombudsman is a private citizen / mediator not a regulator.EEI (b) 'The condition will not be unduly costly,$E! particularly if successful implementation of transmission tariffs reduces g

) ,

needs for recourse to the ombudsman. Ilowever, if the Commission is persuaded that NU would be unduly burdened by the heavy responsibility of aclecting such an outside, impartial ombudsman,62/ the Commission should relieve b'U of the duty to appoint and make the appointment itacif. (c) By itacif, of courw, the ombudsman

( condition will not be sufficient to cure ti e harms of the r.1erger, llowever, it will mitigate the harm somewhat and is casential to help make other mitigation conditions work better.

S 64/ See Leary Ex. 376, p. 6, lines 18 22. 52 FERC at 61.487.

4 shi The ALJ made the point perfectly clear, explaining that 'the ombudsman is not the only avenue for dissatisfied customers ..." 1.D. at 49. The condition simply gives customers an extrc. informal, mediatory forum in which to try to resolve busir cas problems without turning to the regulators.

'16 / NU could pay the ombudsman by the day worked, there being no reason to act

) . fixed annual sahuy.

SI/ As proposed, the ombudsman ~ould be a person well vertied in bulk power matters who had not been employed by NU.

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• 21 -

D Criticisms of CT DPUC. The Connecticut DPUC argues that the ombudsman requirement exceeds the " minimum necessary iconditions; to render the transaction g consistent with the public interest," is too intrusive on management, threatens to encroach on state responsibilities and is based on the wrong subsection of the Federal Power Act. (a) To the contrary, the A1.1 found that ~an ombudsman can D help to" achieve the indispensible

• goal" of alleviating potential anticompetitive effects of the merger. 1.D. at 48. (b) P ombudsman is an independent, outside mediator, not an intruder into management's affairs (or a capuve of management

, policy).

(c) There is also no basis for the preposterous claim of a " potential for g conflict between the federally imposed ombudsman and state authority" over local distribution utilities. CT DPUC Br. at 52, Even if the ombudsman were, nay, to detect improper actions by the post merger NU aimed at mollifying an unconstitutional attempt by state regulators to burden interstate commerce, the most that this " federally imposml" mediator could do is to blow the whistic.E8. /

(d) Finally, CT DPUC argues that the A1.1 erroneously based his ombudsman condition on Subsection 203(b), rather than Subsection 203(a) of the Act. IlG&E has similarly argued that the A1.1 took too narrow a view of the Commission's authority D

under Section 203.E2/ Be that as it may, there is ample basis in the record (as we 68/ It is difficult to fathom to what state right the CT DPUC's obscure words really refer, and the Commission should pay them no heed. Under the Commerce y Clause, of course, Connecticut may not prefer their consumers over other consume.a in other states affected by this merger with regard to the supply of electric.6y or I'

natural gas. New England Power Co. v. New llampshire, 455 U.S. 331 1982);

Pennsylvania v. West Virginia,262 U.S. 553 (1923); West v. Kansas Natural G a Co.,

221 U.S. 229 (1911).

D E9/ HG&E Br. at 22; contrast NU Br. at 77-78 claiming that the A1.1

• allude.d" a the broader authority of Subsection 203(a) "which is the operative provision in J is case" even though the Initial Decision expressly cites only Subsection 203(b)

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have shown) to justify and require such a condition if the merger proposal can be i

altered to become consistent with the public intercat and, therefore, approvable at O all pursuant to subsection 203(a).

l III. DEAPPROVAL, RA' ITER 'IllAN CONDr!10NAL APPROVAL, E 'I1IE NORMAL REMEDY FOR AN AN'I1COMPL"!T!1VE MFRGFR SUCli AS 'ITIE ONE 19/

'O NU assumes that this Commission has a duty to save the proposed merger by i imposing whatever conditions cre needed to render the merger minimally palatable i

under Section 203(a) of the Federal Power Act. NU Br. at 76 79. While it is true, 1

h n

as liG&E stated in its Brief, that the Commission retama the author,Q o adopt whatever conditions may be needed to make the merger consistent w ai 3 the public

interest, this authority does not impose upon the Commission the dm to save the O merger. HG&E Br. at 22, in fact, the converse presumption is correct.

The Commission's duty is to determine whether the proposed merger is anticompetitive and whether it would be consistent with the public interest. If the

-O Commission determines as the AI.I did here that the merger as proposed fails to satisfy those standards, ti.en the presumption is that the merger should be denied, so as to protect competition and preserve the public interest.UI

O In Utah Power & Light ' Co.,L2/ the AIA concluded that the Commission lacked authority to conditionally approve an anticompetitive merger, holding that the L0/ . - Counsel advises that the Towns of- Concord, Norwood and Wellesley, f; Massachusetta, join in this Part III.

11/ Furthermore, in Section 205 and 206 cases, the Commission has adopted a policy of rejecting proposala where a utility fails "to demonstrate that its proposal is the least anticompetitive method of obtaining legitimate ... objectives." Florida Power &

Light Co., 8 FERC 1 61,121 at 61,448 (1979), reh'c denied, 9 FERC 1 61,015.

3/- Utah Power & Light Co., 45 FERC % 61,095 (1988), 47 FERC 161,209 (1989),

petition for rev. filed subu nom Environmental Action et al. v. FERC, No; 891333 ej ab (D.C. Cir., argued October 16, 1990).

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O Commission's power to condition was limited to the specific bases enumerated in i 203(b) for imposing merger conditions. The Commission disagreed as to the limits of O its conditioning power, holding that, in addition to i 203(b), it had a second source of conditioning authority in 6 203(a) itself. The Commission rensaned that if a proposed merger, as presented, is not consistent with the public interest, and if the O Commission could design conditiont which, if accepted, would convert the merger into one that would be consistent with the public interest, then the Commission has authority to approve the merger conditionally rather than to deny the merger.El g Whereas the A1.1 had disapproved the merger outright, the Commission conditionally approved the merger. The Commission, however, did not hold that it had any a d tv in that case (tnuch less in other cases) to 'save~ a merger by imposing conditions under 6 203(a) - which is inconsistent with the public interest.li' Where the proposed merger is inconsistent with the public interest as a result of the merger's anticompetitive effects, the correct presumption favors denial of the application, and keeping the two utilitics divested, rather than "saving" the O

merger. In a lorig line of cases, beginning with United States v. E.1. duPont de Nemou s & Co.,396 U.S. 316 (1961), motion denied,366 U.S. 956 (1961) and reviewed very recently in California v. American Stores Company, _ U.S. ,110 S. Ct.

O 1853 (1990), the federal courts have recognized that divestiture is normally the appropriate remedy for an unlawful acquisition. In duPont, supra, the court established the rule succinctly:

O lt cannot be gainsaio that complete divestiture is peculiarly appropriate in cases of stock acquisitions which violate i 7. 'Ihat 73/ See Utah Power & 1,icht, 45 FERC at 61,280 83.

O 14/ The Commission may, of course, disapprove a merger based wholly on a finoing of anticompetitive effect. Kansas Power & I,ight Co. v. FPfj,554 F.2d 1178,1184 85 and n.9 (D.C. Cir. 1977).

O

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24 1 statute is specific and

• narrowly directed," Standard Oil Co. v.

United States, 337 U.S. 293, 312, (69 S. Ct.1051, 93 L. Ed.13711 (1949), and it outlaws a particular form of economic control .. stock acquisitions which tend to create a monopoly of any line of D commerce. %e very words of 6 7 suggest that an undoing of the acquisition is a natual remedy. . . . Of tM ' cry few litigated i 7 cases which have been reported, most i areed divestiture as a matter of course. Divestiture has been cal. s the most important of antitrust remedies. It is simple, relatively easy to administer, and sure. It should always be in the forefront of a court's mind when a y violation of f 7 han been found.

366 U.S. at 328 31 (footnotes omitted).

Although the choice of divestiture is not inevitable, divestiture is the normal g remedy because it preserves competition, threatened by the merger, with a certainty and a freedom from regulatry oversight that does not attend other remedies.25_/

Indeed, courts have ocen reluctant to accept arguments that the particular evils of mergers can be adequately remedied by injunctive provisions and have opted for the surer remedy of divestiture.26/ %e reasons for judicial preference for divestiture is obvious: Preservation of separate competitors with conflicting interests is far more likely to stimulate competition than the episodic supervision by an outsider of the behavior of a firm with enhanced merket power.

%crofore, any conditional approval of an anticompetitive merger must be supported by specific findings and conclusions overcoming the presumption in favor D

of divestiture (that is, disapproval, preventing the merger from taking place).

Conditions increase regulatory intervention in the marketplace. %e result is greater cost to society. In contrast, divestiture (or disapproval of merger) allows greater D

25/ See Yamaha Motor Co. v. F.T.C.,657 F.2d 971,982 (8th Cir.1981) cert. denied

_b nom. 456 U.S. 915 '1982); Ash Grove Cement Co. v. F.T.C.,577 F.2d 1368,1380 s!L (9th Cir.1988), cert, denied, 439 U.S. 982 (1978).

p J 6/ See, e_.L Tasty Ilnking Co. v. Ralston Purina. Inc., 653 F. Supp.1250,1275 76 (E.D. Pa. 1987).

D

J 25 -

reliance on market forces and is more likely to achieve the goals of market efficiency urderlying the FPA and the antitrust laws.

'Ite ALJ correctly found that the merger as proposed would be O

anticompetitive and injurious to the public interest. The burden is v to justify why, in light of the Supreme Court's duPont decision, the proposed merger should be conditionally approved rather than denied outright. Yet, the only reason NU

-O provides to justify conditional approval rather than denial is its claim that the merger is necessary to rescue PSNH from bankruptcy. 'Ihat claim is simply not supported by the facts, and mntradicts past representations by NU itself 22/

O Accordingly, NU has failed to ose come the picsumption establishM by the Supreme Court in favor of divestiture. Given the evidence of !ikiihood of anticompetitive injury, as well as the evidence of cost and rate increams for utilities other than NU O and PSNH (PNEI Br. at Part 1.C.), the merger proposal should be denied.

CONCLUSION For the foregoing reasons. the exceptions opposed should be denied and the ,

O relief requested in HG&E's briefs should be granted.

Respectfully sub itted

,. Y ,

f O DAVID J. B RDIN EUGENE J. 1EIGHER STEVEN R. MILFE NOREEN M. LAVAN VANGEL L. PERROY Arent, Fox, Kintner, Plotkin & Kahn O Connecticut Avenue, N.W.

Washington, D.C. 20036 5339 (202) 857 6089 Attorneys for the, City of Holyoke Gas & Electric Department

'O Dated: January 24, 1991 22/ PNEI Br. at 20 25 (Part I.B). Similarly, the merger is not essential to maintain efficient operation of the Seabrook nuclear generating station. PNEI Br. at 42 49

.g (Part I.D.).

D CERTIFICATE OF SERVICE I hereby certify that I have this day caused to be served the foregoing of the BIUEF OF 'IUE CITY OF llOLYOKE GAS & E!E,CTIUC DEPAR'IMENT OPPOSING EXCEPTIONS upon all persons or, the Restricted Service List in accordance with the requirements of Rule 2010 of the Commission's Rules of Practice and Procedure (18 C.F.R. 6 365.2010).

Dated at Washington, D.C., this 24th day of lanuary 1991.

Alk. 147Qf_

Noreen M. Lavan ARENT, FOX, KINTNER, PLOTKIN & KAllN 1050 Connecticut A ve., N.W.

Washington, D. C. 2003G 5339 Counsel to City of Ilotycke Gas & Electric Department P

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