ML20090M660
| ML20090M660 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 03/20/1992 |
| From: | Bardin D ARENT, FOX, KINTNER, PLOTKIN & KAHN |
| To: | Murley T Office of Nuclear Reactor Regulation |
| References | |
| NUDOCS 9203250130 | |
| Download: ML20090M660 (14) | |
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Arent Fox.Kintner Plotkin & Kahn David J. flardin 202 % ?4089 March 20,1992 VIA IIAND DELIVERY Thomas E. Murley, Director Ottiec of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, D.C. 20555 I
Re: Pub!:e Senice Company of New ilampshire. Docket No.50-40A CITY OF llOLYOKE GAS & ELECTRIC DEPARTMENT REQUEST FOR REEVAl.UATION OF FINDING OF NO SIGNIFICANT CilANGES REG AR11. LNG ANTITRt'ST ISSUI;S
Dear Mr. Murley:
The City of Holyoke Gas & Elcetric Department ("HG&E"), in accordance with the " Notice of No Significant Antitrust Changes and Time for tiling Requests for Reevaluation" (" Notice").1 heieby requests reevaluation of the Notiec tinding that no "signiticant changes" in the activities of the licensee, Public Senice Company of New llamnshire ("PSNH"), would result from:(a) the proposed transfer 1050 Conrecucui Avenue, NT Tauvwe, Dc 2003M339 of PSNH's ownership interest in the Seabrook Nuclear Power Station. Unit i Telephorw 202 2 7.6000
("Seabrook"), to North Atlantie Energy Corporation ("NAEC"); and (b) the proposed Cahie. ARFOX T.
sj672 transfer of operating responsibility and management of Seabrook from New
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Faciunde 202 3 7 6395 Hampshire Yankee to North Atlantie Energy Senice Company ("NAESCO').;
scoo To.en Cre.ceni onve 1 The Notice, which was published iri 57 Fed. Reg. 6048 on Feb.19,1992, adopts vcnna. vguua 22i82 2733 the position proposed in the " Staff Recommendation, No Post OL Signiticant Antitrust Changes," issued in this proceeding and dated August 1991 (" Staff 7475 Laconsan Avenue Recommendation").
Bethesda Maryland 20814-3413 i HG&E herein addresses issues pertinent to the Notice relating both to the 45 Raear Plaa tcanster of ownership and the transfer of operational responsibility. As described Ne. Ya. Ne. Ya 10111 (continued...)
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Arent Fox Kintner Plotkin & Kalui Thomas E. Murley, Director March 20,1992 Page 2 floth NAEC and NAESCO are wholly-owned subsidiaries of Northeast Utilities
("NU").
This Request addresses issues relating to the Notice's finding of no significant antitrust impact.
Nonetheless, HG&E expects that the Nuclear Regulatory Commission (" Commission"), in accordance with its statutory obligations, will not grant either the ownership transfer application or the opetation transfer application until the Commission has fully analyzed all of the implications of PSNH's proposals that NU, through its whollyewned subsidiaries, operate and partially own Seabrook, including consideration of NU's experiences and expertise in operating multiple nuclear units.
The Commission's Antitrust Standard onder the Atomic Enerry Act and the Notice's DeLetral to FERC of Antitrust Analysis and Conditions The Staff Recommendation acknowledges the arguments raised by HG&E and the Massachusetts Municipal Wholesale Electric Company
("MMWEC")F hat the standard of review for mergers under the Atomic Energy Act t
is different and broader than the FERC and SEC readings of their own statutory 1(... continued) in the testimony of Roger Allen submitted by HG&E to the Commission, HG&E relics on nuclear units for well over two-thirds of its energy mpply. For example, 73% of HO&E's 1989 energy supply came from the Pt. Lepreau, Pilgrim 1, Vermont Yankee, Maine Yankee and Millstone 3 units. Today, HG&E also relies on Seabrook. As HG&E explained in its Comments (filed April 1.1991 and June 13, 1992), HG&E is dependent entirely on transmission by others, notably including NU and PSNH, for access to these nuclear units, both currently and for the foreseeable future.
F HG&E is a member of MMWEC.
i Arent Fox Kintner Plotkin & Kahn i
1 Thomas E. Muriey, Director March 20,1992 Page 3 antitrust standards under the Federal Power Act and Public Utility Holoing Company Act, respectively.f Neither the Notice, nor the Staff Recommendation, responds to these arguments, however.
Under the Commission's Summel decisionJ a "significant change" occurred if the change has " anti trust implications that would most likely warrant some Commission remedy."f The Notice concludes that no "significant change" 1
would occur because the FERC conditions will " adequately" protect competition.
i Staff Recommendation at 31-32 & 36. HG&E does not concede that the FERC and SEC are correctly reading their statutory responsibilities. MG&E merely points out that those agencies are not exercising as broad a responsibility as this Commission bears. The Commission's standard of review is broader than the FERC's reading of it; own standard in at least three ways: (1) The Atomic Energy Act does not allow the Commission to " balance" other "public interest" factors against the competitive harm of the merger; (2) the Commission may impose conditions "in anticipation of situations which would not, ifleft to fruition, in fact violate any anti-trust law" (Alabama Power ( o. v. N.R.C. 692 F.2d at 1368); and (3) the Commission must look not only at the antitrust laws themselves, but also at the " policies clearly underlying these laws." M. The SEC's reading ofits standard is under judicial review as regards the proposed NU/PSNH merger. City of Holvoke Gas & Electric Dept. et al. v. S E.C.. Nos. 91 1001, e_t,t
- 11 (D.C, Lt., argued Nov. 14, 1991).
F South Carolina Electric and Gas Co. and South Carolina Public Service Authority, ('citgil C. Summer Nuclear Station, Unit 1), CLI-81-14,13 NRC 862 (1981). The Summer decision must be read in light of the 1982 Court of Appeals ruling in Alabama Power Co. v, N.R.C.,which stated that Congress intended NRC antitrust review to be a " broad inquiry to prevent infringement on the antitrust laws in the nuclear power field.... Here again, a traditional antitrust enforcement scheme is not emisioned, and a wider one is put in place " 692 F.2d 1362,1368 (11th Cir.1982), reh, denied 69R F.2d 1238 (1983), cert, denied 464 U.S. 816 (1983).
F Staff Recommendation at 1112. The Staff Recommendation concludes that the other two Summer criteria -- that the changes occurred since the previous antitrust review of the licensee, and that the change is attributable to the licensee
-- are met by the proposed acquisition. M. at 42.
Arent Fox K.intner Plotkin & Kahn Thomas E. hiurley, Director hiarch 20,1992 Page 4 Notice at 3. Given that the FERC only invoked conditions sutficient to satisfy its narrower antitrust standard (as the FERC conceives it),it does not follow that such conditions are sufficient to satisfy the Commission's broader and more defmitive antitrust responsibilityJ Although the Notice claims that "the Staff considered the structure of the electric utility industry in New England anu adjacent areas." there is little, if any, analysis of the industry's pre or post merger structure in the Staff Recommendation. Notice at 4.
Moreover, neither the Notice nor the Staff Recommendation includes any analysis of the adequacy of FERC-imposed conditions to resolve anticompetitive inipacts under the Atomic Energy ActJ T Moreover, reliance on FERC to cure any anticompetitive terms of future transmission contracts with NU/PSNH in a future unspecified tariff proceeding not only ignores the Commission's statutory responsibility to "take a forward look toward potential anticompetitive results" (Alabama Power Co. v. N.R.C.,692 F.2d at 1368), but also provides no remedy if HG&E is unable to obtain a transmission contract with NU. Staff Recommendation at 38-39.
F As support for its conclusion that " actions taken by the FERC adcquately address HG&E's concerns over abuse of NU s post merger market power," the Notice relies, in part, on the FERC Administrative Law Judge's ("AU") proposed requirement that NU establish an " ombudsman." Notice at 39; Initial Decision at 48-49,53 FERC 103,020 (Dec. 20,1990). The ombudsman would " review NU's service and eliminate the possibility of any anticompetitive consequences resulting from NU's substantial market power in transmission an<1 surplus power in the New England matket." Ld. However, the FERC deleted this condition in its Opinion No. 364 at 104,56 FERC 161,269 (Aug. 9,1991). Moreover, the t..;tice ignores the subsequent FERC order on rehearing. Opinion No. 364-A,58 FERC 161,070 (Jan,29,1992), which is itself the subject of a pending request for rehearing (scheduled to be considered by the FERC at its March 25,1992 agenda meeting).
Arent Fox Kintner Plotkin &Kahn
' Thomas E. Murley, Director March 20,1992 Page 5 The Clayton Act and Department oUustice Mercer Guidelines Neither the Notice, nor the Staff Recommendation upon which the Notice is based, employs any of the analytical tools contained in the Department of Justice's ("DOJ") Merger Guidelines. The Merger Guidelines, nublished at 49 Fed.
Reg. 26823 (1984), are the DOJ's enforcement policy for mergers and acquisitions subject to Section 7 of the Clayton Act,15 U.S.C. s 18, or Section 1 of the Sherman Act,15 U.S.C. s 1. Nonetheless, neither the Notice nor the Staff Recommendation even so much as mentiens the Clayton Act or the Merger Guidelines.
Although the Commission's antitrust inquiry rnust be " broader" than that conducted by other agencies, the " traditional antitrust cr.lorcement scheme " which is based upon Clayton Act principles, is a necessary starring point for the Commission's review into acquisitions imulving nuclear units.1 The faibire to analyze the proposed acquisition in light of those principks, which the Merger Guidelines explain,is inconsistent with the Commission's statutory responsibility. By deferring any antitrust analysis of the merger to the FERC, the Notice merely compounds the problem since the FERC's analysis also refused to follow the Merger Guidelines. Opinion 364 at 18. Indeed, the FERC erroneously viev s the Merger Guidelines as " hostile" to mergers, and assumes that the Merger Guidelines treat mergers as " presumptively harmful." Sg Opinion 3M-A at 5.
F Alabama Power Co. v. N.R.C.,692 F.2d at 13M,1368 ("Ihe antitrust laws incorporated in Section 105(c)(5) (of the Ato,nic Energy Act] are the Sherman Act; the Wilson Tariff Act; the Clayton Act; and the Federal Trade Commission Act." (citations omitted)).
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Arent Fox Kinmer Plotkin & Kahn Thomas E. Murley Director March 20,1992 Page 6 HG&E and others presented evidence to the Commission that the proposed acquisition would be anticompetitiveB. The FERC aftirmed the tindings of its own AU that "the merger would have anticompetitive impacts by giving the merged company vast competitive strength in selling and transmitting bulk power in New England.. " Initial Decision at 15; Opinion 364 at 40-44. However, the FERC misanalyzed NU's claim that the merger would produce significant benetits, and ruled that such alleged " synergies"(or " efficiencies") could offset part of the anticompetitive harm that the merger would cause. Opinion 364 at 45.
The Merger Guidelines specify the conditions under which DOJ will consent to a merger, which it might otherwise challenge, on the ground that the merger would produce "significant net efficiencies" or savings. Section 3.5 of the Merger Guidelines,49 Fed. Reg. 26834, prescribes that the efficiencies defense is not applicable "if equivalent or comparable savings can reasonably be achieved by the parties through other means." h!. Despite the unambiguous language of the Merger Guidelines, and the lojc of the Clayton Act, the FERC approved the merger based, in significant part, on NU's claim of efficiencies without considering other parties' showings that the claimed savings could be achieved without the merger. Opinion 364 at 16-19.
As discussed in the section below, the Commission is in a unique position to determine whether many of NU's claimed savings are realistic, and if they are, whether they could be achieved without the merger. The Director should closely l
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D' See, eg, Direct Testirnony of Dr. Robert J. Reynolds, former senior economist with the DOJ Antitrust Division, filed by HG&E on April 1,1991.
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Arent Fox Kintner Plotkin & Kahn Thomas E. Murley, Director March 20,1992 Page 7 examine the antitrust implications of the proposed acquisition using the principles embodied in the Clayton Act and the Merger Guidelines, including speci6cally the DOJ's standard for applying the efliciencies defense to mergers.
SU's Claimed $527 Million in Savines from FSficient Nuclear Operations The Staff Recommendation relies on the FERC and SEC decisions approving the merger, but those decisions were based, in part, on NU's claim that its superior nuclear operating record and multi-unit efficiencies would produce some
$527 million in sasings - the bulk of the benefits from the proposed merger as estimated by NU. The SEC decision, for example, accepted SVs claims at face value:
With the acquisition of PSNIi, the Northeast PSNIi system will becort.:
the lead owner of Seabrook. Northeast expects that its multi-unit operation experience and expertise will benefit Seabrook operations and permit cost reductions of PSNIrs power generation costs by approximately $188 million on a cumulative net present value basis..
The savings to CL&P and other Joint Owners are projected to be more than $21 million and $318 million, respectively..
SEC Order at 51 n. 84,47 S.E.C. Docket 1887 (Dec. 21,1990). See ako id. at 62-63.
The FERC AU likewise accepted NU's claim that hundreds of millions of dollars f
of savings would result from "Nb. groven record of excellence in managing and operating four nuclear generating facilities" and from NU's " management techniques" and efficiencies in operating multiple nuclear units. Initial Decision at 911. The FERC " summarily affirmed" the AIJs finding that the merger would " provide substantial savings related to Seabrook O&M, administrative and general costs and certain other expenses." FERC Opinion 3M at 44-45. Based upon a balancing of
Arent Fox Kintner Plotkin & Kahn Thomas E, hiurley, Director h1 arch 20,1992 Page 8 these savings (which constituted most of NU's claimed savings), the FERC and the SEC both approved the merger even though both concluded that the merger, as proposed, was anticompetitive.
The Commission is in a better position than were the FERC and the SEC to judge NU's claims of effectiveness and efficiency in operating nuclear units.
This Commission has data, experience and expertise necessary to make an informed determination. Accordingly, the Commission should examine NU's claimed savings from multi-unit nuclear operations for itself, and not rely upon " findings" by the FERC and the SEC.
Unles's the Commission is prepared to endorse NU's claimed " record of excellence" in operating nuclear units, the Commission can not rely on the FERC and SEC decisions. hioreover, those agencies balanced claimed savings due to NU's supposedly-unique " excellence" against acknowledged anticompetitive harm from the merger; but such balancing wocht transgress the standard of the Atomic Energy Act.
If the Commission endoue: NU's " excellence," the Commission must then decide whether Seabrook could achieve equivalent cost savings by means other than NU's proposed acquisition.
N U'.< Separation of Seabrook Operation from Ownership and Exculpation of Liability for Own Neelicence and Recklessness The Staff Recommendation discusses the concern, raised by hih1WEC, that NU is separating the operation and ownership responsibilities for Scabrook by creating two wholly-owned subsidiaries, NAESCO and NAEC, to operate and to own PSNH's interest in the unit, respectively. The Staff Recommendation dismisses this
Arent Fox Kintner Plotkin & Kahn Thoman E. Murley, Director March 20.1992 Page 9 concern as " contractual, not competitive" in nature and therefore not a factor to be considered by the Commission. Staff Recommendation at 33 34.
The Staff Recommendation fails to discuss (let alone analyze) two additional facts raised in MMWEC's Comments, however. Other than PSNil's Stabrook interest (which is to be held by NAEC), neither NAEC nor NAESCO possesses any assets whatsoever. As such, the two subsidiaries are c<sentially shell corporations whose primary purpose is to insulate NU from any liability as a result of its operation nr ownership of Seabrook. MMWEC April 1,1991 Comments at 3-(1.
To add yet another layer of insulation, NU bestowed favors using its control over the New England transmission market to obtain consent from two other utilities (constituting, together with NU, a majority of the Seabrook ownership shares) for an exculpatory clause that seeks to free NU from any liability connected to its acquisition of Seabrook, other than liability for willful misconduct.E The exculpptary clause purportedly would free NAESCO and its affiliates not only from harm caused by their own negligence, but also from responsibility for third party claims against MMWEC, or MMWEC members, such as HG&E, contracting for a share of Seabrook, for any harm related to Seabrook. Thus, NU is attempting to i
place operating responsibility for Seabrook in an asset less corporation through an if NAEC exculpatory clause is different from the prior PSNH exculpatory clause emanating from the Seabrook Joint Ownership Agreement because NAEC, unlike FSNH, has no assets that would be at risk if NAEC was deemed negligent or reckless.
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Romas E. Murley, Director March 20,1992 Page 10 improper use of NU's market power that should be prohibited by the Commissinn.
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The Notice's attempt to brush this issue away on the ground that it is
" contractual, not competitive' misses the point. De fact that anticompetitive market power is exercised by imposing discriminatory or unconscionable contract terms does not excuse the anticompetitive nature of the action. The Commission is the agency which has the statutory obligation to address such anticompetitive issues where they involve the licensing of ownership and operation of nuclear power units.
Moreover,it is not sufficient to rely upon the FERC to resolve this issue.
FERC did not address (and was not asked to address) these anti-competitive aspects of NU's ownership and operation of Seabrook because the exculpation clause was adopted in July 1990, after written testimony had already been filed and discovery com},:eted at the FERC.
1 Nor is it sufficient for the Commission to rely upon its imposition of A license condition barring NAESCO from marketing or brokering of Seabrook power or energy to somehow remedy this problem. See Staff Recommendation at 34.
Barring NAESCO from marketing and brokering power has no relevance to the issue of how to mitigate or prevent NU's exercise of market power in insulating itself from fiabilig for its own negligence in operating Seabrook.
Rather than avoiding the issue, the Director should examine the July 19, 1990 exculpatory agreement directly, both to determine its anticompetitive impact and as evidence of NU's use of anticompetitive market power in obtaining the agreement.
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Arent Fox Kintner Plotkin & Kalm Thomas E. Murley, Director March 20,1992 Page 11 02mmission Authority to Condition 1.icense Transfer The Staff Recommendation concludes at pages 39-40 that:
Furthermore, there is no basis for the staff unilaterally to impose conditions on the transfer of the license providing l
for a life of sersice transmission contract.
It is unclear whether the Staff Recommendation means the Commission lacks the legal authority or a factual basis for denying HG&E s proposed condition If tne Staff Recommendation means that ilG&E has not shown that there is in fact an anticompetitive problem that needs to be remedied, then the Staff Recommendation fails to explain how it resolves HG&E's contentions -- expressed in documents that HG&E has submitted in this proceeding, including the direct testimony of three HG&E witnesses, the HG&E briefs on and opposing exceptions to the FERC AU's initial Decision, HG&E's Motion for oral argument before FERC, and HG&E's Comments and Reply Comments to this Commission -- that the FERC merger conditions are not adequate to mitigate the anticompetitive impacts of the merger on HG&E. HG&E attaches hereto (for the convenience of the reader) its June 13, 1991 Comments discussing, in part, how the merger will expand NU's ability and incentive to engage in anticompetitive conduct against HG&E (see pages 3-6 of the Comments) and why the NU New Hampshire Corridor Plan, relied upon in the Notice without analysis of the Plan's ability to mitigate effectively actual anticompetitive harm caused by the merger,is inadequate to protect HG&E against such anticompetitive conduct (see pages 7-9 of the Comments).
Arent Fox Kintner Plotkin & Kahn Romas E. Murley, Director March 20,1992 Page 12 If the Staff Recommendation means that the Commission lacks a legal basis to impose transmission access conditions, then the Notice misstates the Commission's authority. Section 105(c)(5) states that the Commission has the authority "to isere a license with such conditions as it deems appropriate." The Commission has previously exercised this authority to impose a condition on the issuance of an operating license mandating that the licensee provide tiansmission access over its facilities for the use of certain smaller electric cooperatives. D at decision was affirmed on appeal by the U.S. Court of Appeals for the lith Circuit:
...the approach of Congress reflects the uniqueness of legislative control over nuclear development. Congress detennined the need for great expertise and wide powers. Both the responsibility and authority were granted to the Nuclear Regulatory Commission. The imposition of ownership tonditions along with conditions orovidine for access to Alabama Power's transmission facilities is not an abuse of nor beyond that delecated dic.cretion. We AFFIRM the remedy.
Alabama Power Co. v. N.R.C.,692 F.2d at 1369 70 (emphasis added).
Request for Clarification Recardine Conditions imposed by Commission The Staff Recommendation states that "the staff recommends denying in part and approving in part" HG&E's proposed conditions. Staff Recommendation at 37. There is no reference to HG&E's proposed conditions in the Notice. HG&E requests that the Director clarify whether the Commission is adopting HG&E's proposed condition that Commission approval be made contingent upon NU and PSNH satisfying all of the conditions imposed by the SEC and FERC. See HG&E c
April 1,1991 Comments at 910.
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Thomas E. Murley, Director March 20,1992 Page 13 If the Commission has adopted HG&E's proposed condition, then liG&E expects that the cendition will apply to any additional conditions that may be imposed on NU or PSNil in the future by either the FERC or the SEC as a result of agency reconsideration, remand from judicial resiew, or otherwise. liG&E requests that the Director indicate if IIG&E's understanding is not correct.
Conclusion WiiEREFORE, for the teamns stated above, IIG&E requests that the Director reevaluate the Notice's finding of no significant antitrust changes and, after l
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Arent Fox Kintner Plotkin & Kahn Thomas E. Murley, Director March 20,1992 Page 14 reevaluation, reverse the finding and initiate a formal antitrust review of the proposed transfers of PSNil's ownership and operating licenses.
Respectfully submitted, 1
(mi David J. Bardin Eugene J. Me'igher Steven R. Miles Arent Fox Kintner Plotkin & Kahn 1050 Connecticut Ave., N.W.
Washington, D.C. 20036-5339 (202) 857-6089 Attorneys for the City of liclyoke Gas & Electric Department ec: Anthony T. Gody, Chief, Policy Development and Technical Suppon Branch, NRC Office of Nuclear Reactor Regulation Gordon Edison, Senior Project Manager, Project Directorate 13, Division of Reactor Projects 1/II, NRC Office of Nuclear Reactor Regulation Joseph Rutberg, Esq., NRC Deputy Assistant General Counsel Thomas T. Martin, NRC Regior,al Administrator, Region 1 Noel Dudley, NRC Senior Resident Inspector George L. Iverson, Director, Office of Emerpncy Management NRC Document Control Desk Ted C. Feigenbaum, President and Chief Executive Officer, New Hampshire Yankee Division of PSNil John A. Ritscher, Esq.
Douglas G. Green, Esq., Newman & IIoltzinger, P.C.
Alan J. Roth, Esq., Spiegel & McDiarmid l
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Attachnent Arent Fox Kintner Plotkin & Kahn June 13,1991 Dand L Ilardm
- >" N VIA IIAND DEIJVEltY Anthony T. Gody, Chief Policy Development and Technical Support Branch Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, D.C 20555 Re: Public Service Company of New llampshire, Docket No. 50 443 REPLY O F CTTY OF ilO LYOKE G AS & EIECTIUC DEPARTMENT
'K) TifE RESPONSE OF CONNECTICLTP IJGilT & POWER COMPANY AND PUB 1JC SERVICE COMPANY OF NEW IIAMPSHIRE REGARDING ANTITRLFP ISSUES
Dear Mr. Gody:
The City of Ilotyoke Gas & Electric Department ("HG&E") hereby replies to the response of Connecticut Light & Power Company ("CL&P")l/
and Public Service Ccmpany of New Hampshire ("PSNH") (collectively,
" Applicants") filed in the above referenced proceeding on April 22,1991, concerning antitrust issues (" Response"). For the reasons stated below, the Commission should find that the proposed transfer of PSNH's interest in Seabrook Station, Unit 1, to NU constitutes a "significant change" and, after formal review by the Attorney General, deny the proposed transfer on the grounds that approval would create or maintain a situation incon-toso conn-ocui A.enue, NT sistent with antitrust laws and policies. In the alternative, the Commis-Usshmsm DC 20036 5339 sion should condition its approval of the transfer upon NU and PSNH Telephone.202/857 6000 cable: Aarox -
fulfilling the operational and structural conditions stated on pages 910 of Telen. TU 892672 nT uom HG&E's Comments filed April 1,1991, in this proceeding. Those conditions Facamule. 202/8574395 represent the minimum level of protection adequate to safeguard ilG&E from competitive injury resulting from the merger and the license transfer.
3 Bethesda.Marytend20814 3413 1/
CL&P is a wholly-owned affiliate of Northeast Utilities ("NU").
8000 To m Crescent D tve
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Arent fox N111tiier IMotkin & Kahn g
Anthony T. Gody, Chief '
June 13,1991 Page 2 1.
PSNII's Transfer of its Seabrook License to NU Constitutes a
'Significant Change," Requiring Review by the Commission and the Attorney General of the Anticompetitive Impacts of the Transfer Applicants contend that past and future conduct in bulk power markets is irrelevant to the Commission's review under Section 105c of the Atomic Energy Act ("AEA"),42 U.S,C,52135(c), and therefore the transfer of PSNH's Seabrook license to NU lacks "any connection" to the anticompetitive control which the merged firm will wield over whotesale sales of generation and traasmission capacity. Response at 18. Although nexus is an important element in the Commission's analysis, Applicants apply the wrong legal standard and attempt to brush aside facts demonstrating the relationship between the transfer of PSNH's Seabrook license and the anticompetitive situation that results.
In support of their contention that bulk power activities are irrelevant to the Commission's responsibilities under Section 105c, Applicants rely upon a 1973 decision of the Atomic Energy Commiasion /
2 Applicants, howr er, ignore the 1982 ruling of the United States Court of Appeals in Alabsma Power Co. v. N.R.C., 692 F.2d 1362 (lith Cir.1982),
cert, denied 464 U.S. 816 (1983). In its decision (at pages 1367 68), the Court of Appeals affirmed the Commission's imposition of conditions on a utility's nuclear license designed to remedy the utility's past and prospective anticompetitive actions -- including anticompetitive wholesale power sales not involving nuclear power (emphasis added):
lApplicant) contendial that the NRC overstepped its authority in looking past the direct effects of the nuclear plant on the present or prospective competitive situation, and in considering actions of 2/
Louisiana Power and Light Co., 6 A.E.C. 619 (1973) ("Waterford II").
drent fox Kintner PlOlkin & Nahn Anthony T. Gody, Chief June 13,1991 Page 3 Alabama Power which preceded the license application by many years.
We do not agree with this argument.
....The amount of market power held by the applicant and the ways it has been used are relevant inquiries in determining whether there is a " situation' to maintain, and whether issuing this license will maintain it. The statute clearly calls for a broad inquiry and common sense does not allow interpretations to the contrary.
The Commission's Atomic Safety and Licensing Appeal Board similarly imposed conditions upon a utility's operating license for a nuclear power plant for the purpose, in part, of remedying the licensee's anticompetitive actions in denying transmission service to smaller utilities in Consumers Power Co., Nuclear Reg. Rep. (CCH) % 30,263 (1977). The Appeal Board ruled that an antitrust inquiry under Section 105c required consideration not only of the licensee's actions, but of the structural context of the market as well. The proper test for nexus, the Appeal Board ruled, was whether award of the license would be " intertwined with" or would
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"exacerbatell" an anticompetitive situation. Id. at p. 28,368 - 28,371.3/
There can be little question that the transfer of IV"H's share of Seabrook to NU will exacerbate the anticompetitive sit a between NU and HG&E. IIG&E is dependent on purchased power from other entities.
By combining PSNH's share of Seabrook with NU's existing share, the merger will roouce the number of competitors selling excess generation capacity. The merged company, with its control over the Seabrook excess generation capacity (which NU has been trying to and continues to try to 3/
Even the Commission's decisions in Waterford I and U, cited by Applicants, recognize that a proper nexus between anticompetitive actions and " activities under the license" "woul6 not be limited to construction and operation" of the nuclear power plant. Louisiana Power and Light Co.,6 A.E.C. 48 (1973) ("Waterford !").
Arent Fox Kintner Plotkin & Kahn
's Anthony T. Gody, Chief June 13,1991 Page 4 market throughout New England),4/ will possess the capability to limit access to and dictate terms for generation capacity.
Moreover, the merger will give NU control over the transmission lines needed to import power from outside New England. Currently, over 36% of HG&E's total energy supply is purchased from a competing nuclear power plant in Canada via transmission by PSNH. NU can be expected, if its acquisition of PSNH's Scabrook capacity is approved, to restrict that transmission capacity in order to increase its own control over the wholesale generation market in New England and, therefore, expand its ability to force other utilities to purchase its excess Seabrook power.El 4/ Applicants implicitly acknowledge in their Respo.a.e ist 17) that Seabrook " contributes' to Applicants' excess generating capa ity, though they characterize this surplus as " temporary."
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Applicants claim that HG&E declined to accept an invitation by the FERC ALJ to produce Dr. Reynolds for questioning at the hearing.
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Response at 21-22 n.12. As the transcript of the FERC hearing evidences, however, NU's counsel on at least one occasion argued strongly that Dr. Reynolds not be allov'ed to appear since NU waived cross-examination of him:
MR. PFUNDER [ Counsel for Montaup Elec. Co., joint sponsor of Dr.
Reynolds' testimony with HG&E and other partiesl: Dr. Reynolds is the expert economist for a number of parties. He is our key witness on anticompetitive effects. He is here in Washington.... We want to make him available here so he is available for you ithe Presiding Judgel to question him.
MR. E X ICounsel for NUl: Your Honor, the problem (with allowing Dr. Reynolds to appeerl is as to whether we are going to parade l
through this hearing room witnesses whom the company and/or the supporting Interveners have concluded they do not want to have any l
cross examination of....
As of today, we are 40% of the way through I
the hearing.
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PRESIDING JUDGE: Pye heard enough... Do you want these people l
to come in here, even though the company INU) says they don't want to cross them?
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Arent Fox Kintner Plotkin & Kahn Anthony T. Gody, Chief June 13,1991 Page 5 As the testimony of Messrs. Leary and Allen demonstrates (copies of l
which were lodged with the Commission with IIG&E's Comments), NU repeatedly has attempted to inflict competitive injury on HG&E in order to benefit NUs affiliate. Ilolyoke Water Power Company ("IIWP'), in its retail competition with HG&E.9/ NU does not deny that it provides wholesale generation and transmission capacity both to its affiliate, HWP, and to HG&E. This relationship creates an inherent incentive and opportunity to disadvantage HG&E, both presently and in the future.
Given the past history of NU's anticompetitive conduct against HG&E, the undeniable incentive for NU to continue to injure HG&E in the future, and the increased ability for NU to engage in such anticompetitive conduct 5/(... continued)
MR. PFUNDER: The issue is whether the company should be allowed to, by waiving cross-examinat.on of a key witness like Dr. Reynolds, to abort the opportunity for you to question Dr. Reynolds.
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PRENfblNG JUDGE:....Do not waste anybody's time bringing anybody in here whom you know is not going to be cross-examined. Let's structure the schedule that way.
Tr. 3218, 3223 225. In addition, Applicants neither supply nor quote the pages of Prof. Hay's testimony that they claim 'devastatiel" Dr. Reynolds' testimony. HG&E, which supplied this Commission with a complete copy of Dr. Reynolds' testimony on April 1,1991, would be willing to provide copies of Dr. Hay's prefiled and cross examination testimony if desired by the Commission. Applicants' self-congratulatory assertions do nothing more than point out the factual controversy regarding the anticompetitive impact of the license transfer and merger which this Commission needs to resolve, either through analysis of the FERC record or otherwise.
6/ Applicants claim that FERC found NUs transmission rates to HG&E to be below NUs cost of service for transmission. Response of 17. The FERC's decision, which was based on the rolled in cost of NU's transmission facilities, is the subject of a pending appeal filed by HG&E on the ground (in part) that no evidence of NUs rolled-on costs was introduced on the record by any party to the proceeding. City of Holyoke Gas & Elec. Dept. v. FERC, Case No. 90-1565 (D.C.Cir., filed Nov. 26, 1990) (oral argument scheduled for Oct. 25, 1991).
e Arent Fox Kintner Plotkin & Kahn Anthony T. Gody, Chief June 13,1991 Page 6 if the transfer of PSNil's Seabrook interest is approved, there can be no doubt that the proposed transfer is "significant" and bears a strong nexus to the likely expansion of NU's anticompetitive uctions against liG&E.
II.
The Commission may Not Abdicate its Authority to the FERC and SEC to Review the Antitrust Isauca of the Nuclear 1.icense Transfer Applicants urge that this Commission surrender its responsibility and authority to review the antitrust issues of the proposed license transfer to other federal agencies, principally the Federal Energy Regulatory Commission ("FERC") and the Securities and Exchange Commission ("SEC").
Response at 19 29. Applicants, however, ignore the clear directive of Section 105c of the AEA, which prescribes that when there is a significant change in the licensee's proposed activities, the Commission "shall make a finding as to whether the activities under the license would create or maintain a situation inconsistent with the antitrust laws" specified in
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Section 105a of the AEA, Although the Commision may in its investigation rely upon the factual record developed by another agency, the statute does not allow the Commission to delegate to another ager.cy the Commission's responsibility to analyze the information presented and to render a finding, Moreover, as the Court of Appeals emphasized in Alabama Power, the Commission's review of antitrust issues is far broader in scope than the traditional antitrust analysis undertaken by FERC and other federal agencies:
The NRC is to look only for " reasonable probability" of violation. This command may result in the conditioning of licenses in anticipation of situations which would not, if left to fruition, in fact violate any antitrust law. But Congress intended this broad inquiry to prevent infringement on the antitrust laws in the nuclear power field.
dtvill l'OX Nillifier l'!Olkill b !Ul!!!!
Anthony T. Gody, Chief June 13,1991 Page 'l We alt.o not thnt the Joint Corntnittee lleport did not limit the NI(C's inquiry to probable contravention of the antitrust laws, but included "or the policies clenily underlying these lawn." ligt nrang (L raditionni antitrunt enforcernent scheme in not enviainned ond a t
t wider one imJuLtrLpjag.
692 l'.2d at 1368 (emphasis addedL Although the Commission may rely upon the record developed at the l'EltC. It ultimately must reach its own conclusions applying the broader legal blandard prescribed by the AEA.
Applicata' Transmisalon l'ropoeal Will lenvo llG&E Without IUght to Ill.
Meaningful Trunamimion Accena to its largest l'>upplier NU's ree-ponse that ilG&E car bid for transmiulon capacity under O
N1Ps *New llampshire Corridor Plan" (ltesponse at 25 27)is s.o solution ut all to the unticompetitive problems created by the r Joposed transfer and Under NU's New linmpshire Corridor l'roposal, ilG&E's right to merger.
continue using PSNil transmiulon capacity to nurchase 12.2 mW of power from Pt. Lepreau in Caneda would be terminated atter October 1994, Although NU thereby depriving IIG&E of accen to its largest supplier.
100 mW of transmission capacity would be mtide available to claims tha replace this lost transmission capacity, the fact is that one half of any available capacity (200 mW) is already allocated to another utility, New England Power CNEP"). Since NU proposes to allocate the remaining 200 mW on the basis of each utility's share of regional peak loud, llG&E*e share of guaranteed transmission capacity couic be as low as 1 mW. This would make it virtually impossible for IIG&i to continee purchasing needed low cost power from Pt. Lepreau or elsewhere in Canada or Maine, The eine gan non behind this scheme is NU's need to cut off competition to sales of excess power, which will arise if the transfer application is approved.
l AreHt Fox Kintner Plotkin& Kahn Anthony T. Gody, Chief June 13,1t#91 Page 8 Likewise, NU's claim that HG&E can purchase "brokereti" transmiston capacity from winning bidders is hollow.
Since many other utraties likewise will be short of transminion capacity, allowing them to resell their $imited capac.ity at even higher prices offers little benefit. Nor are sales by NEP likcly to be of much help. If NEP, the only utility likely to receive a streable entitlement of NU transmission capacity, offered its entire 200 tLW entitlement for sale to other ut'lities based upon each utility's share of regional peak load, llG&E's transmissior, rigt.ts would increase to a neglirible 2 mW, an amou-t so small as to force HG&E to replace its Pt cpw a power with powe, from NU.
Moreover, the restrictions placed on the 200 inW NU plans to "off er" are onerous and make it unlikely that this offer will in reulity provide much assistance to llG&E. For example, although the offer claims to extend up to thirty years, the restrictions imposed by NU effectively limit the duration of its transmiulon ' offer" to less than ten years (eg, utilities requesting service beyond the year 2000 are obligated to pay on a pro rata basis for r;onstruction of new transmission lines, whettwr or not the requesting utility would ever rmed or use thor.e new lines).
Thereafter, llG&E and other utilities in New England will be entirely at the mercy of NU which will contro! virtually all transmtsalon capacity from Canada and Maine to southern New England.
Finally, NU's cc.ntention that HG&E can share in the construcion of new transmission lines in specious. NU's plan commits it to do nothing more than use their *best efforts' to support new lines and to prepare studies if a majority of NEPOOL members request such a study. This leaves too much discretion in NU's hands. What is particularly unsettling
Arellt lOX Killlfler l>lolkin 6: Kahn Anthony T. Gody, Chief June la,1991 Page 9 la that NU and NEP reserve for themselves rights to 50% of the capacity on any new transmission line. While utilities which purchase longer term capacity from NU will be required to pay much of the cost of any new lines (without necessarily obtaining any increase in entitlement), NU and NEP will " roll in" their share of the costs into the total average transmiasion costs charged for all other transnilsalon services. This will likely result in utilities who have already contributed directly to the cost of the new transmission line also paying part of NU's share through higher rates on other transmission services.. Moreover, as recent decisions rejecting transmission line construction in Maine arid elsewhere in New England demonstrate, it is uncertain when (and 10 additional high voltage transmission lines will be opproved in regior..
In short, the only guaranteed transmission capacity which IIG&E can count on under the NU plan is approximately 1 mW of capacity, and even that is for a limited
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nurnber of years.1/
Conclusion Wherefore,.or the reasons stated herein and in ilG&E's Comments.
IIG&E respectfully requests that the Commission find that the proposed license transfer constitutes a "significant change" in the licensee's activities and, following formal review by the Attorney General and a 2/
As this debate shows, the NilCP is a complex document, drafted by NU and NEP, which provides many " escapes
- and ambiguitles which NU can use to avoid providing meaningtun transmission access-Moreover, the
. PERC AIJ recommended changes to the NIICP which NU is now opposing before the FERC. If nothing else, the debate over the meaning and usefulness of the NilCP demonstrates the neM for this Commission to investigate (either by using the FERC record or through its own hearings) the impact of the NHCP in relation to the anticompetitive dangers that would be created by transfer of the Seal, rook license and the merger.
Are111I?OX NilillH'r I'lut kin & KnlUI d
Anthony T. Gody, Chief June 13,1991 i
Page 10 hearing into the antitrust insues raised by the proposed transfer, deny the propobed transfer or, in the alternative, impose on the grant of the transfer the conditions stated on pages 910 ef ilG&E's Comments.
Itespectfully submitted,
~
t 44' David.I. Bar' in iL l'Av)
Steven R. Afiles Arent, Fox, Kintner, Plotkin & Kahn 1050 Connecticut Ave., N.W.
Washington, D.C. 20036 5339 (202) 857 6089 Attorneys for the City of liolyoke Gas & Electric Department cc: Cordon Edison, Senior Project Manager, Project Directorate 13, Division of Reactor Projects 1/II, NRC Office of Nuclear Reactor llegulation Joseph Itutberg, NRC Deputy Assistant General Counsel Thornas T. Martin, NRC Regional Administrator, Region 1 George L. Iverson, Director, Office of Emergency Management
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Noel 1>udley, NRC Senior Resident inspector Ted C. Feigenbaum, President and Chief Executive Officer.
New Hampshire Yankee Division of PSNil John A Ritscher, Esq.
NRC Document Control Desk l
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