ML20151E255
| ML20151E255 | |
| Person / Time | |
|---|---|
| Site: | Davis Besse, Perry, 05000000 |
| Issue date: | 07/15/1988 |
| From: | Coyle J CLYDE, OH, DUNCAN & ALLEN (FORMERLY DUNCAN, ALLEN & TALMAGE |
| To: | Office of Nuclear Reactor Regulation |
| Shared Package | |
| ML20151D817 | List: |
| References | |
| A, NUDOCS 8807250427 | |
| Download: ML20151E255 (61) | |
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s-UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE DIRECTOR OFFICE OF NUCLEAR REACTOR REGULATION In the Matter of )
)
THE CLEVELAND ELECTRIC )
ILLUMINATING COMPANY )
)
and ) Docket Nos. 50-440A
) and 50-346A THE TOLEDO EDISON COMPANY )
)
(Perry Nuclear Power Plant, Unit 1, )
and Davis-Besse Nuclear Power )
Station, Unit 1) )
OPPOSITION OF THE CITY OF CLYDE, OHIO TO THE APPLICATION TO AMEND THE PERRY AND DAVIS-BESSE OPERATING LICENSES TO SUSPEND THE ANTITRUST c'ONDITIONS Gregg D. Ottinger, Esq.
John P. Coyle, Esq.
DUNCAN, ALLEN AND TALMAGE 1575 Eye Street, N.W.
Suite 300 Washington, D.C. 20005 Telephone: (202) 289-8400 Attorneys for the City of Clyde, Ohio July 15, 1988 G807250427 800715 PDR ADOCK 0S000346 M PNV ,
4 s
UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE DIRECTOR OFFICE OF NUCLEAR REACTOR REGULATION In the Matter of )
)
THE CLEVELAND ELECTRIC )
ILLUMINATING COMPANY )
)
and ) Docket Nos. 50-440A
) and 50-346A THE TOLEDO EDISON COMPANY )
)
(Perry Nuclear Power Plant, Unit 1, )
and Davis-Besse Nuclear Power )
Station, Unit 1) )
r OPPOSITION OF THE CITY OF CLYDE, OHIO, TO THE APPLICATION TO AMEND THE PERRY AND DAVIS-BESSE OPERATING LICENSES TO SUSPEND THE ANTITRUST CONDITIONS To: Chief, Policy Development and Technical Support Branch, Office of Nuclear Reactor Regulation The City of clyde, Ohio ("Clyde") submits the fc11owing opposition to the "Application to Amsnd the Perry and Davis-Besse Operating Licenses to Suspend the Antitrust Conditions" ("Application"), filed herein on behalf of the Cleveland Electric Illuminating Company ("CEI") and the Toledo Edison Company ("TE") (collectively, "the Applicants" or "the Canterior Companies") on May 2, 1988. The Application requests "suspension" of antitrust conditions imposed pursuant to Section 105c of the Atomic Energy Act (42 U.S.C. 2011 at ges.,
4-t-
2135(c)) ("the Act") on the Perry Nuclear Power Plant Facility Operating License No. NPF-58 and the Davis-Besse Nuclear Power Station Facility Operating License No. NPF-3 as a result of findings an Atomic Safety and Licecsing Board of this Commis-sion,1/ as upheld on appeal to the Coamission's Atomic Safety and Licensing Appeal Board.2/
Clyde's opposition to the Application is submitted pursuant to the Commission's notice of June 16, 1988 (53 Fed.
Reg. 22589-22590; FR Doc. 88-13614) requesting public comments.
The names and addresses of persons to whom correspondence concerning this opposition should be directed are:
Mr. Nelson E. Summit City Manager 222 North Main Street Clyde, Ohio 43410 (Telephone: (419) 547-0575) and Gregg D. Ottinger, Esq.
John P. Coyle, Esq.
Duncan, Allen and Talmage 1575 Eye Street, N.W.
Suite 300 Washington, D.C. 20005 (Telephone: (202) 289-8400) 1/ Toledo Edison Comoany, (Davis-Besse Nuclear Power Station, Units 1, 2 and 3; Perry Nuclear Power Plant, Units 1 and
- 2) LBP-77-1, 5 NRC 133 (1977), stay denied, LBP-77-7, 5 NRC 452 (1977) (the "Licensina Board Decision").
2/ Toledo Edison Company, (Davis-Besse Nuclear Power Station, Units 1, 2 and 3; Perry Nuclea~ Power Plant, Units 1 and
- 2) A LAB-560, 10 NRC 265 (1979) (the "Acceal Board Decision").
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-3 -
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1 I. CLYDE'S INTEREST IN THE PROCEEDINGS j Clyde is a city of approximately 5,500 inhabitants, located in Sandusky County, Ohio, within the retail electric service territory allocated to TE by the Public Utilities Commission of Ohio ("PUCO").2/ TE and CEI are the co-licensees of the Davis-Besse Nuclear Power Station, and are, in turn, wholly owned subsidiaries of Centerior Energy Corporation through a stock acquisition that became effective on April 29, 1986 (Application at p. 1 and fn. 1). TE, CEI and three other utilitiesd/ are co-licensees of the Perry Nuclear Power Plant.
, Prior to 1965, Clyde owned and operated a self-generating municipal electric system. In 1965, TE bought out Clyde's municipal electric system in furtherance of its policy of acquiring the electric systems of its municipal competitors.
Licensina Board Decisinn, 5 NRC at 211-213; ADoeal Board Decision, 10 NRC at 376-377. From TE's acquisition of the Clyde electric system in 1965 to the present, Clyde, its businesses and residents have received retail electric serrice from TE.
2/ Pursuant to Sections 4933.81 through 4933.90 of the Ohio Revised Code ("ORC"), the PUCO establishes exclusive, "certified" service territories for nonmunicipal suppliers of electric power and energy.
A/ Ohio Edison Company and its subsidiary, Pennsylvania Power Company, and Duquesne Light Company. All five utilities constitute the Central Area Power Coordination power pool
("CAPCO"), and their collective service territorios have been referred to in this proceeding as the "combined CAPCC company territories" or "CCCT." ADDeal Board Decision, 10 NRC at 273-074. Clyde is located within the CCCT.
On October 7, 1986, the Clyde City Council commis-sioned a feasibility study on the acquisition and operation of a newly-created municipal electric utility. On July 21, 1987, that study -- performed by independent engineering and law firms, with input from design engineers, cost-o f-se rvice experts, municipal insurance specialists and other independent 1
professionals -- was presented to the City Council for review. l 1
On July 28, 1987, the City Council unanimously passed Ordinance No. 1987-33 (Attachment A) which provides in relevant part:
Section 1. That the City of Clyde shall proceed to acquire, construct, own, lease and operate within or without its corporate limits, a public electric utility the product or service of which shall be supplied to the City and its inhabitants and may contract with others for any such product or service.
Following the passage of Ordinance No. 1987-33, a referendum election on the ordinance was scheduled for November 3, 1987, as a result of a citizen referendum petition. In the course of the referendum campaign, TE presented its own "rebuttal" study, a critique of the feasibility study commis-sioned by the city Council, and both TE and the City Council l presented their respective views on the establishment of a 1
municipal utility to the citizan of Clyde through a series of public debates.
t
s On November 3, 1987, the voters of Clyde approved Ordinance No. 1987-33 and its direction to establish a municipally owned electric system by a margin of 1042 to 468.
Following the referendum vote, Clyde's city officials have undertaken numerous steps to implement the citizens' mandato.
These steps have included: solicitation of proposals for, and negotiations concerning, wholesale power supply arrangements; acquisition of rights of way; retention of design engineers; and the solicitation, review and acceptance of bids for equipment and construction for substations and other utility facilities.
Throughout this process of deliberation, debate, authorization and action, Clyde's Council members and citizens have acted in reliance on the assurance implicit in the antitrust conditions at issue in this proceeding that Clyde is entitled nondiscriminatory treatment in its efforts to acquire a wholesale power supply and coordination services. Thus, the conditions, in pertinent part, require TE and its CAPCO partners and co-licensees, upon nondiscriminatory terms and conditions to: (1) "offer interconnections upon reasonable terms and conditions at the request of any other electric entity (ies) in the CCC7" (condition 2); (2) "engage in wheeling for and at the request of other entities in the CCCT" (Condi-tion 3); (3) "sell emergency power to requesting entities in the CCCT" (condition 6); and (4) "sell wholesale power to any
s l
requesting entity in the CCCT" (Condition 10) .E/ In addition, and of equal significance, the conditions provide Clyde's newly created municipal utility with a measure of protection against those practices -- labelled "predatory" and "monopolistic" by the Appeal Board (booeal Board D? cision, 10 NRC at 377) --
which contributed to the loss of Clyde's pre-1965 electric system.
Inasmuch as Clyde has placed substantial reliance on the nondiscriminatory treatment that the conditions guarantee to its present and future efforts to contract for power supply and related services, as well as on the protection that the conditions afford against a recurrence of monopolistic practices found in the prior licensing proceedings before the Commission, Clyde has a vital, compelling and substantial interest in the outcome of this proceeding.
II. CLYDE'S OPPOSITION TO THE APPLICATION The Commission's Licensing Appeal Board imposed the antitrust license conditions at issue in this proceeding upon the Applicants following a seven month trial that resulted in a series of findings that the Applicants, along with their CAPCO partners, were "guilty of repeated and flagrant violations of E/ Clyde's attempts to elicit from TE a proposal for whole-sale power supply for Clyde's municipal electric system have thus far proven unavailing. There nonetheless exists the possibility of future power supply agreements with TE because of Clyde's location in TE's service territory.
l
s the antitrust laws" in their dealings with their municipal and rural electric cooperative competitors.5/ Giving only the briefest of nods to those findings,2/ the Centerior Companies assert that, in the somewhat less than nine years that have
(
elapsed since the Commission declined to review the Appeal )
l Board's decision and Applicants accepted their operating '
licenses without further appeal of the antitrust conditions placed on them, they have become entitled to be relieved entirely of those conditions by virtue of two phenomena. The Centerior Companies first cor. tend (Application at 5-17) that the antitrust conditions should be "suspended" because the production costs of nuclear power are presently greater than projected during the 1970's. The Centerior Companies further contend (Application at 20-39) that the projected emergence of new municipal systems and the actual development of other small competitors in the bulk power market in Ohio -- the protection of both of which was a principal reason for imposing the conditions in the first place -- has obviated the need to keep the conditions in place.
The Application should be dismissed. First, accepting arauendo the accuracy of the factual assertions advanced by the Centerior Companies, those factual assertions are insufficient under the legal standards appropriate to this type of inquiry to warrant the Commission's consideration of 5/ Anoeal Board Decision, 10 NRC at 271.
l 2/ Application at p. 6 fn. 8.
l
s I
{
any relaxation of the license antitrust conditions. This flaw l I
infects both the Applicants' contentions on the production costs of nuclear power, which in fact amount to nothing more than yet another attempt to rewrite the Commission's "nexus" doctrine under Section 105c of the Act, and their contentions on the emergence or re-emergence of competition, which in fact s
show nothing more than that the antitrust conditions are working. In addition, the Centerior Companies have failed even to allege that compliance with the conditions creates a burden so unfair as to warrant "suspension" of the conditions.
Finally, in the event that the commission concludes it is permitted to conduct a factual inquiry, the Application ignores utterly postlicensing developments, such as the consolidation under a single holding company, that may significantly contribute to the creation or maintenance of "a situation inconsistent with the antitrust laws" in connection with Applicants "activities under the license (s)" at issue here.
A. The Legal Standard Governing piscosition of the Aeolication In the sense that the Commission i~. n not issued a decision concerning a request to suspend license antitrust conditions, the Application may be said to raise a case of first impression before the Commission.E/ Nonetheless, E/ As of the date of this filing, the Director has not issued a decision concerning the application of the Ohio Edison Comeany, dated September 17, 1988, to suspend the anti-trust conditions in Ohio Edison's operating license for
s consistent with the commission's mandate under Section 105 of the Act to "apply principles developed by the Antitrust Divi-I sion, the Federal Trade Commission and the Federal Courts to j i
(the nuclear power) industry"2/ in discharging its antitrust responsibilities, the standard to be applied by the Commission and the Director in disposing of this Application on the merits
-- assuming that the Commission reaches the merits 1S/ -- is clear.
The most apt analogy t'o the present Application is a post-decree petition by defendants subject to a district court injunction designed to remedy their past antitrust violations for modification of that injunction. In that situation and where, as here, the parties subject to restraints on their anticompetitive conduct seek to be freed entirely of those Perry Unit 1. On June 22, 1988, Ohio Edison filed a complaint for declaratory and injunctive relief relat ive to the Commission's handling of that application in the United States District Court for the District of Columbia.
Ohio Edison Co. v. Zech. et al., Civ. No. 88-1695-CRR (D.D.C.).
2/ Houston Lichtina and Power Companv lSouth Texas Proiect.
Units 1 and 2), CLI-77-13, 5 NRC 1303, 1316 (1977).
l I 1E/ In Parts III and IV of its answer, dated February 19, 1988, to Ohio Edison's application to suspend the antitrust conditions in Ohio Edison's Perry license, the City of Cleveland presented a compelling argument that the Commission is barred both by its statutory jurisdiction and by issue preclusion doctrines from reaching the merits of that application. Clyde expects Cleveland to advance the similar arguments in response to the instant Applica-tion and endorses those arguments fully. Clyde has limited its opposition to the merits, in order to void burdening the Director and the Commission with a duplica-tion of Cleveland's well stated arguments on those issues.
s restraints, the appropriate inquiry is that set forth by Justice Cardozo in United States v. Swift &_Co., 286 U.S. 106, 119-120 (1932) (emphasis added):
There is need to keep in mind steadily the limits of inquiry proper to the case before us. We are not framing a decree. We are asking ourselves whether anything has happened that will justify us now in changing a decree. The injunction, whether right or wrong, is not subject to impeachment in its applica-tion to the conditions that existed at its making.
We are not at liberty to reverse under the guise of readjusting. Life is never static, and the passing of a decade has brought changes to the ... business as it has to every other. The incuiry for us is whether the chances are so important that dancers, once substantial. have become attenuated to a shadow.
No doubt the defendants will be better off if the injunction is relaxed, but they are not suffering hardship so extreme and unexpected as to justify us in saying that they are the victims of oppression.
Nothina less than a clear showina of crievous wrona evoked by new and unforeseen conditions should lead us to changs what was decreed after years of litication with the consent of all concerned.
What was then solemnly adjudged as a final composi-tion of an historic litigation will not lightly be undone at the suit of the offenders, and the composition held for nothing.
The somewhat more lenient standard pertaining to modification of judicial constraints on anticompetitive conduct by adjustments to those constraints carefully designed to make them achieve their essential purpose, recognized by the Supreme Court in United States v. United Shoe Machinery coro., 391 U.S.
244, 249-252 (1968), is plainly not applicable here. The Centerior Ccmpanies are not 7.ere seeking modification of the license antitrust conditions in order to make the conditions
achieve their essential purpose -- the avoidance or mitigation of a "situation inconsistent with the antitrust laws," as required by Section 105c of the Act. Rather, the Centerior Companies seek to escape the impact of those conditions altogether. Accordingly, as the Supreme Court itself has stated, Swift is the applicable starGard (United States v.
United Shce Machinerv Coro., 391 U.S. at 248 (emphasis in original)):
Ewift teaches that a decree may be changed upon an appropriate showing, and it holds that it may Dgt be changed in the interests of the defendants if the purposes of the litigation as incorporated in the decree (the elimination of monopoly and restrictive practices) have not been fully achieved.
Accordingly, the "limits of inquiry" incumbent upon the Director and the Commission by virtue of the applicability of the Supreme Court's analysis in Swift place a three-part burden on the Applicants. Thus, the Centerior Companies must make "a clear showing of grievous wrong evoked by new and unforeseen conditions;" must show that the changes on which they base their Application "are so important that dangers" --
of their activities under their Perry and Davic-Besse operating licenses creating or maintaining a situation inconsistent with the antitrust laws - "once substantial, have become atter uated to a mere shadow;" and must show that they are "suffering hardship so extreme end unexpected" as to be regarded as "victims of oppression." See Humble Oil & Refinina Comoany v.
-o Neerican Oil Comcany, 405 F.2d 803, 813 (8th Cir. 1969)
(Blackmaun,'J.), cert, denied, 395 U.S. 905.
As we now show, the Centerior Companies' Application falls so far short of satisfying the appropriate standardll/
that it should be dismissed without further proceedings.
B. T4' Assertions On Which The Application In Premised Fail To Satisfy The Showing Recuired For Relief From the Antitrust Conditions The self-described "central thrust" of the Applica-1.on (Application at 5-l') -- that the high cost of nuclear power prod.:.ction "defeats the NRC's stavatory basis for
?
1mposino the license conditions" -- profoundly misconceives both the operation of the legal standard governing disposition of the Application and the impact of the legislative history of 11/ The sole authority cited by the Centerior Companies (Applicatici, at 12) on the controlling legal standards, the Federal Trade Commission's order in Union Carbide Corp., 108 FTC 184 g1986), would seem to indicate that the Applicants support Clyde's position on this issue. Thus, the citations omitted from the relevant quote from that order show that the FTC follows the Swift standard on the issue of modification. Union Carbide Coro., 108 FTC at 186. However, the Application's other quote from the FTC's Union Carb(da order (318 FTC at 185) ja not relevant to this discussion because it relates to me ~. tory reopening of the FTC's record under the 19b% mendments to Section 5(b) of the Federal Trade Commission Act (15 U.S.C. 45(b)). See grited Stqtes v. touisians-Pacific f"rg., 754 F.2d 1445, 1948-1449 (9th Cir. 1985) (discuss-i-* 1390 Amendments). Inasmuch as the Atomic Energy Act h r. ;mparable requirement for reopening the record in
- sm v in 105e S se such as this, the Centerior companies' l Ar4 0; ion 3 . 03r the generally applicable administra-I t, e
- 4 "t !m a "plea [] to (this Commission's) dis-(* -'
. . ate CqmDgrce Commission v. Jersey City,
- i. / 1944).
s.
Section 105c of the Act on the operation of that legal standard in this context. The Centerior Companies' additional and alternative argument (Application at 17-39) -- that "substan-tial and material changes have occurred in the competitive environment in which CEI and TE operate" and that therefore "the circumstances giving rise to the imposition of antitrust conditions no longer exist, and the antitrust conditions therefore should be suspended" -- similarly fails to state any ground for relief under the applicable standard.
First, the "limits of inquiry" mandated by the Swift standard plainly preclude the Commission from accspting the Concerior Companies' invitation 12/ to speculate whether the license conditions imposed on the facts as found at trial would be imposed on the facts as the Applicants allege them to exist today. See Swift, 286 U.S. at 119 ("He are not framing a decree"); Humble Oil & Refinino Co. v. American Oil Co., supra, 405 F.2d at 813-814.
Second, the Centerior Companies' claim (Application at 5-10) -- that their strained reading of the legislative history of the 1970 Amendments to the Act requires the Commission to conclude that their enjoyment of an ongoing 12/ See Application at 10 ("If the NRC has no statutory basis
'cnr imposing license conditions anew..., it has no basis for perpetusting them where it can be shown that the...
basis for their earlier imposition no longer exists.");
Application at 18 ("By virtue of these (asserted) changen (in the competitive environment), the circumstances giving rise to... (the) conditions no longer exist, and the...
conditions should thereforn be suspended).
O 3, 4-competitive advantage through low production costs of nuclear
- power is somehow a prerequisite to the continuation of restrictions on their anticompetitive conduct -- is unfounded.
Thus, neither Section 105c nor any other provision of the Act provides any statutory source for this extravagant claim. In such circumstances, recourse to legislative history as a source of controlling principles of law must be unavailing because neither the Commission nor any court may enforce "principles" discerned exclusively from legislative history. United States yL_j merican Collece of Phy9icians, 475 U.S. 841, 846-847 (1986); Electrical Workers, Local Union No. 474. AFL-C10 v.
NLRB, 814 F.2d 697, 712-713 (D.C. Cir. 1987), Center for Auto Safety v. Peck, 751 F.2d 1136, 1351 (D.C. Cir. 1985) ("It is absurd -- indeed lawless --to give legal ef fect to. . . expres-sions (of Congress) that purport to relate, not to the meaning of the statute, but to the manner in which a legally uncon-strained...[ agency) will behave under it."). And see Firschev
- v. FERC, 777 F.2d 1, 7-8 & n. 1 (D.C. Cir. 1985) (Scalia, J.,
concurring).
Thira, the Applicants' effort to derive some sort of ongoing "competitive advantage" requirement for thn continued imposition of antitrust license conditions entirely misreads the legislative history in any case. Congress plainly explained its real rationale for vesting the Commission with authority to impose antitrust license conditions in the following terms (H.R. Rep. No. 91-1470, 91st Cong. 2nd Sess.,
1
)
4 reprinted in (1970) U.S. Code Cong. & Admin. News 4981, 4995 (emphasis added);
The situation here (in reference to prelicensing antitrust review) is different in respect to AEC's development regime; here Government funds are extensively devoted to_the research and development aspects of atomic enercy and the Corrission has the duty not only to see it that the funcs are employed to best advantage in relation to the specific statu-tory missions involved but to be mindful of the ceneral obiectlye of strenathenino comoetition in free enterorise. The absence of specific, guiding criteria toward this objective, where the expense of the activity is borne by the Government, does not amount to an intolerably gross and unfair infliction on private enterprise of the convictions of a Federal agency, though these may often be based on generally debatable philosophical principles.
Indeed, it is sufficiently well settled that Congressional concern that the resources that the United States had con-tributed to the development of the nuclear power industry not become an instrumentality of monopolization formed the basis for the prelicensing antitrust review provisions of the Act that it is surprising that the Centerior Companies would suggest otherwise. See Alabama Power Co. v. NRC, 692 P.2d 1362, 1368-1369 (11th Cir. 1982), cert. denied, 464 U.S. 816 (1983); Kansas Gas and Electric Comoany (Wolf Creek Generating Station, Unit 1) , ALAB 279, 1 NRC 559,571 (1975); Louisiana Power and Licht Comoany (Waterford S*eam Electric Generating Station, Unit 3), CLI-73-25, 6 AEC 610,620 (1973). Finally this desire to prevent the federal government's research and development contributions to the nucle:tr industry from fostering monopolization likewise animated Congress' treatment i
i
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of antitrust issues in the industry prior to the 1970 Amen-E dments to the Act,ll/ and thus prior to any general perception of commercial viability (let alone competitive advantage) being associated with nuclear power. Accordingly, neither Section l l
105c of the Act nor its legislativs history can honestly be read as requiring some ongoing competitive advantage as a basis for continuing license antitrust conditions.
Fourth, many of the "changes in the competitive environment" on which the Application is premised (Application at 22-29, 35-39) are in fact the result of changes in statutes and/or regulatory activity that are similarly inadmissible, under the standards enunciated in EE111, as grounds for modification of the license antitrust conditions. Thus, for example, the Department of Energy studyld/ on which the Centerior Companies place such reliance for their "cost of generation" argument (Application at 23-27) attributes a significant portion cf the escalation in non-fuel operation and maintenance costs for nuclear power production on increases in the Commission's regulatory and enforcement activity over time, and particularly in the wake of the Three Mile Island accident in 1979. COL Study at 20-23. The Applicants also complain ll/ Alabama Power Co. v. NRC, supra, 692 F.2d at 1368-1369; H.R. Rep. No. 91-1470, (1970] U.S. Code Cong. & Admin.
News at 4966-4992, 4994-4995.
11/ Energy Information Administration / United States Department of Energy, An_Analvsis of Nuclear Power Plant Operatina Costs (DOE /EIA-0511) (Washington, D.C. 1988) ("DOE F*,udy") .
(Application at 35-39) that the enactment of the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 2601, gt gag.)
somehow warrants elimination of the license antitrust condi-tions at issue here. The principles controlling disposition of the Application require regulatory or statutory changes to have "brought the terms of the... (license conditions) into conflict with the statute pursuant to which... (the conditions were impesed)" before such changes may serve as a basis for modification of the conditions. See Firefichters Local Union No. 1784 v. Stotts, 467 U.S. 561, 57G n. 1 (1984); System Federation No. 91. Railway Employees' Decartment. AFL-CIO v.
Wricht, 364 U.S. 642, 648-652 (1961). Ins"much as the Centerior Companies cannot even advance, let alone substan-tiate, such a contention with respect to this aspect of their argument, this portion of their "changed circumstances" claim may not serve as a basis for even considering their request for elimination of the conditions.
Fifth, and finally, the Application's virtually complete reliance on increases in the cost of nuclear power ceneration as a basis for eliminating the license antitrust conditions profoundly misconceives the operation of the commission's "nexus" doctrine in connection with its antitrust responsibilities. Accordingly, even if the Commission were free to accept the Applicants' impermissible invitation to
-speculate whether it would impose the conditions c che facts
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as Applicants allege them to exist today,15/ the increased generating costs of which the Applicants complain would in no way prevent their "activities under the license" from creating or maintaining "a situation inconsistent with the antitrust laws" within the meaning of Section 105c.
From the earliest days of its prelicensing antitrust review, the Commission has recognized that the construction and operation of transmission facilities in relation to nuclear generating plants also constitute "activities under the license" subject to antitrust scrutiny under Section 105c.
Kansas Gas and Electric Company (Wolf Creek Generating Station, Unit 1), ALAB-279, 1 NRC 559, 573 (1975); Louisiana Power and Licht Comoany (Waterford Steam Electric Generating Station, Unit 3), CLI-73-25, 6 AEC 619, 620 (1973). The Commission's Licensing Board made and relied upon specific findings on Applicants' monopolization of transmission facilities in the underlying proceeding (Licensina Board Decision, 5 NRC at 240), y and the Appeal Board accepted and relied on those findings ji imposing the final form of license conditions, notwithstanding Applicants advancement of the identical rationale they urge here as a limitation on the Commission's jurisdiction. (Acceal Board Decision), 10 NRC at 291-294).
It may be that the current level of concentration of control of Applicants' transmission facilities -- as thoroughly 15/ As shown above at p. 13, the controlling legal standard precludes the Commission from doing so.
- 19 ~
discussed at pages 9-19 of Amendment No. 3 to the Centerior Companies' Form U-1 Application to the Securities and Exchange Commission in connection with their formation of Centerior (Attachment B) -- is not a subject that the Applicants would care to have the commission revisit in connection with a new "nexus" analysis. Nonetheless the absence of any discussion of this issue -- particularly where transmission access is so critj7al a part of the conditions that Applicants seek to avoid
-- should serve to underscore why the applicable doctrine of Swift precludes the Commission from reassessing the propriety of imposing the conditions at all.
C. Applicants Have Failed To Show That They Are Unfairly Burdened By The conditions As the Appeal Board observed, the antitrust condi-tions that Applicants seek to avoid "do no more than require applicants to refrain from taking unfair advantage of smaller competitors." ADoeal Board Decision, 10 NRC at 294. It is a long leap indeed from the license conditions' requirements of nondiscrimination is bulk power supply and coordination services arrangemen.1 to "hardship so extreme and unexpected as to justify (the Commission) in saying that (the Applicants) are victims of oppression,"15/ and perhaps this is why Applicants have not even attempted to make it.
15/ United States v. Swift & Co., 286 U.S. at 119.
The only discussion is the Application that even semantically touches on the question of hardship appears,
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significantly, in tha section on the emergence of competition (Application at 29-33). Thus, the Centerior companies assert (Application at 31) that, in some unspecified way, "the conditions threaten to exacerbate the erosion of (their) municipal markets," and (Application at 33) that the conditions theoretically enhance opportunities for municipalization of electric distribution systems by enabling municipalities to "arrang(e) for electric energy to be wheeled over TE and CEI transmission lines..."
These claims are, by their own terms, both chimeri-cal and necessarily unavailing. The Centerior Companies point to no present, imminent or even reasonably foreseeable difficulty -- let alone hardship of the sort required by Swift
-- attendant upon their continued compliance with the condi-tions. Indeed, the Centerior Companies' stated belief that the license antitrust conditions may at some point in the future succeed in fostering genuine competition in the bulk power market in Ohio should given them no cause for complaint --
after all, that is precisely what the conditions were designed to do.12/ Accordingly, their Application fails to allege any 12/ The Application's suggestion (Application at 29-31) that the Centerior Companies are somehow losing sales oppor-tunities to American Municipal Power-Ohio, Inc. ("AMP-O")
because of the operation o' the license conditions is fatuous. The Centerior Companies fail to state a single instance in which the conditions so much as place them at a competitive disadvantage relative to AMP-0, because no i -~
0 proper ground for relief on this issue as well and should therefore be dismissed.
D. If The Commission conducts A Factual Inquiry On The Application, Clyde Other Affected Parties Should Be Permitted To Participate And To Seek Strenothenina of the conditions For the reasons set forth above, the Application should be dismissed without the need for factual inquiry because the Centerior Companies have failed even to allege circumstances that would entitle them to the relief they seek.
In the event that the Commission should determine to conduct such an inquiry in any event, Clyde and other parties who would be affected by modification of the conditicns should be permitted to participate in any hearings conducted and to adduce evidence supporting the maintenance or strengthening of the conditions.
As stated above, Clyde lost its pre-1965 self-generating electrical system through conduct of Toledo Edison that the Appeal Board found to have been violative of Section 2 of the Sherman Act (15 U.S.C. 2). ADoeal Board Decision, 10 NRC at 376. Obviously, Clyde is deeply concerned that its current efforts to re-establish a municipal electric system not founder on a similar anticompetitive shoal.
such situation exists. Finally, the Centerior Companies fail to state that they themselves generate much of the power and energy that AMP-O sells to its members.
Electrical World Directory of Electric Utilities, (9th ed.) (McGraw-Hill, Inc. 1987).
As also shown in the foregoing discussion, the Centerior Companies' Application fails utterly even to claim j that the danger of their activities under the license creating or maintaining a situation inconsistent with the antitrust laws has "become attenuated to a shadow," as the applicable legal standard requires. United States v. Swift & Co., 286 U.S. at !
119. Not only can Clyde not discern any basis for so conclud-ing, but the plain thrust of the cpplication -- that the Centerior Companies wish to be freed of restraints on their anticompetitive conduct because they Are not making as much money from their nuclear investments as they would like --
clearly suggests that time and circumstance have not attenuated the relevant danger at all.
In such circumstances, if the Commission undertakes an inquiry on the Application (and we have made clear that we do not believe that the Commission can or should), the inquiry should also ancompass consideration of whether the conditions need to be strengthened to achieve their basis purposes.
United States v. United Shoe Machinerv Coro., 391 U.S. 244, 249-252 (1968). In particular, one subject of such an inquiry i
ought to be whether the consolidation of TE and CEI under a l
single holding company, Centerior, heightens the potential for Applicants' "activities under the licensa" to "create or maintain a situation inconsistent with the antitrust laws." As Justice Cardozo observed in United States v. Swift & Co., 286 f U.S. at 116 (citations omitted):
O Mere size...is not an offense against the Sherman Act unless magnified to the point at which it amounts to a monopoly...but size carries with it an opportunity for abuse that is not to be ignored when the
{
opportunity is proved to have been utilized '
in the past.
The observation is pertinent here. The consolidation of the Centerior companies has done nothing to enhance the competitive environment -- amelioration of their blighting of which was a principal purpose of the conditions -- for their municipal competitors.
III. CONCLUSION For the foregoing reasons, the Application should be dismissed. In the event that the Commission decides to conduct a hearing on the Application, Clyde and other affected parties should be permitted to participate and to urge strengthening of the conditions.
Respectfully submitted,
'. I h ,
, Ll -
/ \\ -
A G(etg D.' Ottingbr,'Es .
Johrt p. Coyle, Esq.
Duncan, Allen and Talm ge 157) Eye Street, N.W.
$Mte 300 Washington, D.C. 20005 (Telephone: (202) 289-8400)
Attorneys for the City of Clyde, Ohio Dated in Washington, D.C.
l on July 15, 1988
.. * - ~
, ATTACHMENT "A" "
a f
N l .' i g July 21, 1987 I t' e !! ORDINANCE NO. 1987-AN ORDINANCE DECLARING IT NECESSARY
.,g TO ESTAB LISH, ACQUIRE, AND OPERATE A MUNICIPAL ELECTRIC SYSTEM ,
i 11 J i'. { {
f! ,
WHEREAS, this Council has an interest in keeping rates for<
electric service to the Citizens and City of Clyde as low as' i i possibles and
,) l l I f '
WHEREAS, Article XVIII, Section 4 of the Ohio Constitutior l
h provides in part that " Any municipslity may acquire, construct own
..'g lease and operate within or without its corporate limits, any puot Ac utility the product or service of which is or is to be supplied te '
- II the municipality or its inhabitants, and may contract with others for any such product or service."; and WHEREAS, Article XVIII, Section 5 of the Ohio Constitution provides in part that "Any municipality proceeding to acquire, construct, own, lease or operate a public utility, or to contract with any person or company therebre, shall 18t by ordinance and no such ordinance shall take effect until after thirty days from its passage."; and WHEREAS, this Council has received, reviewed and discussed i fossibility studies prepared by expert utility consultants, regarding '
the feasibility, costs, and benefits of establishing a municipal
~ electric utility to serve the City and its inhabitants: and
, 4
- v
. . w e
2-WHEREAS, based on the feasibility s les referdnced above, it is in the public interest to establish a municipal electric utility owned and operated by the City of Clyde in order to reduce electrical costs to the City and inhabitants of Clyder NOW, THEREFORE, be it ordained by the Council of the City of Clyde, State of Ohio I,
SECTION 1. That the City of Clyde shall proceed to acquire, construct, o wn , lease and operate within or without its corporate limits, a public electric utility the product or service of which shall be I,l '
supplied to the City and its inhabitants, and may 8 i contract with others for any such product or service.
ei l
SECTION 2. That there is hereby created an Electric
.. \ \
d, Utility Division within the Department of Service and Safety. The
,'. City Manager, as Director of the Department of Service and Safety, I; shaAl have supervision over the Electric Utility Division.
t ,
' j SECTION 3. That the city shall have and may exercise h til any and all legal powers and duties necessary to implement Section 1 1
I ! of this Ordinance, to provide reliable electric service to the City, i, businesses and inhabitants of Clyde, and may exercise all of the powers granted to municipal electric utility systems by the I{ Constitution and laws of Ohio and the Charter of the City of Clyde.
_ _ - , - --_..-_,_-,__y - _ , _ . , , , _ _ , - - .
( ,e
. # 'I
,h '
'I il ' l Th e City Manager is authorized and directed to oversee the l$ implementation of such powers and duties to the extent allowed by b, lay, and to perform the activities necessary to do so, includ ing , but
} not limited to, the following:
I i E.
f I, ' A. Develop plans for, and enter into
! negotiations with third parties in I .
i ll connection with all aspects of the i' establishment of the Clyde municipal
'(, electric utility system and its prograta i
for the purchase, production, transmission, distribution and sale of electric power and energy (its "power program").
B. Supervise the work of all conIditants engaged by the Clyde City Council in connection with the establishment of the Clyde municipal electric utility system and its power program.
I g C. Review all proposed contracts or other engdgements relating to the e s tablishmen t and operation of the
, ..y .
Clyde municipal electric system and its power program and make recommendations
, 81 l
o
~
w -
- O Th to the City Council concerning such proposed contracts or engagements.
D. Have responsibility for the development of plans and procedures for the the I
operation and maintenance of the Clyde municipal electric utility system and its power program and supervise the lj implementa tion thereof.
p.
j' iI E. Have the responsibility to recommend to N
the City Council rates for the use of I
l electric service provided by the Clyde
! municipal electric utility system.
gi n d l ' SECTION 4. It is the intention of Council that funding q I
, for acquisition and construction for the i i Electric Utility Division l
l shall be derived from revenue bonds authorized and issued by the City l
! pursuant to Article XVIII, Section 12 of the Chio Constitution, 4
l unless otherwise approved by the City Council in accordance with Ohio
, law.
'1 ,
p SECTION 5. That if any of the provisions of this ordinance is held invalid for any reason, the remaining provisions
- w. s shall remain in full force and effect to the extent they are not '
dependent on and inseparable from the invalid provision.
. 1 d -
. i i,o t .
i h
_5-
{ l i
l f1
[ SECTION 6. That it is found that all formal actions o:
this Council concerning and relating to the passage of this Ordinance were adopted in an o pen meeting of this Council, and that al]
deliberations of this Council and o f' any of its committees that resulted in such formal action, were in meetings open to the public or otherwise in compliance with all legal requiremento.
SECTION 7. That this Ordinance 9 hall take offect and be in force from and after its passage at the earliest period al1~iad A-law, provided that, pursuant to Article XVIII, Section 5 c.
Constitution, if within thirty days from passage of this Ordinance, a petition signed by ten per centum of the electors of the City of Clyde shall be filed with the executive authority of the City demanding a referendum on this Ordinance, it shall not take effect until submitted to the electors ar.d approved by a majority of those voting thereon in accordance with Article XVIII of the Ohio Constitution.
O e
I l' '
, on
. o
'i.i 1f h, ,
l
.i, I J t ,h.
~ ..
~
I APPROVED AS TO FORM:i 'u R2v1/
/ SOLICITOR PASS E D:
i
',i
"[ ~
N ~
2.
PATRICK E. RADSWORTH, KAW R l ATTEST: /Jll //
Jpce
~
,j ry, C1er MOTION by M '
!,I i EB ERHARD d PASCUA e Iq ru REXKCTH WADSWORTH _ o i l' WINKE ,
(i (f'
'Il
, I hereby certify this to be a true and exact copy or Ordinance No. 1987-33 passed by Clyde City Council on July 28, 1987.
( dm Joy cei Fry, Clerkk.
u Til n.
I
-
- Filo No. 70-7149 l D SECURITIES AND EXCHANGE COMMISSION 00000l Afg Washington, D. C. 20549 h4 AMENDMENT NO. 3
,h ,J to [
i 4 FORM U-l jg g g i - -
j APPEICATION - .
D 'UNDER
.4 %'
.. ., u .,
THE PUBLIC (TIILITY BOLDING COMPANY ACT OF 1935 5* O** - 4 (s. '- RWe 4 , x ... ;
CENT 3RIOR ENERGY CORPORATION y..,. ,3' 1:l
')7; ') ,(formerly^ North; Holding Company),?,e .Q
\~.
, O- U9 ' t c/o Squire,tSanders & Dempsey y v -r . .Aw i t.. - 1800 Huntington Building e.
. %Q, ,
W '
Cleveland, Ohio 44115 l- .
Y' r- (Name of company filing this stat.ement q%h, . ,-) e-and address of principal executive offices)
None ~
Name of top registered holding company parent '-
,r . Q s,'<;k(r .of each applicant,*or
. q r, - s 4declarant)g,, ,, .,
4phj
.p.
- Secretary r.n6 Treasurer ' '
I M h.. , M" Paul M. Smart,V' Centerior Energy.Corporationp' 4 24!## 'Ng <,,,!h 300 Madison Avenue .
Toledo 75 Ohio 43652 -
i (Name and adaress.of agent for service)
~ - - . ... :L. .. _ _ . .
Tr.e Commission is requested to mail copies of all orders, notices and communications to:
James J. Maiwurm, Esq. Gerry O. Osterland, Esq.
Squire,' Sanders & Dempsey Jenes Day, Reavis ~
x
- 1201 Pennsylvania Avenue, N.W. & Pog ,' e c ,, $' .
., Washington, D. C. 20004 2300 LT1 Center ,
'J ' 202-626-6826 .. 1 20nl Ross Avenuet i.@ Dallas, Texas 475201 '
214 969-3722..
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. v v v v u s.
CentGrior Energy CorporGtion ("Centorior") is filing this Amindsent
& No. 3 to its Fora U-1 Application (file no. 70-7149) for the purpose of pro- ,
5' viding additional information and filing additional exhibits.
I ITEM 1. Description of Transaction.
'4 t The following additional inMenanan is furnished in response to that ,,
h'portionofSection10(b)(2)ofThe Publ*.c Utility Bolding Company Act of 1935 4.
f (the "Act") which'p'rovides that: ' N a,f*( ." W v . ' 2d, b k
T. ,.
u ,. . . - . -
"If the requirements of subsection (f),,*are satisfied .the Commission shall approve the acquisition unless ,the Co:mais-4 sion finds
- that - - d -
., ig;
.~ s o nr4 m e.sp ,w d : .,p 4 p Q 4 9 f y ,,. g o. 4 . g .3 ,
- ', ~ -
g,b. (2) In case of , the . acquisition.# of . securities . . . . . ,, the F, *. considsration.3 . . to vhomsoevei paid,
- to be'given,Tdirect- ,$
.ly ,or indirectly..in connection .with such acquisition is.not J 1'- reasonable or does not bear 4 a ) fairirelation $to, the, suas .g , .. , $. ,yg
-< invested in or te earning . capacity l of ; . . the utility
. ,g 4' assets underlying P.he securities;to be< acquired..*;;..i." g.4 . .
Q M5 Throughout the period of the ' negotiation of the affiliation trans-wrj , action, The Cleveland Electric Illuminating Company ("CEI") was represented by ,
.. m.t. e s -. .t. dbi,. , *?d ., .
and was receiving the advice ,'and ' assistance'of?,8 p 3,'d o , sits, investment,benk
. v7 q
,. ~ ?
.c.- ., a 4 % . <v . ..
7 Stanley & Co.5 Incorporated ("Morgan i Stael.g'). }4.,. .., .,.& DuringI,this same period, sThe ar,.
..,,+ .~cnp .:4., t e . . v._ -.-
E. Toledo Edison Company ("TE") was represented by and was receiving the advice s - . ..
f - and assistance..of its investment banker, '.Herrill Lynch. Capital Markets E ("Herrill 1ynch"). e ;.( , ;r.(i.y , - 3 ,. y . l
- v. ...
( At an early stage in the discussions' between CEI and TE, an under-i : . .,, ;h - [*. 4 .
[g. standing was reached to the effect that.c;if a transaction were to go forward, W.? .* n > it would be in bas
' 'A.
the? is of: ./ h.NhM&hN,T$.'V
.:].4 nu, . ., k, . ..
- g;'b 7o i m M %.i .v.W. f .A ,. 4 h.dY M'g.1.d'%.';%)3i..',,.;('... .-
, , , .,,.-
- 1. The establishment of a.' holding company (Centerior was ultimately l
.h .
, *j$. established as the holding company pursuant to tl'is understanding). ,
.A.merger;
. .._? transaction whereby'
. .j v .? ,j V . . c fi . :.' % ,,:.
f,M' 2. ail
- of the outstanding common stock p.T k,' , ..
- .< .. . .:..y ' . . g,. :,;, ..
- e. . r.
l & .
.. , ~ <s*.
by Centerior (th'ereby 'saking CEI a .: holly-owned l H of CEI would become . owned
. . .~
. e , p ;; ...
~
a,m
-_n_an m.un m .w s m e 2 m e m .a A * ,* N 1
. v v s v s. v subsidicry of Centarior), cud tho intorests of the oxisting common stock ds owners of CEI would be converted into common stock ownership of Centerior.
., 3. A merger transaction whereby all of the outstanding common stock
# of TE would become owned by Centerior (thereby making TE a wholly-owned sub-4 interests of the existing common stock owners g i..c4sidiary of Centerior), and the y of TE would be converted into common stock ownership of Centerior. , .
- 4. As a result of the foregoing, immediately upon consummation of ,,
G.t *tjp . Cante rior ,would .be g.r.gthetransactions,theonly holders of common,4 shares . hQthose former owners of common shares of CEI and TE whose shares were converted
- intog, ,
shares ,of Centerior. syr - '+. s.v.cr.g g g-g yp.
. t r. y. . y . g res ,, ,, . 3 .
s.. the negotiations i g . .p, ..,.e.Within ..p the structural , framework so a <' - -
- estsblished, T'*w . n e.: a; .mo p..
. .. <c q g between the parties focused*supon the appropriate - . .n n %., exchange
. t wp 3.
ratios .i.e.
- w. the - .
4 4-* tf be. issued for each share.of CEI
.q M.. , , number of shares of Centerior common stoc,k
.+e. ,g '
mgwr . .s -.x f.ae and the number of shares of Centerior common stock to be issued for each share of TE. . . . .>
>.. r.4 .
. e .L. - g.4 m Q g. . . . .,g .,
't.Jt.%
.- The studies by the management of ,both - ,
companies,fand ,: q;p t p a ,,y. . . . . by'their respec
. 4.r :, r. .
,..,s-
> (A . .
- 3. . .. . .
4, p tive. investment bankers, thus focused upon those' factors deemed.co
; TVM'#Ts',i'$.M be relevant
%
- S ': ' 4.QTt'*" ' ""' '. ..,*
W- *
** 1
?
F, 4 - to exchange ratios. .
. . .s g . . . . ,
4 t' c.t.._ _. Morgan Stanley _ s tudies.on behalf- - of: -
-.CEI focused upon the following S
,p
.9., areas: ,,
'.- g . . . 1. The history of the market value of the common stock of CEI in the
.. '3 trading market; the history'of the market value .of the common stock of TE in
% . , . .gp f. .j g b. . , - :.y s
~
..'f., ,3] ;the trading market; the ratio of the trading market value of each CEI share to yhWlI..s. -. .
;OWyU /e TE share, . ;~ .'g '
s,t 9.& $%.viiand.the trend'of such:***d
. @ :~. .;"C '. m .e ratio " Ove r . tr.H ,the trading market value of eac ,. ..,
years, there was a gradual increase in the e . , the period of approximately 4 1 2 p3 s. : # s . u . common 'shareG to' a TE common share..'On 't .. '. h: 4:.'quarket g. . . . 4-value
; relationship . of .:. .pa..CEI n
- - P3 + W .J w; vA,ym.,.,44 g .y
.w :.sr w ,
W 4 June 21. 1985, (the last trading , day .for which' market..value information was
. , m.- , s . g .. , s . . . c.9.~p . . .
r r eg: , r. .y.c. ' b g w mn,, yA.v .w A: g g-
. . w w aA
.g ygy ea g.y
~. ... . . .- - - . . . - - .
. w ..
available prior to agreement being reached en cn exchanga rctio), occh CEI share was worth 118% of the value of each TE share. Considered over a some-what longer period of trading activity (one week average, two week average and four week average), the market value relationships were about the same, rang-ing from 116% to 118% as the value of each CEI share in relation to each TE shara. .
- 2. Relative book value per common share was,.also studied. The
- unadjusted book value of TE shares was greater than the., unadjusted book value 2
of CEI shares. For the latest period studied, the unadjusted book value'of
$ each CEI share was 89% of the unadjusted book value ofgesch,TE _ share. ..,.,f. q,. f. .
N 3. An extensive study x was . undertaken to.yresolve,the significant , t- difference between market and book ratios. This study was aimed at deriving ,. .
. m. a: t. '
N an adjusted book value per share Ffor each compa'nyg (sometimes called "recoverable net assets per share" and sometimes called "tangible book value
. per share"). 'lae adjustments were intended to reflect a range of possible
[ t,
, Mh ... ' differences %' 97?S'ic, he companies.
accouncing
.. ;,, t ~
u. values depending on various be, tween t
, . u. , .. -
,/..t' possible future discounting which may, be- required by the proposed revisions to
. . , . , .. w ; ,. : . .c.
.;g, 1
the Financial Accounting Standards #71, and to recognize the market-place's
- perception of possible disallowances of investment..in..iiscomplete nuclear s facilities not yet included in the companies' rate base. '3uch d justments, prepared under various assumptions, reduced the book value per share of TE to
.q a lower amount than the comparably adjusted book value of CEI. l
, 4. Consideration was also given to the historical relationship of '
4 34 , ,-( h{M :, , i . a. m .. # A tt b,f.-ti d . . . , , . , , earnings per share of the two companies, and the trends of such earnings per i l a t. hare. . For the most recent period, the earnings per share of'CEI were 96% of ,
~
- !&%g.;& ,
\ i the earnings per share of TE. However, the historical trend of the relative j
. .; e g'y; c 4 L l
earnings per share had been for CEI earnings per share to? improve in relation l l
. UUUUUt
- 5. Studies wero cico undsreakan of ths relativo dividends per share of the two companies. For the most recent period studied, the dividend rate per share of the two companies was identicel, but the historical trend had shown an increase in the ratio of CEI dividends per share to the dividends per ,
share of TE. .
,, l l
, . . 6. Studies were undertaken of the relative cash flow per share. For l the most recent period studied, the cash flow per share of CEI was 156% of the cash flow per share of TE.. The historica1' trend.had shown a gradual increase in the cash flow per share of CEI in relation to TE.. .,
U !-$ 9t 47.t Study was undertaken, using selectedn exchange ratios..to deter- }
.. .n impac't of selected exchange , ratios upon market.value,
$(.- mined
. e tw y,;7potential ., si , -
75*I stat pk; value, adjusted book value (sometimes called recoverable, net
, . . . , p ec . . . /
- 4. t Wassets per share and sr. times called tangible book value per share), histori-cal earnings per share and cash flow per share.
behalf of CEI, studied various financial
, , y:gg.JustasMorganStanley,on -
.,eg<:4;44.,v1
.J; v. . '
' t relationships, so also did Herrill Lynch, on behalf of TE, study.various
. n-<cp . . .i p : .
3 i Mfinancial. relationships. ' For this purpose Merrill. Lynch studied and reported
. . . . 4. . e . . . . , . . . . , .
to TE =anagement with respect to:
- - ' -- - 1. Historical operating data of TE (called "Tophat" in the studier) .
6: 32. Historical cash flow data of TE.
- l. ' . 3 . Ristorical selected financial ration of TE.
. r.
. i., 4. Historical operating data cf CEI (called "Chapeau" in the
. s i;. .
studies). , ,
~TS.:l - . > % .. a.. ~. i.N". ,. ,,,..,...,
. 5. Historical cash flow data of CEI.
. Historical selected financial ratios of CEI.
jN.' 6.gy, ',.' -* ,', p 3 , g p*.4 j 7.", Summary operating statistics of . the two companies, including pro
\,.
.'. 1 ,,
forma,. combined operating statictics. ,
+
. g.-.
.t . - '
r...,...,, r 3 .,
. s- t ea esw=mem.ar
..Or.2.wnsg W 7An m m r.n.y;ry2.n. m .m.c m .M,.
saem.g
000006
- j
- 8. Summary power plant data with respect to the two compcnics.
- 9. Impact of the proposed transaction upon the book value, earnings per share, cash flow per share, dividend and dividend yield, and certain assumptions as to market value prices, based upon the proposed transaction.
- 10. Ralstive contribution of the., two companies to che, net property, y plant and equipment; total common equity; net income applicable per conson ,.
share; allowance for funds used during construction applicable to. common stock 3 equity; and operating cash flow. ..,,.,, 4 11. Relative stock market trading values per share.,of TE and CEI k' stock,forhisIorical periods and 'for Neurrent periods,ivere,[itiso studied. yg
.,:: A Thisstudy,as{didthestudyof thesameyubjectmatter.,by.Mor .S niey, on
.g b? behalf of CEI,Fahowed: 'iN- Q -tj f;$% y.,,,. g, o.;;,j
?.' .
. ... - . . rz ... , .
W (a) A CEI share value equal' to 118% of a TE share ,on y
- June 21, 1985.
(b) A range during calendar, year 1985 whereby.CEI shares
., "ar.c , "psM %t?
h. i g
- were in the range of 103% ..' to 122% of the value of:a ..-
i: : * ' *%: as' ,I c- .,.g?a . 'i f > AT * - : TE share, dependingon1t (up% he trading period. 'y:[' [g . _.-
- 12. Studies were also made, for comparative purposes, with respect to selected comparable companies, showing selected financia:.- data and market valee data of CEI and TE in comparison to these other companies. .
Negotiations then took place between CEI and TE against the back-
. 4t "r .,
'd ground of agreement between the parties as to the structural form of a trans-
, l '. M - j y L'L Mt?;
g[ - s. .. action, as set forth above, and with.;the benefit of the analysis
. qqqgg g. provided by
.,.- - w . +:. . -
, , >. ,y ,9,y . . , . f ,,,.,
their respective investment bankers', including the analyses listed above.
- c. v g ry
.' These negotiations were handled in part through direct discussionsibetween the f.,. a- t . :9.iinfitpartsthrough chief executive officers of CEI and. TE," . sW' an .$]d were handled dis-
.s a - tv g-
.... . w *..:r cussions between the respective investme'ni ba.Aing firms.
s
,w .~ c', .
' k * ,) % j L yw_
8 ok
. , n.
s..~o- .%g%QvQ6qp:M S t-Q: a ...s,;;yp ,,3gj,. g . k -
00000 The exchange ratio initially proposed by TB suggested that the unadjusted book value of the respective companies should forts the foundation for the exchange ratio. CEI found that basis for exchange unacceptable, and rejseted it.
" n.S S The exchange ratio initially proposed by CEI suggested that the mar ,
ket value of the common sharea of the respective . companies on the datgof, , agreemant should form the foundation for the exchange ratio. TE found that,, ~ > i basis for exchange unacceptable, and rejected it. ,, i ' Negotiations continued, and in due course, through the process of
.i ~ , . (;J :. . . . .
J. negotiation and compromise, an exchange ratio of 1.11 shares of Centerior for :
.. . % Jm. u 'l
}!}. , each;CEI;
..~ y common share, and one share of Centerior for each TE common~,, share,' e ;.
3
.t v ;u .
.s .
was agreed:upon.e Thir, agreed upon exchange ratio has the effect of valuing,'
'Q(.; cf.;.y;. p . . . s
^
,'(
Sd each CEI' common share at 111% of the value of each TE common share. 'f . . The respective investment banking firms than tested the agreed upon
- y. exchange, ratio against the standards set forth ,above. Morgan Stanley and .. ,
- t+x .
m .- . Herrill Lynch were each requested to study and confirm that they could give Mrjh !t-i y ; O_. s ' .. p:. 5, v c : . J?u . , 8T opinions [totheBoardofDirectorsof CEI and TE, respectively, that the pro w . posed affiliation, at the agreed upon exchange ratio, was fair to the common
~~
. . c e .. . .
shar'eh'olde'rs of the respective companies from a financial point of view. Each of the respective investment banking firms confirmed, after study that they
- were able to furnish such opinions. The opinions of such firms (as set forth
- e. in the merger proxy statements of CEI and TE, filed with the Securities and ;
q , ;. -' i., d- Re Statement on Form S-4, Registra-f
,Excha.nge Cons.ni.,ssion as part 7
r-
..u.~..t.:3,g.gistration
.of... . . .
,7..
u s .; , , ,
. , ,,. f,m. . ..g , ,
tion No. 2-99531) were heretofore filed, in connection with Amendment No. I to i t.- the Centerior filing on Form U-1. and were identified therein as Exhibits L
.'+JV V , .s d ,
c' and H.'a,For convenice.ce p'trpo ses , such opinion letters are refiled herewith, L p maintaining the identification as Exhibits L and H.
~
%a ..d n e.an%. ..#n#u %. . e ,n , . _W e. n. 3 .
I
- 00000t Also filed herewith, as Exhibits Y and Z are the study reports of Morgan Stanley and Merrill Lynch, respectively, to the Boards of Directors of 1
CEI and TE, each dated June 25, 1985. These reports set forth the studiet of such firms testing the agreed upon exchange ratio against the standards set l forth above. In~each case, for the purpose of this filing, such reports have
-been abridged to eliminate information containing forecasts for future operat-ing periods, because it is deemed inappropriate to include information as to forecasted future operating results of CEI, TE and Centerior in a public record.
W. - d4i r .s . . .
,c.:
As is readily apparer.t. the agreed upon exchange ratio,'while not ,
, n ,3, . .,
directly tying exactly to any other specific financial ratio (such as relative ,. 3 .,.
. e , . p, book value, adjusted or unadjusted; relative market value; relative earnings, .
, .- . QQ.n
. : ([?
per share; or relative dividends per share) bears a closer relationship to relative market value than it does to any other ratio. Centerior believes that the agreed upon exchange ratio. -cons *.itutes ww+.e.m - . v q ,. ,, w consideration to the common' shareholders of CEI sad TE that in reasonable and t Wl4ce$ 17 i w t a ..- E- , , - s.- 5 3,e @.jy *. .,, bears a fair relation to the sums invested in and to the earning capacity of the utility assets of CEI and TE.
. . . l .:.* '. . i Furthermore, Centerior believes that there is nothing in the record of this proceeding, and there is no basis for a credible assertion to the effect that, the consideration to the common shareholders of CEI and TE in this proposed affiliation transaction: . , ,
a 1.,.Isnotreasn,aple,or , y gy,4[:, ,}l ,, 4ggy 3
,s. ,
- 2. Does not bear a fair relation to the sums invested in or the earning capacity of the utility assets of CEI and TE.
., 't p4.~ .. e.e g .fi
. s .m,,.-
On November 26, 1985, at separate meetings of the share, ders of CEI
,and ? . froposed affiliation transaction was ; approved by the following I^
m , %i g n.arginh 'J~.m:.sa.. , ,.
.,.m, hM*
..c m ;,.g.g., .
kT- c. NKWO$L5C?kUN5%Yi$nank& f SEk$$g $ & ;k.y g. g waggwwl115mmy 7 piggg.ggf; r.$h ugggg+"*
i' 1.; s 00000E
- 1. 63,485,215 common shares of CEI voted in favor of the trans-action, constituting an approval ratio of 96.5% of the shares that voted on the transaction.
' 2. :32,206,402 common shares of TE voted in favor of' the i.
transaction, t constituting an approval ratio of 96.6% of the shares that voted on the trans-actign. 7.y. Y , ITEM 3. Applicable Statutory Provisions. ,,, The following additional;infornation is furnished in response to that
- portion'of.Section 10(c)(2) of,'the.Act which provides thatt. . .
* . + . .. . . : c . . y.
r* 1n si .. [y* "Newithstanding the.Jprovisions of subsection - (b), the '** M C>maission shall not approve -
* * . . . U*-j9 ;g.. W ,y..,.
(2)'the acquisition of securities . .. of a public utility p N'
" unless the Commission finds 'that such acquisition will serve
- ths public interest by tending towards the economical and the efficient development of an integrated public utility system
- b. g .'In that connection, reference is also eade to Section s,. ,, 4 2(a)(29) of the pe W t s r- - g,%p. . ,
Act which provides that: .
.DL '
($f4%y9,,, g _ , _ . .
"When used in this title , ;unless the context otherwise
. requires -
d (29) ' Integrated publ.ic utility rystem' means - , ...: N (A) As applied- to.telectric utility conpanies, a eystem consisting of one or more units of generat-s t ing plants and/or.; transmission lines and/or dis-tributing facilities,.. whose utility assets, l whether owned :byTlone 3 or more electric utility
.f , l
; companies, are physically interconnected or capa-ble of physicalginterconnection and which under i
p normalconditionsAmayj.b,eeconomicallyoperatedas
,,a .
9 "" PJ a single interconnected and coordinated system-confined in its . operations to a single area or . region, in one or,more . states, not so large as to
'. j iLoair (considering the' state of the art and the
('. , . , . area or region affected) the advaitages of local- , J g ized management,*. efficient operation, and the
~
g effectiveness of regulation; .. 4
- Q i.
.N ' " 'Y, W .{k h
f . ypf . a'. wn. Fn.w. , ew'. . ., . . .
- x,x .m. g; . - .
- -- e*v. ,w na r
.. .: c ..
u a myJ.Rh kAlksggNM em . ..u.w... . . .+.%;d',. . w . m... _,y.gm. ,.. .n, ._ . . .
o 000010 l Integrated Operation of % Centerior Power System 1 I Background l For many years the managements of CEI and TE have aggressively pur-l sued the goals of improved reliability and lower cost to the customer through 1 coordination with other electric systems. Examplec of actions taken include construction of high-capacity extra-high-voltage (345 kV) interconnections with other systems. These inc1ude interconnections between the CEI system and k General Public Utilities (CPU) system in 1966 and between the TE system and
- The Kichigan Power Pool system beginning in 19'/0. ,Both,CEI,(in 1963) and TE
.x ;,i y .
m E,r p(in 1969) have constructed major 345 kV intorconnections with
-A Chlo Power, a 1
J y; , -i.,g g,< p.3' member.oftheT$mericanElectric Power (AEP) system /gMore recently, in 1968 l
't*
LG through' .!Tk.T$ Q.? - h % ? ' i': - b ~ i' l 1970,' CEI developed with Ohio Edison (CE, a series of' projects which , included construction of a 600 MW generating unit on each system under a l mutual back-up arrangement for those units and two 345 kV interconnections
. .sg <
- .D:Hbetween i. %)dfj; fthe*
systems. A result of these coordinatedj.sprojects 'was the
. 0; l l * '
f.%' s t
- ' development i V M.'..
'"' ~
of significant portions of a 345 kV network 4WJ in northern 3.he;,1. Ohio. i In 1967 CEI and TE joined with OE and Duquesne' Light Company (DL) in -
' .L.: , ,.
j y- - a Memorandum of Understanding concerning the formatiop, of The Central Area i j. The purposes of that agreement were to "coordinate (. Power Coordination Group. the installation of generation and transmission capacity on the systems of the gl * . , parties in order to enable each party, on an equitable basis, to:
,p . vrcy ,,
- 1. Further the reliability of bulk power supply through assurance f' - - y ).u.. t e ..s 4 .
- m. wing. , .
, q,. .
g b l'- (a) An adequate reserve capacity level with reserve
**x lA - .n "'
f>, I en ;, capacity coordination.
$g. . ,
. ,f, .c. ,,h(b) An adequate transmission network.
I ;
~ %
Lo 'J
.2. Take advantage of such economies of scale as' will.'>e available." , h.'
9.',4.4[.$g. . . I'lk!,:,St. .g 4
. **' h R, w , . .,.:.,,
- 'j ;;- l"Q D'E
.'.d.. .{; ,.1. g,[," 7
( g, I
!. < ' f. . . ip - . . tj -
.. 'y'.g. . .s, .,.m t'~ .,. g pT
.. ^
$$. : Gyg g,,S Y 'd Q N. $t$:
e d . ,1. . - 9. .
'4 uz l$M u5I k m k Wh$=,-;:h !f f & & fw .,,,a Q Q L :;. 4, q p 3 3
;y .. n .
" 000011 Among other things, the Memorandum of Understanding provided for the construction of certain generation and transmission facilities, provided the ! I basis for committing additional generation and ' transmission facilities, .;.estab-1 l lished the ovaership and the basis for financial responsibility of,each facil-
,,. o.y< .g g.;p V.w _ }
l g ,, icy and committed to development of definitive agreements}coveringthe
. ,,.;, e' d,r ; ..
+ 4.I'a +
- construction, operation and maintenance of such facilities. jg
<- i . 2 f., ' 'y 4q .h,^,,.,- .:
.Q, _
Specifically the Memorandum of Understanding provided for..the c'on-
',.2 . t gp; ' JW ,' l1
,, y struction of four major generating units aslfollows: ,
,Ts ' j ep0t -
(( , l
*' ; ? isi ti - . ,
$ ' Generating Unit. Commitments h'. .$. ,,,.t.* .
c " ; ; . in ~ @'& q , '
^
'.ks,N 1} g- *y,
, q3,1 * *, 'i G.4,~ e 1 rf.
CAPCO Hemorandum of Understanding , [, Y 'h e ,1.4's' . [ ;f \ i+3.r. gi;wip .. '
,, i Ownership (W)
,, Nominal Constructor
{' Ultimate
- p,{ Designation _ ' Capacity (Operator) "Iocation *,. : CEI ,.DL p 081 TE Q ' . ..;
l
.y m .. >- ,. y g. 1
. ,e v ~' '
'Sammis 7 625 W OE Ohio River -
193p_Jp430. 4p.; - r.
^,
Eastlake 5 625 W CEI Luke Erie 430 195 . .; m ce:.c--
. h ver Valley J.J. .. , g.
h-Besse ,bO'0N 4* TE te e be 6 3 0 q O iM
' + . 4 e v'-
. selected P' %. 7 i 4.W @d/ d
* .. ! "%.. D@p6 In addition, the Memorandu:n of Understanding committed what,was con-
$- . y. a, ."
sidered a "back bone" 345 kV transmission ' system.
.This back, bone g gsystem'was g ,y z JL. : ,, .. t *WYjs.5p',"; -
considered neceasary not only to make available to the owners of theVjointly '
.: 1. 4# cry,W,'-
committed generating units their capacity l'in units located outside'of,their
$E.4?r,IE % '
7 . various transactionss.between the 4h.. b service territory, but to provide for the p'N{a.?.C
. 4 ., . . h&
$0,hh'? ': .
r* v. parties essential'.to; attaining the goal"of/ reliability 'and-economy.'t;Thist back f",( . .
-H"* y 34 ;q t
?. Weg,$g T fy b :- -
m' bone system is shown on Exhibit A which was Exhibit A of the' Memorandum of fp . :.y ,'Rit{EW 345 kV'lineifrom the NUnderstanding. .This ,Txhibit,' s ecifically, 'a TLy%W hy,,I M -
'. '. shows, ',%p$ ~ MMk
~ substation labeled "Beaver" to a location-identified as "TE Site",.later;known f 'j;
' Q?.Jt. T the "back bone" (Required CAPCO. Group EHV nt:INf(1.i vir-Besse.
f *$ M,J,It also shows that k$h$N~ h ,n_h .
UUUUJc Transmission Facilities) extends to locations within each of the parties' service areas (Lemoyne in TE territory, Juniper in CEI territory, Star in OE territory and D ing in DL territory). This back bone ultimately came to be designated as consisting of "CAPCO Lines" and "50% CAPCO Lines". The Memorandum of Understanding also includes specific designation of the investment responsibility for the facilities of the "back bene" system. This system consisted not only of 345 kV transmission lines but an appropriate The general basis for sharing
+ allocation of 345 kV substation facilities.
investment responsibility, not caly in the "back bone" system, but in lines+ ge subsequently agreed to be required, is that each company should carry respon-
,a ., %; sibility in proportion to its share of the peak load of the group. The ij investment' responsibility for the "back bone" system considered all of the 9 facilities as a group and a share of the total investment was determined for each party. OE chose to undertake total financial responsibilit*/ for certain facilities that existed at the time. These facilities are the Sammis-Star j.; . , ~ ~ m e . <, a . .
g (North).Aine, the Star-Beaver line and its share of the Star-Juniper line.
- S ,
Financial responsibility for these facilities basically fulfilled OE'e share of the total financial responsibility and so the responsibility for the remaining back bone facilities was shared by only CEI, DL and TE. As a result line is shared 48% CEI, 32% DT, the responsibility for the Beaver-Davis Besse
" and 20% TE. Responsibility for construction of CAPCO lines and subsequent ownership rests with the company in whose service area the facility rasides. $ Similarly, operational responsibility for operation and maintenance rests inn ?i., ~ < ?, - ,,ay .,
the owning company. The Memorandum of Understanding provides that appropriate payments be g , .. made to the owner of a CAPCO facility to cover annual fixed charges based upon g . v levelized factors of cost of money, Federal income taxes, depreciation, insur-w..
.s w nmnewmmr u s 4
w k,. 3_' emma,m p s.m li k[ ey4fb m
00001: ance and appropriate state and local taxes. Operation and maintenance costs investment responsibility and paid to the are allocated on the same basis as party incurring such costs. In November 1971 the parties signed, effective as of September 14, 1967 (the date of the Memorandum of Understanding), the CAPCO Transmission Facilities Agreement, heretofore filed in connection with Amendment No. 1 to and identified therein as Exhibit O. The the Centerior filing on Form U-1, purpose of this Agreeuent is to "provide for the installation on the system of the Parties an adequate transmission network, and the operation and mainte- ' nance thereof, which will 1) permit the utilization by the parties of their u various capacity entitlements in generating units from time to , time as pro- . vided for pursuant to the CAPCO Basic Generating Agreement among the' o,qparties, (Writer's note: A CAPCO Basic Generating Agreement has never been executed but the parties have proceeded under the Memorandum of Understanding as if it
* * were a Basic Generating Agreement), 2) permit the Parties to =m meet their obli-u y ori .
gations to each other as provided for pursuant to the CAPCO Basic h ?R Operating If &y . ., '., ) Agreeme'nt, 3) provide a means for more effective coordination' with other systems, power pools and coordination groups, 4) provide a high degree of of contingencies with respect to the
- operating flexibility under a wide range foregoing, and 5) achieve an equitable sharing of the resulting benefits and responsibilities including investment responsibilities, operation and mainte-nance expenses."
The CAPCO Transmission Facilities - Agreement has no termination date s except by mutual agreement of all parties. Important provisions of this i' Agreement are Article 5 and 6.07. Article 5 covers Individual Transmission
- t u .3 facilities, which is defined as bulk power transmission facilities of the This article provides that Individual Trans-3 ". ;, parties other than CAPCO lines. --mmemme,m e
[g l l
.__ __ _ _ _ _ _ _ _ _ _ ___\
000014 mission facilities are' mutually available for the purposes of the CAPCO Trans- - l mission Facilities agreement, which includes activities pursuant to the CAPCO l
- Operating Agreement. This section also provides that if the uso by others of ~ . ,
a party "materially interfere (s)" with Jr - Individual Trausmission
'i f acilities of -
- t. LG ; A . . . .
the matter shall be considered by
- 4. the owning party's use of.,such. facilities,
.....+. .. .
,, ._~,.$,4 e5
- the CAPCO Executive Cossaittee to determine what action**should be taken to ~
.., p. ;
Similictly, Section 6.07 provides that CAPCO ,
?. ' eliminate the interference. Q- -
, ., . . n g .
O lines shall also be available for individual use of the parties, provided n. , - that35 . . . and as in the case of Individual , g , material, interference e a v ,n . itw. does . ,.pf..,not; g . .., result,
.y,. . , ~ .
n..a, .: ,. yt ,, ' . g the action to be taken ,.g,g . determine f~. Transmission, Nt t y'hs :,q'.9),g%'n Executive Committee shall ;., . J 7 ld ? F in the event of., interference.4 n ..
'J 'I '*l@ D ' ,<
. - My $hN .
f . 4 ffff @$.3 UdfMI N: the Memorandus'of Understanding, the> U#'.l 6 ?.,Subsequentto(the. . .
.u- execution..of.
. . -+ ,
.g.g,gy . ' ' ' '
' CAPCO Parties committed a number of additional generating units and transmis-
~ ,%.
sion facilities. The generating units so-committed are: .1 U, t
.: w .n ~v *' ? ; - .-
f.y ,- Tf-
; sag p,c Q .~ n n: ,. ng Subsequent'Cenerating .qi.+ R, ; r%eWQ:
Unit Conniements
,c g +r g s w.~., - - a .: . ..<
Ownership (W) ' 1J ' Qg}ly,& h.- s Ultima'te.;,. 4(gge;f,pf Q' Constructor ,E j (Operator) , location
- S i besignation ' e C.apacity l CEI * ",* DL .u OE u TE 4er..
u 6.' ,: ....3 - r .1 g .3 228
' ++
'501 M .,- r:.1 2. g*
hansfield 1 *. 780 W ' p' PP Ohio River 51
\' 4 .
.. . v . ,
* ~ w .. vv..q#' PP a' '-- -- Ohio River .
223 . 62 . 360 135 -:.. :. . Mansfield 2 ~ ~~ 780 W .r 335 Mansfield 3 800 Mk d N' T Ohio River 196 110 159. , -u;M,;g4 .di. <
- s. .
. m" ' w' " ' e . ' --
- C 3
Beaver Valley 833 W :.% DL ? >,' Ohio River 204 114 349 166h;.kl 1 i) 2 - m g, a . . t
'165 425 240 e i ' 'i c
Perry 1 W.h.'1205 W '1 CEI '., Lake Erie 375 7*, * .;2..- Eaat of #..
"@ .D .hT, * -
- P -- e 6 w.sy .. . t
! "lW.[g^..p. eiCleveland ,,,', 3
..; ;7 j,/ , , .j,.g l Perry 2 2
900 W TE Lake Erie (
).G g'L . Class g Davis Besse *~-
;y,
,'*,.g
.m 2, e -:q' Each 'e ';Tg
i- j 7 t-- mg- . c.
\.g. gy . e,
.cz 4- Erie County O;n1100 W :7 OE
"' Lake Erie .D f.b. i. b *.'t.a p$f% 'I '
7
' ~
~ ?j' Y ?:.
,s . ,
U- '
-- - ~
f OE , C ,. c.; :. .
, .S'*. ,.4;3; y . y,qy#;
Pennsylvania'Powe'r {%y g 1.. ,2 Constr'ETtiEE(Sid[eridedG]Companyi'
@.PP M,,, s a;.52 ^,. -L W e + m. an Af filiate o
] '2' hh* & ?-QWhn.,4M% s; s.:.,T%&k( $w,,Wn:
- I i.
a MQQy >Myygg=l e ,, l
9
.- . 000015 3 Each OE Erie County 1&2
- CE Service Area During this same period, a number of additional 345 kV transmission facilities were committed. Exhibit BB shows the 345 kV transmission system in Northern Ohio as it existed as of December 31, 1985. Many of the lines shown
, on Exhibit BB that havn been added since the commitments of the Memorandum of Understanding are CAPC0 and 50% CAPC0 lines while others are Individual I.ines.
Taken altogether these lines, stong with facilities of others, form an exten-k sive extra high voltage network supoorted by a network of individually owned
.v. ,, c.y. . g.
4 lower voltage transmission lines. - e : ., .
'" In January 1975 the CAPCO Basic Operating Agreement was executed. 4 e
?. This AgreemenE. was extensively amended in September 1980 and remains in effr.cc -
~t in that form with minor subsequent Amendesnes. This Agreement was heretoi' ors .
filed in connection with Amendment No. I to the Centarior filing of Form U-1, g' and was identified ther'ein as Exhibit Q. . The purposes of'this' Agreement are 4,.
, n-
, ". S . .i -, v. . .
x., - . . v c. ., q ,.%, , u :< ~,
< "to provide for the,, coordinated operation of the systems of the.49-, Parties, so as -
. .t . i.l 3 to 1) provide for the utilization by each of the Parties of facilities hereto-fore provided for by the Parties; 2) provide a degree of mutual support; 3) _
provide for capacity and energy transactions by and among the Parties; 4) permit coordination of the operation of the systems of the Parties; and 5) achieve an equitable sharing of the responsibilities, risks and expenses and of the resulting benefits of coordinated operation of tt$esystemsofthe t 5- u.h s,4;; ,
., s ;4 Q ,y.y;,.,.;i -
One of the provisions of the Basic Operating Agreement, Article 4 established the CAPCO Coordinating Office in Massillon, Ohio. A principal r
*e .
..;;, . r.
- b. w.. s.v . t .rn .,v.
o
~
i D. - S QS443'pPr'jeitsjTerminated,%l,,,. rYf-fWM*RWv 'JT "iN".)yl4 y v ' - ~Y ff 'M gM. }, .91:%.h:lQ- , ,, ._34_u g&&p.:.,a.
.s. ,:,..-
S l 5 1N YG EUYHi p.g g.ikoul!?t? b$Ij$$$$. f .'-
.D g h t h M W _W _.i'b'h'$f f kRI,hg Qj%tj l
functica of ths Offico is "TJ callect, rec:rd cad'dieseminato cper: ting. information as may be assigned by t e Operating t t e e . ",
.n
*00001
, \..e
. , y,
' . In addition to outlining principles of interconnected operation, the
' - 1, Basic Operating Agreesect contains Service Schedules, each of which provides the characteristics and cost bats for a specific class of interconnection
.c:.g v. .u transactions. The following Service Schedules are,' currently in effects
,. g ,,.y"
, - * '_% ' :19-Schedule A CAPCO Back-Up Power ;
. , ,A Schedule B s .., Short Term Power r t,$-
Schedule C , Non Displacement Power
~
J W: ' Economy Power -
.e.. _: 't.16 Schedule D. q; ; . y. ... gg 5 : ...
._, . . . . a g _
Schedule B f, . U it Power '
. g. . ;. -p,k., ~ , ,;,;.is ~ .; *. n
~ '
' Emergency Power -
. Schedulei, G "?.N /fH';- ,. .. . , 3. 7 Schedule.H , 'f
~ 1 * %.i @4 ~q . Transmission of Non-CAPCO Power .. ;j.4;; ;.- -
Sche.lule I Replacement Power Schedule F identifies the components of "Out-of-Pocket" cost and is c;.. i1 i- r.34 , nots'ServiceScheduleassuch.M.2.,.
.i 7 1
,.4
.c*? $g'. . .gy-
.. .. 44< , ,
w1 ,
... a The CAPCO Transmission Facilities f k z'. ; ;. ; Agreement 7 [? ,(.and
' Agreement 1." !.' . the Basic
* ; ? t,@ Operating h '. ~
1.*sz':.= $$$r'p' Transmission not only establishes l Agreement are complementary. The a
- .s..a
~
the facilities but also the basis for cost-sharing necessary to establish the -- - . . . . ~. .. .. ..
*g rights, privileges, and responsibilities .c 3: , . c .
of the parties for use of the transy. mission system to execute the transactions provided for in the Basic Operating
-. o' 23 4-f',3.:t,--A . '
Agre er.'e nt . - .
. ;..) ! ') ,' .
CAPCO 345 kV network is substantial, consisting of many miles of
. . .d,
. E .n, % , The. ~ ', .-QT.?s'f$%'t;:n circuits costing millions of dollars.*;The ' sharing of investment responsibi1;. - -
s .;y icy is also a najor undertaking.' For example, in 1985, CEI paid to the other
; c, '
CAPCO systems about $6.5
.. eW%43.
million representing . its share of the fixed charges,-
. g.Q , '
. t ;'.C. , ,
operation and maintenance for CAPCO lines owned by other syi.tems. Each of the'.
. ,ea l, 7 pg,9.p'
. j ). : ,1,
.; if - i ,. .,- ,
""! *<g $:${h:;bL Mt{j;[.1 .942,%. ~W .. wr .: d' . ~ i'.
.T t.1.~ %. h:15 - %
VIVT@ t . n' u -en .. ;G ,.9g* a :. ,;<
.s r**y
....,,..." "A e;Mw W5%w . .
% 9A9
^ & ,{'.
&! f Kr )
- , *glJ { ,
, . M4R4 $%.MQg&gyE2p-Q.Rfd mf. .,.M5j,i . . . . .-
U U U U.L ( l CAPCO systems, in turn, made similar payments to the others. In return, each l enjoys the right to conduct coordinated transactio's among themselves accord- ) ing to the Basic Qurating Agreement over the physically interconnected system. Again, these rights are not subject to termination except by mutual agreement of all CAPCO parties. . Trr.nsmission Facilities ,n .. l The service area of C",I is in northeast Ohio and that of TE in north- l west Ohio. Between these areas lies a portion of the OE service area. i Although this service area of OE is interposed, it is physically intercon- ! nected by 345 kV intere'onnecting lines extending frcss CBI's Avon Lake power , l plant and TE's Davis-Best.e power plant. Each of these power pisilts is g
<e , , s. .
p electrically integrated iuto the system of the respective Operating '-Company. . . ,
' le t p?
Exhibit CC shows details of physical ownership and the agreed basis ' .;. ' ; 1." F i for sharing financial responsibility of transmission facilities which connect CEI and TB. While the Davis-Besse .to Beaver 345 kV line and #2 Avon-Beaver
" . . pt ..'Ufi Y- . . .i .
line are CAPCO facilities whose financial responsibility is shared in the . i
.,c<.
percentages shown, the #1 Avon-Beaver 345 kV line is a bi-1steral interconnec-tion between CEI and OE and as such is an Individual Transmission facility. As is customary with ~ bi-1steral interconnections, the ownership of fl Avon-Beaver is divided by sections. Financial responsibility follows ownership in this case, but ownership of a section of an interconnection', ,.entitles , ,
;. - each party to use of the entire length of the line. Similarly, assumption . r ',, , Q of the 2<
assigned financial responsibility for CAPCO and 50% CAPCO lines affords the ,.,3 p
' *m . .q .
- q . rm , . . ,. .
i.4g,[J4 , i physical interconnections which entitir one to use 'the entire network of ! y-CAPCO, 50% CAPCO and Individual Transmission lines, subject to the provisions t
. a. . . 'G;f7Ng, j
of the CAPCO Transmission Facilities Agreement and the CAPCO ? . %Basic
' p .. Operating l Agreement.
.,.a.
hI v .
,< . m ~ . ..
M
*E #
! 'k
- i Mt* S ' yj ,
f _E b b__f b N$hb.. .._m hj hp;y , _[ ", a.I l
U U U U.l. 5 The CAPCO Transmission Facilities Agreement provides for use of the CAPCO and Individual facilities by the individual CAPCO systems, for their individual purposes. As stated above, such use is subject to the limitation that it not result in "material interference" with uses of the CAPC0 Group and In6 Avidual f acility owners (Sections 5.04 and 6.07). , one. method for determin- , ing whether "material interference" h . ;. s
.likely to exist
-+ % is to simulate system operation over a range of circumstances and examine the relationships of specific facility electrical loading to the electrical rating or capability of those facilities. Some. technical studies were undertaken to determine if the -
- - . . . . . p ic proposed integration and1 coordination.of CEI and .
' ' .TE' ' bulk power operations '
2..s .,:
~
would~ approach "materia .s . ., 1' interference.a"
~,
- 3. , 3 ,
n s m.. .,. ~
. g, ' y..,. . . ,
r~o .
- - Exhibits DD and.EE6summarise the studies of the transmission >+ that -r,+- '
..,.y , 4 ; 4 , 3
' were reviewed. Based on an ample margin between facility loading levels and ,
se 4 . . facility ratings it can be concluded that for a range of operating conditions ranging from normal., toc extreme. emergency conditions, the integration of CEI
. cc )re c .. w e3 4 W p g y e.y .. , v.4 ,
3, .,., ,y.g . , , , and TE operations will not result in "material interference" with CE's use ofv . sy-- - 2;i
, i . . . /, J . , , , , i /Ehl;Q U.e[ :.l.: p ;V ' ,
its transmission facilities.r.M 3 ~ g.:. ;. - - Exhibit DD, which is. labeled Case 1, represents essentially normal L 'f . .,> peak load period conditions'.' Shown"on the diagram, for each 345 kV line, is the electrical loading, expressed in megavolt-ampere (MVA) with an arrow show-
., ;; < ,. . , ;,p- ;
ing direction of power flow. . In addition, the two numbers below the loading , t p ..' , j 3,q , l are the electrical ratings l of ,the 345 kV line :and its tenninal equipment . k . .g y t q. ,.
,o
~
'"' y 'l : :
1. In.paren ,,'
.,. expressed Lt MVA for su::::ner normal and su:nser emergency
* . ' n..y:,1yy. g y 9.+ , . . , ~ . ,
conditions. &QQQ, theses, for each line, the loading is expressed as a percentage of the normal J and emergency ratings. This power flow transcription depicts peak 1985, sum:ner ' ggg
'q s : .i r ty. +:oh .y. w
- j flows oc the CAPCO lines between TE and CEI. For the purpose of this .analy . .
,:.~~, .
7 .. sis, the Davis-Besse operating unit is as su:ned to be in service (880 MW) and a*-m'-nn.._.n.~n e ekus.m.g.,,e
. - t m.m. , &.mL w
, - - - w - - - - - - - - - - - - , - - - - -w - - . - - . - - - - - - , - - - , . - .
4
- w
000019 TB is transferring 452 W to CEI (CEI's share of Davis-Besse). The CAPCO 345 kV lines between CEI and TE are lightly loaded and large transmission system margins for additional transfers bs.cween TE and CEI exist. The heaviest i loadea line is the Davis-Besse to Lemoyne 345 kV line which is loaded to 53% ' l
)
of its normal and 43% of its emergency rating. The loading of this line is l 9 . l tt J primarily a function of the Davis-Besse Unit output. - . o . 1, ', Exhibit EE d.ows the results of a study of Ligher level power trans- j l
. y ,#. n'.
I for between CEI and TE. For each 345 kV line assumed to be in operation a l
?. ' '
loading expressed in MVA, with power flow direction indication is shown. Ze f
, , .g g.- .
~~ ~
addition, since this study is predicated on the op'erational . ... outage of the 345 e.
' [ ' kV connections betvean Beaver and Davis-Besse,.,the. loadings on the underlying -. -
.<. l s '. 138 kV transmission are also shown on Exhibit EE.; .Summer ~ . ,
no anal and emergency x . . .; w. . i D ratings are also shown for each 138 kV transmission line. This power-flow j transcription is a "worst TE-CEI transfer case scenario" developed to stress j the transmission system between TE and CEI. All of the TE system generation
# . . J. l 9.> . 4.41 .
,.t load of 14.00 W is supplied from the CEI 1 ,g'.., -is out of Inservice and . nentire the
. gr TE .iNm & 4p;45 kV CAPCO .;yij w o Line is take i
- 3. ,.~ system. addi;; ion, the Beaver to Davis ' esse 3 - wn l 0 of service to stress the underlying 138 kV transmission system. No loading f
. )
~'
problems exist en the 345kV or under1ying 138 'kV system for this transfer condition, and every line has a significant margin between its loading level 9 and its rating.
. ,'( . .s
. -* 'l4 stress the transmission system as n+ Transfers from TE to CEI do not p.
n .- L p>.
.c sever tly as the 111usttated CEI.'to .tTE ' t'* 'transfer fcondition b ,ause'TE to' CEI I
l WC (
- ' ' :. L
'i9 QTff-Q) W Also, the maximum
' power transfers counterflow the normal 138 kf system flows. , . ..y t- power TE hat available G *vansfer to CEI is only *00 W (basedaonr cexisting y *gw.,3 TE !
.u.; ,,y; a g ~ ' .s yp q w ' I load and' generating capability).
'.
- I' vj ' ' T *
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I
000020 The transmission system is under continuous study to detect the development of conditions which compromise reliability. Appraisals and other studies of the northern Ohio area have indicated that the area is not now nor is it expceted to be under tight transmission conditions and that ample margin exist. The studies cited above show the ability of CEI and TE to undertake further coordinacion and integration of their facilities utilizing the physi-The margins shown by these studies are
' cal interconnections that exist.
suf ficient to undertake any and all transactions envisioned or remotely possitie as a part of the economic coordinated operation of the CEI and TE systems. Integrated and Coordinated Operation Interconnected, electrically parallel operation of the alternating-current bulk power systems of North America is governed by the laws of entered into by various combinations of j physics, by contractual arrangements participan'ts?and by voluntarily following guidelines establishedr 5by y ..the indus 2 ., pup-try. These guidelines are recorded in the Reliability Criteria for Intercon- _nected Systens Ope'tation of the North American Reliability Council. Coutrol of electrical energy production and the necessary instantane-ous matching of production output to consumer requirements is achiev,d by the ; subdivision of the interconnected grid into Energy Control Areas. In general, i an Energy Control Area consists of a group of generating units together with s Instantaneous matching of supply with group of electric energy consumers. demand is achieved by monitoring the instantaneous mismatch of supply and ,. demand, thereby generating a control signal for adjustment of generation out-put. This mismatch is d6tected as the instantaneous energy flow into or out of an Energy Control Area with respect to the remaining interconnected net-
+ w ork. This mismatch, called Area Control Error, must recognize the possible "y t '- f ':C y'syy, ciy . .. , . , ,,,,, , , Q
- y;'
2h ww.n. 4 1,w.i a em sc1n. gg N $quy$q y W $:$$h N M 5?? $ % ~ 4 k h5 , l
._ . __ l
.- 00002]
existence of an intentional not flow into or out of an Energy Control Area. Such an intentional net flow would be the result of Scheduled Interchange. Energy Control Areas in the United States often are coincident with a . utility's ownership of generating facilities and the utility's customer ser-vice area. ,In some cases Ecergy Control Areas include generatit:g facilities owned by more than one utility, in other cases facilitiec of a single utility right be split between two or mece energy Control Areas. An example of the latter includes Carolina Power & Light which is an integrated utility with two geographically remote Energy control Areas. Other examples of utility opera-
.- - 1 ..>.
s b tions spliti:etween two..or. more Energy Control Areas , u s,. ara utilitian
,. which share ,~.,
. ~~ .yny. .. : .
ownership of generating units. In CAPCO, CEI owns 470 W of generating capa- ;
- u., . .
S _ city in the.0E system Enorgy . Control 2 Area, 445 W in the TE Energy Control r < ,. . j,g Area, 305 W in the Pannoylvania-Nav Jersey-Maryland Interconnection Energy Control Area and when Beaver Valley (2 unit is in operation, 204 W in the DL 7-
' Energy Controle Area. Access to the #choutput,of these sw generating
,, units locatedvs .+ , .
in the Energy,, Control . Areas is achieved by arranging scheduled Interchange w , 4. . g.g., g .- with the appropriate Energy Control Area. >4. Significant contributions to economy and riliability have been attained in the United States through the coordination of operations between Energy Control Areas. The limit to the attainment of economy lies in the 1 extent to which the managements of Energy Control Areas share goals, proce- 1 l dures, management systems and corporate culture. Ihere is a need to be l
- x. u ;,.
assured"th'ai:all ' costs of ' undertaking a -system operation transaction to the
~
benefit of another system are fully recognized and covered, and suoject to an
*i equitable sharing of benefits. It is important that cost accounting schemes a. l
( f supporting operation coordination be' at least compatible and that agreement exists between. parties as to the appropriateness of cost components and the g .t ' '.( }J(*w~~e,, m.v4N4 ~ ig 4 %
, r, . , ,g $,' ,
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l
00002: N basis for their establishment. Achieving totally integrated and coordinated
.e '
operation also can involve undertaking frequent and small changes in operating status for the benefit of others. Closeness of management goals would promote such transactions. At arms length, unaffiliated managements would he more
'* inclined to undertake each transaction on. its own merits, while, affiliated managements are able to integrate the costs and benefits of several phases of operation,s.
The custoesrs of the CAPCO systems have benefited from coordination N of bulk power operations. ' The scaeration dispatching function of . .each
~ . of the a .6
.J
~U systems is responsible for eptimizing the utilitation of the4 ,apacity c .
h". 3 7, resources at its dispcsa1.. Each system carries out this responsibility by "Tu p5 ' - .
. establishing a program'for maintenance of its facilities, by designat;ng which =
z. of its available generating units to deploy for each peak period, including its share of jointly-owned capacity, by allocating the instantaneous load of
. vy :w .
y< 5. .q,itscustomersamon[itsgeneratingunitsoperatingatthetimeand.b'ycontact- . i
.q ,
N,. N6 ' -ing the other CAPCO systessiand other.'systens with whom it might be,intercon-
' -. .~.. <g, , gs -en
; .e a 4 nected to explore and exploit opportunities for coordination 'by means of ScheduledInterchangebransactions. :
The CAPCO Coordinating Office fills a useful function in this pro-cess, acting in its capacity as an information and record center. Instead of each owner of a jointlhowned ' unit contacting every operating company sharing ' ownership of such unit' to' arrange acht:duled output and the resultadt Scheduled
.h^ .. .
,e n . .s , ,x Interchange, the CAPC0 Coordinating Office, gathers and collates these' requests WQ' and supplies the~ desired net total unit loading to the operators of the ,
. i jointly-owned unit and 'also'* provides Net Scheduled Intorchangk.7' data to all r
.cf*j{V* Q .'.
parties. Inthel process,thisdataisrecordedforlaterusebythe,0perating
..n t ' ' .; . t . -' , - 4
- e. *Iikb , i Q hq , .d Party in assigning: responsibility for fde14 consumed and for; accounting ' 'Y for emg ~l
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w w.ngy~nsca 9.v,.gm.a . .
. ~ --- _ . , _ _ _ _ _ _ _ _ , _ _ _ _ _ _
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000023 transmission losses. Transactions between pairs of CAPCO parties pursuant to ( Schedules of the CAPCO Basic Operating Agreement are arranged by the parties
'- involved. When such a transaction is agreed upon it is executed by parties by nocifying their Net Scheduled Interchange. Each transaction is reported
.. y g$ > .
before-the-fact. to the CAPCO Coordinating Office. This information keeps all , ,.
- d. .. .,
."I' of the CAPCO systems informed of the .use of the CAPCO network and is used to .
zu . . establish balances in the CAPCO transmission loss banking system. , f
'5, The operations of CE1 and TE_ have had some level of coordination & n : % i' .
under the system outlined above. Corporate affiliation ewill, result in changes
~
4 o.
- p. A p." :. 1,gg . > 7- - P- ' - -
1 [.* in many of theirocedures currently employed and will result in savings to the a ' "8 6 f GKf. u s. ' . .MM,4l4. - t '. . ' Y," ' T f *" ' combined group of customers of the ': companies. The overall. operational objec- ,
'7
! v'/V - ] ' . 9.w.%ff, test, . . ' t .O . if.'.Y tt g. .p k tive of Centarior's system operations Rwill be 3to attain,the. lowest overall ji-4 he ;- r~ g. ..
.- ?f CEI and TE will each individually cosi' fsr the a.oabined group of customers.
be regulated by the Public Utility Commission of Ohio (PUCO). Accordingly the k LM p.ch.. . ; H .- benefitsofsuch{.operationwillbe realized by customers.of
' % %.v, . . , . .
.h9 y c .s -e -y w ,. g.g .m ,4the two operating ,,p h.;.
* ,a a L.
hk of the PUCO. Because existing agree- .. companies in accordance with the or'ders/. .*- h' e
~
- ~ &W:; f w...L *
,gtq.G.in:-p,r," .
i '.4f 4 ments, specifically the CAPCO Transmission Vacilities Agreement and the Basic sufficient.i~to ' achieve the det,ree of integration h Operating Agreement,,,,are - ,, j q , y*-- - - - -=. . e . ,,,g, envisioned, coordinated and integrated ' operation of the CEI and TE facilit.ies
$ . - :. ; t y , ., v ,- ..
h under Centerior direction will be ' implemented under the provisions of those f b'l* * ! agreements. e c.;.y y:.,.3
.P. ..@
Ek- [h<e . :.,w
. ., st . ; ; .-
. L .( . ..
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.- A number of, areas of benefits vresitlting frota integrated and coordi-A. ,. .
IE ; - , ,; k' - J.QApks' lk' .bu power natedoperation.ofthe.St.W.,,.M:derj'facilitiesYof CEI and'TE are described in q -
; .;;,; . . . f.
The following will describe the {1, Exhibit C of the first .mendment to the U-1. fh t'o'thebenefits3a hieved by econom- 3 proposed met o r r'!
'UkI,%perationand'rel'a'te'i. f y 9 '.,lle '~41 e .
i k feal and efficient! interconnected and Neoordinated operr. tion of'the facilities .
- ),'QUZ'*[ 9f l % . 4.L-> 4 %~ t ~%i ' 7','
]~ of CEI'and1TE Section11rof Exhibiti C to'.the.first, amendment to the U-1 des- ,,,
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000024 cr!. bed seven areas from which the full integration and coordination on the basis of a single system will produce benefits to the customer by affiliation. Much of this coordination will be the responsibility of the Canterior System Engineering and Operat. ions function. This function will have as an objective attainment of lowest overall cost to the consumer of the use of 3the generating facilities of tha two operating companies. , A Centerior-administered function ,which will contribute to economic opeeation as a single interconnected and coordinated systea vill be a coordi-
-. nated maintenauce schedule for the generating units of the two operating com-
"? panies. The present practice is for each operating . company to develop a _
.s
.k schedule for maintenance outages of generating ' units based on the analysis of wpy "f its own requirements, costs and benefits. Coordination between,CEI and TE has
- O + . Q..
1 heretofore been associated mainly with those generating units in which both opersting companies have an ownership interest, principally Davis-Besse. 1 Coordinated maintenance under Centerior vill be achieved by the participation M. . y .1; u:3.< Q '% A - _.:'t a q b: v . i of the operating companies in identifying generating unit maintenance require-51" h=ments and plans as well as the 3 i costs t J and 6'ubcsitiL} benefits of .-h.hA'shW.I. each planned,% e.. 'vith. outage' interaction of Centerior System 2ngineering and Operations and tihe operating companies to arrive at a Centerior-optimized maintenance 's chedule . This optimized overall schedule can be expected to minimize costs by taking advan-tage of the larger system, and thus more effectively sold maintenance into the v.. valleys of the combined annual load curve. It is expected to result in lower
;,> ,., g
. costs of energy during: outage by coordination
, , y e .. n e. bet. 3 sween the needs
. .. - of the operat-ing companies and by more effective utilization of maintenance energy banking arrangements that exist with outside systems. . ... , n, Each day, before the daily load curve begins to rise,'the dispatching
\- . . . . ...c.
I staffs of CEI and TE each estimate the peak load for that day and, considering
^ *
'Y^U $3 ' ' '
w . -- URx ~ue
.'.% u m m ? e:.s-
,, A. .s n.
,.n.,e t?k&kiiL
.,_., m .g., !$MUw Mads = w s MbEw. % . u..
l
00002: tne capability of the capacity resources expecced to be available to meet that peak, make a determination as to which generating units to connait to service for that day to meet the peak. Following affiliation, it is planned that the dispatching staffe of each operating company will forecast the daily peak load
's for their. respective areas, communicate with power plant operators in their 3 areas and by interactions under Centerior purview develop an integrated unit commitment for the upcoming peak period. This process will result in optimis-
<g ing of unit start-up costs as wall as minimize physical stress on power plant equipment by reductions in start-ups and shut downs for.some equipment.
t i . . r ~. . .. f,h,y-
, . ' . ' . -_ + M'd s ,
CII.is a majority owner of the Seneca Pumped Storage Plant. This ra. t . , , dde plant which operates on a weekly storage cycle requires a relatively longer '
] - - i, NJ i The ability to coordinate, QJ. term f.or s. optimization
.4 of ice characteristics. .
i through Centerior, the availability of larger amounts uf lower-cost off-peak energy can reduce the dispace.hing cost of Seneca on-peak generation, thereby As explained in Exhibit C of g,,.reducinggotalenergycoststoits
?.m , gyt,s; customsrs.
9 9 ,. . . .v A' < the.first. amendment to the U-1 it is antic' ipa'ted that full coordination of
- A s. s.%AA.,.. a >. ..
~ %%Wr&% .
f{-- "off-peak resources and on-peak requirements can produce' annual fuel savings of' ,', , 4 about'$1 million.
'Sbal1ar benefits are expected to accrue through a more fully opti-mized response coordinated through centerior to unexpected or unusual system conditions such as sudden forced outage of generating units, periods with a .[ significant accumulation of forced outages or of unanticipated higher loads.
IJ N!b ' y.t +. A major reduction in production costs [ achieved,througheconomical operation an an interconnected and coordinc.ted system will occur as a result of hour-to-hour loading of individual generating units that are in operation. - n 6 5
- Although CEI and TE will continue to operate as two energy control areas, 9 . p ~ -
- y. s .m conducting'orerations by SchetPed Interchange between them pursuant to the hI 4b -*- *4.y S.t 1 ,[ t 4.p q c4 q .j
% mgW s.2 . z. . @w _. s;g g;;. .; . a t., ,
hisf , 9 .a. .h .& ., & Q & Q ? h4g.ygg
^l 7 ,
. 00002 Schedules of the CAPCO Basic Operating Agreement, certain differences in oper-atiog procedures will be introduced. Among these changes will be the revision by both coepanies of their practices in pricing transactions with each other. In order to insure optimum dispatch of the capacity of TE and CEI, pricing of these transactions will be the lowest of any interchange transaction. In practice this will place transactions between the parties at the lowest incre-
.n mental cost following supply of the respective area load and ahead of; all other interconnec: ion transactions with other parties. Another change will involve arranging economy, split savings transactions with each other if any
~- i
- 4 a + .
diffferential exists between incremental production costs rather than ignoring
. . . . : psy3, - .
potential interchange if the differenti21 is less than 3 or 4 mills per kilo-q:. . 2 yy . wattheur as is now the case. As reported in Exhibit C of the first amendment
- ; v4 fy.v -
to the U-1 it is expected that thic change of practice will result in a saving in fuel cost of about $2 million per year. This will result in the two w* , operating systems operating at essentially equal incremental cost. Trans-1 .ys- . A stt' g-actions with outside systems will then be arranged to .1chiev.' overall economy ar w , ~. , e . for the combined system. As explained earlier, 'these kinds of changes in practice are feasible to the extent that interests of the managements of the two operacing companies are congrunat as in an affiliated arrangement. Initially it is planned to achieve coordination through existing dispatching organizations under the oversight and direction of Centerior, utilizing existing CAPCO Basic Operating Agreemaat Schedules. It is fully a anticipated that all savings currently envisioned in coordinated operationa of p . _ the two operating conpanies, @ ther quant.ified at this tine or not, can be realized by this mode of operation. Changes in organization, <facilities or yy , othur arrangements will be considered and adopted only if there ia a high
-l M.,
degree of certainty that they will result in still further coordination,
. .e s ., "' Q f . "'~i W. .i "*1* 2 4(,
cu. *, G .
"a.-
I' ek'integrationandeconomicoperation.
,: " ? 'l-*tr 1. epww. er- . . , ,
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. .a 000025 Complete integration and coordination of generating capacity resource ultimately will influence total capacity requirements as systen load grows. Asiswellknown,anincreasedsystemsizehasrelativelylowerIverallespac-g- ity requirements. ~ Based on some preliminary probability studies . p, , . described in . the Exhibit C to the first angndment of the U-1, it is estimated that this 3p , integration can bc expected to result in the deferral by two years, of capac- [
- j. ity additions that might be contemplated individually. If, as outlined in j Exhibit C, future additions might be 300 W class coal-fited units the present 1
- k. value of savings in fLxed charges could reach $300 million,Mm. through the year 3; ,., .,on- ~
$1 2000 or levelized savings of $53.4 million per year over the pg lod 1986-2000.
' - c 9
lg overall, it is expected that significant near-term as well as long
, - :m e, s -h[' - range savings 'will' accrue to the customers of CEI and TE through increasingly coordinated economic operation of their intere.onnected systems. The provi-sions of the CAPCO Basic Operating Agreement and the CAPCO Transmission Agree-h ., & e-f,( S,' .
ment make this.".possible
. e and the planning of specific changes in' procedures and .,
- 4 's . Jk staffing to achieve;these benefits is underway. The affiliation transaction v t..
f is necessary to cause these benefits to be realized. I Summary and Conclusion ,; The generating plants and transmission lines of CEI and TE clearly 4 are physically interconnected. Upon consummation of the affiliation trans-
,3 y '. .r. .
action that is the subject matter of this application, the generating plants
~
2 V k; f. irr 4 .. .. 4 ' and transmission lines. of CEI and TE will, under normal conditions, be
.h 1 . ,i 5 .,4-6 .1 , , . . . c . x'. ~
2' operated as a single interconnected and coordinated system.The facilities of 4; CEI and TE are confined to a single area or region. That region, upon consum-W- u . ,, nation of the affiliation transaction, will not be so large as to inpair the Y i
^
4%'pf.
, -] ' . , .. ,) ' ', .
advantages of localized management, ef ficient operation, and the ef fectiveness
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.V IFof. regulation 7 " " -' ,
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000028 Different people might have different opinions as to the specific _ amount of savings that will be realized by a particular ites of change in operations of TE and CEI that will be brought about by the affiliation trans-action. Howvec, without regard to such differences of opinion, there is no doubt about the ultimate conclusion of fact - na=ely - THE PROPOSED AFFILIA-TION TRANSACTION THAT IS THE SUBJECT MATTER OF THIS APPLICATION WILL SERVE THE 8 PUBLIC INTEREST BY TENDING TOWARD THE ECONOMICAL AND EFFICIENT DEVELOPMENT OF AN INTECRATED FUBLIC UTILITY SYSTEM. 2' ITEM 6. Exhibits and Financial Statements 2 .
- - n Exhibit L Horgan Stanley Letter
- .m Exhibit M Merrill Lynch Letter
- i 3. -
...,.- .
h. 4,. ,,
.',. CENTERIOR ENERGY CORPORATION
{g .
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Q., ,;Qi > .yf.?:b.v.s ;
._By:. _
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7 .
.. v ... .* w Robert M. Ginn N -
si[hlid r : .,- .74)>Q.. President and Chief
. ; Executive Officer
- p. Date: January .J6, 198 6 '- N . ,
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a - CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing document by mailing copies by first class mail properly addressed to the following: James P. Murphy Michael T. Mishkin Dana Stein Squire, Sanders & Dempsey 1201 Pennsylvania Avenue, N.W. P.O. Box 407 Washington, D.C. 20044 Victor F. Greenslade, Jr. General Counsel Centerior Energy Corporation 6200 oak Tree Boulevard Independence, Chio 44101 Russell J. Spetrino Thomas A. Kayuha Chio Edison Company 76 Sout> Main Street Akron, Ohio 44309 Gerald (Warnoff , Robert E. Zahler Deborah t. Bauser M. Thurman Senn Shaw, Pittman, Potts & Trowbridge 2300 N Street, N.W. Washington, D.C. 20037 Janet Urban Antitrust Division Department of Justice Judiciary Center Building, Room 9816 555 4th Street, N.W. Washington, D.C. 20530 June W. Weiter City of Cleveland Law Department, 106 City Hall 601 Lakeside Avenue Cleveland, Ohio 44114 i , i
Reuben Geldberg i Goldberg, Fieldman & Letham, P.C. 1100 15th Street, N.W. Washington, D.C. 20005 John W. Bentine Bell & Bentine 33 South Grant Street Columbus, Ohio 43215 David R. Straus Spiegel & McDiarmid 1350 New York Avenue, N.W. Washington, D.C. 20005-4798 Peter Crane Office of the General Counsel Nuclear Regulatory Commission 1717 H Street, N.W. Washington, D.C. 20555 ' Nelson E. Summit City Manager 222 N. Main Street Clyde, Ohio 43410 William D. Pearce Homan and Pearce 135 West Maple P.O. Box 88 Clyde, Ohio 43410 Dated this 15th day of Ju{y,1988 , i \t
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4.1 ( c s/ s J ~d P9 Coyle / nean, Allen and Ta%m ge 57 Fye Street, N.WA Was ington, D.C. 200 (T lephone: 202/289-8400) I
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