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| | number = ML19329A847 | | | number = ML19329A847 |
| | issue date = 04/14/1977 | | | issue date = 04/14/1977 |
| | title = Applicants' Appeal Brief in Support of Individual & Common Exceptions to 770106 Decision.Licensing Board Failed to Consider D Turner Argument Re Economics Motivating Policy Interference in Antitrust Review.Certificate of Svc Encl | | | title = Applicants Appeal Brief in Support of Individual & Common Exceptions to 770106 Decision.Licensing Board Failed to Consider D Turner Argument Re Economics Motivating Policy Interference in Antitrust Review.Certificate of Svc Encl |
| | author name = Reynolds W, Zahler R | | | author name = Reynolds W, Zahler R |
| | author affiliation = SHAW, PITTMAN, POTTS & TROWBRIDGE, TOLEDO EDISON CO. | | | author affiliation = SHAW, PITTMAN, POTTS & TROWBRIDGE, TOLEDO EDISON CO. |
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| =Text= | | =Text= |
| {{#Wiki_filter:- | | {{#Wiki_filter:}} |
| UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION Before the Atomic Safety and Licensing Appeal Board In the Matter of )
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| )
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| THE TOLEDO EDISON COMPANY and )
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| THE CLEVELAND ELECTRIC ILLUMINATING ) Docket No. 50-346A COMPANY )
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| (Davis-Besse Nuclear Power Station, )
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| Unit 1) )
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| )
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| THE CLEVELAND ELECTRIC ILLUMINATING )
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| COMPANY, ET AL. ) Docket Nos. 50-440A (Perry Nuclear Power Plant, ) 50-441A ;
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| Units 1 and 2) )
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| )
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| THE TOLEDO EDISON COMPANY, ET AL. )
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| (Davis-Besse Nuclear Power Station, ) Docket Nos. 50-500A Unit's 2 and 3) ) 50-501A APPLICANTS' APPEAL BRIEF IN SUPPORT OF THEIR INDIVIDUAL AND COMMON EXCEPTIONS TO THE INITIAL DECISION Of Counsel:
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| ALAN P. BUCHMANN WM. BRADFORD REYNOLDS SQUIRE, SANDERS & DEMPSEY OBERT E. ZAHLER DONALD H. HAUSER SdAW, PITTMAN, POTTS & TROWBRIDGE VICTOR F. GREENSLADE, JR. 1800 M Street, N. W.
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| The Cleveland Electric Illuminating Company Counsel for Applicants MICHAEL M. BRILEY PAUL M. SMART FULLER, HENRY, HODGE & SNYDER The Toledo Edison Company DAVID McN. OLDS JOSEPH A. RIESER, JR.
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| REED SMITH SHAW & McCLAY Du'uesne q Light Company TERENCE H. BENBOW STEVEN A. BERGER STEVEN B. PERI WINTHROP, STIMSON, PUTNAM
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| & ROBERTS l Ohio Edison Company and !
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| Pennsylvania Power Company 8001350 k /"If j
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| TABLE OF CONTENTS l
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| Page Preamble r 1 I. General Background . . . . . . . . . . . . . . . 12 II. The Analytical Framework . . . . . . . . . . . . 26 A. FT ,URE TO EVALUATE THE PUBLIC INTEREST . . 29 B. FAILURE TO RECOGNIZE THE NATURE OF THE ELECTRIC UTILITY INDUSTRY IN THE CCCT - . . 40
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| : 1. The role of " competition" in th'e CCCT . 41
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| : 2. Economic barriers to competition . . . . 45
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| : 3. Legal barriers to competition . . . . . 50 Passive Restraints . . . . . . . . . . 51 Active Restraints . . . . . . . . . . 53
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| : 4. The extent of competition in the CCCT . 56 C. FAILURE TO ACCORD PROPER DEFERENCE TO THE DECISIONS AND ACTIONS OF OTHER REGULATORY AGENCIES . . . . . . . . . 72 D. FAILURE TO FRAME THE PROCEEDING IN TERMS OF AN ENTITY'S ABILITY TO EXERCISE MONOPOLY POWER IN A PROPERLY DELINEATED RELEVANT MARKET . . . . 83 E. FAILURE TO TAKE COGNIZANCE OF, OR APPLY, THE NET BENEFIT THEORY IN FINDING APPLICANT $' CONDUCT UNREASONABLE . . . . . . . . . . . . . . . . 102
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| : 1. Pool member,1 hip . . . . . . . . . . . . 106
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| : 2. Reserve sharing . . . . . . . . . . . . 113
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| : 3. Wheeling . . . . . . . . . . . . . . . . 121 III. Nexus . . . . . . . . . . . . . . . . . . . . . 124 A. STRUCTURAL NEXUS . . . . . . . . . . . . . . 125 B. PARTICULARIZED NEXUS . . . . . . . . . . . . 134 t
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| l i
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| Page IV. The Factual Record . . . . . . . . . . . . . . . 137 A. CLEVELAND ELECTRIC ILLUMINATING . . . . . . 139 l
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| 1, Cleve'and's request for nuclear j access and CAPCO membership . . . . . . 145 1
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| : 2. Interconnection with Cleveland . . . . . 154 1
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| : 3. Wheeling for Cleveland . . . . . . . . . 171
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| : 4. Painesville . . . . . . . . . . . . . . 176
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| : 5. Alleged territorial agreement with OE . 182
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| : 6. Conclusion . . . . . . . . . . . . . . . 163 -
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| B. TOLEDO EDISON . . . . . . . . . . . . . . . 184
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| : 1. Acquisitions . . . . . . . . . . . . . . 185
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| : 2. Territorial al?acations . . . . . . . . 189
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| : 3. Bulk power ser / ices . . . . . . . . . . 199
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| : 4. Joint ownership of generating facilities . . . . . . . . . . . . . . , 209
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| : 5. Conclusion . . . . . . . . . . . . . . 211 C. OHIO EDISON AND PENNSYLVAN~A POWER . . . . . 212
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| : 1. Nuclear access . . . . . . . . . . . . . 214
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| : 2. Acquisitions . . . . . . . . . . . . . . 223
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| : 3. Wheeling . . . . . . . . . . . . . . . . 228
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| : 4. Territorial agreements . . . . . . . . . 234
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| : 5. Refusals to deal . . . . . . . . . . . . 242
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| : 6. Capacity limitations . . . . . . . . . . 248
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| : 7. Price squeeze . . . . . . . . . . . . . 250
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| : 8. Penn Power's conduct . . . . . . . . . . 256
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| : 9. Conclusion . . . . . . . . . . . . . . . 259 D. DUQUESNE LIGHT . . . . . . . . . . . . . . 260
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| : 1. The Aspinwall and Pitcairn matters . . . 268
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| : 2. Pitcairn's interest in the CAPCO pool . 274
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| : 3. Duquesne's dealings with the City of Cleveland . . . . . . . . . . . 277
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| : 4. Nuclear access . . . . . . - . . . . . . . 280
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| : 5. Conclusion . . . . . . . . . . . . . . . 282 ii
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| e-Page V. Relief . . . . . . . . . . . . . . . . . . . . . 283 A. FAILURE TO EVAI.UATE THE PUBLIC INTEREST . . 284 B. FAILURE TO TAILOR THE LICENSE CONDITIONS TO THE SEPARATE SITUATIONS FOUND TO EXIST FOR EACH APPLICANT . . . . . . . . . . 293 C. FAILURE TO DESIGN RELIEF THAT DOES NOT EXCEED THE JURISDICTIONAL AUTHORITY OF THE COMMISSION . . . . . . . . . . . . . . . 294 VI. Conclusion . . . . . . . . . . . . . . . . . . . 298 Exhibit A Exhibit B Exnibit C iii I
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| | |
| 4 LEGAL CITATIONS Page CASES:
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| Affiliated Music Enterprises, Inc. v
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| ,Sesac, Inc., 160 F. Supp. 665 (S.D.N.Y. 1958), aff'd, 258 F.2d 13 (2d Cir.), cert. denied, 361 U.S. 831 (1959) . . . . . . . . . . .. . . ..... 77 Alabama Power Co. v. FPC, 511 F.2d 363 (D.C. Cir. 1977). . . . . . . . ....... . . 30 American Tobacco Co. v United States, 326 U.S. 781 (1946) . . . . . . . . . . . . . . . 28, 84 Asheville Tobacco Board _of Trade, Inc., v FTC, 263 F.2d 502 (4th Cir. 1959) . . . . . .... 209 Associated Press v United States, 326 U.S. 1 (1945). . . . . . . . . . . . . . . .... 176 Atlantic Seaboard Corp. v F.P.C., 404 F.2d 1266 (D.C. Cir. 1968) . . . . . . . . . . . . .... 33 Brown Shoe Co. v United States, 370 U.S. 294 (1962) . . . . . . . . . . . . . . . 87, 88, 189 Burlington Truck Lines, Inc. v United States, 371 U.S. 156 (1962) . . . . . . . . . . . . ..... 139 Business Aides, Inc. v Chesapeake & Potomac Telephone Co., 480 F.2d 754 (4th Cir. 1973) . . . . . 271 California y FPC, 296 F.2d 348 (D.C. Cir. 1961),
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| rev'd on other grounds, 369 U.S. 482 (1962) . 30, 73, 86 Ca11anan Road Improvement Co. v United States, 345 U.S. 507 (1953) . . . . . . . . . . . . .. . . . 155
| |
| * Cantor v Detroit Edison Co., 428 U.S. ,
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| 96 S.Ct. 3110 (1976). . . . . . . . . . . . 26, 32, 33, 35 37, 39, h7, 76, 209,235 Carolina Power & Light Co.
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| 49 F.F.C. 649 (1973). . . . . . . . . . . ... . . . 82 l
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| | |
| .\
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| Page
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| , Chastain v American Telephone & -
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| Telegraph Co., 351 F.Supp. 1320
| |
| ~
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| TD.D.C. 1972). . . . . . . . . ............ 37
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| * Chicago Board of Trade _v United States, 246 U.S. 231 (1918). . . . . . ............ 36 Citizens of Allegan County, Inc. v.
| |
| FPC, 414 F.2d 1125 (D.C. Cir. 1969). ......... So City of Batavia v FPC, No. 74-1411 (D.C. Cir. filed Jan. 4, 1977) ............ 76
| |
| * City of Cleveland v FPC, 525 F.2d 845 (D.C. Cir. 1976) . . . . . . . . . . . . . . . . 79, 155 City of Huntingburg, Ind. v FPC, 498 F.2d 778 (D.C. Cir. 1974). ............ 81 City of Lafayette v SEC, 454 F.2d 941 (D.C. Cir. 1971), aff'd in part sub nom. Gulf States Utilities Co. v FPC, 411 U.S. 747 (1973) . ...... ... ... .. 73 City of Paris v Kentucky Utilities Co.,
| |
| 38 F.P.C. 269 (1967) . . . .............. 79 City of Tacoma v "axpayers of Tacoma, 357 U.S. 320 (1958). . . . . . . . . . . . . . . . . 155 Cleary v National Distributors &
| |
| Chemical Corp., 505 F.2d 695 l
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| (9th Cir. 1974). . . . . . . . . . . . . . . . . . . 144 In re Coca-Cola Co. [1973-1976 Transfer Binder] Trade Reg. Rep. 1 21,010 (FTC 1975). ... .. 37 1 Commonwealth Edison Co., 36 F.P.C. 927 (1966), aff'd sub nom. Utility Users League v FPC 394 F.2d 16 (7th Cir. 1968),
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| cert. denied, 393 U.S. 953 (1973). . . . . . . . 80, 189
| |
| * Consumers Power Co., (Midland Plant, Units 1 & 2), LBP-75-39, 2 N.R.C. 29 (1975) . . . . . . . . 9, 13, 16, 27, 30, 119 124, 133-135, 191, 194-195, 228-229, 235 Crisp County Power Commission v Georgia Power Co., 37 F.P.C. 1103 (1967), 42 F.P.C. 1179 (1969). ... ......... 79 l
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| l
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| [
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| | |
| Page Crown Ze11erbach Corp. v FTC, 296 F.2d 600 (9th Cir. 1961) . . ......... 189 Dahl, Inc. v. Roy Cooper Co., 448 F.2d 17 (9th Cir. 1971). . . . . . . . . . 113, 144, 280 Daily Press, Inc. v United Press International, 412 F.2d 126 (6th Cir. 1969). . . . ............. 145 Deesen v Professional Golfers' Association, 35d F.2d 165 (9th Cir.),
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| cert. denied, 385 U.S. 846 (1966). ....... 107 Q ,F1111ppo v Ford Motor Co.,
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| 516 F.2d 1313 (3d Cir. 1975) . . . . . . . 107, 176 Denver & R.G.W.R.R. v United States, 367 U.S. 465 (1967). . . ....... ..... 73 Duke Power Co. (Catawba Nuclear Station, Unit 1 & 2), ALAB-355, 4 N.R.C. 397 (1976) ............... ... ... 137
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| *Ducuesne Light Co., 37 F.P.C. 1051 (1967) ..................... 80 E.A. McQuade Tours, Inc.,v Consolidated Air Tours Manual Committee, 467 F.2d 178 (5th Cir. 1972) cert. denied, 409 U.S. 1609 (1973) . . . . .......... .. 107 Fashion Originators' Guild of America v FTC, 312 U.S. 457 (1941) ....... . .... 150
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| #FCC v RCA Communications, Inc.,
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| 346 U.S. 66 (1953) . . . ... . 31, 33, 34, 48, 73 FMC v Aktiebolaget Svenska Amerika Linien, 390 U.S. 236 (1968) . . ............ 73
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| *FPC v Conway Corp., 426 U.S. 271 (1976) . . . 76, 81, 255 l
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| FPC v Sierra Pacific Power Co.,
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| l 350 U.S. 340 (1956). . . . . . . ........ 179 i
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| i i
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| | |
| e 6
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| 4- .
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| Page First National Bank v Cities Service, 391 U.S. 253 (1966) . . . . . . . . . .
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| . . 113 ,280 Flintkote Co. v Lysfjord, 246 F.2d 366 (9th Cir. 1957) . . . . . . . . . . ..... 11 Florida Power Corp. v FPC, 425 P.2d 1196 (5th Cir. 1970), re'i'd on other grounds sub nom. Gainesville Utilities Department v Florida Power Corp., 402 U.S. 515 (1971) ....... . . . . . ..... 78 Gainesville Utilities Department v Florida Power Corp., 40 F.P.C. 1227 (19eo), 41 F.P.C. 4 (1969) aff'd, 402 U.S. 515 (1971) . . . . . . . . . . 79, 103, 155 Gamco, Inc. v Providence Fruit &
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| Produce Building,194 F.2d 484 '
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| (1st Cir.), cert, denied 344 U.S. 817 (1952) . . . . . . . . . . . . ... 176 George R. Whitten, Jr., Inc. v Paddock Poc1 Builders, Inc., 508 F.2d 547 (1st Cir. 1974), cert. denied, 421 U.S. 1004 (1975). . . . . . . . . . . ... 209
| |
| #Gordon 7 New York Stock Exchange, Inc., 422 U.S. 659 (1975) . . . . . . . . . 35, 38, 39 Greater Boston Television Corp. v FCC, 444 F-2d 641 (D.C. Cir. 1970),
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| cert. denied,.403 U.S. 923 (1971) . . . . . . 138, 139 Greenville Publishing Co., Inc. v Daily Reflector, Inc., 496 F.2d l
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| 391 (4th Cir. 1974) . . . . . . . . . . . . ... 100
| |
| # Gulf States Utilities Co. v FPC, I
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| 411 U.S. 747 (1973) . . . . . . 28, 47, 73,'74, 80, 184 Harms v United States, 272 l F.2d 470 (4th Cir. 1959). . . . . . . . . . ... 25
| |
| #Eawaiian Telechone Co. v FCC, 490 F.2d 771 (D.C. Cir. 1974) . . . . 31, 32, 86, 267 t
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| l s
| |
| | |
| Page Independent Iron Works, Inc. v.
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| United States Steel Corp., 177 ~
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| F. Sapp. 743 (N.D. Cal. 1959),
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| aff'd, 322 F.2d 656 (9th Cir.),
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| cert. denied, 375 U.S. 922 (1963) . . . . ... . . . . . . . . . . . . 113, 279 Indiana & Michigan Electric Co.,
| |
| 49 F.P.C. 1232 (1973). . . ...... . . . .. 81 International Railways of Central America v United Brands Co., 532 F.2d 231 (2d Cir. 1976) . . . . . . .. . . . . . . . .. 86 International Telephone a Tclegraph Corp. v General Tel. & Electronics Corp.,
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| 351 F.Supp 1153 (D Hawa11 1972) . . . . . . .. 96 Joseph E. Seagram & Sons, Inc. v Hawaiian Oke & Liouors. Ltd.,
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| 416 F.2d 71 (9th C1r. 1969),
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| cert. denied, 396 U.S. 1067 (1970) . . . . . .. 107 Kansas Gas & Electric Co. and Kansas City Power & Light Co. (Wolf Ofeek Generating Station, Unit No. 1),
| |
| ALAB-279, 1 N.R.C. 559 (1975). . . . . '
| |
| 72-73 Klor's, Inc. v Broadway-Hale Stores, Inc., 359 U.S. 207 (1959). ........... 150
| |
| *Koppers Company v North Penn Gas Company, 42 Pa. PUC Rep. 73c (1966) ...... . 62, 266, 267 Krulewitch v United States, 336 U.S. 440 (1949). . . . . . . ..... . . . .. 11
| |
| * Lamb Enterprises, Inc. v Toledo Blade l Co., 401 F.2d 506 (6th Cir.),
| |
| * l cert. denied, 409 U.S. 1001 (1972) . . 101, 185, 274 Latin America / Pacific Coast S.S.
| |
| ! Conf. v Federal Maritime Commission, 465 F.2d 542 (D.C. Cir. 1972). . . . . . . . 31, 33 Louisiana Power & Light Co. (Waterford Steam Generating Station, Unit 3),
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| CLI-73-7, 6 A.E.C. 43 (1973)
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| ("Waterford I"). . . . . . . .... . . 9, 12h, 126
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| | |
| Page
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| * Louisiana Power & Light Co. (Waterford Steam Generating Station, Unit 3)
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| CLI-73-25, 6 A.E.C. 619 (1973)
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| ("Waterford II"). . . . . . . . . . . . . . . . . . 9-11, 73, 124-126, 132, 134, 135, 199, 213, 242, 294
| |
| * Manufacturers Heat & Light Company v Peoples Natural Gas Company, 39 Pa. PUC Rep. 440 (1962) . . . . . . . . . . . . . 62, 266 McCullcch Interstate Gas Corp. v FPC, 536 F.2d 910 (10th Cir.
| |
| I776) . . . . . . . . . . . . . . . . . . . . . . . 155 Milwaukee Towne Corp. v. Loew's, Inc., 190 F.2d 561 (7th Cir.
| |
| I33T) . . . . . . . . . . . .. . . . . . . . . . . 145 Modern Home Institute v Hartford Accident & Indemnity Co.,
| |
| 513 F.2d 102 (2d Cir. 1975) . . . . . . . . . . 113, 280 Mohawk Utilities, Inc.- v PUCO, 37 Ohio St. 2d 47, 307 N.E.
| |
| 2d 261 (1974) . . . . . . . . . . . . . . . . . . . 208 Moore v Jas. H. Matthews & Co.,
| |
| 473 F.2d 328 (9th Cir. 1973). . . . . , . . . . . . 77 Municipal Electric Association v FPC, 414 F.2d 1206 (D.C. Cir.
| |
| IFEs) . . . . . . . . . . . . . . . . . . . . . . . 129 Nankin Hospital v Michigan Hospital Services, 361 F. Supp. 1199 (E.D. Mich. 1973) . . . . . . . . . . . . . . . . .66-87 National Association of Food .
| |
| Chains.v ICC, 535 F.2d.1303 (D.C. Cir. 1976). . . . . . . . . . . . . . . . . . 139 National Broadcasting Co. V United States, 319 U.S. 190 (1943)
| |
| . . . . . . . . . . . . . . . . . . . . . . 73 New England Power Co. v FPC, 349 F.2d 258 (1st Cir. 1965). . . . . . . . . . . . 78, 83 New England Pcwer Pool Agreement, Dkt. No. E-7690 (FPC, Nov. 24, 1975). . . . . . . . 52
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| | |
| i Page Niagara Mohawk Power Corp. v FPC, 538 F.2d 966 (2d Cir.
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| 1976) . . . . . . . . . . . ..... ..... 81, 82 Niagara _ Mohawk Power Corp.
| |
| (Nine Mile' Point Nuclear Station, Unit 2), ALAB-264, 1 NRC 347 (1975). . . . . . ........... 137 Northern Natural Gas Co. v FPC, 399 F.2d 953 (D.C. Cir. 1968) .......... 31, 33, 43 Northern Pacific Ry. v United States, 356 U.S. 1 (1958) . . . . . . .......... 32, 36
| |
| * Ohio Edison Co., SEC Holding Ccapany Act Release Nos. 15367, 17703, 17842, 18951. . . . . .......... 81 Ohio Power Company, et al., Case No. 34,573 (March 1, 1968). ........... 208 Otter Tail Power Co. v FPC, 473 F.2d 1253 (8th Cir.1973) .......... 77, 78, 155, 200 Otter Tail Pcwer Co. v United States _,
| |
| 410 U.S. 366 (1973), aff'g, 33f F. Supp. 54 (D. Minn. 1971) ........... 26, 30, 35, 175 Ovitron Corp. v. General Motors Corp.,
| |
| 295 F. Supp. 373 (S.D.N.Y. 1969). ........ 99 Pacific Gas & Electric Co., 51 F.P.C.
| |
| 1030 (1974) . . . . . . . . ........... 81, 82
| |
| * Painter v. Pa. PUC, 194 Pa. Super.
| |
| 548, 168 A.2d 113 (1961). . ........... 265 Paramount Film Distributing Corp.,
| |
| 1961 Trade Cases 1 70,051 at 78, 214 (E.D. Pa. 1960), aff'd, 320 F.2d 285 (3d Cir. 1963). . . . . ........... 11 Parker v. Brown, 317 U.S. 341 (1943) ......... 208-209 Pennington v United Mine Workers of America, 325 F.2d 804 (6th Cir.
| |
| 1963), rev'd on other arounds, i 381 U.S. 657 (1965) . . . . ........... 11
| |
| ( . - . . _ _
| |
| | |
| Page Pennsylvania Water & Power Co.- v FPC, 193 F.2d 230 (D.C. Cir. 1951),
| |
| 30, 47 aff'd, 343 U.S. 414 (1952). . . . . . . . . . . . .
| |
| Pennsylvania Public Utility Commission v Duquesne Light Co., 42 Pa. PUC Rep.
| |
| 96 (1966). . . . . . . . . . . . . . . . . . . . . 274
| |
| * Petition for Amendment of 18 C.F.R. ,
| |
| Part 141 Docket No. R-432, 49 F.P.C. 588 (1973), aff'd sub nom.
| |
| Alabama Power Co. v FPC, 511 F.2d 383 (D.C. Cir. 1974) . . . . . . . . . . . . . . . . 30, 33 Philadelphia World Hockey Club, Inc. v Philadelphia Hockey Club, Inc.,
| |
| 351 F. Supp. 462 (E.D. Pa. 1972). . . . . . . . . . 99 Public Service Company of-Indiana, (Marble Hill Nuclear Generating Plant, ' Units 1 & 2) , LBP-76-25, .
| |
| NRC 847 (1976) . . . . . . . . . . . . . . . . . . . 154 Richmond Power & Light v FPC, 481 F.2d 490 (D.C. Cir.),
| |
| cert. denied, 414 U.S. 1068 (1973). . . . . . . . . . . . . . . . . . . . . . . 179 Rooffire Alarm Co. v Royal Indemnity Co.,
| |
| 212 F. Supp 166 (E.D. Tenn. 1962),
| |
| aff'd, 313 F.2d 635 (6th Cir.),
| |
| cert. denied, 373 U.S. 949 (1963) . . . . . . . . . 107 Royster Drive-In Theatres, Inc._ v American Broadcasting-Paramount Theatres, Inc., 268 F.2d 246 144 (2d Cir. 1959).
| |
| s SEC v Chenery Corp., 318 U.S. 80 (1943). . . . . . . . . 139 Shopping Centers Association v PUCO, 3 Ohio St. 2d 1, 208 N.E. 2d
| |
| , 923 (1965). . . . . . . . . . . . . . . . . . . . . 208 l
| |
| l l
| |
| | |
| Page Shrewsburv Municipal Light Dept. v New England Power Co., 32 FPC 373 (1964), aff'd sub nom.. New England Power Co. v FPC, 349 F.2d 258 (1st Cir. 1965) . . . . . . . . . .. . . , . . . . . . . 79
| |
| * Silver v New York Stock Exchange, 373 U.S. 341 (1963) . . .. . . . . . . . . . . . . 35, 36, 38-39, 107 South-East Coal Co. v Consolidation Coal Co., 434 F.2d 767 (6th Cir. 19 70) . . . . . . . . . . . . . . . . . . . . . 11 Southwestern Electric Power Co.,
| |
| 50 FPC 1957 (1973). . .. . . . . . . . . . . . . . 82 .
| |
| S.S.W., Inc. v Air Transport Associacion of America, 191 F.2d 658 (D.C.
| |
| Cir. 1951) ,' cert. denied, 343 U.S. 955 (1952) . . . . .. .. . . . . . . . . . . 32, 33,
| |
| ' 35 Standard 011 Co. v Moore, 251 F.2d 188 (9th Cir. 1957) . . . . . . . . . . . . . . 11, 24, 144 Times - Picavune Publishing Co. v United States, 345 U.S. 594 (1953). . . . . . . . . . . . . . . . . . . . . . . 84, 86 Toledo Edison Co., et al. (Davis-Besse Nuclear Power Station, Units 1, 2 & 3) and Cleveland Electric Illuminating Co., et al. (Perry Nuclear Power Plant, Units 1 & 2) ,
| |
| ALAB-378, 5 N.R.C. . . . . . . . . . . . . . . 75 Travelers Insurance Co. v Blue Cross, 361 F. Supp. 774 ( .W .D . Pa. 197 2) ,
| |
| aff'd, 481 F.2d 80 (3d Cir.),
| |
| cert. deniej,, 414 U.S. 1093 (1973). . . . . . . . . 87 United Gas Pipeline Co. v Memphis Light Gas & Water Division,
| |
| .158 U.S. 103 (1958) . . . . . . . . . . . . . . . . 179 l
| |
| l
| |
| | |
| Page United Gas -teline Co. v Mobile Power ,
| |
| , 350 U.S. 332 (1956). . . . . . . . . . . 179 United States v Aeroquip Corp.,
| |
| 284 F. Supp. 114 (E.D. Mich.
| |
| 1968) . . . . . . . . . . . . . . .. . . . . . . . . 11 United States v Aluminum Company of America, 148 F.2d 416 (2d Cir.
| |
| 1945) . . . . . . . . . . . . . . . . . . . . . . . 27, 98, 99 United States v Associated Press, 52 F.
| |
| Supp. 362 (S.D.N.Y. 1943), aff'd in part, rev'd in part on other grounds, 326 U.S. 1 (1964). . . . . . . . . . . . . 176 United States v Bethlehem Steel Corp.,
| |
| 168 F. Supp. 576 (S.D.N.Y. 1958). . . . . . . . . . 89 United States v Blue Bell, Inc.,
| |
| 395 F. Supp. 538 (M.D. Tenn. 1975). . . . . . . . . 96 United States v Chas. Pfizer & Co.,
| |
| 246 F. Supp. 464 (E.D.N.Y. 1965). . . . . . . . . . 95
| |
| * United States v Citizens & Southern National Bank, 422 U.S. 86 (1975) . . . . . . . . . 26, 35, 36, 39, 198, 240 United States v Columbia Steel Co.,
| |
| 334 U.S. 495 (1948) . . . . . . . . . . . . . . . . 84, 86 United States v Connecticut National Bank, 362 F. Supp. 240 (D. Conn. 1973),
| |
| vacated and remanded, 418 U.S. 656 (1974)... . . . . . . .. . . . . . . . . . . . . . 87, 88, 90 United States v Crocker-Anglo National Bank, 277 F. Supp . 133 (N.D. Cal. 1967) . . . . . . . . . 87 United States v E.I. du Pont de Nemours &
| |
| Co., 351 U.S. 377 (19 56) , af f ' g, 118 F. Supp. 41 (D. Del. 1953) . . . . . . . . . . . . . 77, 84, 86, 94 ,
| |
| ; United States v Empire Gas Corp., 357 F.2d l 296 (8th Cir. 1976) . . . . . . . . . . . . . . . . 84 l
| |
| l l
| |
| l
| |
| | |
| Page United States v First National'Bancorporation, Inc., 329 F. Supp. 1003 (D.Colo. 1971),
| |
| a3f7 d, 410 U.S. 577 (1973). . . . . . . . . . . . . 87 l
| |
| United States v First National Bank of Jackson, 301 F. Supp. 1161 (S.D.
| |
| Miss. 1969) . . . . . . . . . . . . . . . . . . . . 87 United States v First National Bank o_f__ Maryland, 310 F. Supp. 157 (D.Md. 1970). . . . . .. . . . . . . . . . . . . . 87 United States v General Dynamics Corp.,
| |
| 415 U.S. 486 (1974) . . . . . . . . . . . . . . . . 85 I
| |
| . United States v Griffith, 334 U.S. 100 (1948) . . . . . . . . . . . . . . . . 28, 84 United States v Grinnell Corp., 236 l F. Supp. 244 (D. Rhode Island 1964), aff'd, 384 U.S. 563 ,
| |
| (1966). . . . . . . . . . . . . . . . . . . . . . . 28, 85, 86, 94 United States v Harte-Hanks Newspaper, Inc., 170 F. Supp. 227 (N.D. Tex.
| |
| Ii3T) . . . . . . . . . . . . . . . . . . . . . . . 101
| |
| ~
| |
| United States v Idaho First National Bank, 315 F. Supp. 261 (D. Idaho I970) . . . . . . . . . . . . . . . . . . . . . . . 87 United States v Insurance Board of Cleveland, 188 F. Supp. 949 (N.D. Ohio 1960) . . . . . . . . . . . . . . . . . . 107 United States v International Business Machine Corp., 1975-2 Trade Cas. ,
| |
| 1 60,495. . . . . . . . . . . . . . . . . . . . . . 27, 86 l
| |
| United States v International Telephone &
| |
| Telegraph Corp., 324 F. Supp. 19 (D, Conn. 1970) . . . .. . . . . . . . . . . . . . 96 1 !
| |
| l L ;
| |
| | |
| Page United States v Jerrold Electronics Corp.,
| |
| 187 F. Supp. 545 (B.D. Pa. 1960), aff'd per curiam, 365 U.S. 567 (1961) . . . . . . . . . . 189 United States v Marir.a Bancorporation, 418 U.S. 602 (1974) . . . . . . . . . . . . . . . 33, 87, 88 United States y Morgan, 118 F. Supp.
| |
| 621 (S.D.N.Y. 1953) . . . . . . . . . . . . . . . . 37
| |
| . United States v National Association of Securities Dealers, Inc., 422 U.S. 694 (1975) . . . . . . . . . . . . . . . . . . 35 United States v National Football League, 116 F . S upp . 319 (E.D. Pa. 1953) . . . . . . . . . . 37 United States v Nixon, 418 U.S. 683 (1974). . . . . . . . . . . . . . . . . . . . . . . 25 United States v Pacific Southwest Airlines: 358 F. Supp. 1224 -
| |
| (C.D . Cal. 1973) . . . . .. . . . . . . . . . . . . 208
| |
| * United States v Pan American World Airways, Inc., 193 F. Supp. 18 (S.D.N.Y. 1961) , rev'd on other grounds, 371 U.S. 296 (1963). . . . . . . . . . . . 37, 236 United States v Paramount Pictures, 334 U.S. 100 (1948) . . . . . . .. . . . . . . . . 28 United States v Penn-Olin Chemical Co.,
| |
| 378 U.S. 158 (1964) . . . . . . . . . . . . . . . . 267 United States v Philadelphia National Bank, 374 'U.S. 321 (1963) . . . . . . . . . . . . . 94
| |
| ; United States v Phillipsburg National Bank, 399 U.S. 350 (1970) . . . . .. . . . . . . . . . . 94
| |
| * United States v Radio Corp. of America, 358 U.S. 334 (1959) . . . . . . . . . . . . . . . .33, 74, 285 United States v Rodriguez, 509 F.2d 1342
| |
| ( d th Cir . 19 7 5) . . . . . . . . . . . . . . . . . . 25 i
| |
| United States v Terminal Railroad AssociaElon , 224 U.S. 383 (1912). . . . . . . . . . 176, 210 i
| |
| | |
| Page United States v Topco Associates, Inc.,
| |
| 405 U.S. 596 (1972) . . . . . . . . . . . . . . . . 36 United States v United Shoe Machinery Corp., 110 F. Supp. 295 (D. Mass.
| |
| 1953), aff'd per curiam, 347 U.S.
| |
| 521 (1954). . . . . . . . . . . . . . . . . . . . . 86, 87, 89, 94, 101 United States v United States Steel Corp., 251 U.S. 417 (1920). . . . . . . . . . . . . 99 United States v United Virginia Bankshares Inc., 347 F. Supp. 891 (E.D. Va. 1972). . . . . . . 87 United States v Western Union Telegraph Co., 53 F. Supp. 377 (S.D.N.Y. 1943). . . . . . . . 101, 185 Viking Theatre Corp. v Paramount Film .
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| Distributing Corp., 1961 Trade Cas.
| |
| 1 70051 (E.D. Pa. 1960) , aff ' d,
| |
| ! 320 F.2d 285 (3rd Cir.
| |
| ! 1963) . . . . . . . . . . . . . . . . . . . . . . . 11 Village of Elbow Lake v Otter Tail Power Co., 40 FPC 675 (1971),
| |
| aff'd as modified sub nom. Otter Tail Power Co. v FPC, 473 F.2d 1253 (5th Cir. 1977T7 . . . . . . . . . . . . . . . 79 Washington Gas Light Co. v Virginia Electric & Power Co., 438 F.2d 248 ( 4th Cir. 1971) . . . . . . . . . . . . . . . . 208
| |
| . Webster Rosewood Corp. v Schine Chain Theatres, Inc., 263 F.2d 533 (2d Cir. 1959). . . . . . . . . . , . . . . . . . . 144 1 Yoder Brothers, Inc. v California-Florida Plant Corp., 537 F.2d 1347 (5th Cir.
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| 1976) . . . . . . . . . . . . . . . . . . . . . . . 84 j i
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| 1 1
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| | |
| Page STATUTES:
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| Federal _:
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| 138 5 U.S.C. S 557 (c) . . . . . . . . . . . . . . . . . . . .
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| passim 15 U.S.C. 5 1 & 2. .. . . . . . . . . . . . . . . . . .
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| 80, 81
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| *15 U.S.C. S 79i & 79j. .. . . . . . . . . . . . . . . .
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| 78
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| *16 U.S.C. S 824a(b). . . . . . . . . . . . . . . . . . .
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| 79
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| *16 U.S.C. S 824b . . .. . . . . . . . . . . . . . . . .
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| 54, 81,
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| *16 U.S.C. $ 824d . . . .. . . . . . . . . . . . . . . . 179, 194
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| . . . . 54, 81
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| *16 U.S.C. S 824e . . . . . . . . . . . . . . .,.
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| 156 42 U.S.C. S 2018-2019. . . . . . . . . . . . . . . . . .
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| passim ,
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| 42 U.S.C. S 2135 . . . . . . . . . . . . . . . . . . . .
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| 1 State:
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| * Ohio Constitution, Article XVIII, 91 Section 4 .. . . . . . . . . . . . . . . . . . . . .
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| . . . . . . . . . . . 51, 195 Section 6 . .. .. . . . . . 197~, 240
| |
| * Ohio Revised Coda:
| |
| 54 R.C. S 4905.15. . . . . . . . . . . . . . . . . . . .
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| 52, 192, R.C. S 4905.261 . . . . . . . . . . . . . . . . . .196, . 206, 237 54 R.C. S 4905.30. . . . . . . . . . . . . . . . . . . .
| |
| 54 R.C. S 4905.32. .. .. . . . . . . . . . . . . . . .
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| 54, 91 R.C. S 4909.34. . . . . . . . . . . . . . . . . . . .
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| 51 l R.C. S 4933.03. . . . . . . . . . . . . . . . . . . .
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| l i
| |
| l
| |
| )
| |
| | |
| Page R.C. S 4933.13. . . . . . . . . . . . . . . . . . . . 51 R.C. S 4933.16. . . . . . . . . . . . . . . . . . . . 51, 91 R.C. S 9709.01. . . . . . . . . . . . . . . . . . . . 240
| |
| * Pennsylvania Statutes:
| |
| 15 P.S. SS 3277 et. seq.. . . . . . . . . . . . . . . 264 53 P.S. S 47471 . . . . . . . . . . . . . . . . . . . 53, 91, 254, 256-57, 264 66 P.S. SS 1101 et. seq. . . . . . . . . . . . . . . $2 66 P.S. S 1121. . . . . . . . . . . . . . . . . . . . 52, 256- j 257, 264 66 P.S. S 1122. . . . . . . . . . . . . . . . . . . . 256-57 66 P.S. S ll22(a) . . . . . . . . . . . . . . . . . . 52 66 P.S. S 1122(b) . . . . . . . . . . . . . . . . . . 52 66 P.S. S ll22(e) . . . . . . . . . . . . . . . . . . 53 66 P.S. S ll22(g) . . . . . . . . . . . . . . . . . . 53 66 P.S. S 1123. . . . . . . . . . . . . . . . . . . . 52 ,
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| 66 P.S. S 1124. . . . . . . . . . . . . . . . . . . . 53 66 P.S. S 1141. . . . . . . . . . . . . . . . . . . - 257, 264 66 P.S. S 1142. . . . . . . . . . . . . . . . . . . . 55 l t
| |
| 66 P.S. S 1143. . . . . . . . . . . . . . . .>. . . . 55 66 P.S. S 1144. . . . . . . . . . . . . . . . . . . . . 264 66 P.S. S ll48 (a) . . . . . . . . . . . . . . . . . . 55 55 l 66 P.S. S 1148 (b) . . . . . . . . . . . . . . . . . .
| |
| 66 P.S. S 1149. . . . . . . . . . . . . . . . . . . . 271 66 P.S. S 1171. . . . . . . . . . . . . . . . . . . . 257, 264 66 P.S. S 1172. . . . . . . . . . . . . . . . . . . . 264 k
| |
| | |
| Page
| |
| . LEGISLATIVE MATERIAL: HEARINGS & REPORTS Prelicensing Antitrust Review of Nuclear Powerplants Before the Joint Committee on Atomic Energy, 91st Cong., 1st Sess.
| |
| 156 (19691. . . . . . . . . .. . . . . . . . . . . . . .
| |
| H.R. Rep. No. 1470, 92d Cong., 2d Sess.,
| |
| reprinted in (1970] U.S. Code Cong. & 35, 135 Ad. News 4981 . . . . . . . . . . . . . . . . . . . .
| |
| MISCELLANEOUS:
| |
| Areeda, Antitrust Analysis (1967). . . . . . . . . . . . 107 Attorney General's NaNional Commission, 99 Antitrust Reports (195S). . . . . . . . . . . . . .
| |
| Bryer and MacAvoy," Energy Regulation 46 by the Federal Power Commission (1974). . . . . . .
| |
| *FPC, National Power Survey: A Report bv the 13, 16, Federal Power Commission (1964) . . . . . . . . . . .
| |
| 17, 20, 45, 46, 105-06 i
| |
| FPC, Prevention of Power Failures: A Report to the President (1967). . . . . . . . . . . . 14 1
| |
| 180 41 Fed. Reg. 33942 (August 11, 1976) . . . . . . . . . .
| |
| *Hughes, " Scale Frontiers in Electric Power," in Technological Change in the Regulated Industries (1971) . . . . . . .. . . . . . . . . . . 104 4 L. Loss, Securities Regulation (1961 and 80, 81 Supp. 1969) . .. . . . . . . . . . . . . . . . . . .
| |
| Pace, Relevant Markets and the Nature of Competition in the Electric Utility Industry, 16 Antitrust Bull. 725 (1971) . . . . . . . 88
| |
| *Penn, Delaney, & Honaycutt, Coordination, Competition and Regulation in the Electric 41-42, Utility Industrv, NUREG 75/061 (1975) . . . . . . . .
| |
| 56, 58, 60, 61, 69 3
| |
| | |
| Page
| |
| * Shenefield, Antitrust Policy Within the Electric Utility Industry, 16 Antitrust Bull. 681 (1971). . . . . . . . . . . .. . . - . . . . . . . . 37, 100, 237 Turner, The Scope of Antitrust and other Economic Recrulatory Policies, 85 Harv.
| |
| L. Rev. 1207 (1969) . . . . . . . . . . . . . . . . . . 298-99
| |
| * Cases or authorities chiefly relied upon are marked by asterisks..
| |
| i
| |
| ~ . . _ , - g. -,-- . . . , - - . .
| |
| | |
| UNITED STATES OF A!! ERICA NUCLEAR REGULATORY CCMt!ISSION Before the Atomic Safety and Licensing Acceal Board In the Matter of )
| |
| )
| |
| THE TOLEDO EDISON COMPANY and )
| |
| THE CLEVELAND ELECTRIC ILLUlfINATING ) Docket No. 50-346A COMPANY )
| |
| (Davis-Besse Nuclear Power Station, )
| |
| Unit 1) )
| |
| )
| |
| THE CLEVELAND ELECTRIC ILLUMINATING )
| |
| COMPANY, ET AL. ) Docket Nos. 50-440A (Perry Nuclear Power Plant, ) 50-441A Units 1 and 2) )
| |
| )
| |
| THE TOLEDO EDISON COMPANY, ET AL. ) Docket Nos. 50-500A (Davis-Besse Nuclear Power Station, ) 50-501A Units 2 and 3) )
| |
| APPLICANTS' APPEAL BRIEF IN SUPPORT OF THEIR INDIVIDUAL AND COMMON EXCEPTIONS TO THE INITIAL DECISION Preamble On January 6, 1977, an Initial Decision was anncunced by the Atomic Safety and Licensing Board (" Licensing Board") which had been convened to undertake Section 105c antitrust review (42 U.S.C. $ 2135(c)) of the activities under designated nuclear licenses being sought for construction and operation of the above referenced facilities. In sun, the Licensing Board found one or more situations inconsistent with the antitrust laws to exist within the geographic area identified as the Combined CAPC0 Company Territories ("CCCT"),
| |
| and it therefore ordered in blanket fashion that ten conditions be imposed upon issuance of the requested licenses.-1/
| |
| 1/ Applicants sought to stay the i=plementation of the license conditions pending the outcoce of the present appeal. Following the l receipt of legal cecoranda and the presentation of cral argument, the stay request was denied by the Appeal Board in its Mecorandu= and Order of March 23, 1977 (ALAB-385).
| |
| I
| |
| | |
| Exceptions to the Initial Decision were filed on February 7, 1977, by The Cleveland Electric Illuminating Company
| |
| ("CEI"), The Toledo Edison Company ("TEC0"), the Ohio Edison
| |
| ("0E") and Pennsylvania Power ("PP") Companies, and by Duquesne Light Company ("DL") -- applicants herein (" Applicants") .-2/ For the reasons set out in this Appeal Brief, Applicants firmly believe that the Initial Decision is erroneous in every material respect and should be reversed by the Atomic Safety and Licensing Appeal Board (" Appeal Board").
| |
| At the very outset, it is important that the Appeal Board understand and appreciate the backdrop against which this antitrust hearing was conducted below. As confirmed by the entire structure and context of the Initial Decision, the Licensing Board undertook its review responsibilities in this case holding to the preconceived opinion that all five Applicants' participation in the CAPCO contrac-tual arrangements was enough in and of itself to establish collective action suggesting at least a structural inconsistency with the anti-trust laws (I.D. ac 12-15).-3/ It presumed that Applicants "do not 2/ In addition, Exceptions were filed simultaneously by the City of Cleveland (" Cleveland").
| |
| 3/ Throughout this Appeal Brief, the following designations will be used to refer to the Initial Decision and portions of the record below:
| |
| Initial Decision "I.D. at * * *"
| |
| Findings of Fact "F/F No. * * *"
| |
| NRC Staff Exhibit "S * * *"
| |
| D0J Exhibit "D * * *"
| |
| Cleveland Exhibit "C * * *"
| |
| Applicants Exhibit "A * * *"
| |
| Licensing Board Exhibit "B * * *"
| |
| (Continued next page)
| |
| | |
| compete with one another," and that they "make competitive benefits, including coordination and pooling, available to each other while denying these t aefits to smaller actual or potential competitive entities within the market" (I.D. at 9).-4/
| |
| This left for the Lic.nsing Board as the principle issue for resolution whether such presumed denials were impermissible under the letter or spirit of the Sherman Act (id.). From its perspective, it understandably (albeit erroneously) chose to resolve that question, not by applicstion of a rule-of-reason analysis, but largely by resort to a per sjt approach, without any ,
| |
| consideration for the inherent structural and economic character-istics of the industry, extant regulatory policies, and public interest consequences. Having so shaped the hearing, it came as no real surprise to Applicants that the Licensing Board answered afrirmatively the issue it so carefully framed for itself at the outset.
| |
| In point of fact, the Initial Decision merely confirmed Applicants' worst fears as to the course which the Licensing Board had charted from the beginning. Its procedural rulings concerning both discovery matters and the introduction of evidence at the
| |
| * 3/ (Cont'd)
| |
| Transcript references are indicated either by a "Tr." prefix (when a-lawyer is speaking) or the name of the witness testifying followed by the transcript page number. Numbers within parenthesis which follow the page reference refer to the particular lines on that page being relied upon.
| |
| 4/ If the presumption was that Applicants' failure to compete is something other than a clear recognition of the economic and legal barriers to competition extant in the CCCT, the Board was in error (see pp. 40-71, infra). Similarly, there is no record support that Applicants have failed to make the benefits of coordi-nation available to others (see pp. 102-05 and Part IV, infra).
| |
| | |
| hearing were designed to place Applicants in the worst possible posture to defend themselves. Regrettably, the die had been cast long before Applicants had an epportunity to present their respec-tive' defenses.
| |
| Thit became apparent as early as the prehearing dis-covery phase. From the beginning, Applicants were led to believe ud the basis of the petitions filed by Intervenors and the Advice Letters written by the Department of Justice ("DOJ") that the essential focus of antitrust review ';ould be only upon activities of CEI within and around the City of Cleveland; no charges were made of anticompetitive behavior by TECO, OE, PP and DL with re-spect to electric entities located in the geographic areas served by each of these private utilities.-5/
| |
| 5/ See' Petitions to Intervene filed by Cleveland in Davis-Besse Unit,1, dated July 6, 1971, and in Perry Units 1 and 2, filed February 11, 1974; see also Intervention Petitian filed by American Municipal Power-Ohio (" AMP-0") in Perry Units 1 and 2, dated February 13, 1974, which was withdrawn voluntarily on Sep-tember 12, 1975 (see Tr. 1183; Sixth Prehearing Conference Order,
| |
| : p. 1, filed October 2, 1975). And see DOJ Advice Letter for Davis-Besse Unit 1, dated July 9, 1971, which recommended against antitrust review (see 36 Fed. Reg. 17388) (for some inexplicable reason, the Licensing Board reads into this " clean bill of health" a proviso that there be a satisfactory resolution of ongoing dis-putes between CEI and Cleveland (I.D. at 2); no such limitation appeared in, or was suggested by, the DOJ Letter), and DOJ Advice Letter for Perry Units 1 and 2, dated December 17, 1973 (see 39 Fed. Reg. 2029), reaffirming the Departmen**: earlier conclusion reached in the Beaver Valley Unit 2 proceeding (see 38 Fed. Reg.
| |
| 10659 (April 30, 1973)) that TECO, OE, PP and DL were not to be faulted on antitrust grounds (compare I.D. at 3, where the Licens-ing Board's reference to " antitrust questions, the resolution of which required hearing," fails to note that.the recommended hearing involved only relationships with Cleveland; see also Tr. 86(20-23)
| |
| (admission that "the act!rities of CEI vis-a-vis the City of Cleve-land are the sine cua non of the letter of advice of the Attorney General in'the Perry case")). No allegations whatsoever of anticom-petitive behavior were made by the Staff of the Nuclear Regulatory Commission ("NRC Staff"); however, at the Second Prehearing Con- .
| |
| ference Staff counsol stated that his understanding of the issues was that they concerned only matters relating to CEI and Cleveland l
| |
| (Tr. 385).
| |
| l 1
| |
| | |
| On the final day of the wide-ranging discovery accorded i to the opposing parties in Frehearing Conference Order No. 2.
| |
| (issued approximately one year earlier, on July 25, 1974), the Licensing Board ordereq that the theretofore consolidated Davis-Besse Unit 1 and Perry Units 1 and 2 proceeding also be consoli-dated with the Davis-Besse Units 2 and 3 proceeding (see Memorandum and Order dated July 30, 1974). As a result, an entirely new and unanticipated set of antitrust allegations against Applicants, as set forth in D0J's February 14, 1975 Advice Letter (40 Fed. Reg.
| |
| 83?5), was added for the first time to this proceeding -- and added after the close of discovery on July 30, 1975.-6/!!oreover ,
| |
| responses to Applicants' earlier filed interrogatories and document requests seeking to probe ;he underpinnings of the Davis-Besse Units 2 and 3 Advice Letter re deferred by the Licensing Board until September 5, 1975.
| |
| j It was only on this latter date that the Licensing Board 6/ Thus, the Advice Letter alleged in general terms "collec-tive refueals" by Applicants "to allow small systems to obtain interconnection and coordination benefits via CAPCO pool member-ship,"-making specific reference to the Borough of Pitcairn and to Cleveland (40 Fed. Reg. 8396). With respect to individual conduct by a single Applicant only, the following charges (in addition to those earlier mcde against CEI) were made: (1) DL
| |
| " frustrated Pitcairn's attempts to engage in coordinated opera-tions"; (2) TECO " frustrated" efforts of the City of Napoleon to engage in coordinated development, refused repeatedly to wheel Buckeye power to Napoleon, refused to wheel Buckeye power to the City of Bryan (a charge later withdrawn by DOJ at the hearing (Tr. 11752)), and entered into a wholesale territorial agreement with Ohio Power Company; and (3) OE made " unreasonable demands" concerning the establishment of four new delivery points pursuant to the Buckeye power arrangement (a charge later dismissed in its entirety (Tr. 11754)). The marginal reference in the Advice Letter to OE's refusal to enter into the same Buckeye power arrangament with Ohio Power Company as had other investor-owned utilities was, according to D0J, never intended as an allegation of anticompetitive behavior un the part of OE (Tr. 12121, 12125, 12134-35). Nor were any antitrust accusations made against PP.
| |
| 1
| |
| | |
| finally required all parties other than Applicants to file memoranda setting forth in general terms the nature of the cases they intended to present. Applicants' prior requests to be furnished such infor-mation in order to provide them an opportunity for meaningful dis-covery (e.g. , Applicants ' filing of June 7, 1974, at 1-13) had been systematically denied (e.g. , Prehearing Conference Order No. 2).
| |
| Not even the NRC Staff, which had made no initial antitrust pleading whatsoever, was required to apprise Applicants beforehand of its claims (see generally Tr. 1029-31).
| |
| With the submission of the September 5 filings, the dimen-sions of the present antitrust inquiry changed dramatically. The opposing parties were allowed to use the excuse of informing Appli-cants of the evidentiary basis for their earlier allegations as a vehicle for significantly expanding their antitrust claims -- and expanding them into areas well outside the scope of the earlier pleadings.-7/ Furthermore, with the discovery phase of the proceeding already closed and the hearing date fast approaching, Applicants had no real opportunity to investigate the new, unanticipated i 7/ For example, some six charges of anticompetitive conduct were made against PP, notwithstanding that PP had not previously been accused of any wrongdoing (see DOJ September 5 Filing, at pp. 10-11; NRC Staff September 5 Filing, at p. 6). In addition, the chargee against OE mushroomed to more than fifteen, including, inter alia, claims for the first time of anticompetitive behavior with regard to (a) wholesale power transactions with municipal customers, (b) acquisitions of municipal systems, (c) negotiations
| |
| ~
| |
| for new transmission facilities, and (d) the comparative rates set for municipal and industrial customers -- i.e., alleged price squeeze (see DOJ September 5 Filing, at pp. 7-10; NRC Staff September 5 Filing, at pp. 5-6, 13; Cleveland September 5 Filing, at p. 9). TECO was also the subject of new allegations, per-taining, for example, to its dealings with the City of Bowling Green, to an alleged territorial agreement with Consumers Power Company, and to a so-called price squeeze situation (see DOJ September 5 Filing at pp. 11-12; NRC Staff September 5 Filing, at pp. B-9, 13; Cleveland September 5 Filing, at pp. 10, 13-14).
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| i l
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| l
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| ~
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| charges.-8/To delay the hearing for purposes of conducting full discovery on the most recent charges was, as the Licensing Board Board well knew (e.g. Tr. 1297-99), an unrealistic option for Applicants in light of the then projected schedules for commencing commercial operation of Davis-Besse Unit 1 and commencing major construction of Perry Units 1 and 2.
| |
| Accordingly, Applicants went into the evidentiary hear-ing on December 8, 1975, without notice of, or an opportunity for meaningful discovery on, most of the antitrust charges being made.
| |
| The protest that they had been denied fundamental due process (Tr. 1310-13), was met, curiously enough, with the Licensing Board's simplistic explanation that the "public interest" required a full administrative airing of all conceivable allegations of antitrust inconsistencies (Tr. 1383). Indeed, in the name of the "public interest", the Licensing Board continued to allow the opposing parties to add new charges throughout the course of the evidentiary hearing, without requiring a prior showing of " good cause" or afford-ing the affected Applicant any opportunity for discovery thereon.-9/
| |
| 8/ While the Licensing Board granted OE's request for leave to serve an additional set of interrogatories and document requests on D0J directed to the September 5 allegations, it effectively eliminated the usefulness of this effort by granting DOJ's request to respond simply by reference to statements already set forth in its filing of September 5, 1975, without any further explanation thereof, and simply by identifying documents already made available in th3 earlier round of discovery. See Memorandum and Order dated December 16, 1975.
| |
| 9/ Thus, the Licensing Board permitted DOJ witness Lewis to testify about an alleged refusal of OE to interconnect with, and wheel power to, the City of Orrville, even though no such charger had been included in the September 5 Filings (see Tr. 5598-99);
| |
| ; .the customary " good cause" showing was not required on the Licensing Board's rationale that the "public interest" gave it full authority (Continued next page)
| |
| [
| |
| i
| |
| | |
| I -
| |
| And-this occurred notwithstanding that the Licensing Board never regarded the."public interest" factor _s having any relevance to an assessm'ent of the validity of those or any other claims of I
| |
| anticompetitive conduct (see Licensing Board's Memorandum and Order of February 3, 1977, at p. 8 ("L.B. Stay Order")).
| |
| Moreover, Applicants' efforts to at least place the burgeoning allegations within some meaningful framework for anti-trust consideration under Section 105c of the Atomic Energy Act met with stern rebuke below. It was forcefully argued by Appli-cants that a large number of the new allegations bore no relation-ship whatsoever to the nuclear activities in question, being remote both in time and circumstance from matters relevant to the planning, construction and operation of the referenced units. '
| |
| 10/
| |
| In accordance with the Commission's Waterford decisions, the only previous initial decision on antitrust matters rendered by 11/ .
| |
| a licensing board of the NRC, and the statement of issues and i
| |
| ~ 9/
| |
| (Cont'd) to probe all antitrust matters, whenever raised (Tr. 5597, 7962-63, 7965). The same attitude permitted the Licensing Board to conve-niently sidestep Applicants' objections to yet another amendment to the charges, made at_the very end of the evidentiary hearing.
| |
| This particular instance related to D0J's claim that OE had refused to wheel Buckeye Power by virtue of its insistence on a buy-sell arrangement with Ohio Power Company in 1968. Notwith- +
| |
| standing Applicants' position that DOJ had alluded to such a claim in its Davis-Besse 2 and 3 Advice Letter (see n.6, supra)
| |
| - and then abandoned it in its statement of the Department's case '
| |
| filed on September 5, 1975, the Licensing Board allowed D0J to add the charge after-the close of Applicants' evidence without any showing of " good cause" on the convenient excuse that it was the Licensing Board's responsibility to do so (see Tr. 12131-32, i 12143-44). See also I.D. at 7 n.**, 170 n.*.
| |
| 10/. See Louisiana Power & Light Company (Waterford Steam Gener-l ating Station, Unit 3),.CLI-73-7, 6 A.E.C. 48 (1973) ("Waterford I"),
| |
| ! and CLI-73-25, 6 A.E.C.-619 (1973) ("Waterford II").
| |
| ! '11/ See Consumers Power Company (Midland Plant, Units 1 and 2),
| |
| 'LB7275-39, 2 N.R.C. 29, 51 (1975) ("[t]he question of nexus * *
| |
| * must.be resolved'as'to each alleged anticompet'itive practice").
| |
| r
| |
| .,- , . - - - - , . , - . , , - . . . , . ,.--.v. _ , -,,,. , 7--.,
| |
| | |
| matters-in-controversy set forth by this Licensing Board in its own Prehearing Conference Order No. 2,--12/ Applicants urged that Section 105c review be confined to antitrust allegations which had an ascertainable relationship to the nuclear facilities (see, e.g.,
| |
| Applicants' Objections To The Board's Sixth Prehearing Conference g
| |
| Order, dated October 8, 1975, at pp. 3-8).
| |
| The Licensing Board, however, viewed its responsibility differently, insisting that its authority to scrutinize the be-havior of Apr?icants knew no " nexus" limitations in terms of
| |
| - defining the " inconsistent situation" (see Order And Memorandum Ruling On Applicants' Objections To The Sixth Prehearing Confer-ence Order, dated November 19, 1975). Accordingly, it made a last-minute change in the Matters in Controversy which had con-trolled the prehearing discovery phase, and on the eve of the evidentiary hearing redefined the nexus issue broadly to havs
| |
| .I application "to aggregate activities necessary to define a 'situa-tion' and not as limited to individual nexuses between Matters
| |
| #1-10 and the activities under the license" (see Sixth Prehearing Conference Order, dated October 2, 1975, at p. 5).
| |
| Thus, as a result of the Licensing Board's eleventh-hour maneuverings, Applicants suddenly found themselves (without having had sufficient advance notice of a majority of the charges 12/ Matter in Controversy No. 11 originally read as follows:
| |
| (11) Whether there are logical connections between the activities under the proposed licenses for the nuclear facilities and each of the matters in contention (1) through (10) that meet the nexus test established by the [ Nuclear Regulatory]
| |
| Commission. [Prehearing Conference Order
| |
| * No. 2, at p. 13; emphasis added.]
| |
| | |
| i .
| |
| against them to conduct neaningful discovery) forced by the threat 13/
| |
| ~~
| |
| of a delay in plant schedules into a full-blown antitrust inquiry into all facets of their operaticis over the past ten years -- notwithstanding the Commission's specific instructions to its licensing boards not to undertake such sweeping review respon-sibilities. See Waterford II, supra, 6 A.E.C. at 620 (Section 105c "does not authorize an unlimited luquiry into all alleged anticom-petitive practices in the utility industry").
| |
| In view of the fact that the eccusations ranged from charges under Section 1 of the Shermar Act of concerted conduct as participants in the CAPCO pool arrangement to charges under Section 2 of the Sherman Act of individual anticompetitive behavior with respect to a particular Applicant's dealings with other electric 13,/ The element of " nuclear blackmail", in terms of manipulating
| |
| . the hearing process so as to place Applicants in the untenable position of having to forego certain fundamental rights in order not to miss scheduling commitments for the subject facilities, plays no small rule in the antitrust context (see, e.g., Tr.280 (14-20)). The antitrust inquiry for Davis-Besse Unit 1 has been inexplicably dragged out now for over 5-1/2 years through no fault of the applicants for that license (see Cleveland *s Petition To Intervene, dated July 6, 1971). On the basis of the issues as framed in Prehearing Conference Order No. 2, Applicants had vir-tt. ally completed all their discovery for this proceeding before the other parties even commenced their depositions. Indeed, precisely because Applicants were acutely aware that the opposition parties' dawdling could well impact on plant schedules, repeated efforts were made to obtain a stipulation to proceed with post-licensing antitrust review in the event that this proceeding became the sole barrier to issuance of a license. (E.g., Tr. 25-29, 236-38; and see Applicants' filings of June 7, 1974, at 14-21; and March 14, 1975. Such a procedure was fully contemplated by the
| |
| _ Commission in Waterford II, supra, 6 A.E.C. at 622, n.3. The opposing parties adamantly refused to entertain such a suggestion, even though it was in the public interest to do so, for fear of losing some leverage over Applicants (e.g.,Tr. 44-45, 280), and the Licensing Board made no effort to move the parties in the direction of such a stipulation, ignoring the suggestion even after drastically expanding the antitrust allegations following the close of discovery (Tr. 1319-20).
| |
| | |
| entities in that Applicant's service area, request was made at the outset of the hearing for a procedural ruling limiting the admission of evidence to a single Applicant unless and until a prima facie showing was fir.it made of unlawful collective action by all Appli.
| |
| .. cants. See Applicants' Statement Of Procedural Matters To Be Considered, dated Ncvember 25, 1975. There is, of course, abundant 14/
| |
| -~
| |
| legal authority supporting such a request. However, following the concistent pattern it had set for itself, the Licensing Board erroneously refused to follow the accepted procedure and in a cryptic oral ruling on the first day of the hearing made it clear that it intended to receive all evidentiary materials as coming in
| |
| ' 15/
| |
| against all the defendant-Applicants (Tr. 1506-07).
| |
| As it turned out, this defective ruling at the very start of the evidentiary hearing but signalled the errors to 14/ e. . Standard Oil Co. v Moore, 251 F.2d 188, 218-19 (9tE Cir.See, 195 7)g(p,rivate antitrust action). Accord: South-East Coal Co. v Consolidation Coal Co., 434 F.2d 767, 788 (6th Cir.
| |
| 1970) (private antitrust action); Flintkote Co. v Lysfjord, 246 F.2d 368, 378-79 (9th Cir. 1957) (private antitrust action);
| |
| Pennington v United Mine Workers of America, 325 F.2d 804, 817 (6th Cir. 1973), rev'd on other grounds, 381 U.S. 657 (1965)
| |
| _ (cross-claim for antitrust violation); Viking Theatre Corp. v Paramount Film Distributing Corp., 1961 Trade Cas. 5 70,031, at 78,214 (E.D. Pa. 1960), aff'd, 320 F.2d 285 (3rd Cir. 1963)
| |
| ~
| |
| (private antitrust action); cf. Krulewitch v United States, 336 U.S. 440, 453 (1949) (criminaI antitrust action); United States v Aeroquip Corp., 28.4 F. Supp. 114, 115 (E.D. Mich. 1968) (criminal antitrust action). And see Applicants' Motion Requesting The Appeal Board To Direct Certification To It Of " Memorandum And Order Of The Board With Respect To Applicants' Request For Certain Procedural Rulings", dated February 25, 1976.
| |
| 15/ Even more bizarre, the Licensing Board inexcusably declined to disclose its reasons for such a novel approach -- which, as
| |
| ~
| |
| anticipated, were based on a misconception of the law in this area
| |
| -- until two full months into the hearing, after the close of the NRC Staff's direct case (see Memorandum And Order Of The Board With Respect To Applicants' Request For Procedural Rulings, dated. February 9, 1976).
| |
| | |
| follow in the factual findings and legal conclusions rendered by the Licensing Board in its Initial Decision. Given the checkered history of this proceeding, it is not at all surprising that a
| |
| . full review of the evidentiary record, including the evidence
| |
| _ introduced by Applicants, will require a comp 1;ete reversal by this
| |
| ~
| |
| Appeal Board of the unwarranted conclusions set forth below by the Licensing Board in its unconvincing effort to sustain its initial prejudgments of Applicants' behavior.
| |
| I. General Background The defendants in this ca'se are five investor-owned utilities located in Ohio and Pennsylvania which are engaged in the -
| |
| generation, transmission and distribution of electric energy (see F/F No. 1(a)-(e)). But for the affiliation of OE and PP as parent and subsidiary (F/F No. 1(e)), each.of these private utilities is a separate, independent and autonomous company with dual responsi-bilities. a public responsibility to prcvide reliable and economic electric service, both at retail and at wholesale, in the area in
| |
| ~
| |
| which it holds itself out to serve; and a private responsibility to its stockholders not to waste corporate assets (see, e.g., Schaffer 8567(6-19); Williams 10358-59(24-26.& 1-17); see Consumers Power Co.,
| |
| supra, 2 N.R.C. at 64-66). For a number of years, these five utili-ties operated independently of one another except to the extent that they had bilateral contracts with neighboring, interconnected l
| |
| t 1
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| l
| |
| | |
| utilities providing for reciprocal purchases and sales of electric
| |
| ~
| |
| energy to satisfy system needs during times of forced or planned electric outages (A-122(Firestone) 15-16(24-25 & 1-5); S-205(Mozer) exh. HMM-4; see, e.g., S-170 through S-183; and see n.27, infra).
| |
| It became appe. rent in the early 1960's, however, not just to these Applicants (Schaffer 8547(15-19); White 9500-01(12-25 &
| |
| 1-10), 9651-52(10-25 & 1-14)), but to the industry as a whole (A-121(Slemmer) attach. p. 1), and to the Federal Power Commission
| |
| . ("FPC"), that "the technology of large scale generating stations
| |
| ., and extra-high-voltage transmission interconnections * * * [had]
| |
| l reached the stage where closer coordination of the construction plans and operations of individual systems in the industry [had become] highly feasible and necessary."--16/ Thus, in its National
| |
| . Power Survey of 1964, the FPC openly encouraged the nation's
| |
| , electric companies to expand and improve their interconnection and i
| |
| ' coordination arrangements in order to exploit more fully both the economies of scale and the reductions in generating reserve capac-ities made possible thereby. Contrary to the assertions of the Licensing Board, the FPC's urgings were not limited merely to pooling arrangements providing for emergency interconnections (see F/F Nos. 6& 7).
| |
| This encouragement was fueled by the Northeast Blackout of 1965 (A-122(Firestone) 5(8-11)). Reliability of electric service had been considered to be of only secondary importance at the time of the FPC's 1964 National Power Survey (Hughes 3645-46(24-25 &
| |
| 1-5)). It achieved a special prominence, however, with the 16/ I FPC, National Power Survey: A Reoort By The Federal Power Commission (1964), at p. 1.
| |
| l
| |
| | |
| widespread power failures in the northeast the following year. The national focus suddenly became directed ~on more explicit ways in which electric systems could improve reliability through greater coordination (Hughes 3648(15-18); A-121(Slemmer) 21(2-10);
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| 17/
| |
| A-122(Firestone) 5 ( 8- 1 1 ) ) .'--
| |
| This, then, was the prevailing climate when, on September 14, 1967, these five investor-owned utilities executed a Memorandum of Understanding (S-184), setting "forth the basic understanding reached by and among" the companies with respect to the formation of the Central Area Power Coordination Group ("CAPC0").
| |
| There is no dispute that "[t]he CAPCO pool was formed to enable Applicants to coordinate installation of generation and transmission in order to further reliability and to take advantage of scale economies" (F/F No. 3). However, contrary to the Licensing Board's apparent belief (I.D. at 188-94), "CAPC0" is not a separate and 18/
| |
| distinct entity, organization, or membership association.--'Rather, 11/ For example, in an exhaustive three-volume study issued in July, 1967, and entitled Prevention of Power Failures: Report To The President, the FPC recommended, among other things, that (Vol. 1, p. 4):
| |
| [t]o the extent that they do not now exist, strong regional organizations need to be established throughout the nation for coordination and planning, construction, operation and maintenance of individual bulk power systems.
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| 18,/ The Licensing Board also seems to suffer under the miscon-ception that CAPCO is a nuclear power pool (I.D. at 12, 192 n.*,
| |
| 218-23). In point of fact, it was never so conceived nor struc-tured; rather, the pooling concept was adopted by these coupanies to take advantage of the scale economies and improved reliability associated with large-scale facilities generally, whether they be operated by nuclear or-fossil fuel (see S-184, p. 1; Fleger 8617 (21-25); Schaffer 8537(8-24); White 9498'(8-13), 9712-14; Williams 10351-52(9-22)). At the time the Memorandum of Understanding was (Continued next page)
| |
| | |
| ~
| |
| the acronym has reference to a series of multiparty contractual arrangements which delineate the responsibilities and obligations to be rhared by each signatory utility in furtherance of a common objective to pool certain portions of their time, efforts and resources in order to plan, construct and operate large-scale W
| |
| generating and transmission facilities on a one-system basis (A-122 (Firestone) 11-12(21-24 & 1-7); Schaffer 8608(19-24);
| |
| Williams 10357-58(17-25 & 1-18)).
| |
| Curiously, the Licensing Board ascribed to those con-tractual arrangements some ulterier exclusionary motive to deny participation to municipal electric systems within the CCCT (I.D. at 18G-94). Not only is there no record support for this conclusion, but it is, in point of fact, simply untrue, The i
| |
| CAPCO pooling arrangement -- similar to electric power pools everywhere (A-121 (Slemmer) 8-12; I FPC, National Power Survey
| |
| ; at 169 (1964) -- is necessarily bottomed on the concept of mutuality (A-122 (Firestone) 9 (1-10) ) . Thus, an essential ingredient to participation is that all parties be capable of contributing to bulk power reliability and economy,-
| |
| t and that all share in pool responsibilities in proportion to the 18/ (Cont'd) cxecuted four facilities were committed (S-184, p. 2): two were coal-fired units -- Sammis 7 (625 mw) and Eastlake 5 (625 mw);
| |
| two were nuclear units -- Beaver Valley 1 (856 mw) and Davis-Besse l
| |
| 1 (906 mw). Since 1967 CAPCO has committed ten more units: three are coal-fired units -- Mansfield 1, 2 and 3 (each 825 mw); the rest are nuclear units -- Beaver Valley 2 .(856 mw); Perry 1 and 2 (each 1205 mw); Davis-Besse 2 and 3. (each 906 mw) ; and Erie 1 and 2 (each 1200 mw) . If the CAPCO companies can be said to have a
| |
| " strategy", it is not simply to build nuclear units, but rather to l build coal-fired units on the Ohio River and nuclear units on Lake Erie (see Williams 10369-70(25 & 1-7); Firestone 11176-78(2-20, 1-25 & 1-3)).
| |
| | |
| aN ,
| |
| c l-benefits to be derived therefrom, so that each contracting party realizes a net benefit in its own right and the pooling operation as a whole also derives a net benefit (see A-121(Slemmer) 8-12; A-122(Firestone) 6-9; Consumers Power Co., supra, 2 N.R.C. at 64-66; see also discussion at pp. 102-24, 217-19, infra).
| |
| ~
| |
| In undertaking to formulate a large-scale coordination program meeting these objectives -- with the full blessing of the
| |
| ; FPC, as expressed in its aforementioned 1964 and 1967 studies --
| |
| Applicants, not surprisingly, did not look to municipalities in the CCCT as possible contracting partners (Williams 10365(2-25)).
| |
| The vast majority of these municipal systems were full-requirements 19/
| |
| wholesale customers of one or another of the Applicant companies; such systems, which engage only in distribution, clearly could 3
| |
| make no contribution (i.e., share in the responsibilities) to any 4
| |
| 19/ There were at the time thirty-seven municipal distribution-
| |
| ' only systems in the CCCT: Those served by TECO were Bowling Green, Bradner, Custer, Edgerton, Elmore, Genoa, Haskins, Liberty Center, Montpelier, Oak Harbor, Pemberville, Pioneer and Woodville. Those served by OE wera Amherst, Beach City, Brewster, Columbiana, Cuya-hoge Falls, Galion, Grafton,'Hubbard, Hudson, Lodi, Lucas, Milan, Monroeville, Niles, Prospect, Seville, South Vienna, Wadsworth and Wellington. Those served by PP were Ellwood City, Grove City, New Wilmington, Wampun and Zelienople. In addition, two municipal sys-tems were full-requirements wholesale customers of non-Applicant entities: Marshalv111e was served by Orrville and Tontogoney was j served by Bowling Green (and thus indirectly by TECO).
| |
| t
| |
| | |
| F such program of coordinated operation and development, calling, as
| |
| - it does, for staggered construction of facilities, reserve sharing, reciprocal exchanges e maintenance and emergency power, and the 20/
| |
| I like (Hughes 3817-18; Ka ?meier 5872-74).-- The remaining twelve municipal systeme, Mile having some self-generation, were, with the possible exception of Cleveland, all of a size to make their participation economically infeasible (Williams 10365(2-25); and 21/
| |
| see C-51, p. 4).- As for Cleveland, its past record of poor 3
| |
| electric service to the community it served and its long-standing reputation for system mismanagement made it an unattractive partner whatever its size (see pp. 109-11, infra).
| |
| These system characteristics were appropriately noted 20/ In discussing the concept of mutuality in power pooling arrangements, the FPC has listed the following minimum responsi-bilities to be shouldered by the participants (I FPC, National Power Survev at I-17-4 (1970)): (1) "Providing capacity, either j from its own system or by purchase, equal to the maximum demand of its system plus some amount for system reserve"; (2) "Providing some portion of the operating reserve requirements of the pool either
| |
| , from its own resources or oy purchase"; (3) " Maintaining its bulk power system in good operating condition"; (4) "Providing, operating, maintaining, and protectlag the transmission and interconnecting facilities for its own system"; (5) " Furnishing, operating, and maintaining at its expense, regulating facilities adequate to con-trol frequency and interconnection loading within established limits."
| |
| See also Hughes 3817-18; Kampmeier 5872-74.
| |
| ~
| |
| 21/ The twelve municipalities with some self-generation were the following: (1) Municipal Electric Light Plant ("MELP") of i
| |
| Cleveland -- 180 mw (net demonstrated capability) (C-161(Mayben) 8(14)); (2) Painesville -- 38 mw (installed capacity) (Pandy 3099(8)); (3) East Palestine -- 16.5 mw (S-158, p. OE-15);
| |
| (4) Hiram -- 3.6 mw (dependable capacity) (S-158, p. OE-36);
| |
| (5) Newton Falls -- 6.8 mw (net capability) (S-44, table IV-1);
| |
| (6) Norwalk -- 37.5 mw (S-158, p. OE-36); (7) Oberlin -- 12.9 mw (net dependable capacity) (D-594, schedule 16); (8) Orrville --
| |
| 39.2 mw (net dependable capacity) (D-593, schedule 16); (9) Bryan
| |
| -- 23.7 mw (net dependable capacity) (D-590, schedule 16); (10)
| |
| Napoleon -- 17.5 mw (net dependable capacity) (D-592, schedule 16); (11) Waterville -- 3 5 mw (S-158, p. TE-37); (12) Pitcairn --
| |
| 3 0 mw (net capability) (A-3, p. 1).
| |
| | |
| r i .
| |
| by Applicants when the matter of possible municipal participation 22/
| |
| was raised (see C-49; C-50; C-51; C-52 and D-280). No wonder, then,that the CAPCO companies looked to each other, rather than to amall municipal systems, as the riable contracting parties who could realistically carry out t!.e kind of reciprocal commitments
| |
| -) '
| |
| necessary to achieve a successful pool operation (Williams 10365 (2-25)). This attitude is not "exclusionary" in any antitrust sense of the term.--23/Even the NRC's own expert witness, Dr. Hughes, ,
| |
| t 22/ The referenced documents are minutes of various meetings
| |
| , attended by representatives of the CAPCO companies in August,
| |
| : September and October of 1967. A reading of those minutes reflects 1 the limited nature of any discussion about municipalities, which occurred only as an aside to the major topics of conversation.
| |
| For example, at the meeting of August 20, 1967, the reference to municipal systems was made in connection with a general consicera-tion of possible FPC and ECAR (East Central Area Reliability Council) approval of the Memorandum of Understanding (C-49, pp. 5-6; C-50, pp. 2-4). Again, at the September 11, 1967 meeting (C-51), which lasted some eight hours, the question of municipal participation was " raised briefly" and the view expressed was that none of the i
| |
| municipal systems "were of sufficient size to have a significant impact on reliability or economy" (C-51, p. 4). Notably, this ;
| |
| observation remains as true today as it was in 1967 (see, e.g.
| |
| Hughes 3803(3-8), 3805-06(17-25 & 1-2), 3808(3-7), 3817-19; Wein
| |
| . 7129(11-18); Dempler 8667-68(10-25 & 1-3); Williams 10365(2-25)).
| |
| Finally, the several reasons why municipal participation in the
| |
| . CAPC0 arrangement made so little sense in 1967 -- and also holds true today -- were summarized in the meeting of October 22, 1967 (C-52; D-280).
| |
| 23/ While the Licensing Board refers to the deposition testi-mony of Elmer Lindseth as indicating otherwise (I.D. at 187-88),
| |
| the referenced excerpt reflects just the opposite. When asked whether consideration was ever given to the inclusion of municipal systems in CAPCO, Lindseth responded: "Well, whereas there may have been discussion, I don't recall that there was consideration to the admission of them. This was a group of companies, and the consideration was how the companies might better operate and serve the requirements of their system" (D-568(Lindseth) 27(10-14)).
| |
| Lindseth further stated that he did recall some discussion regarding the possible inclusion of cooperatively-owned systems, and that such systems were not invited to participate in CAPCO (id. at 27-28(17-25 & 1-8)). Of course, since the Ohio cooperatives had just reached agreement with Ohio Power and other Ohio utilities on a long-term plan (35 years) to provide their own source of bulk power (see A-248; A-284; A-287), there was no reason to give serious consideration to these entities as possible pool participants in any event.
| |
| | |
| u- -
| |
| .r I'
| |
| ' r acknowledged that there are scale-related limitations on the ability of small systems to participate on full and equal terms in coordi-
| |
| ![
| |
| nation agreements (Hughes 3801(2-22)). Nowhere does this record show that a small system with sufficient system capability was denied an opportunity to participate in the CAPCO pool, either fi at its inception or anytime thereafter. Indeed, only two munici-palitiet ever made such a request -- in each case well after the pool had been formed -- and both were turned down after careful consideration for good and valid business reasons (see pp. 108-11, 145-50, infra).--24/ l 24/ The suggestion that Applicants formed the CAPCO pool with some exclusionary intent is not supported by any direct evidence; there is not even the threshold showing that a municipal system ever sought to become a contracting CAPC0 party at the time of the pool's formation. Support for the argument is apparently considered to exist, however, in the studies made by Applicants in 1967 to test the P/N reserve sharing formula ("P/N formula") designed to
| |
| ., apportion reserve responsibility on the most equitable basis among t the participants (see I.D. at 213-15). Because those studies
| |
| , included a hypothetical system modeled after, although not identical to, Cleveland's municipal system (see C-27; C-28; C-46; C-47), and showed that such a system would be required to carry a large amount of reserves if the P/N calculation were applied to it, the inference is drawn that the P/N technique was selected by Applicants in order to effectively exclude small systems from participating in the pool (I.D. at 214-15).
| |
| Such an inference is impermissible. The choice by Applicants to assign reserve responsibility on the basis of the P/N formula is discussed in some detail at pp. 113-20, infra. Suffice it to state here that the careful studies undertaken at the outset to
| |
| _; test the formula and determine its impact on different systems l were made "[t3o develop an equitable allocation technique so that each party's contribution to reserves is in the same propertion to his dependence on reserves" (C-46, p. 2). To be sure, the studies showed that a system with a load and generating configuration similar to Cleveland's would carry a large amount of reserves. However, since the system would then be'able "to reduce its number of inter-ruptions to that corresponding to the pool as a whole * * * [t]his general approach [was] probably the most equitable that could De
| |
| . developed * * #" (C-47; see also Williams 10367-68(9-25 & 1-16)).
| |
| Moreover, as pointed out by Lynn Firestone in his direct expert testimony (A-122 (Firestone) 24-27; A-123(Firestone Addendum) 1-2; (Continued'next page) 4
| |
| ,-v-~,
| |
| | |
| (.
| |
| Nor do we understand.the basis on which the Licensing Board saw fit to fruit Applicants for exploring (albeit only pre-liminarily) with other investor-owned utilities the possibility of their entering into the CAPC0 pooling arrangement as additional contracting parties (see I.D. at 192). The fact that these utili-ties were approached, while municipal systees were not, simply underscores the uncontrovertible fact that, when seeking to launch a large-scale coordination program of the sort described in the CAPCO contracts, one obviously looks to those entities capable of assuming the mutual responsibilities essential to a viable pool relationship (see A-121(Slemmer) 8-12; A-122(Firestone) 6-9; I FPC, National Power Survev at 169 (1964); and see n.20, supra).
| |
| Moreover, the logic of such discussions in this particular instance is well established in the record. The present CAPCO pooling arrangement is, in many respects, an outgrowth of a i
| |
| fledgling reliability council that was loosely organized in the mid-1960's and involved some seventeen investor-owned companies (White 9497(11-16); Fleger 8618(1-6), 8624(11-15)). During a meeting of this predecessor group, Mr. Fleger, then Chairman of the Board and Chief Executive Officer of DL, expressed an interest in a pooling arrangement of a type similrr to the present CAPCO 24/ (Cont'd)
| |
| A-IY5; A-126), the reserve burden imposed on a system similar to Cleveland's under the P/N formula was not due to the size of the system-(i.e., whether it was small or large), but to the system's reliability at the time it sought to participate in the pool. To the extent that system reliability is poor, the P/N formula imposes a heavier reserve responsibility on the unreliable partner than on its more reliable partners -- whatever their respective i sizes (see pp. 115-16, infra). Clearly, such a result does not permit the inference of an anticompetitive intent on the part of the CAPCO companies in adopting the P/N technique.
| |
| | |
| pool (Fleger 8618(4-16)). Preliminary discussions were thereafter held with a number of those seventeen companies (Fleger 8618(7-10)),
| |
| including the Cincinnati and Dayton utilities (Williams 10354-55 -
| |
| 25/
| |
| (21-25 & 1-8)). . 7_ _ _ _ ._ ,_ _ _
| |
| The five utilities that ultimately became the contracting parties were the only ones which expressed an active interest in participating (Fleger 8618(7-10)). No sustained effort was made thereafter to recruit others, "whether they be municipals or whether they be othar investor-owned utility companies" (Fleger 8620(9-10);
| |
| and see id. at 8620-21(24-25 & 1-2), 8625-29, 8650-51(17-25 &
| |
| 1-6)). However, this was not due to any sinister motive, as the Licensing Board seems to suggest; rather, it was essentially due to a preoccupation, primarily at the insistence of Mr. Fleger and DL, with reaching an agreement on the pool concept prior to DL's October 25, 1967 deadline for ordering a new generating unit 26/
| |
| (Fleger 8618-19(12-25 & 1-5), 8 6 20 ( 1 - 16 ) ) .--
| |
| 25/ The Licensing Board's reference to Williams' testimony conveniently stops short of his statement on the following trans-cript page to the effect that "[w]e pursued some discussions, but fairly early in the game, Cincinnati and Dayton pulled out of these discussions * * *" (Williams 10355(3-5)).
| |
| 26/ This concern also prompted much of the discussion about the possibility of having to submit any memorandum of understand-l ing to the FPC for prior approval (see n.22, supra). Thus, at the planning meeting of August 20, 1967 (C-49; C-50; and see l D-279; D-280) Hansfield of OE raised the spectre of prior FPC approval as a possible barrier to meeting DL's planning deadline (C-49, p. 5; C-50, p. 2). The discussion that followed involved consideration of this possible delay, including the prospect l of municipal intervention before the FPC in the event that the contracts had to be presented for review (C-49, p. 7; C-50, pp. 4-5). The concern was obviously not the one suggested by the Licensing Board of selecting the route that would best insure exclusion of public utilities from the pool (I.D. at 189-90); rather, the companies were focusing almost entirely (Continued next'page)
| |
| | |
| The deadline was met with the signing of the Memorandum of Understanding on September 14, 1967. In agreeing tc coordinate their generation and transmission functions within the framework of the CAPCO pool, the participating utilities necessarily relin-quished a certain degree of their autonomy (see Schaffar 8586 (2-12), 86Q8(19-24)). Were this not so, it would have .been impossible for them to engage in joint planning on a one-system basis or make effective use of the economies and other benefits derived from pooling (Schaffer 8586(4-14)). This joint effort, however, was intentionally undeitaken by the companies as tenants in common (S-184, $5 6.2-6.4, pp. 18-20; see also C-55; Schaffer 8544(6-18)) -- not for the purpose of avoiding regulatory scrutiny, as suggested by the Licensing Board (see I.D. at 189-90, 193), but in order to meet the strict requirements of Pennsylvania regulation on the type of property interest qualifying for inclusion in a system's rate base (see C-48, pp. 2, 3, 9-11; C-49, pp. 24-29; C-50, pp. 25-30).
| |
| In this regard, the formation of CAPCO represented no fundamental change in the structure of the electric utility
| |
| . 26/ (Cont'd) on the deadline facing DL and trying to determine, in light of that deadline, the most expeditious.means of entering into the pool arrangement.
| |
| These considerations provide an interesting comparison with the thoughts set forth in a later memorandum prepared by Victor Greenslade, an attorney for CEI, on January 16, 1968 (C-55). The -
| |
| l- Greenslade memorandum provides a general discussion regarding the legal status of the CAPCO arrangement and the jurisdictional and tax implications bearing thereon. Since it was prepared well after the formation of CAPCO, and expresses, in any event, but one man's views on the matters addressed, it is difficult to understand the Licensing Board's reliance on this memorandum for any reason, let alone to reflect some exclusionary intent or purpose underlying the formation of CAPCO (but see I.D. at 191-92).
| |
| | |
| 27/
| |
| industry within the CCCT (White 9813(3-20)). Each of the pool participants retained its own separate identity and, in significant 7,
| |
| respects, its independence of action. Indeec, in light of the I dual responsibilities each company had to the particular public it served, on the one hand, and to its shareholders, on the other 4
| |
| hand (see p. 12, supra), the arrangement could realistically be no other way. While joint plans can always be developed, before any plan can be implemented the corporate. decision to spend billions 27/ To be sure, the decision jointly to construct and plan large-scale generating and transmission facilities on a one-system basis necessitated some changes in the operational coordination of the participating companies. Prior to execution of the Memorandum of Understanding, all of the CAPCO compsnies had bilateral agreements with systems contiguous to their respective service areas (A-122 (Firestone) 15-16(24-25 & 1); S-205(Mozer) exh. HMM-4). As to those existing bilateral agreements with another CAPCO company, they remained in effect up to January 1, 1975 and were used as the mechanism for accomplishing operational coordination (A-122 (Firestone) 16(8-10)). As of January 1, 1975, the Applicants executed the CAPCO Basic Operating Agreement (S-202). That contract now governs the operational coordination among the Applicants (A-122(Firestone) 11-12(21-24 & 1-2), 16(10-16); see also S-202,
| |
| $$ 1.01, 20.01, pp. 1-2, 40; Firestone 9234-38), and sets forth the manner in which the parties share installed reserves, inter-change economy energy, account for and exchange maintenance energy, and so forth (A-122(Firestone) 12(2-7)).
| |
| As to those existing bilateral agreements with non-CAPCO companies as of September, 1967, the CAPCO contracts were designed so as not to conflict with any commitments made pursuant to those arrangements (S-184, S 7.0, p. 23).'' With respect to future bilat-eral agreements between CAPCO and non-CAPCO entities, each company remained free to enter into such transactions provided that the new arrangements did not conflict with the CAPCO contracts (S-184,5 7.0,
| |
| !- p. 23; S-202, S 20.01, p. 40). In practical terms this means that the CAPCO companies are free to, and do in fact, purchase from and sell to non-CAPCO companies power on a day-to-day basis (S-202, S 6.07, p. 25; Schaffer 8557(15-16); Williams 10390(1-4)). However, if it was determined that a transaction with a third party would adversely affect the other CAPCO companies, it would be necessary for the CAPCO Executive Committee to approve the transaction (Schaffer 8557(2-6, 19-22); Williams 10449(11-15)). Obviously, such a requirement is necessary if the advantages of one-system planning are to be realized; if individual pool participants were free to enter into arrangements that would adversely impact on the previously agreed to one-system plan, that concept would not long survive (Schaffer 8557-58(23-25 & 1-2)).
| |
| | |
| .i F of dollars clearly must be made individually by each company
| |
| - (Williams 10358-59(24-26 & 1-17)) if it is to properly exercise
| |
| '' its fiduciary responsibilities to its customers and stockholders
| |
| [ (Schaffer 8567(12-19)). This is not only a matter of basic i
| |
| corporate law, but also a requirement of state regulation (see Arthur 8370(10-21)).
| |
| It is therefore important not to lose sight of the fact that each of these Applicants, although participants in a power pool, is a separate and distinct entity which independently carries out its day-to-day operations in its respective service area (see A-111; A-119; A-129; A-172). The individual achivities of one vis-a-vis the retail and wholesale customers it serves cannot, and should not, be ascribed to any of the others -- especially in -
| |
| view of the fact that the record below clearly contradicts the Licensing Board's finding that the CAPCO pool was formed with any exclusionary purpose or intent (see pp.15-21, puora; see also pp.
| |
| 106-13, infra). See, e.g., Standard Oil Co. v Moore, supra, 251
| |
| ' --29/
| |
| F.2d at 218-19.
| |
| 28/ Hence the requirement in the CAPCO Administration Agreerent' (S! T86, 5 2.05, p. 3) for unanimous executive approval for all major actions (see Schaffer 8567(6-10)). Given the large sums of money involved in the-CAPC0 program, each Applicant understandably deemed it of the utmost importance to retain sufficient autonomy to pro-i tect its customers and stockholders ~against possibly outrageous L demands on the part of other companies, or against demands which, however reasonable frcm the pool point of view, would jeopardize the financial solvency of any particular participant (Schaffer 8609 (1-2)).
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| 29/ And see cases cited at n.14, supra. We would further point out that before an individual act of an alleged confederate can be p attributed to other confederates -- even assuming arguendo that some unlawfulness could properly attach to the formation of CAPCO (which is not the case) -- it must be clear that those acts occurred
| |
| - (Continued next page)
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| ~
| |
| | |
| Hor is this principle altered in any respect because a company joined together with one (Davis-Besse Unit 1) or all (Perry Units 1 and 2 and Davis-Besse Units 2 and 3) of the other pool participants in the licensing applications for the subject facilities (S-151; S-154; S-157). Each private utility is still a separate entity and entitled to individual antitrust treatment, both in determining whether its particular licensed activities will cause antitrust inconsistencies (see Part IV, infra) and, if so, in tailoring the relief in each instance to the particular
| |
| " inconsistent situation" found to exist in the service area of the 30/
| |
| culpable Applicant (s) (see Part V, infra).
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| 29/ (Cont'd) within the time frame of the particular combination or conspiracy in question, namely: 1967 to date (see, u.3., Harqg y United States, 272 F.2d 478, 482 (4th Cir. 1959)), and that they were committed in furtherence thereof (see, e,.g. , United States v Nixon, 418 U.S. 683 (1974); United States v Rodriguez, 509 F.2d 1342 (5th Cir. 1975)).
| |
| 1 30,/ The Licensing Board was content to disregard the separate-ness of Applicants in a number of instances throughout the Initial Decision where its use of the plural possessive was plainly erron-eous. For example, it makes reference to CEI's proposed Participa-tion Agreement (D-192) forwarded to Cleveland and Painesville (see pp. 140-41 & n.164, 147-50, infra) as " Applicants' proposals for access to Davis-Besse and Perry" (I.D. at 222 n.'); it relies on l 1
| |
| D-188, a CEI document, as illustrative of " Applicants' demands for illegal price fixing agreements as a condition of access" (I.D. at 227); it states (without record reference) that " Applicants * *
| |
| * had the primary interest in the passage of the Ohio Anti-Pirating Act * * *" (I.D. at 236), notwithstanding that two of the five Applicants were Pennsylvania utilities. The same sloppiness occurs in the Licensing Board's efforts to bolster its Initial Decision in its subsequent Stay Order (see, e.g., L.B. Stay Order at 5 - " Applicants' territorial allocations" where there never has been even an allegation that DL or PP entered into " territorial allocations"; id. at 15 -- contrary to assumption by the Licensing Board, " Applicants" did not offer jointly the testimony of Mr.
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| Moran or of the Pennsylvania Economy League (the former was offered by TECO and the latter by DL, and in each instance sep-arate counsel for each company conducted the direct examination);
| |
| id. at 30-31 -- alleged customer trades between " Applicants"). !
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| And see n.288, infra. '
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| (Continued next page)
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| | |
| P II. The Analytical Pramework In assessing the Licensing Board's approacn to its anti-trust review responsibilities in the present proceeding, we are struck not only by its selective treatment of the factual record below (see Part IV, infra), but also by its clear misperception of how properly to apply general antitrust principles to the "real world" of the electric utility industry. As for the incantation of textbook antitrust stanoards set forth at the outset of the Initial Decision (I.D. at 17-28), we have no fundamental quarrel, except with respect to the Licensing Board's overly expansive reading of Otter Tail Power Co. v United States, 410 U.S. 366 (1973), aff'g, 331 F. Supp. 54 (D. Minn. 1971),--31/its sweeping 30/ (cont'd)
| |
| This error is reflected not only in the convenient mis-use of the plural possessive in circumstances where the evidence requires individual treatment, but also in the failure of the >
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| Licensing Board to make separate findings under Section 105c as to each Applicant and to frame separate license conditions for each Applicant tailored to the particular inconsistent situation that the Licensing Board found to exist in each of the respective service areas (see Part V, infra).
| |
| 31/ Otter Tail was a Sherman Act Section 2 antitrust case, tried on stipulated facts, and ultimately decided in the Supreme Court under the " attempt to monopolize" proscription in the Sherman Act (410 U.S. at 377). We would note preliminarily that there is good reason to seriously doubt that the Supreme Court would reach
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| .the same result again were it to be presented with another Otter Tail case today (compare 410 U.S. at 382-95, Stewart J., dissenting, with Mr. Justice Stewart's majority opinion in United States v Citizens & Southern National Bank, 422 U.S. 86, 91 (1975); and see Cantor v Detroit Edison Co., 96 S. Ct. 3110, 3119 & n.33 (1976),
| |
| where, despite their other differences, the Justices seemed in accord with the views set forth in Mr. Justice Stewart's dissent in Otter Tail).
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| In any event, Otter Tail involved a situation where a private utility which had been providing retail electric service to municipalities in Minnesota and South Dakota decided, after its retail franchises were not renewed, to terminate all services, and refused absolutely to deal with municipal electric systems in every (Continued next page)
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| | |
| l I
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| interpretation of United States v Aluminum Company of America, 32/
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| -~
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| 148 F.2d 416 (2nd Cir. 1945), and its reliance on Grinnell, Paramount Pictures, Griffith and American Tobacco as standing for the proposition that an " intent to exclude competition or control prices" can be inferred from market share predominance 33/
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| alone (I . D. at 2 6 ) .--
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| 31/ (Cont'd) respect for the stated purpose and intent' of obtaining for itself the retail markets of these municipal systems (410 U.S. at 370-
| |
| : 72) -- markets, we might add, which were not then subject to state or local price regulation (Supreme Court Brief for the ,
| |
| United States, pp. 62-63). Based on these uncontasted facts, and content to infer " monopoly power" from the private utility's stipulated market predominance (but see discussion at pp. 85-88, infra), a narrow majority of the seven Justices hearing the case concluded that an attempt to monopolize the retail markets in Minnesota and South Dakota had been shown.
| |
| While we have no doubt that this majority opinion in Otter Tail is binding unless and until it is overturned, its precedential value on the stipulated facts presented is limited, we submit, to the very extreme behavior that was faulted in that case. To try to derive any more general antitrust significance frca Otter Tail is not warranted by the majority opinion nor supported by subsequent judicial pronouncements in the antitrust field.
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| 32/ The Licensing Board reads ALCOA as standing for the prin-ciple that "[t]he willful maintenance of monopoly power can be established merely by a showing that ' transactions neutral on their face' have an exclusionary effect on the market, without a soecific showing of anticompetitive motivation" (I.D. at 24-25).
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| Tnis was clearly not Judge Learned Hand's ruti.ng in ALCOA. Mather, he went to considerable lengths to bottom hi: conclusion on the finding of a course of conduct, " indefatigably pursued," which reflected an exclusionary pattern warranting the inference of a general anticompetitive intent (148 F.2d at 431). The cornerstone of the decision was the existence of an illegal scheme. See Con-sumers Power Co., supra, 2 N.R.C. at 48 n.4 ("Alcoa was found to have violated the Sherman Act because of an illegal scheme to maintain its existing monopoly"; emphasis added); United States v International Businesc Machines Corp., 1975-2 Trade Cas. 1 60,495 (the lawful practices in question must be shown to have been "* *
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| * engaged in as part of an illegal scheme of monopoli ation";
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| emphasis added). And see discussion at pp. 98-102, infra.
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| }]/ While each of these decisions support the argument that, within the unregulated framework of a highly competitive market (Continued next page)
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| | |
| P l
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| -28~ l l
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| l Where we do take strong e7ception, however, is with the i manner in which the Licensing Board proceeded to apply its announced legal precepts -- as judicially formulated in unregulated industrial settings marked by a high degree of open competition -- to the special circumstances presented here by the " basic natural monopoly structure" that characterizes the electric utility industry. See Gulf States Utilities Co. v FPC, 411 U.S. 747, 759 (1973). This proceeding offered the Licensing Board a unique opportunity to provide helpful guidance as to the proper application of general antitrust principles in a market structure that, for economic reasons as well as institutional restraints, will not tolerate the competitive interplay that is traditionally viewed as a benchmark
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| . in other sectors of the economy (see discussion at pp. 40-71, infra).
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| Such a task requires a degree of intellectual sophistication that goes well beyond a simple recitaticn of the litany of prior decisicas in the antitrust field. It demands a careful assessment of the competitive framework that is involved and an evaluation of the public interest in maintaining, to a lesser or greater extent, that framework. It also calls for some recognition of, and indeed 33/ (Cont'd) structure, the existence of conopoly power (i.e., the ability to control prices or exclude competiti.in) may be inferred on the basis of predominant market shares (see United States v Grinnrell, 384 U.S. 563, 571 (1966); United States v Paramount Pictures, 334 U.S. 131, 174 (1948); United States v Griffith, 334 U.S. 100, 107 n.10 (1948); American Tobacco Company v United States, 328 U.S.
| |
| 781, 797 (1946) -- but see discussion at pp. 85-88, infra -- none of them go so far as to hold that market predominance alone permits the inference of a specific or general intent to wrongfully use that market power. Indeed, all four cases require a showing of an exercise of monopoly power in a manner sufficient to sustain the inference of a general or specific intent "to acquire or maintain the power" to control prices or exclude competition (see, e,.3, H American Tobacco Company v United States, supra, 328 U.S. at 809).
| |
| l
| |
| | |
| e deference to, other administrtive actions that might impact on the inquiry at hand, Es well as an understanding of the electric power market concepts which influenced those administrative .
| |
| actions. A final ingredient for meaningful analysis is a full appreciation of the kinds of contractual arrangements that exist in the industry and the very practical reasons for their existence.
| |
| Regrettably, the Licensing Board made no effort to come to grips with these fundamental concerns that lie at the heart of the antitrust analysis it was charged under Section 105c of the Atomic Energy Act to undertake. It chose, instead, the less taxing course of treating the electric utility industry like any other unregulated manufacturing industry, thereby refusing to recognize anything " novel" or "groundbreaking" about its assignment (see L.B. Stay Order at 5). It is -- perhaps -- too harsh to suggest that the Licensing Board opted for such an indiscriminate approach because it placed more of a premium on the result it was intent on obtaining than it did on the means of accomplishing its desired conclusion. It is not too harsh, however, to 7bserve that the Licensing Board's insistence on wearing such blinders rendered virtually every facet of its Initial Decision irretrievably defective.
| |
| i A. FAILURE TO EVALUATE THE PUBLIC INTEREST We need not engage in prolonged debate over whether the Licensing Board actually made "any assessment as to whether competi-tion between electric entities in the electric utility industry is,
| |
| -- in fact, in the public interest" (L.B. Stay Order at 8). In very
| |
| | |
| F
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| ! precise terms, the panel below has itself confirmed that it did not, stating:
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| We were unaware that we ar.e empowered to decide this broad policy issue which we would think is better addressed to Congress than to the NRC. We are aware that this assessment is not the test set forth in Section 105(c) of the AEC Act. We are equally certain that the antitrust laws do not require such an appraisal in cases alleging violations of the Sherman Act. [Id.]
| |
| This view of the Commission's antitrust review respon-sibility is fundamentally wrong as a matter of law. Antitrust forums inherently have the power, and in fact the obligation, to decide the " broad policy issue" of what sort of market structure and behavior in the industrial context presented best serves the 31/
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| public interest. There is a special reason to be sensitive to this consideration when called upon to scrutinize the activities of electric utilities, which are " quasi-public" in character and charged with a public trust. See Consumers Power Co., supra, 2 N R.C. at 64-65.
| |
| We are dealing here with a " highly-regulated, natural 34/ e.g., Petition for Amendment of 18 C.F.R., Part 141, See,T432, DocEet No. R 49 F.P.C. 588, 589 (1973), aff'd sub nom.
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| Alabama Power Co. v FPC, 511 F.2d 383 (D.C. Cir. 1974) (application of antitrust policy to public utilities pequires a balancing of the public interest since increased competition may sacrifice and retard the investment required for orderly growth and development);
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| California v FPC, 296'F.2d 348, 353 (D.C. Cir. 1961), rev'd on other grounds, 369 U.S. 482 (1962) ("sometimes regulated monopoly,
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| ~
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| or a measure of controlled monopoly, is in the public interest");
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| Pennsylvania Water & Fower Co. v FPC, 193 F.2d 230, 234 (D.C. Cir.
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| 1951), aff'd, 343 U.S. 414 (1952) (" competition can assure protec-tion of the public interest only in an industrial setting which is conducive to a free market and can have no place in industries which are monopolies because of public grant, the exigencies of nature or legislative preference for a particular way of doing business").
| |
| y -
| |
| g -w
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| | |
| monopoly industry" which has been recognized as being " wholly
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| - different from those [other manufacturing industries] that have given rise to ordinary antitrust principles." Otter Tail Power Co.
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| y United States, supra, 410 U.S. at 382 (Stewart, J., dissenting).
| |
| The very fact that electric utilities must submit to licensing and regulation by government agencies confirms the hard truth that
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| " competition cannot do the job of regulation in [this] particular industry which competition does [elswhere] *
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| * 8." Hawaiian
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| {
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| Telephone Co. v FCC, 498 F.2d 771, 777 (D.C. Cir. 1974). The oft-quoted observation of Mr. Justice Frankfurter in FCC v RCA i
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| Communications, Inc., 346 U.S. 86, 92 (1953), forcefully underscores the point:
| |
| Prohibitory legislation like the Sherman Law, defining the area within which "compe-tition" may have full play, of course loses its effectiveness as the practical limita-tions increase; as such considerations I severely limit the number of separate enter-prises that can efficiently, or conveniently exist, the need for careful qualification of the scope of competition recomes manifest.
| |
| Surely it cannot be said in these situations that competition is of itself a national policy. To do so would disregard * *
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| * those areas, loosely spoken of as natural monopolies or -- more broadly -- public utilities, in which active regulation has been found necessary to compensate for the inability of competition to provid_e adeouate regulation. [ Emphasis added.]
| |
| This obviously does not mean that the antitrust laws play no role in a regulated context, and Applicants have never sought to 35/ Theoretically, the aim of regulation is to duplicate (albeit artificially) the results obtained in an unregulated market through competition, namely: the efficient allocation of resources. This identity of purpose thus undergirds both antitrust and other regulatory enforcement policies. See Northern Natural Gas Co. v FPC, 399 F.2d 953, 959 (D.C. Cir. 1968); Latin America / Pacific
| |
| - Coast S.S. Conf. v Federal Paritime Commission, 465 F.2d 542, 545 i i
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| (D.C. Cir. 1972).
| |
| | |
| }6/ It does mean, defend their challenged behavior on any such basis.
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| however, that an application of the antitrust laws must take into account those regulatory and economic forces in the marketplace which argue strenuously against the promotion of competition as an end in and of itself. The task is to arrive at the proper
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| " interrelation of [the] two statutory schemes -- each of which reflects different historical pressures and different conceptions of the public interest." S.S.W., Inc. v Air Transoort Ass'n of America, 191 F.2d 658, 661 (D.C. Cir. 1951), cert. denied, 343 37/
| |
| -~
| |
| U.S. 955 (1952). Just as the existence of government regulation cannot be read so broadly as to immunize entirely from antitrust ,
| |
| - scrutiny all practices in the electric utility industry (Cantor v Detroit Edison Co., supra), so, too, the underlying policy of the antitrust laws to enhance competition cannot be blindly applied to undermine the very market ctructure that government regulation was 36/ The Licensing Board continuously mischaracterized Appli-cants' position to be that the existence of comprehensive federal, state and local regulation effectively immunizes electric utilities from antitrust scrutiny (see I.D. at 149 n.*, 191 n.*, 227 n.*,
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| 229-237; and see L.B. Stay Order at 7). No such argument was ever advanced by Applicants below (compare Applicants' Prehearing Brief at 67-120 and Applicants' Joint Brief In Support Of Their Propo' sed Findings Of Fact And Conclusions Of Law at 108-208). Rather, the Licensing Board set up this " straw man" on its own, and then pro-ceeded to use it as a convenient excuse to " disregard" the public interest considerations which require in the present circumstance "the need for careful qualification of the scope of competition" (FCC v RCA Communications, Inc., supra, 346 U.S. at 92).
| |
| }7/ Since the antitrust laws assume a nearly-perfect competitive market structure, their principal emphasis is on promoting competi-tion for its own sake. See, e.g., Northern Pacific Rv. v United States, 356 U.S. 1, 4 (1958). But in a regulated industry, where market conditions are largely unresponsive to competitive forces, competition is a poor yardstick by which to measure efficient resource allocation. See, e.g., Hawaiian Telechone Co. v FCC, supra, 498 F.2d at 777.
| |
| | |
| r I
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| devised to protect. See, e.g., Northern Natural Gas Co. v FPC, supra, 399 F.2d at 959; Latin America / Pacific Coast S.S. Conf. v Federal Maritime Commission, supra, 465 F.2d at 545; S.S.W., Inc.
| |
| v Air Transport Ass'n of America, supra, 191 F.2d at 661.
| |
| In an effort to achieve a meaningful reconciliation, courts have traditionally lotked to the "public interest" factor to strike the proper balance, and they have done so giving careful attention to the economic realities sustaining the existing market structure in order to insure that the final decision will be not only legally supportable but also economically sound. See generally Atlantic Seaboard Corp. v FPC, 404 F.2d 1268, 1273 (D.C. Cir. 1968). As the Supreme Court admonished in FCC v RCA Communications, Inc.,
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| supra, 346 U.S. at 92, "it is not too much to ask that there be ground for reasonable expectation that competition may have some beneficial effect." To make that assessment in the context of applying " antitrust policy to public utilities," the proper analysis " requires a balancing of the public interest in energy supply at a reasonable price so as to achieve the most efficient allocation of.our limited resources against the notential anticom-petitive effects of the proposed action." -Petition for Amendment of 18 C.F.R., Part 141, Docket No. R-432, supra, 49 F..P.C. at 589 (emphasis added). See also Cantor v Detroit Edison Co., supra, 96 S. Ct.<at 3119-20, 3127; cf. United _ States v Marine Bancorpo-ration, 418 U.S. 602, 606 (1974). And see generally United States v Radio Corportion of America, 358 U.S. 334, 348-52 (1959).
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| Nor i~s it an adequate answer to say that the "public interes'c considerations are for Congress to grapple with, not the courts or administrative agencies. Congress has already spoken
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| | |
| in no uncertain terms on this matter with regard to the public utility industry. See Federal Power Act, 16 U.S.C. 5$ 824 et seq.;
| |
| and see Public Utility Holding Company Act, 15 U.S.C. SS 791 and 79j; Atomic Energy Act, 42 U.S.C. $$ 2131, 21?3, 2134. Its
| |
| _ judgment is most emphatically that competition cannot accomplish the desired objective of efficient resour,ce allocation in this sector of the economy as it can in other sectors, and, thus, that the public interest is best served by controlling prices and other marketing behavior by comprehensive governmental constraints. The 1970 amendments to Section 105c of the Atomic Energy Act certainly were not meant to undermine the legislative framework that Congress has so carefully established. Its instruction to this Commission to take cognizance of the " antitrust laws" in connection with the review of license applications necessarily embraced as well the foregoing judicial pronouncement as to how those " antitrust laws" are to be applied in an industrial setting such as the one Congress has mandated for the electric utility industry.--38/
| |
| ~
| |
| 38/ ,This analytical approach is not reserved only to those regula-tory agencies which engage in antitrust review as an " offshoot" of their statutory mandate to be guided by a "public interest" or "public convenience and necessity" standard. While the reconcilia-tion principle seems to have received its clearest definition in cases involving such agencies (e.g., FCC v RCA Communications, Inc3, supra), the pertinent discussion in those decisions analyzes tre manner in which the " antitrust laws" should be applied in a regulated industry, not the separate question of what review responsibilites are embraced by the articulated statutory standard.
| |
| Moreover, the sane antitrust analysis that is required by the
| |
| " regulatory" decisions is followed in cases which have been brought directly u. der the " antitrust iaws." See, e.g., S.S.W.,
| |
| Inc. Air Transport Ass'n. of America, supra, 191 F.2d at 661
| |
| ~
| |
| (private treble damage action). And, in similar contexts, the Supreme Court has time and again cautioned against a wholesale application of antitrust policy in industrial settings character-ized by a basic natural monopoly structure that is defined largely (Continued next page)
| |
| | |
| r I
| |
| It is in this respect that the public interest in accomp-lishing efficient resource allocation by means other than free and open competition must be weighed against, and reconciled with, the procompetitive presumption that underlies antitrust enforcement.
| |
| The Joint Committee Report accompanying the 1970 amendments removed all doubts in this regard by making clear its expectation that this Commission in performing its responsibilities "under paragraphs [105c] (5) and (6) will harmonize both antitrust and other public interest considerations as may be involved" (H.R.
| |
| Rep. No. 1470, 92d Cong. 2d Sess. 31, reprinted in [1970] U.S. .
| |
| Code Cong. & Ad. News 4981, 5012; emphasis added). The Licensing Board's admitted failure to temper its antitrust analysis so as not to run roughshod over the public interest cons'iderations that have led to congressional recognition and preservation of a natural monopoly structure in this industry is reversible error.
| |
| This error is perhaps no better demonstrated than in the Licensing Board's insistence upon using the per sji doctrine as a means of disposing of Applicants' various arguments. The recon-ciliation of divergent philosophies contemplated by Congress necessarily requires an antitrust analysis of regulated electric utilities which considers both the prevailing economic character-istics of the relevant market in which the challenged practice
| |
| ~
| |
| 38/ (Cont'd) in terms of economic and regulatory restraints to competition.
| |
| See, e.g., United States v Citizens & Southern National Bank, supra, 422 U.S. at 91; Cantor v Detroit Edison Co., supra, 96 S.
| |
| ~
| |
| Ct. at 3119-20; Silver v New York Stock Exchange, supra, 373 U.S. at 358, 360-61; Gordon v New York Stock Exenange, 422 U.S.
| |
| 659, 663-82, 690-91 (1975); United States v National Association of Securities Dealers, Inc., 422 U.S. 694, 697-703, 704-11, 720-30 (1975); see also Otter Tail Power Co. v United States, supra, 410 U.S. at 389 (Stewart, J., dissenting).
| |
| | |
| p occurs and the competing policy considerations that underlie the institutional ccnstraints on individual behavior in that market.
| |
| This can be accomplished only by adherence to the " rule of reason" approach announced long ago by Mr, Justice Brandeis in Chicago Board of Trade v United States, 246 U.S. 231, 238 (1918).
| |
| In so concluding, we are, of course, fully aware that
| |
| )
| |
| certain behavior has been condemned as per jgt unlawful in unregu-lated settings due to the fact that " considerable experience" (United States v Topco Associates, Inc. 405 U.S. 596, 607 (1972))
| |
| in such contexts justifies a conclusive presumption that this particular behavior interferes with the overriding antitrust objec-tive to promote competition (see n, chern Pacific Ry. v United But per jut logic has been regarded States, supra, 356 U.S. at 5).
| |
| as an inappropriate analytical tool when there exist conflicting regulatory or other governmental policies which reflect that competition is not clearly in the public interest. See United States v Pan American World Airways, Inc., 193 F. Supp. 18, 33 (S.D.N.Y 1961), rev'd on other grounds, 371 U.S. 296 (1963);
| |
| Silver v New York Stock Exchange, supra, 373 U.S. at 347-348. In I 1
| |
| such circumstances, courts have Youtinely eschewed the per se approach, cognizant of the fact that an arrangement, the impact of which may be presumed pernicious in a competitive context, may well be highly desirable in a natural monopoly market structure subject to regulatory restraints.--39/
| |
| 39,/ See, e.g., United States v Citizens & Southern National Bank, supra, 422 U.S. at 100, 112-14 (alleged price-fixing scheme reflected in similar rates and service charges of correspondent and associate banks not condemned out of hand as per se violation, (Continued next page) l
| |
| = , _ _ _ _ - _ _ _ _
| |
| | |
| ~
| |
| l r ,
| |
| I l
| |
| The sound teaching i" this line of cases requires out-right rejection of any sort of per jgt treatment in the present circumstances, particularly in view of the nascent character of antitrust review under Section 105c of the Atomic Energy Act. See Cantor v Detroit Edison Cc33, supra, 96 S. Ct. at 3126-27 (L;ackmun, l
| |
| J., separate opinion). As one noted commentator has recently remarked:
| |
| This substitution of the " rule of reason" for normal per se treatment of market division may be especially appropriate in the electric utility field where compe;ition of the normal sort appears to be constricted. Further, natural monopoly markets, the fact of regula-tion at several levels of government, and the various competitive advantages accruing to spe-cific utilities depending on their ownership form, are all special circumstances which in the electric utility industry may validate practices that in other industries would be clearly unlawful. In order to examine those special circumstances, courts must be prepared to dispense with the per se shortcut. [ Emphasis added.]40/
| |
| 39/ (Cont'd) but examined and found to be reasonable in light of Georgia bank-ing regulations); United States v Pan American World Airways, supra, 193 F. Supp. at 22, 33-34 (territorial allocation scheme among shipping company, airline and joint venture formed by them found lawful); Chastain v American Tel. & Tel. Co., 351 F. Supp. 1320, 1321 (D.D.C 1972) (scope and nature of control over regulated industry may bring ITMS action preventing competition in mobile telephone market within legal boundaries); United States v Morgan, 118 F. Supp. 621, 687-89 (S.D.N.Y 1953) (syndication agreements containing price maintenance clauses binding on underwriters and resale price maintenance clauses binding on selling groups or selected dealers held permissible because of sui generis situa-tion); United States v National Football League, 116 F. Supp. 319, l
| |
| 321 (E.D. Pa. 1953) (allocation of marketing territories accom-l plished by a prohibition on telecasting of outside games into home l
| |
| territories of other teams playing at home upheld); In re Coca-Cola l Co., [1973-1976 Transfer Binder] Trade Reg. Rep. 1 21,010 (FTC, l Oct. 8, 1975) (distribution agreements conta*ning territorial
| |
| : allocation _ clauses which were binding on bottlers held to be l reasonable restraints).
| |
| 1.
| |
| l .,f)/ Shenefield, Antitrust Policy Within The Electric Utility (Continued next page)
| |
| | |
| c The Licensing Board failed to follow this sound advice, despite Applicants' urgings ( Applicants' Supporting Brief'at 59-66, 339-41, 511-12, 533, 620-21). Had it done so, its unthinking per se indictment of retail territorial allocation practices (F/F Nos.
| |
| 112, 164), and of the CAPCO pool arrangement (F/F No. 189),
| |
| would have given way to a reasoned recognition of the legitimacy of these activities in light of the market conditions prevailing 41/
| |
| ~-
| |
| within the CCCT.
| |
| In this regard, the record below makes it clear that an appropriate harmonization of antitrust policy with the existing regulatory policies in Ohio and Pennsylvania, as required by appli-tion of a " rule of reason" approach, would have confirmed that the challenged market divisions at retail (there were none at whole-sale) were, to the extent that they in fact existed, in direct furtherance of governmental policy at the state and local level (see pp. 189-94, 234-38, infra). And, as observed by the Supreme Court in Silver v New York Stock Exchange, supra, 373 U.S. at 40/ (Cont'd)
| |
| Industry, 16 Antitrust Bull. 681, 689 (1971). Among other things, the article discusses the infirmities in using Der jgt logic to condemn out of hand territorial allocation agreements among electric utilities (id. at 688-90), and power pooling arrangements as group boycotts (id. at 690-91, 705-09).
| |
| 41/ With reference to the alleged territorial allocation arrange-ments of certain of the Applicants, see the discussion at pp. 50-53, 60-65, infra, which demonstrates the inappropriateness of anti-trust condemnation under a " rale 6f reason" approach. With reference to the formation and operation of the CAPC0 pool, see the discussions
| |
| ~
| |
| _1 at pp. 15-21, supra, and at pp. 102-13, 145-50, 274-80,' infra, which demonstrate the error in labeling these activities as reflective l of a group boycott. In addition, the Licensing Board erroneously found that CEI's interconnection proposals to Cleveland and Paines-ville could be characterized as " price fixing" arrangements and faulted as per'gjt unlawful (F/F Nos. 38, 70; and see I.D. at 190).
| |
| The legal and factual infirmities in this analysis are discussed at pp.157-58 & n. 211, infra.
| |
| i
| |
| - y . - - ,r -
| |
| a *- 3--
| |
| | |
| i l
| |
| 360-61, private action of this sort can, in light of "the char-acter and objectives" of the regulatory scheme, be "re6arded as justified in answer to ebe assertion of an antitrust claim." And see Gordon v New York Stock Exchance, Inc., supra, 422 U.S. at
| |
| ~
| |
| 688-90.--42/
| |
| Moreover, certain challenged allocation provisions con-tained in early contracts which TECO, OE and PP once had with their municipal wholesale customers (see I.D. at 136-43, 171-72) were in fact ameliorative of more restrictive governmental constraints 3, on the ability of these municipalities to serve at retail outside their corporate limits (see pp. 195-99, 238-40, infra). The Supreme Court has also confronted this type of situation, and has announced that antitrust' principles that would normally proscribe such arrange-ments if they were found in a competitive market s+ructure, free from such regulatory restraints, simply do not have force and effect 42/ The Supreme Court's opinions in Cantor v Detroit Edison Co.,
| |
| supra, do not suggest otherwise. A plurality of the Court there found that state approval of a rate structure containing an allegedly unlawful tie between light bulbs and electric services does not immunize the practice from antitrust scrutiny (96 S. Ct. at 3121).
| |
| In this respect, Cantor declared no new law. The plurality opinion reached its conclusion merely by applying previously established standards with respect to federal regulation to a factual context involving state regulation (96 S. Ct. at 3120). The removal from antitrust condemnation of private actions taken in direct furtherance of a regulatory policy is one of those principles explicitly grounded on that previously decided case law dealing with federal regulation.
| |
| See Silver v New York Stock Exchange, supra, Gordon v New York Stock Exchange, Inc., supra. In fact, the plurality opinion in Cantor notes that when an electric utility is exercising its natural mono-poly prerogatives -- as it would be if it was acting in furtherance of a regulatory policy -- its conduct is to be judged by regulatory criteria and not by antitrust standards (96 S. Ct. at 3119). In Cantor, Detroit Edison's light bulb program was " inexorably" -(96 S.
| |
| Ct. at 3120) not in furtherance of a regulatory policy, since the Court had already found that Michigan had no policy with regard to light bulbs. That, however, is certainly not the case with respect to the market division activities certain of the Applicants are charged with in this proceeding (see also n.41, supra).
| |
| | |
| Am
| |
| .l in these different circumstances. See United' States v Citizens _&
| |
| i 7 Southerr National Bank, supra, 422 U.S. at 111-20.
| |
| The Licensing Board ignored entirely these respected
| |
| [ judicial authorities, and intentionally remained oblivious to the basic economic and institutional characteristics of the public utility industry (as specifically reflected in the CCCT) which separate it from "those [ industries] that have given rise to ordi-i j nary antitrust principles"(Otter Tail Power Co. v United States, supra, 410 U.S. at 382 (Stewart, J., dissenting)). As we will now show, the record below amply demonstrates how fundamentally wrong it was to proceed in this manner without due regard for the public idterest considerations which bear directly on the extent and nature of competition in the service areas under consideration.
| |
| B. FAILURE TO RECOGNIZE THE NATURE OF THE
| |
| , , _ ELECTRIC UTILITY INDUSTRY IN THE CCCT
| |
| )
| |
| Throughout the Initial Decision, the Licensing Board
| |
| ;r makes repeated reference to the non-Applicant CCCT entities as
| |
| " actual or potential competitive entities" (e.g., I.D. at 9, 14,
| |
| , 41-42). While the basis for this assumption is nowhere revealed in the decision itself, we have since been advised by the Board that it l- proceeded from the outset on the premise that "there is a presump- .
| |
| tion of competition in the electric utility industry, as in all other industries, and that it is [ Applicants'] burden to establish the presence and boundaries of any statutory scheme reducing such competition
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| * 3 '" (L.B. Stay Order at 6, n.'). Initially, we disagree that Applicants must bear the burden of proving what is an absolute prerequisite to the opposition's case, i.e., the nature of the competitive framework within which the antitrust laws are to
| |
| ___ ~ - _ _ _ __ _ _ . - . _. _ _ _ _ _ _ . , _ .._
| |
| | |
| function (see pp. 30-33, supra). But even beyond that, the record in this proceeding amply demonstrates that both economic and statu-tory restrictions severely limit the opportunities for, or desira-bility of, competition in the CCCT.
| |
| M/ It is therefore inaccurate to refer to electric systems in the CCCT as " competitive entities" and to presume that they compete openly with one another for customers or markets.
| |
| : 1. The role of " competition" in the CCCT. At the retail level, " competition" is generally understood to be the rivalry for customers (Hughes 3676(5-6)). In a normally competitive market, this rivalry is viewed as essential because only through such a market organization is it possible to set limits on the power exer- !
| |
| cised by any one market participant. Yet, there is another way of looking at the competitive phenomenon, and that is in terms of individual performance characteristics. From this perspective, the 43/ Applicants' position should be understood to encompass two distinct, though related, objections to the Licensing Board's un- I substantiated procompetitive presumption. First, the erroneous ;
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| assumption of wide-open competition led the Licensing Board to 1 fault certain conduct on the theoretical basis that it tended to )
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| substantially lesse'n such competition. An evaluation of the same '
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| conduct in terms of the actual competititve framework within the l CCCT would have confirmed the legitimacy of such behavior in the j circumstances, and prevented a finding that said activities'consti- 1 tuted an unreasonable restraint of trade or were part of a scheme of monopolization, attempt to monopolize, or conspiracy to monopo-lize. Examples of such incorrect conclusions would include the Licensing Board's findings with respect to acquisitions, terri-torial agreements, and refusals to wheel.
| |
| Second, the Licensing Board's faulty presumption relieved it of the responsibility to determine, within the structure of the antitrust laws, whether certain ccnduct of Applicants, assuming arguendo such conduct tended to substantially lessen competition, was inconsistent with those laws, given the narmful effects likely l to result if competi' tion was encouraged -- that is, to evaluate whether increased competition among electric utilities in the CCCT was in fact in the public interest. This shortcoming of the
| |
| ,- Init.ial Decision flaws virtually every conclusion of the Licensing l Board below.
| |
| ,~
| |
| | |
| p '
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| proper focus of inquiry with regard to the " competitive" behavior
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| - of any firm is on profitability, efficiency, and technological progressiveness, rather than on preserving a structural framework 44/
| |
| which promotes interaction among rival firms. This distinction has long been recognized in antitrust theory; it was specifically highlighted in this proceeding by the NRC Staff's economic expert, 1
| |
| Dr. Hughes, who testified (Hughes, 3662(13-23)):
| |
| An antitrust policy has an aspect that is aimed at the competitive process itself, and has a procompetitive presumption. That is that competi-tion is a good thing.
| |
| Antitrust policy also, as I understand it, applies in cases where competition may not be feas-ible or even desirable in that it requires the actors in the marketplace, where you can't necessarily have all of the competition that is feasible in some markets, to get the actor in the marketplace to bp-have in such a way and conduct his business in such a way to produce results that are more nearly in harmony with what you would expect in competitive markets.45/
| |
| In the electric utility industry, the appropriate economic 44/ See generally Penn, Delaney & Honeycutt, Coordination, Competition and Regulation in the Electric Utility Industry, NUREG-75/061, at 4 (1975) (report by Research Staff, Office of Antitrust and Indemnity, Nuclear Regulatory Commission; hereinafter cited as Coordination, Competition and Regulation). The opposition parties have in the past objected to Applicants' reference to this NRC report as reliance on extra-record material. Applicants certainly have no desire to invade the sanctity of the administrative record and, therefore, would not cite this report for a proposition not otherwise supported in the record. On the other hand, where this report, or any secondary material, supports testimony given in this proceeding, or provides an analytic framework within which to assess that testimony, Applicants can perceive no reason why such material should not be brought to the attention of this Appeal Board.
| |
| l 45/ Just one of the problems Applicants have with the broad generalizations that run throughout the testimony of DOJ's eco-L nomic expert, Dr. Wein, is Dr. Wein's unsupportable proposition that the antitrust laws do not take into account issues relating to efficiency-(see Wein 6698(4-18)), but look only to see if the challenged conduct does or does not impact on competition (see Wein 6706(9-20); compare pp. 30-33, supra).
| |
| | |
| function of " competition" is the one last mentioned, that is, to discipline the various market participants to provide electric energy and related services skillfully and cheaply. The need for ordinary competitive restraints -- through a rivalry for customers
| |
| -- as a check on the exercise of market power by any single utility has effectively been removed in this context by cegulatory controls (see pp. 50-55, 77-82, infra). Thus, the only meaningful standard for reviewing challenged conduct is not whether the various electric entities are free to engage in unbridled compe-tition among themselves, but whether, within a particular market area, effective coordinating of performance is achieved among all suppliers of electric energy, and the resultant cost savings are passed on to the customers. This alone is the measure by which to determine whether the central economic function is being accomplished (see Hughes 3878(1-9), 3883(9-11)).--46/
| |
| It is with this in mind that Applicants have urged through-out the proceeding that an evaluation of the antitrust charges be 40/ In such circumstances competition for its own sake serves little purpose (see, e.g., Northern Natural Gas Co. v FPC, suora, 399 F.2d at 959). Indeed, it was explicitly recognized by Dr.
| |
| Hughes that the promotion of a market structure which fosters
| |
| " unlimited competition # # # has side effects that can be wasteful and can be destructive" (see Hughes 3771(1-3)). As Dr. Hughes further noted, the most probable consequence of a change in the present market structure would be a' form of competition that:
| |
| * *
| |
| * would have the effect of leading to duplicating facilities, to high transaction cost, and that sort of thing, without producing compensating benefits in terms of a stimulus to greater efficiency or a more inclusive result in terms of the efficiency of the bulk power system *
| |
| * 5 [Hughes 3788(12-16).]
| |
| Such a development would contradict the very economic objective that antitrust enforcement policy is designed to perpetuate, which
| |
| - is "to achieve the most efficient allocation of resources possible" (Northern Natural Gas Co. v FPC, supra, 399 F.2d at 959).
| |
| l
| |
| | |
| F J
| |
| undertaken, not by blind application of traditional antitrust theory as developed in an unregulated market structure, but by the economic realities that inhere in the existing competitive framework in the CCCT. Significantly, this position is in. complete accord with both the NRC Staff and its expert witness, Dr. Hughes, as to the proper focus of inquiry under Section 105c.
| |
| My own view is that what is at stake here is less a matter of encouraging wide-spread competi-tion in electric power supply although I believe that broader licensing conditions would encourage some such competition and some of it would be con-structive. But I don't think the competition en-couraging aspect is perhaps as relevant as the aspect of freeing up the options of choice that power systems have and encouraging a pattern of dealing among those power systems that will tend to get them to capture the combined benefits that can be achieved so that one would have a pattern of market behavior in the State [s] of Ohio [and Penn-sylvania] that would be more inclusive with respect to capturing the full benefits of coordinating and integrating development. [Hughes 3771(12-24);
| |
| emphasis added.]
| |
| The record below demonstrates conclusively that Dr.
| |
| Hughes' goal has been fully accomplished with respect to all electrie entities within the CCCT -- both with regard to the benefits anticipated upon issuance of the Perry and Davis-Besse nuclear licenses (see A-44) and with regard to any other benefits said to flow from coordinated development and operation. A closer look at the competitive framework involved here is instructive in gaining a full understanding of the course of dealing between Applicants and the other CCCT electric entities that has led to this result. To this end, we will first describe the evidence (ignored below) confirming the existence of economic and legal barriers to free and open competition among electric utilities in the CCCT, and then we will focus directly on how those barriers
| |
| | |
| shape the " competitive" framework within which each Applicant's conduct must be assessed.
| |
| : 2. Economic barriers to c'ompetition. The economic
| |
| ~
| |
| characteristics that discourage competition in the electric utility industry are well known and readily identifiable. In summary fashion, they are:
| |
| (
| |
| First, the industry is highly capital-intensive, requiring an investment of $4 to
| |
| $5 for every dollar of annual revenue received as compared with an investment of less than $1 per dollar of annual revenue for most manufactur-ing industries (A-189(Gerber) 6(19-24)). See also I_FPC, National Power Survey 11 (1964).
| |
| Second, the investment is in long-lived plant and eg'uipment requiring long construction lead-time, advance forecasting and planning, and very.often expensive and time-consuming regulatory approvals (A-189(Gerber) 6(24-26), 10(20-25)).
| |
| Third, the plant and equipment so con-structed are tied to one particular geographic location and cannot be moved to serve other locations should customer demands shift (A-189 (Gerber) 10-11(26 & 1-2)).
| |
| Fourth, the service can be provided only to those customers directly connected to the supply-ing utility, requiring in all cases a continuous electrical and physical path between the producing facilities and consuming facilities (A-189(Gerber) 7(12-17)).
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| Fifth, the energy cannot be produced until the consuming facility registers its demands, and then it must be supplied instantaneously, and without any substantial ability to stockpile or inventory the energy (A-189(Gerber) 7(17-21)).
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| Sixth, the industry is characterized by sig-nificant economies of scale, especially at the generation and transmission levels (A-189(Gerber) 7(5-11)).
| |
| These six characteristics dictated the natural development of relatively large electric utilities which are, for the most part, -
| |
| vertically and horizontally integrated (A-189(Gerber) 7-8(24-26 & 1),
| |
| | |
| r 23(12-20)). The significant economies of vertical integration in such an environment are almost self-evident. Planning efficiencies, for example, can obviously be realized by a utility engaged in all three of the production functions, 1,.e., generation, tra nsmission and distribution. Dr. Hughes testified on this point in the following terms (Hughes 3899-900(25 & 1-2)):
| |
| * *
| |
| * the natural way to plan, develop and operate a bulk power system is to treat genera-tion and transmission together, because in scaling, sizing, locating facilities, designing them, they have to mesh well and good system planners can put the pieces together better than separate organizations operating through the mechanism of the market.41/
| |
| Similarly, there exist strong incentives for horizontal integration in a setting marked by the economic characteristics described above. Perhaps foremost among these are the significant economies of scale present, due largely to historical developments in technology.--48/ Moreover, the timing of these technological advances in relation to the market situation that existed in the 41/ Dr. Hughes further stated: "Once you have a territorial base of individual systems, it is a logical development for the ,
| |
| transmission in that area to reflect whoever is generating and serving the load" (Hughes 3900(2)). See also A-189(Gerber) 10(8-7). In addition, vertical integration gives the generating and trnnsmission utility direct access to the ultimate consumer and thereby permits it to maintain continuous surveillance over customer load growths and load shifts. This capability is important to the implementation of sales programs designed to achieve an efficient and balanced schedule of load growth. It also is valuable to the development of adequate system design aimed at satisfying service requirements and insuring reliability (A-189 (Gerber) 10(7-14), 11(20-26)).
| |
| L 48/ These historical developments are well documented in the record and elsewhere. See D-450(Kampmeier) 5-9; D-587(Wein) 49-51, 52-53; A-121(Slemmer) attach. p. 1; A-122(Firestone) 4-5; ,
| |
| cf. A-189 (Gerber) 8-9. And see I FPC, National Power Survey, l l 357-58 (1964); Breyer and McAvoy, Energy Regulation By The Federal )
| |
| [ Power Commission 90-91 (1974).
| |
| l i
| |
| | |
| r r-industry when those developments occurred contributed materially to horizontal expansion (D-587(Wein) 43(3-6); Wein 6841(5-24),
| |
| 6842(17-25)). Thus, there were in the electric utility industry periods when scale economies grew much more rapidly than the rate of growth of the industry as a whole (Wein 6727-28(15-25 & 1-4)).
| |
| As facilities became available which could be sized to accommodate capacity well beyond the power needs of any single community, the geographic area served by individual systems was correspondingly enlarged in order to exploit more fully the scale economies 49/
| |
| (A-189(Gerber) 9(18-21)).
| |
| Accordingly, it is not surprising to find that firms 4
| |
| within the electric utility industry naturally developed as verti-cally and horizontally integrated enterprises (D-587(Wein) 52-53; A-189(Gerber) 8-12). Nor, in light of the foregoing economic charac-teristics explaining this result, is it any more astonishing that the industry has long been recognized as having a "5asic natural monopoly structure" (Gulf States Utilities Co. v FPC, supra, 411 U.S. at 759; Cantor v Detroit Edison Co., supra, 96 S. Ct. at 3119),
| |
| or that it has consistently been dealt with on this basis by both 49/ This horizontal expansion was accelerated by other ancillary factors. As service was extends: over wider and wider geographic areas, advantages due to diversity of load demand could be achieved (A-189(Gerber) 9(2-9, 14-17)). Improved load factors as a result of selling energy to different types of customers (i.,e., residential, commercial and industrial) resulted in further savings (A-189(Gerber) 8(19-24)). Locational advantages also became available with the ability to place large generating facilities at remote sites (i.e., mine-mouth plants) and thus serve distant communities free l from local resource limitations (particularly land and water) that might otherwise have inhibited growth within a given area (A-189(
| |
| Gerber) 9-10 (21-26 & 1)). Of course, as utilities expanded horizontally, it became necessary for them to do more and more planning, thereby providing a further incentive for vertically integrating as well (A-189(Gerber) 10(1-14)).
| |
| m
| |
| | |
| r state and federal regulatory authorities (see, e.g. , Pennsylvania Water & Power Co. v FPC, supra, 193 F.2d'at 234; see also A-189 (Gerber) 23(18-20)).
| |
| In no small part, this accepted structural definition derives from the fact that the technology in the electric utility industry requires a direct physical connection between customer and supplier, the fundamental characteristics of which are such that there are economies in having just one such tie (Hughes 3729 (10-20)). To state it another way, it simply is uneconomic to have two or more utilities supplying the same load. This is most' d
| |
| obviously demonstrated by the distribution function in the industry, where even D0J's economic expert, Dr. Wein, recognized that it would be economically undesirable to have two distribu-tion systems within a single municipality (Wein 7247(21-23); see also S-207(Hughes) 33; Hughes 3729(13-14), 3788(11-17), 3901 50/
| |
| (4-6); Kampmeier 5825-26(25 & 1-3)).
| |
| The same logic which sustains the natural monopoly struc-ture at the distribution level compels as well the discouragement of 50/ The soundness of this assessment becomes readily apparent merely by reference to the Cleveland situation, where there currently exists what is generally recognized to be a highly unusual (see Mozer 3542(12-15)) dual distribution system within the corporate limits of the city (A-45, p. 2). As a consequence, both CEI and Cleveland experience distribution costs in excess of industry averages due to inflated distribution-related capital requirements and operating and maintenance costs (see A-207, p.
| |
| II-18). .This necessarily has a direct impact on the rate structure of both systems, resulting in a higher cost of service to their customers than would likely be the case if only one entity were performing the distribution function. The public interest would be better served in such circumstances by the same sort of " careful qualification of the scope of competition" (FCC v RCA Communications, Inc., supra, 346 U.S. at 92) in Cleveland as has occurred in virtually all other municipalities in the country (see Mozer
| |
| - 3542-43(17-25 & 1-3)).
| |
| | |
| 'r open competition with respect to both the generation and transmission functions. In these latter two areas economies of scale play an equally important role.(Hughes 3903(8-17)). Moreover, just as with the distribution function, there exist at the generation and trans-
| |
| - mission levels the undisputed characteristics of instantaneous pro-duction and consumption of energy, requiring a direct physical connection between customer and generating source (Hughes 3903 (18-24)).
| |
| It is the technology of generation and transmission which gives rise to what Dr. Hughes called " natural market power," but not necessarily natural monoliths (Hughes 3902). Within a given region, industry economic and engineering factors may not require all generation and transmission facilities to be owned by a single
| |
| . utility (Wein 6816(11-14)); and indeed they are not in the CCCT 1
| |
| .see F/F Nos. 1 & 5). On the other hand, this does not imply that an area the size of the CCCT can therefore tolerate active competition among numerous generation and transmission firms.
| |
| A reading of Dr. Wein's testimony on this point confirms that he did not advocate any such competition (Wein 6856(2-10)), any more than did Dr. Hughes (Hughes 3902). Recognition that there can
| |
| ~
| |
| be more than a single company in the area performing the genera-
| |
| ! tion and transmission functions does not even remotely suggest that the companies should actively compete with one another and
| |
| (- design and use their separately-owned facilities to serve the same j load. Contrary to the Licensing Board's apparent belief, such competition is totally impractical in the economic,sett!.ng which characterizes the electric utility industry. Recognition of this
| |
| , ~ impracticality was precisely why Dr. Hughes highlighted the
| |
| ,--_-y , ,r-
| |
| | |
| 4 51/
| |
| distinction between " natural market power" and natural monoliths.
| |
| 3 Legal barriers to competition. In addition to the foregoing economic characteristics that inhibit competition, there are also institutional restraints at the state and federal level I- that restrict even further the opportunities for any real competi-tion in the electric utility industry, and more particularly in 52/
| |
| r the CCCT. Conceptually, these institutional restraints are of two types: passive and active. In the former category are those constitutional and statutory directives that restrain the freedom of action of an electric utility. The latter group includes regulatory controls that are imposed to administer day-to-day operations.
| |
| i 51/ There is yet another sustaining force to preserving the existing natural market structure at the generation and transmission level in this case. As Dr. Hughes points out, the area served by Applicants is small enough so that a single firm could feasibly own all the generation and transmission in the CCCT region (Hughe: 3731 '
| |
| '(19-22)). In such a situation, a measure of how effective ano
| |
| ; efficient the CAPCO companies are is to compare their performance against the anticipated results that could be achieved by a hypo-thetical singly-owned entity (Hughes 3731-32(23-25 & 1-2)). On such a comparative basis, it was Dr. Hughes' expert opinion that within 1 the CAPCO framework the Applicants came exceedingly close to the achievements.that could be expected by a singly-owned electric system (Hughes 3732(11-12)). No sound reason exists to assume that any greater economies or efficiencies can be realized in the same area by introducing new competitors or by requiring existing electric systems to start competing with Applicants for the same loads. There is no record support to suggest that such an assumption is warranted,
| |
| ~
| |
| nor can it find any basis in judici'al precedent. See, e.g. , Ff :J_v RCA Communications, Inc., supra, 346 U.S. at 97. Even Dr. Wein recognized the infirmity of such an approach (Wein 6823-24(25 & 1-5)):
| |
| l "[I]f.the five firms were satisfying the entire market demand, the l sixth firm is going to raise costs, because insofar as it comes in l and competes away some of the business, it is operating at less than
| |
| [ optimal level and so are.the others, so total cost would go off."
| |
| 52/ This section deals only with those regulatory requirenents which act as barriers to competition in Ohio and Pennsylvania.
| |
| Other sections (see pp. 77-83, 85-88, infra) describe how these and other regulatory requirements restrain Applicants from acting in-a manner inconsistent with the antitrust laws.
| |
| i-
| |
| | |
| I Passive Restraints In Ohio three particular provisions deserve special mention:
| |
| First, Article XVIII, Section 6 of the Ohio Constitution explicitly prohibits any Ohio municipality which owns or operates an electric utility from selling outside its corporate limits the surplus energy of that utility in excess of 50% of the kilowat hours sold inside the corporate limits (see A-12; and see White 9524-25(25 & 1-5), 9680 (14-21)) 53/
| |
| Second, Chapter 4933 of the Ohio Revised Code authorizes municipalities to exercise their franchise power to preclude a public utility from providing any electric service whatsoever within the corporate limits (see Sec. 4933 03, 4933.13 and 4933.16).34/
| |
| 53/ This provision effectively forecloses a municipal electric system in Ohio from acquiring in the future any significant quantity of new load outside the corporate limits, thereby making it unrea-listic to speak in terms of these municipal systems engaging in fringe-area competition (see pp. 50-51, infra) with other electric entities in Ohio (see D-587(Wein) 117(17-21), 118(13-17)). In addition, the 50% limitation precludes municipalities entirely from selling large quantities of wholesale or bulk power to other entities for resale. Finally, because Article XVIII, Section 6 explicitly requires that a municipal sale of energy outside the corporate limits be made only from "the surplus product", an electric system which is taking its full power requirements from another utility as a whclesale customer (see Guy 3056(17-25)) is effectively barred from operating outside its corporate limits (White 9529-26, 9681-83) since it necessarily has no surplus product (Guy 3057(1-4)).
| |
| 54/ These provisions allow a municipality to preclude public utilities from placing any distribution facilities within the corporate limits (Ohio R.C. S 4933.16), to prevent unwanted competition for urban customers it is currently serving from its own electric system (Ohio R.C. S 4933.03), and to deprive
| |
| . outside entities from competing for retail service that is being provided by another outside retail distributor with the munici-pality's consent (Ohio R.C. E 4933.13). For example, within the City of Painesville, the record shows that no retail competition exists between CEI and the Painesville municipal system, since that city has exercised its power under Ohio R.C. 4933.16 (Tr.
| |
| 451; A-195(Milburn) 55(7-9)).
| |
| | |
| r-l Third, Section 4905.261 of the Ohio Re '
| |
| vised Ccde, the so-called 90-day disconnect or " anti-pirating" provision, limits competi-tion by requiring a customer taking power from one utility to disconnect from that utility for a period of 90 days before it can com-mence taking service from another utility.55/
| |
| - The statutory restrictions upon electric utility compe-tition in Pennsylvania are even tore rigid than in Ohio (Wein 6928-29 (22-25 & 1-2)):
| |
| First, no public utility may so much as "begin to offer, render, furnish or supply
| |
| [ electric] service" within the state unless the Pennsylvania Pu'lic o Utility Commission
| |
| ("Pa PUC") first approves such service by issuing a " certificate of public convenience."
| |
| See 66 P.S. $ 1121. Before a certificate can issue, the Pa PUC must hold hearings to determine if the issuance thereof is "neces-sary and proper." 66 P.S. $ 1123 56/
| |
| 55/ There is no dispute that this provision applies to all forms of retail " competition" between two investor-owned utilities (Tr. 6897(18-21), 6898(7-12)), between two rural electric cooper-atives (id.), or between an investor-cwned utility and a rural electric cooperative (id.). As a practical matter, this provision essentially eliminates competition among such utilities for exist-ing retail customers, since.1he customer desirous of a change cannot do without electric service for the requisite statutory period.
| |
| While the opposition parties have suggested that Section 4905.261 does not apply to wholesale competition among investor-owned utilities and rural electric cooperatives (Tr. 6898(2-6)),
| |
| they have been unable to' point to statutory language or judicial decisions in Ohio to support such a reading. Moreover, so to limit the provision would run counter to its stated purpose, which is to insure that adequate electric service is provided in Ohio without a needless and wasteful duplication of facilities. Wasteful duplica-tion is as likely to occur at the wholesale level as at the retail level, and the clear wording of Section 4905.261 underscores the legislative policy to elininate it in all respects insofar as it
| |
| - relates to competition for existing customers among investor-owned utilities ard rural electric cooperatives.
| |
| 26/ A certificate is necessary for a public utility to supply electric service of a "different nature or to a different territory" (66 P.S. $ 1122(a)), to abandon any service in whole or in part (66 P.S. $ 1122(b)), to meke any acquisition or transfer of tangible (Continued next page)
| |
| ~
| |
| g em a g 7
| |
| | |
| I i
| |
| Second, WAthout a certificate of public convenience, it is unlawful for a municipal corporation "to acquire, construct, or begin to operate" an electric plant, or any equip-ment or facilities for rendering electric service, beyond its corporate limits. 66 P.S.
| |
| $ 1122(g). Its operations within the city, however, are exclusive unless it consents to another public utility serving city residents.
| |
| 53 P.S. 5 47471; and see Mccabe 4239(12-15).51/
| |
| Third, the Pa PUC exercises jiji facto jurisdiction over the certification of whole-
| |
| < sale territories (White 9821(2-20)), giving it the ability to foreclose possible competi-tion at the wholesale level as well as at the retail level (see S-25 through S-28).
| |
| This is because any potential service to a
| |
| , wholesale customer 1ccated outside a pre- .
| |
| scribed retail area would almost certainly necessitate the installation of new transmis-sion facilities by the prospective supplier.58/
| |
| Active Restraints Complementing these state statutes prescribing territorial limits within which electric utilities may legitimately operate in Ohio and Pennsylvania are federal, state and local regulatory controls f
| |
| over all rates and charges for electric service (see, e.g., Wilson
| |
| ! 10997(10-16)). These circumscribe the opportunities for competition even further:
| |
| -56/ (Cont'd) or intangible property involving a transfer of customers, including such transactions with municipal corporations (66 P.S. 5 1122(e))
| |
| or to exercise any power of eminent domain (66 P.S. S 1124).
| |
| [
| |
| i 57/ As a result of this statutory scheme, which definitively establishes specific service territories in the state (Hughes 3673 (3-5); White 9504(9-11), 9662(5-14)), there exists no real poten-i tial for any form of retail competition in Ponnsylvania, either l
| |
| inside (see 53 P.S. 5 47471) or outside (see Wein 6928(8-12)) ;
| |
| corporate city limits. ;
| |
| 58/ If construction of these facilities required the appropria- l tion.or condemnation of land (which can be anticipated), the utility j would need to go to the Pa PUC for a certificate of public convenience. 1 (Continued next page) !
| |
| ~
| |
| l
| |
| | |
| First, at the federal level, Section 205 of the Federal Power Act, 16 U.S.C. $ 824d, requires schedules to be filed with the FPC showing all wholesale rates and charges made for electric service which are subject to FPC jurisdiction. Section 206 of the Act, 16 U.S.C. $ 824e, empowers the FPC, after
| |
| - a hearing had upon its own motion or upon complaint, to determine the just and reasonable rate for the service being provided and to fix the same by order.59/
| |
| Second, in Ohio, a similarly broad jurisdiction over retail rates and charges is exercised concurrently by the Public Utilities Commission of Ohio ("PUC0")
| |
| and the local municipal governments. .
| |
| Every utility is required to file with the PUC0 a tariff listing all rates and their corresponding service provisions.
| |
| Ohio R.C. 5 4905.30. It is unlawful for a utility to exact a rate or render a service different from those specified in the tariff. Ohio R.C. $ 4905.32.60/
| |
| . 58/ (Cont'd) l However, since the wholesale customer in questien is already re-ceiving wholesale service from another utility, the requisite showing under 66 P.S. $ 1123 of a sufficient need for appropriation or condemnation to justify issuance of a certificate could not be made.
| |
| 59/ Furthermore, no change may be made in any filed rate except s upon notice to the FPC and to the public. See Section 205, 16 U.S.C. $ 824d.
| |
| 60/ If the PUC0 finds after hearing that a filed rate will violate the statutory standard, it is required to determine and fix the just and reasonable rate. Ohio R.C. $ 4905.15. Comple-menting the PUCO's jurisdiction is the right of every municipal corporation in which a public utility provides electric service to fix the rate at which such service is to be provided to the munici-1 pality and its inhabitants. Ohio R.C. $ 4909.34; and see Wilson 11021-22(21-25 & 1-2). This legislative authority has had con-siderable impact on the retail rates charged by Ohio Edison, for example, which fot ease of administration would prefer to have a uniform retail rate structure throughout its service area (Wilson
| |
| , 11019(8-19)). In negotiating with municipalities toward this end, i l the bargaining leverage inherent in the company's stong desire l for uniformity has not been lost on the municipalities (Wilson l
| |
| t 11018(6-18)).
| |
| l-
| |
| | |
| p.
| |
| Third, in Pennsylv'ania, utilities must file a rate tariff with the Pa PUC.
| |
| See 66 P.S. 5 1144. It is unlawful for a .
| |
| Pennsylvania public utility to demand or receive a " greater or less rate for any service rendered" than that specified in the filed tariff. 66 P.S. 5 1143 No utility may change a rate in a properly filed tariff except after notice to the Pa PUC. 66 P.S.
| |
| 5 1148(a).61/
| |
| This rate regulation at both the wholesale and retail levels effectively precludes any price competition among the electric entities in the CCCT.--62/Because all of Applicants' rates are on file with the appropriate agency, and because those rates cannot be changed without notice and an opportunity for hearing (if one is desired), it is simply not realistic to speak in terms of any Applicant undertaking to meet " rate compe-tition" of another utility by manipulating specific rates to win customers (Wein 6905(3-4); Gerber 11490(19-22)). In truth, it makes no sense economically for Applicants to design or 11/ As in Ohio, the Pa PUC may, after hearing upon its own motion or upon complaint, determine the lawfulness of a proposed rate and, if it is found unlawful, may determine and fix by order the just and reasonable rate. 66 P.S. $$ 1148(b), 1149.
| |
| 62/ Notwithstanding some variations in the specific methods used to determine the appropriate rate to be charged, the FPC, the PUC0 and the 'a PUC follow a similar methodology (Wilson 10997-98 (23-25 & 1-121). Thus, in all cases, the regulatory body fixes a
| |
| " rate base" by making an evaluation of the property used in the business (Wilson 10998(3-5)). Next, a " revenue requirement" is determined on the basis of the cost to serve the customer (Wilson i 10998(6, 13-17)). An ingredient rf this cost element is an amount allocable to fixed charges and includes, inter alia, the cost of raising capital -- i.e., the debt and equity components of the capital structure (Bingham 8293-94(25 & 1-12)). It is in this sense only that it can be said Applicants make a " profit" from the sale of electricity (id.). Regulatory agencies do not add an amount above costs that can be labeled " profit". Rather, a " rate of return", usually expressed in percentage form, is set, and that rate of return is applied to the rate base to get the allowable cost of capital. Obviously, then, rates are not fixed on a profit-maximizing basis, but are set on a cost-to-serve basis.
| |
| | |
| r-f r
| |
| redesign their rate structure in response to rates being charged
| |
| ~
| |
| by some other utility-(Wein 6903-04(22-25 & 1-3),.6905(4-6)), and in point of fact, there is no evidence below that remotely sitggests 63/
| |
| they do so.'--
| |
| , 4. The extent of competition in the CCCT. It is in recognition of the foregoing economic characteristics and institu-tional restraints that Applicants have maintained throughout this proceeding that, just as is the case in the electric utility industry generally (see Coordination, Competition and Regulation at 13; Gerber 11476(8-9)), so, too, in the CCCT there exists scant opportunity for competition among electric entities. The natural emergence in this artificially contrived (see pp. 89-98 &
| |
| n.116, infra) geographic area, as in all others, of a relatively 63/ As a practical matter, there is no real incentive for such behavior. This is because any new load (s) that might be picked up as a result of a rate schedule " redesign" would be so small when comnared to an Applicant's total load that no measurable gain would result from the considerable effort that would neces-j sarily have to be expended (Wein 6905(6-8)). And this is so not only with respect to residential customers (Wein 6899(3-8)) and commercial customers (Wein 6908(2-11)), but also with respect to industrial loads (Wein 6905(2-18)), even if they are quite large (Bingham 8185-86(25 & 1-19)), and municipal wholesale customers (Wein 6900(14-23)).
| |
| r It is the far-reaching impact which such a rate " redesign" would have on each of these Applicants' overall rate structures that precludes such action (Wein 6899(11-25), 6906(15-24)). Pur-suant to regulatory ratemaking, the Applicants are required to charge uniform and nondiscriminatory rates to all classes of customers equally situated. Thus, the lowering of a rate in a particular instance to secure a specific load would compel that Applicant to offer the same lower rate to all other customers
| |
| - similarly classified. That, in turn, would lead to a reduction i in'the overall operating revenues derived from the affected class, l thereby necessitating a hike in rates to some other class of customers'to compensate for the loss. Such a chain of events is both undesirable and uneconomic (cf. Lyren 2050-51(25 & 1-16)),
| |
| and there is nothing of record in this proceeding that even re-motely suggesta it has happened in the past or might happen in the future.
| |
| | |
| e few vertically and horizontally integrated private utilities, each of which is subject to federa'l and state statutory and regulatory controls, is a direct measure of the manner, type and extent of ;
| |
| " competition" in electric service that can exist (see A-189(Gerber) 7(22-24)). By refusing to take cognizance of the CCCT market structure -- which has prevailed since well before 1965, and, as even recognized below (I.D. at 109; see also id. at 93 n.**),
| |
| cannot itself be cause for any .ticompetitive inference --
| |
| the Licensing Board woefully miscalculated the competitive frame-
| |
| ~ ~
| |
| work within which these Applicants operate. Applicants' careful analysis of the considerable evidence demonstrating how few opportunities there really are for electric entities to compete in this setting was completely ignored.--64/In at least three respects, this selective disdain for sizable portions of the factual record is of material significance.
| |
| First, the astounding suggestion by the Licensing Board 65/
| |
| l that yardsticli- comparisons of rate structures could perhaps be
| |
| ' 64/ Applicants unsuccessfully urged the Licensing Board to examine in realistic terms the textbook forms of retail and wholesale competition that one would expect to find if the extant economic and legal barriers did not exist. In this regard Appli-
| |
| _ cants evaluated five distinct groupings of retail competition:
| |
| (a) interfuel competition, (b) yardstick competition, (c) competi-tion to attract new loads, (d) fringe area competition, and (e) franchise competition. From the perspective of wholesale competi-tien, we examined the likelihood of such competition if the non-Applicant CCCT entities: (a) purchased full requirements wholesale power from an Applicant,.(b) purchased such power on a partial requirement basis, (c) made a unit power purchase of Applicants' constructed and operated nuclear capacity, (d) made an ownership purchase of such nuclear capacity, and (e) purchased capacity and energy from a power source located outside the CCCT. The analysis confirmed that little competition, as traditionally perceived and manifested in other manufacturing industries, exists in the present context (see Applicants' Supporting Brief at 150-200).
| |
| 65/ Yardstick competition, or competition by example, is (Continued next page) l I
| |
| | |
| I r
| |
| made between a small municipal system " competing" in the area of a large investor-owned utility (see I.D. at 93 n.*) underscores 66/
| |
| lts misconception of the " yardstick competition" concept. To be meaningful, yardstick competition snould involve comparisons among utilities having reasonably similar characteristics; geo-graphic proximity has little, if any relevance (Gerber 11488-89(25
| |
| & 1-5); seb Coordination, Competition and Regulation at 20, 23 (recognition that "[c]omparisons between adjacent utilities may be superficial" and thus the "need to limit such comparisons to similar companies")). This is significant because the costs t
| |
| experienced by municipal and investor-owned systems are so dis-parate as to defy meaningful comparison. In most cases, the municipal system is unable to produce electricity as efficiently as the investor-owned utility (Gerber 11484(8-9)). While one would normally anticipate higher municipal rates as a consequence, it is more often the case that the municipality is able, notwith-4 standing its inefficiencies, to undersell the private utility at retail due solely to its tax and financing subsidies (Gerber 11484 (10-13); A-190(Pace) 17-18(19-26 & 1-2)). Yet, since these subsi-dies are unavailable to the investor-owned system, the lower 65/ (Cont'd) a form of indirect competition that has reference to a process by which performance is measured through a comparison between and among various electric utilities within the industry (see Gerber 11488(21-24); Hughes 3675(12-18); Coordinatien, Competition and Regulation at 20). Such competition is recognized as a somewhat different phenomenon from the more typical forms of direct market competition usually encountered (Hughes 3676(3-4)).
| |
| 66/ The extent of the confusion below in this regard is manifest.
| |
| Thus, while the Licensing Board argues at places that yardstick competition is a significant market' factor (see I.D. at 93 n.",
| |
| 187 n.'), elsewhere it accepts Applicants' " concession" that yardstick competition is not of significance (see I.D. at 120).
| |
| | |
| r f '
| |
| t retail rate structure of the municipal system can offer no
| |
| ^
| |
| meaningful yardstick against which either the private utility itself or a regulatory body could rationally set lower rates for an investor-owned system (Gerber 11483-84(24-25 & 1-7)). And, not surprisingly, the experience in both Ohio and Pennsylvania 67/
| |
| ~~-
| |
| bears this out.
| |
| Similarly, municipal performance is no yardstick against which to measure an investor-owned utility's power-production performance where the municipal system purchases its supply of power under a wholesale contract with the investor-owned utility, or, more directly, owns a share of the investor-owned utility's generating facilities (Hughes 3676(19-24); A-190(Pace) 18(3-21)).
| |
| In such circumstances, the municipality's power-production 61/ If one looks at the competitive situation in Cleveland, it is clear that the municipal system does not and never has acted as a yardstick on the performance of CEI (see D-329; D-352 at 5-6).
| |
| Thus, the record indicates that since at least 1965 it has been the Cleveland municipal system which has responded to CEI rate changes (see A-133). Moreover, to the extent that Cleveland's lates are prese'ntly in excess of CEI's rates (A-133), the argument tha't
| |
| ; the former has a restraining influence on the latter is obviously precluded.- If anything, the converse is true, and it is CEI which is restraining Cleveland's rates (cf. A-207, at II-18); that, however, would only be due to direct competition between the two and not because of yardstick competition.
| |
| With reference to the PUCO, there is no evidence to suggest that, in fixing retail rates for OE, for example, that regulatory body considered on any yardstick basis the retail rates charged by any of the municipal systems in OE's service area (see A-163; A-164f A-165). Nor is there anything in the record to suggest that the PUC0 followed any different approach with respect to the retail rates of CEI and TECO.
| |
| Even more strained (albeit an example surprisingly relied upon by the Licensing Board (I.D. at 92-93 n.*)) is any notion that the municipalties in Pennsylvania, given that state's restrictive legislative framework, could have had any yardstick impact on the Pa PUC with respect to the retail rates charged by DL and PP. In fact, the rates charged at retail by the Borough of Aspinwall were
| |
| , consistently-higher than those of DL (see A-120 at 33-35), and the production costs for the Borough of Pitcairn, when it generated power, were above DL's comparable costs (McCabe 4204(8-12)).
| |
| | |
| 1 I
| |
| r l efficiencies are only as good or as bad as its supplier's, and thus no independent exemplary conduct exists against which a measurement can be made. It is, therefore, evident that there is
| |
| ?
| |
| no real potential in the industry, or in the CCCT, for meaningful
| |
| _ yardstick competition among municipal and investor-owned electric 68/
| |
| systems.
| |
| Second, the Licensing Board's treatment of the alleged territorial agreements entered into by CEI, OE and TECO (see I.D.
| |
| at 84-85, 114-24, 166-70), and the alleged restraints imposed on wholesale customers of OE, PP and TECO (see I.D. at 136-43, 171-72), has two fundamental weaknesses. It fails to acknowledge the natural barriers to direct competition in the electric utility industry, and therefore overestimates the impact of such alleged agreements on " competition" in the CCCT. In addition, it dis-regards the sound economic rationale for such alleged agreements, and thus underestimates the harmful effects of seeking, by con-demning them, to promote increased competition in the designated markets.
| |
| Direct competition in this industry exists only in the fringe areas or on the borderlines between adjacent utilities (Gerber 11490(8-12); S-207(Hughes) 36(23-24); Hughes 3722-23(18-22
| |
| & 1-21); see Coordination, Competition and Regulation at 14).
| |
| What is characteristic about fringe-area competition in the electric 68/ In addition, nothing of record indicates that yardstick competition is or has been present either at the retail or the wholesale level among investor-owned utilities located in Ohio, Pennsylvania or the adjacent states. To the contrary, Dr. Wein specifically testified that in his opinion there was no yardstick competition between TECO and OE (Wein 6902-03(23-25 & 1-2)), for example,-nor between TECO and Consumers Power (Wein 6902(14-17)).
| |
| | |
| I utiltity industry, and distinguishes it from other forms of direct competition in other industries, is that it is essentially i
| |
| "one-time competition" to determine which utility is going to serve forever a new customer locating in the area (Gerber 11491
| |
| - (2-4); Coordination, Competition and Regulation at 15).--69/ This necessarily places an upper limit on the amount of competition ,
| |
| likely to occur, since any particular border area can accommodate but so many possible customer-locations, and eventually all those customers will be taking electric service from one utility or another (Hughes 3746(1-5)). Thus, there simply is not in the fringe area an ongoing competitive situation similar to that presented by adjacent supermarkets or hardware stores, for example, ,
| |
| i where the customer decides with each purchase where to take his 69/ The direct competition in and around the City of Cleveland between the municipal system and CEI has not been of a "one-time" nature (Tr. 2694 (1-9), 5538(5-10); Hughes 3722(20-22), 3723(1-4, 11-18)). This unusual (see Mozer 3542(12-15)) situation in Cleve-land provides the single exception to the analysis set forth in r
| |
| the text. There, the municipal system and CEI are engaged in i "
| |
| direct head-to-head competition (Hughes 3723(2-4); A-45, p. 2).
| |
| As a result, the retail market for electric service in Cleveland is both price and reliability sensitive (Tr. 5567(6-11); 10254 e (13-15); 10255(4-11)). The record does not, however, conclusively establish how significant the market's sensitivity to price and
| |
| . reliability has been to the competitian between Cleveland and CEI; J. nor does it reflect clearly which, if either, of the two factors has played the~more important role (Tr. 5567(6-11); 10254 (13-15);
| |
| , 10255(4-11)). It is not unlikely that the answers to these ques-tions have varied over time. And, in this climate, both Cleveland and CEI have practiced a broad range of competiLive activities 4 (Tr. 5538(5-10)), which has led to the switching of customers back and forth between the two competitors (see A-132, pp. 2-11). In
| |
| !- spite of this active competition, however, there is no indication in this record that the inhabitants of Cleveland receive any better, or less expensive, electric service than communities where no such
| |
| _ competition exists. The simple fact is that, contrary to what one ~
| |
| j would normally expect in an unregulated market, such competition l among electri: utilities does not lead to any greater efficiencies. ,
| |
| ~~
| |
| .The Cleveland situation is dramatic proof of that hypothesis (and l see n.50, supra).
| |
| -''w -' '-
| |
| Tr------ N
| |
| - - e--g- e*---*--w9wi--pT -7
| |
| | |
| I I
| |
| l business. Very clear policy objectives in the electric utility industry prevent a similar bouncing of customers back and forth between utilities (Gerber 11157(22-24), 11586(1-7); Hughes 3875 70/
| |
| (11-14)).--
| |
| 70/ Given the ba' sic nature of fringe-area competition, it can lead to discrimination and waste. Consider, for example, the
| |
| ~
| |
| case of a customer that locates 100 yards from the primary distri-bution facilities of Company A and 900 yards from the similar facilities of Company B. Plainly, it would be most economic for Company A to extend its primary facilities the 100-yard distance to serve the cuscomer. Assume, however, that the average cost to Company B to serve the class into which this new customer would be placed is lower than Company A's average cost to serve tne same class. Thus Company B offers a lower rate and the customer elects to take service from Company B. This may occur even though the total incremental cost for Company B to serve this particular cus-tomer is greater than the incremental costs Company A would incur.
| |
| The impact of such competition would be to increase the total cost to serve incurred by both Company A and Company B over what it would have been if Company A had provided the service.
| |
| This is because Company B must necessarily build a more expensive facility to reach this customer than would have been required of Company A. Moreover, it is not necessary for Company B to recover the entire cost of that facility in its charges to the new customer
| |
| .; alone. Rather, the cost will be allocated to the entire group of similarly classified customers and recovered as each such customer's
| |
| ,7 shared-contribution to the average cost to serve the entire class.
| |
| It therefore follows that many -P Company B's customers will be
| |
| :L underwriting the fringe-area competition in the form of higher average rates. In addition, since Company A could have served the customer more cheaply than Company B, but has lost the potential t revenue opportunity from such service, the rates it charges to its customers ins /ltably will be higher than they otherwise would have r been. These conclusions have been clearly understood by state !
| |
| regulatory agencies when presented with analogous factual circum-stances. See Koppers Company v North Penn Gas Co., 42 Pa. PUC l Rep. 730 (1966); Manufacturer's Heat & Light Company v Peoples u.
| |
| Natural Gas Comgr nz, 39 Pa. PUC Rep. 440 (1962).
| |
| l It is instructive to compare this analysis of fringe-area )
| |
| competition with the conclusions reached by the Licensing Board )
| |
| . (see I.D. at 120, 123). The Licensing Board asserts that Applicants I 1
| |
| have strayed from the "real world of antitrust" because territorial divisions justified "upon the asserted basis of least cost is a
| |
| ~
| |
| mutually-bene ficial, self-serving, and profit-maximizing consider-ation. It fails entirely to differentiate between cost'to producer and price to consumer" (I.D. at 120). Whatever the validity of that analysis for mattress manufacturers or food distributors, it i- (Continued next page) 1.
| |
| l
| |
| | |
| I r
| |
| Because of these economic consecuences of fringe-area
| |
| ' competition there has, understandably, been only limited rivalry for border customers among adjacent utilities in the CDCT --
| |
| with the obvious exception of Cleveland where the results have been economically harmful. The CCCT does not, in strict geographic terms, even offer much opportunity for fringe-area competition.
| |
| Exhibit S-85 indicates the relative location of the various munic-ipal electric systems in the referenced territory (Guy 3048(2-4)).
| |
| However, if the municipal systems had been drawn to scale, the geographic areas receiving municipal service would have been barely visible on S-85, if they had shown up at all (Guy 3048(5-11),
| |
| 70/
| |
| (Cont'd) is Tactually inaccurate in the electric utility industry. As a result of rate regulation, the cost to produce is the price to the consumer (see n.62, supra). Moreover, the price to the consumer is not set on a profit-maximizing basis (id.). Thus, while a least-cost-to-serve basis is mutually beneficial to the adjacent utilities, it is equally beneficial to each utility's customers.
| |
| If'a customer were to be served by a utility with lower system generating costs but higher cost to serve that individual customer, then the customer is being subsidized by the other customers of
| |
| - that system. This comes about because rates in the utility industry, unlike mattress or food prices, are set on the basis of average and not incremental costs (see id. ). The failure of
| |
| [ the Licensing Board to appreciate this difTerence leads to its erroneous conclusions.
| |
| Moreover, the Licensing Board inaccurately assumes that
| |
| " territorial and customer allocation agreements cause rigidity in the market" (I.D. at 123). The rigidity is a result of natural
| |
| ; economic forces (see p. 45, supra) assisted by regulatory policy l (see pp. 50-53, supra), and not territorial allocations. Assuming j' such agreements were never in effect, and ''at there was competi-l tion for the limited number of fringe custsmers, such competition l is necessarily limited since all possible customer-locations in
| |
| . the fringe area will eventually be filled (Hughes 3745(1-5)).
| |
| Once that competition was complete the market then becomes rigid.
| |
| However, such a situation would duplicate the ruinous competition
| |
| ~
| |
| present in the early stages of the industry's development (see A-189 (Garber) 9(11-14); Gerber 1146'8-75), and without any gain to the' customer, since once having elected to take service from a particular utility, the customer is not able to take the business elsewhere at a later date should circumstances change.
| |
| I Me c -
| |
| m Me
| |
| | |
| r 3077(14-20)). Accordingly, we know that the geographic potential for fringe-area competition in the CCCT is exceedingly small.
| |
| Moreover, within and around these minute geographic areas, the opportunities for competition have been few, if any. This is true not only in the fringe areas between municipal self-71/
| |
| generators and Applicants,~~ but also in the fringe areas between 72/
| |
| -~
| |
| Applicants and distribution-only municipal systems in Ohio and 71/ Very little rivalry for retail sales between such systems has occurred anywhere except Cleveland (D-587(Wein) 118(13-15)).
| |
| In fact, the City of Newton Falls adopted a unilateral policy not to compete with OE for customers (Craig 2910-11(18-25 & 1-20)).
| |
| Even apart from that policy, however, there has been no real occa-sion for ruch competition in this border area. This is due to the fact that, certainly since Craig's association with Newton Falls (1973), no new development has taken pince wilkin the surrounding area which is capable of being served on an economic basis by both systems (Craig 2911(2-8)). Instead, the development outside
| |
| 'the city has all been sufficiently distant from Newton Falls' primary facilities that it made sound economic sense for OE to pick up the service from its closer distribution lines (Craig 2911 (8-14)). The record gives no indication that the history of fringe-area competition surrounding the cities of Painesville and Orrville is any different from the Newton Falls experience.
| |
| 72,/ The City of Bowling Green, for example, the largest wholesale customer of TECO, has not been presented with a single opportunity since 1967 to provide service to a new customer locating just outside the corporate limits (Hillwig 2422(21-25)).
| |
| Even if such an opportunity had arisen, it is doubtful that Bowling Green would have sought to serve the customer, since the city had no policy to expand its customer base outside the cor-porate limits (Hillwig 2423(18-23)). In point of fact, since most of Bowling Green's customers outside the city are located to the -
| |
| south near Portage, Ohio (Hillwig 2454(11-20); A-129), where TECO does not serve (Hillwig 2454(4-6)), the likelihood of any measurable fringe-area competition between the two systems is ;
| |
| extremely remote. The testimony of Mr. Hillwig, a Bowling Green employee, is fully confirmed by the testimony of Mr. Moran (Moran l 9908(3-9), 9909(4-5)). Nor is the Bowling Green experience unique.
| |
| With respect to all the distribution-only municipal systems in the TECO area, opportunities for fringe-area competition have rarely, if ever, arisen (Moran 9590(7-15)), and this record offers no basis for anticip'ating any different trend in the future. More-Over, while there appears to have been a bit more new-customer activity outside the city limits of several distribution-only (Continued next page) l.
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| 1
| |
| | |
| p 13/
| |
| 4 Pennsylvania and with respect to adjacent investor-owned 74/
| |
| -~
| |
| utilities in Ohic.
| |
| Third, in denominating the bulk power services market as the primary market for analysis, the Licensing Board appears to have adopted an unstated and unsubstantiated premise that, even if competition is limited at the retail level, there is a greater potential for competition at the bulk power services or wholes &le level. In reality, however, the opportunities for 72/ (Cont'd) systems in OE's service area, the evidence demonstrates clearly that this fringe competition almost always involved isolated instances of a single or small group of residential customers moving into the area. Given the "one-time" nature of the contest to serve these customers, and the sound economics of providing such service from the closest and least expensive facilities, it would be a mistake to ascribe antitrust significance to these infrequent situations.
| |
| 73/ We have already pointed out the legislative restraints that eliminate any possibility for fringe-area competition in Pennyslvania (see Fleger 8619(13-19), 8620(11-13)). Thus, there never has been, and never can be, border competition between DL and Pitcairn, for example (Fleger 8653(7-19)). Indeed, it is difficult to imagine that the conduct of any Pennsylvania utility could ever be considered to have a competitive impact on its neighboring systems. Given the state statutory framework, a municipal utility could have the most imaginative and efficient system in all of Pennsylvania, enabling it to produce the lowest cost power, and it still would be unable either to serve outside its corporate limits or to influenca in any respect the activi-ties of its adjacent investor-owned system (see pp. 52-53, supra).
| |
| All of the traditional concepts of competition are thus meaning-less in this setting.
| |
| 74/ Obviously, the sound economics of deferring to the utility whose primary facilities are closest to the new customer is as applicable to competition between investor-owned utilities as between such utilities and municipal systems. And, as might be expected, this economic fact of life has, in fac+ , discouraged such competition (D-558(Rudolph) 53(16-21)). Eten D0J concedes that "* *
| |
| * the amount of such competition is de minimis" (DOJ Prehearing Brief at 33 n.18). And see Moran 99TO-12, 9914, indicating that most of TECO's border areas are marshland or
| |
| ; sparsely populated rural areas and, thus, no real occasion for
| |
| !" fringe
| |
| * competition has arisen except in the vicinity of Fremont, Ohio.
| |
| | |
| s competition at the wholesale level in the CCCT are similarly constrained (Gerber 11585(1-2), 11654(1-4); see alse Hughes i
| |
| 3770(21-23)). Thus, unless one of the non-Applicant entities is or plans to go into the generating business for itself --
| |
| either through the installation of its own facilities or through the purchase of a block of capacity and/or energy from a non-Applicant supplier -- it can provide no competition whatsoever to Applicants for bulk power or wnolesale markets (Gerber 11654 (7-11, 21-24)).
| |
| Obviously, a non-Applicant entity purchasing full or partial requirements wholesale power from an Applicant has no basis for competition with the Applicant-supplier. This is be-cause the supplier can make the wholes. ale power directly avail-able to any new potential buyer at a cost at least equal to what the existing wholesale customer could resell the energy for (Gerber 11655(16-21)). Thus, there is no economic function to be performed by the municipal entity "re-wholesaling" the pur-75/
| |
| chased power.
| |
| This same conclusion follows even if the non-Applicant were to attempt to enter the wholesale market by selling excess power it purchased on a unit power or ownership basis from the nuclear facilities being licensed in this proceeding. The price of such power reflects Applicants' total planning, building, and operating costs associated with the facility in question (Gerber 75/ The crucial difference between this situation and that of a Tull requirements wholesale customer reselling the power at retail is that, at the retail level, the w'olesale customer may be performing a meaningful economic function .nrough the distribu-tion of electricity, although not providing any meaningful compe-tition with the wholesale supplier (see pp. 56-65, suora).
| |
| | |
| r-11659-60(19-25 & 1-3)). Thus, the real cost of nuclear power to a non-Applicant purchasing entity would be identical to the cost to everyone else who takes power from the nuclear plant (Gerber 11657-58(25 & 1-4), 11659(5-8)). There would .thus be no impetus whatso-ever for competition as a result of an effort by a purchasing entity to "re-wholesale" its excess nuclear energy.--76/
| |
| To be sure, if non-Applicant CCCT entities were able to procure sufficient, low-cost power from sources outside the CCCT, there exists at least the theorei ..1 argument that they might be able to compete with Applicants at the wholesale level. On this basis, a general assertion was made below that there are many unidentified opportunities for low-cost bulk power outside the CCCT (see, e.g., S-205(Mozer) 71(2-16)), which the non-Applicant CCCT entities could exploit if they ad access to Applicants' 76/ It is true that if a municipal system were to take an ownership interest in the nuclear plant, the resulting cost of power to the municipality would be below Applicants' cost of power from the identical unit as a result of the municipality's tax and financing advantages (Gerber 11659(9-16); A-190(Pace) 17-18(10-26 & 1-2)). This could well produce a price differen-tial between Applicants' share of energy and the municipal's share of energy sufficient to support some form of competition at the wholesale level (Gerber 11659(16-18)). Such " competition",
| |
| however, induced (as would be the case) solely by virtue of the municipality's tax and financing advantages and nothing else (Gerber 11659-60(19-25 & 1-3)), is entirely artificial (A-190 (Pace) 20(6-11)). Obviously, the " competitive" edge given to
| |
| ~
| |
| the municipality in such circumstances reflects no superior efficiencies (A-190(Pace) 18(17-21); Hughes 3958-59(17-21 & 1-3),
| |
| 3961-62(13-25 & 1-18), 3963-66). It thus finds no analogue in the more normal competitive situation, where lower prices are associated directly with performance factors (A-190(Pace) 19(15-16)). Competition is desirable only when it results in lower prices by inducing greater productive efficiency (A-190(Pace) 19(15-16)). That certainly is not a consequence of a munici-l pality's ownership participation in the nuclear facilities. To the. contrary, the superficial competition that results may well produce a misallocation of resources by conferring on the more inefficient competitor a cost advantage through government subsidy (cf. Gerber 11567-63(22-25 & 1)).
| |
| | |
| facilities, particularly the transmission facilities. The diffi-culty with this syllogism is that it requires some specific showing t
| |
| of actual power sources ready to be " tapped". Yet, with the limi-ted exception of the evidentiary material relating to the cost and availability of a small quantity (30 mw) of preference (government-owned) hydroelectric power (see pp. 173-76, infra), there has been no evidence produced which quantifies the amount (if any) or the cost of power which is presumed (but nowhere established) to be available from outside sources. Instead, what the record reflects is that any potential power resources existing outside the CCCT are not sufficiently available or sufficiently low-cost to generate any form of realistic wholesale competition among the non-Applicant and Applicant CCCT entities. This is true not only as a general 77/
| |
| -~
| |
| matter, but also with specific reference to such speculative 78/
| |
| power sources as Ohio Power Company (I.D. at 180-81),'- Orrville II/ with incremental costs currently above average costs, every time a utility adds a customer (or adds load), the average cost to serve all customers tends to increase (Gerber 11487(1-6)). This understandably dampens the enthusiasm of all utilities to seek new loads (Gerber 11487(7-8)), especially in an era of generally rising costs (such as now), when utilities are particularly careful to impose their own cost controls so as to avoid being forced to seek substantial rate increases from regulatory authorities (Gerber 11485-86(16-25 & 1-2)). The stark reality is that, as a result, there is a very real disincentive at the present time among outside l
| |
| power sources to jeopardize their cost control policies by commenc-ing wholesale service to new customers such as the non-Applicant CCCT entities.
| |
| 28/ The Licensing Board had no evidentiary basis for mention-ing Ohio Power as a possible alternative power source, except that Bowling Green had some inconclusive conversations with Ohio Power about the prospect of the latter acting as a wholesale supplier (H111 wig 2404-05(14-25 & 1-9), 2433-34(15-25 & 1-2), out of which nothing ever materialized (see S-49; A-17). And see n.230, infra.
| |
| Ohio Power's unwillingness to commit to Bowling Green is merely symptomatic of its general reluctance to enter into nek firm (Continued next page)
| |
| | |
| i 79/ 80/ I I.D. at 79,128),- or Buckeye Power, Inc. (I.D. at 128, 175-79).-- l 1
| |
| 78/ (Cont'd) power arrangements with other municipalites (cf. n.77, supra) .
| |
| Thus, while Orrville was able to negotiate an interconnection agreement between itself and Ohio Power, it was unable to nego-tiate a schedule for firm power service to be provided over that interconnection (Lewis 11427-30; A-188, 1 7(j), p. 5). Nor was j AMP-0, representing the Ohio municipal systems, able to negotiate a firm power schedule with Ohio Power (Lewis 11435(23-24); A-17).
| |
| In the face of this record, it is difficult to understand on what basis the Licensing Board leapt to the conclusion that Ohio Power was at all interested in selling firm power to non-Applicant CCCT entities, virtually all of which are even further removed from Ohio Powcr's service territory than is the City of Orrville (see S-85; C-1). Compare Coordination, Competition and Regulation at 19.
| |
| 29/ The Licensing Board, based on testimony of William Lewis (see Lewis 7997(8-25 & 1-19)), found that Orrville had excess power which it was desirous of exporting to another system (I.D. at i 128). However, a closer look at the data underlying Mr. Lewis' l assertions reveals that all Orrville had was a paper " excess" computed by its consultant, Mr. Lewis. Without an interconnec-tion, Lewis' study indicates that Orrville would have no excess, but, instead, would have a deficit and would need to purchase ,
| |
| power (A-183, p. 2 of study & Table 5). On the other hand, ac- !
| |
| cording to the study, if Orrville constructed an interconnection to either Ohio Edison or Ohio Power, and maintained absolutely )
| |
| no reserve capacity, it might have available between 30 mw to 25 mw of excess capacity on a decreasing basis (A-183, p. 3 of !
| |
| : study & Table 6). Thus, the hypothesis that Orrville would be in a position to sell " excess" capacity is premised on the un-realistic assumption that its interconnected-partner would not ,
| |
| require Orrville to install any additional reserve capacity or, indeed, even pay that partner for the purchase of such additional reserve capacity or energy. This is a classic example of the sort of undesirable " leaning" and " free riding" to which Appli- )
| |
| cants have alluded throughout this proceeding (see discussion j at 102-05, 113-20, infra). The fact that the Licensing Board i apparently considered an arrangement of this sort feasible as an underpinning for its selection of Orrville as a potential outside
| |
| _. power source further confirms its misconception of the importance of mutuality as an element of coordination and interconnected operation in the electric utility industry (id.). i 80/ The Licensing Board found that actions by OE and TECO l had prevented certain municipalities (i.e., Norwalk, Newton Falls !
| |
| and Napoleon) from purchasing wholesale power from Buckeye Power, j Inc. (I.D. at 128 & 175-79). The record indicates, however, that i
| |
| aside from any action or inaction OE and TECO may have taken, the opportunity to purchase Buckeye power is not one that municipals l- have considered to be especially attractive. Pursuant to the (Continued next page) i
| |
| | |
| i ,
| |
| Moreover, even if alternative sources of wholesale i~ power were available, the dislocations resulting from a change in 80/ (Cont'd)
| |
| Buckeye marketing scheme, power from the Cardinal station which a municipal system might want to purchase would first have to be sold by Buckeye to a member rural electric cooperative, and the cooperative would then in turn resell that power to the municipality (see D-177, p. 4). Buckeye has shown some interest ,
| |
| in marketing off-peak, seasonal power in this manner (id.). To this end, it has developed a seasonal rate tariff (S-37 for sale
| |
| , of power to a member cooperative (see D-318, pp. 2-5), and a runicipal and industrial tariff (G-3) for the resale of that power by the cooperative to the municipal system (see id. at 6-7).
| |
| The most striking feature of tariff G-3 is its 100 percent demand ratchet. Under that rate, the monthly billing demand is j the greater of either 200 kw, the maximum 60-minute demand estab- >
| |
| J lished during the month, or the metered demand determined to have contributed to Buckeye Power's last established peak demand.
| |
| What the third alternative means is that, if a municipal system takes power at the time of the Buckeye system peak demand (the exact time of which, obviously, cannot be known before it is established in fact), then, irrespective of the actual demand it has thereafter, the minimum billing of the municipal system for each succeeding month will be at least for those number of kilo-watts taken at the time of the Buckeye system peak. Thus , while the Buckeye rate is low, it has a high-risk factor built into it,
| |
| , ; and the decision to take service under the prescribed rate is a gamble. If a municipal system misjudges, it could conceivably
| |
| , end up paying -- albeit at a low rate -- for a great deal of power it neither uses nor needs (Moran 9865(6-14)).
| |
| This may explain, in large part, why so few municipal systems have in fact elected to purchase power from Buckeye. For 4
| |
| example, while Cleveland indicated a desire to purchase Buckeye
| |
| ; power and asked CEI to wheel such power to Cleveland, it subse-quently elected not to take advantage of this option when CEI agreed to provide the wheeling service (see n.206, infra). Instead, 1__. the city chose to purchase firm power from CEI (see A-271).
| |
| Similarly, anc contrary to the finding of the Licensing Board, the City of Napoleon chose not to disconnect from TECO and take Buckeye power after the wheeling aspects of that transaction had been worked out (see pp. 206-07, infra). And, while Ohio Power has agreed to wheel Buckeye power for the benefit of AMP-0 patrons (see D-177, pp. 2-3), the record does not indicate that any AMP-0 patron has seen fit to take advantage of that " opportunity".
| |
| Given this attitude of the CCCT municipalities when actually ocnfronted with the gamble built into the Buckeye rate, it can
| |
| . only be concluded that the attractiveness of this potential
| |
| ; alternative power supply source has been considerably overstated.
| |
| One certainly cannot co clude on this record that unlimited access
| |
| ;~ to Buckeye power -- and it should be remembered that the Cardinal facility is not an unlimited resource -- would have any appreciable impact on competition in the wholesale market.
| |
| L
| |
| | |
| suppliers is likely to be greater than any benefits derived.
| |
| This is because the impact of switching wholesale suppliers may be discriminatory in nature causing the existing customers of both the present supplier and the new supplier to bear unnecessary 81/
| |
| , and excessive costs. Mr. Gerber expressed the point extremely well when he testified (Gerber 11603-04(24-26 & 1-9)):
| |
| [I]n the situation where incremental costs are above average costs, the shift of the customer burdens the new supplier's customers with the the rise in average costs and until the long term when these costs can be worked out, the fixed costs of the former supplier are distrib-uted among fewer customers and, therefore, their average cost goes up and the one customer who shifts back and forth is taking advantage of nis opportunity to burden other customers wid;h his costs.
| |
| If everybody did it, nobody would benefit. It can be done only when one customer shifts back
| |
| , and forth or a few customers shift back and forth.
| |
| -81/ The implications of this analysis have long been understood
| |
| , in the electric utility industry. Utilities hold themselves out to serve, and do serve, in a specific area within which they can provide the most economic level of electric service. In areas where they do not provide service or where another utility pres-ently provides service, they do not attempt to construct substan-tial additional facilities that would duplicate those of the existing supplier (see D-512, item 4(a), DOJ page designation 18000071). Dr. Hughes testified unequivocally that he would not advocate having the lowest cost bulk power supplier in Ohio pro-vide the needs of all wholesale customers (Hughes 3768(16-20)).
| |
| He then went on to note:
| |
| I don't think I would advocate that any sup-plier provide all of the wholesale service.
| |
| And I-don't think I would go so far in terms of the ground rules or obligations of utilities to deal to require them to deal on a very, very far afield basis from the areas within let's say, within which they operate. [Hughes 3768-69 (22-25 & 1-2); see also Hughes 3788-89(20-25 &
| |
| 1-7) (definition of applicable area in proposed license conditions).]
| |
| l l
| |
| | |
| r-72-C. FAILURE TO ACCORD PROPER DEFERENCE TO THE DECISIONS AND ACTIONS OF OTHER REGULATORY AGENCIES
| |
| ~
| |
| The error by the Licensing Board in ignoring the nature ,
| |
| of the electric utility industry, as previously described, is further compounded by its total disregard for the decisions and ,
| |
| other actions taken by sister agencies who are recognizably closer than this Commission to day-to-day utility problems and have a more developed expertise with respect to industry operations and rela-tionships. A degree of deference in these circumstances is not 82/
| |
| simply preferred; it is, we submit, mandated.
| |
| In this connection, it is particularly noteworthy that I
| |
| the Supreme Cotrt has consistently required regulatory agencies, as part of their "public interest" finding, to consider the i
| |
| antitrust implications of all conduct within their supervisory ,
| |
| 62/ This is not to suggest for a minute that such deference
| |
| " immunizes" conduct from antitrust scrutiny (see n.36, supra).
| |
| However, as a part of its responsibility to reconcile antitrust policy with existing economic and legal restraints on industry competition (see pp. 30-33, supra), the Commission has a public interest obligation not to arbitrarily run roughshod over the attitudes and opinions formulated by sister agencies after careful L scrutiny of similar allegations under much the same circumstances.
| |
| Indeed, the Licensing Board's haughty disregard of the considered judgments of sister agencies illuminates its misperception of
| |
| ;. the Commission's jurisdictional responsibility under Section 105c.
| |
| The functional role of the " nexus" requirement is to ensure that the Commission examines the antitrust implications of those activities over which the Commission has day-to-day authority, i.e., the construction, operation and licensing of nuclear facil-ities, while leaving to other federal and state agencies the responsibility to examine the antitrust implications of activities which they regulate on a daily basis (see Part III, infra). By this limitation, Applicants do not mean that the alleged anticom-petitive aspects of the. nuclear facility must be evaluated in vacuo. See Kansas Gas &~ Electric Co. and Kansas City Power &
| |
| Light Co. (Wolf Creek Generating Station, Unit No. 1), ALAB-279, (Continued next page) y v - . , . , -_ - - _ _ - _ . _ - .
| |
| | |
| i 81/
| |
| jurisdiction. Where such administrative review is undertaken, the antitrust findings of a sister agency are not properly subject to indirect attack by this Commission. This principle is parti-cularly appropriate in the proceeding here, since any prior agency determination necessarily was based on a carlful balancing of the policies sustaining regulation and the antitrust policies; a i
| |
| weighing of the relevant competing factors in such circumstances is undoubtedly best left to the agency most directly affected 84/
| |
| by such a task. This sort of deference has been explicitly ac-
| |
| , cepted bv the Supreme Court "when rates and practices relating thereto were challenged under the antitrust laws" out of a con-cern that " sporadic action by federal courts would disrupt an agency's delicate regulatory scheme, and would throw existing rate 82/ (Cont'd) 1 NTR.C. 559, 573 (1975). On the other hand, we do not believe the Commission's directive in Waterford II that "the relationship of the specific nuclear facility to the applicant's total system or power pool should be evaluated in every case" (6 A.E.C. at 620-21) was meant, or can honestly be read to mean, that the Commission's jurisdiction should extend to rate matters, price squeezes, territorial agreements, etc., which do not bear a direct relationship to the licensed activities. In any event, it seems
| |
| ;' clear that any consideration of these matters which proceeds on a basis that ignores the influence of existing regulatory guidelines is inherently suspect.
| |
| 28S/
| |
| 67 (1944)See,(I5C);e.g., McLean Denver Trucking Co.
| |
| & R.G.W.R.R. v United v United States,387 States, 31 U.S.
| |
| U.S. 485 (1967) FMC v Aktiebolaget Svenska Amerika Linien, 390 U.S.
| |
| 238 (1968)(ICC);
| |
| (FMf77 FCD v RCA Communications, Inc., supra, 346 U.S.
| |
| et 92-93 (FCC); National Broadcasting Co. v United States, 319 U.S. '90 (1943) (FCC); California v FPC, 369 U.S. 482 (1962) (FPC);
| |
| Gulf States Utilities Co. v FPC, supra, 411 U.S. at 757 (FPC).
| |
| l 84/ See City of Lafayette v SEC, 454 F.2d 941 (D.C. Cir. )
| |
| 197T), aff' d in part sub n'om. Gulf State's Utilities Co. v FPC, (Continued next page)
| |
| | |
| V l 1
| |
| ?
| |
| ~74-structures out of balance." United States v Radio Corporation of ;
| |
| i America, supra, 358 U.S. at 348. Such concern certainly is no
| |
| .- 84/ (Cont'd) supra. There, municipal electric systems petitioned for review of orders issued by the FPC and the SEC which approved a proposed securities issue to finance the capital requirements of Gulf 3, States. Petitioners complained that the agencies failed to take
| |
| . proper account of their antitrust claim that the proceeds would be used as part of an unlawful conspiracy to suppress competition.
| |
| The court of appeals found that the FPC should have considered the allegations of anticompetitive conduct. Moreover, while acknowledging that the SEC had a similar responsibility to consider the antitrust consequences of its actions, the court held that the SEC, lacking any operational authority over the utility, was justified in refusing to adjudicate the claim (454 F.2d at 955). In affirming this decision, the Supreme Court spe-cifically approved the language of the court of appeals on how jurisdictional responsibility should be divided (411 U.S. at 755, n.4):
| |
| "Where an agency has some :egulatory jurisdic-tion over operations, it must consider whether there is a reasonable nexus between the matters subject to its surveillance and those under attack on anticompetitive grounds. But the general doctrine requiring an agency to take account of antitrust considerations does not extend to a case like the one before us where the antitrust problem arises out of operations of the regulated company (past and projected)
| |
| !L and the agency, here the SEC, has not been
| |
| ; given any regulatory jurisdiction over opera-lt tions of the company."
| |
| 'l' The Supreme Court decision in Gulf States serves as an appropriate analogue for the proper approach to be taken here.
| |
| L Supervisory responsibility over Applicants' daily operations rests with the FPC and with state regulatory agencies, not with 1 this Commission. General charges of anticompetitive activity have been aired in both administrative forums, as well as in the h- federal district court. In such circumstances, it is enough if this Commission confines its antitrust' inquiry to the nuclear matters within the scope of its jurisdiction, while deferring to the FPC on antitrust questions relating to Applicants' filed tariffs (rates and practices), and leaving to the district court all other " unrelated" allegations of anticompetitive conduct (and see discussion in Part III, infra).
| |
| l i _ _ . . _ _ _ , - _ _ _ _
| |
| | |
| I' less warranted in the present administrative context.
| |
| Yet, the Licensing Board failed to follow this . Sound practice. Had it not shown such utter disdain for other adminis-trative actions, its decision would have been different in several basic respects. Most obviously, where the parties to this proceed-ing, or their privies, had chosen another forum within which to litigate their differences, and the technical requirements of collateral estoppel were met, there simply would have been no basis for relitigating the same matters before this Commission (see generally Toledo Edison Co. (Davis-Besse Nuclear Power i
| |
| Station, Units 1, 2 & 3) and Cleveland Electric Illuminating Co. (Perry Nuclear Power Plant, Units 1 & 2), ALAB-378, 5 N.R.C. (March 1, 1977)). Thus, the motions filed by CEI and TECO seeking dismissal of various allegations which had been previously litigated should have been granted.--85/
| |
| In addition, even where the technical requirements of collateral estoppel are not satisfied, some actions of a regula-tory agency are so central to the regulatory scheme that agency 85/ The Licensing Board denied both motions in an oral bench order and without stating any reasons therefor (Tr. 11751-52).
| |
| Its action in responding to a written motion with an oral order is clearly contrary to the requirement in the Commission's Rules of Practice that written motions be disposed of solely by written
| |
| ~
| |
| orders (10 C.F.R. $ 2.730(e)). Since no reasons for the denial have ever been articulated, CEI and TECO can only refer this Appeal Board to their original papers filed below to show the correctness of their position. See " Dismissal Motion of the Cleveland Electric Illuminating Company with Respect to the Alle-gations Fully Litigated Before and Finally Decided by the FPC,"
| |
| dated April 20, 1976; and " Motion of Applicant Toledo Edison ,
| |
| Company for an Order Dismissing an Issue Which has been Fully and i Fairly Litigated Before the Nuclear Regulatory Commission in a Prior Proceeding," dated April 20, 1976. And see pp. 154-56, 191, infra.
| |
| | |
| )
| |
| approval should be definitive as to the lawfulness of the conduct.
| |
| Compare Cantor v Detroit Edison Co., supra, 96 S. Ct. at 3119 (utility required "to meet regulatory criteria insofar as it is exercising its natural monopoly powers"); see also pp. 30-33, suora. This would include acquisitions approved by a regulatory body (see pp. 223-28, 271-74, infra), rates charged and practices followed pursuant to a filed tariff,--86/ or contractual arrangements receiving business review clearance by DOJ (see pp. 207-09, 232-34, infra). In erroneously condemning such activities, the Licensing Board never once mentioned, let alone considered, that regulatory approval previously had been received by the various Applicante for the very conduct it faulted.
| |
| Finally, even apart from the deferenc'e osed to prior administrative actions, the regulatory schemes of sister agen-cies are, as we have already indicated (ses pp. 50-56, supra), an 66/ The Licensing Board asserts that the decision in FPC v Conway, 426 U.S. 271 (1976), recognizes the " imperfect nature of the regulation" and thus is a basis for rejecting Applicants' 1rgument that " regulation has acted a substitute or replacement
| |
| . for comnetition in the CCCT" (I.D. at 232-33). To the contrary, howeves, the decision in Conway confirms Applicants' position that by means of FPC jurisdiction over wholesale rates any alleged
| |
| " unjust, unreasonable, unduly discriminatory or preferential"
| |
| - charge can be investigated and remedied (426 U.S. at 280-82). And with particular reference to the charge of price squeeze in this proceeding, the Conway decision buttresses Applicants' *tiew that J_ the forum for litigating that charge is not this Commission but the FPC with its special competence and expertise in the area.
| |
| This is even more true when the quick, off-the-cuff analysis by the Licensing Board (see I.D. at 153-60) is compared with the thorough cost analysis required of the FPC (see City of Batavia v FPC, No. 74-1411 (D.C. Cir., filed Jan. 4, 1977)); see also pp. 250-56, infra). That the FPC may not in the past have per-ceived its own jurisdiction as broadly (I.D. at 233) is of no ,
| |
| concern in determining whether the action of issuing licenses to these Applicants will now create or maintain into the future a situation inconsistent with the antitrust laws.
| |
| | |
| r essential element of the " situation" this Commission has been directed to review. The Licensing Board's refusal to recognize this part of the " situation" and to attach any weight to the existing governmental controls over pricing and other marketing activities of electric utilities (see I.D. at 230-37) necessarily resulted in a flawed analysis under both Sections 1 and 2 of the Sherman Act. This is particularly true with respect to the Licens-87/
| |
| -~
| |
| ing Board's analysis of Applicants' alleged monopoly power. Not only does the decision below erroneously infer the existence of monopoly power solely on the basis of a statistical predominance in market shares (see I.D. at 23, 107; but see pp. 85-80, infra).
| |
| It also ignores both the institutional restraints on pricing activites (see pp. 53-55, supra), which preclude the " control" of prices,--88/ and the other legi.,lative safeguards in the CCCT, which 81/ The Licensing Board P"*90s, however, that the conclusion Applicants would reach over is the " implications and teachings" of Otter Tail where substan ve antitrust violations were found notwithstanding the presence of statt and federal regulatory schemes (I.D. at 236). But what the Licensing Board conveniently overlooks,is that the retail markets in which the Supreme Court found Otter Tail to be guilty of attempting to monopolize were not at the time subject to regulation (see n.31, supra).
| |
| 88/ Since in both the retail and bulk power supply markets,
| |
| -,he rates and other conditions of electric service of each of these investor-owned utilities are regulated by federal and state authorities, none of the Applicants can raise prices to extract monopoly profits nor selectively lower prices in a given area to injure or destroy competition. As a result, regulatory controls in this area effectively deprive Applicants of monopoly power.
| |
| The Supreme Court pointedly noted in United States v E.I. du Pont de Nemours & Co., 351 U.S. 377, 392 (1956), that "[p3 rice and competition are so intimately entwined that any discussion of theory must treat them as one. It is inconceivable that price could be controlled without power over competition or vice versa."
| |
| And see Moore v Jas. H. Matthews & Co., 473 F.2d 328, 332 (9th Cir. 1973); Affiliated Music Enterprises, Inc. v Sesac, Inc. ,
| |
| i 160 F. Supp. 865, 874 (S.D.N.Y. 1958), aff' d, 268 F.2d 13 (2d l
| |
| Cir.), cert. denied, 361 U.S. 831 (1959); see also pp. 85-88, infra.
| |
| | |
| protect against the possible " exclusion" of competition.--89/ The failure to give due respect to these regulatory constraints is but another dimension of the erroneous analysis pursued below.
| |
| Among the laws which deny Applicants the ability to exclude other electric systems from their respective service areas is Section 202(b) of the Federal Power Act (16 U.S.C. $ 824a(b)), 1 I
| |
| which authorizes the FPC to order the interconnection of two electric suppliers for bulk power supply purposes. Under that section, the FPC may require not only that wholesale service be provided to a retail distributor which lacks generating capacity, but also that coordination power arrangements be entered into with 90/
| |
| -~
| |
| systems having sufficient generating capacity. The evidence 89/ becausetheLicensingBoardperceiveda" resistance to federal regulation and [an] intent to conduct * *
| |
| * pooling operations without governmental assistance or int 6-ference" (I.D. at 230-31), it somehow concluded that the present extent of regulation is not as stated by Applicants or that the regula-tion does not have the far-reaching implications described in the text. In either event, the Licensing Board's perception bears not the least relationship to the conclusion it vould like to draw. Moreover, the evidence relied on can hardly be safd to support the perception advanced by the Licensing Board. The 2neech of Karl Rudolph (C-121) indicates only that Rudolph and CEl .:?re opposed to a particular piece of legislation, a 1968 proposed electric reliability act. Similarly, while Applicants know of nothing improper about TECO's desire to avoid FPC regu-lation in.the mid-1550's, that certainly has nothing to do with the state or impact.or regulation in the mid-1970's. As to all the other examples cited by the Licensing Board, those confirm the coercive impact of FPC regulation. Apparently, however, the Licensing Board does not believe justice is done if the contes-l tants resolve their differences by way of settlement, but instead l prefers to see the time-consuming and expensive crocess of liti-gation carried to its limits.
| |
| 90/ See New England Power Co. v FPC, 349 F.2d 258 (1st Cir.
| |
| 19E5) (firm wholesale power to non-generating retail distributor);
| |
| _0tter Tail Dewer Co_._ v FPC, 473 F.2d 1253 (8th Cir. 1973) (coordi-naion with small generating systems); Florida Power Corp. V FPC, 4d3 F.2d 196, 201-03 (5th Cir. 1970), rev'd on other grounds sub nom. Gair.esville Utilities Deoartment v Florida Power Corp. , 402 (Continued next page)
| |
| | |
| in this proceeding with regard to the FPC-ordered interconnection between CEI and Cleveland -- which evidence was totally ignored by the Licensing Board -- testifies to the effective implementation of this authority and the continuous monitoring of the parties by 91/
| |
| , way of this authority.
| |
| Another regulatory control over Applicants' ability to exclude competition is Section 203(a) of the Federal Power Act (16 U.S.C. S 824b(a)), which prohibits the acquisition by one private utility of the jurisdictional facilities of another system 92/
| |
| without the prior, express approval of the FPC. That approval 90/ (Cont'd)
| |
| U.EE 515 (1971) (FPC has identical jurisdiction to order intercon-nection with generating and non-generating entities). Pursuant to this authority the FPC may prescribe the terms and conditions of the interconnection, apportion the costs for the interconnection, and set the rate of aempensation for the services provided. The Act further provides c>at if the FPC finds, upon the complaint of a state commission and after opportunity for a hearing, that any interstate service is " inadequate or insufficient, the [FPC]
| |
| shall determine the proper, adequate or sufficient service to be furnished, and shall fix the same by its order # # *" . 16 U.S.C.
| |
| 5 824f.
| |
| 21/ See A-18 through A-24; A-100; A-101; A-134; A-136; A-201; A-202; A-212; see also City of Cleveland v FPC, 525 F.2d 845 (D.C.
| |
| Cir. 1976) (aff' g in relevant part A-21) . Compare I.D. et 60-76 with pp. 154-71, infra. For other demonstrations of the FPC's similPr exercise of its Section 202(b) authority, see Village of Elbot Lake v Otter Tail Power Co., 46 F.P.C. 675 (1971), aff'd as modilled sub nom. Otter Tail '_grer Co. v FPC, 473 F.2d 1253 (6th Cir. 1973); Gainesville Uti'iti ' Dep;.atment v Florida Power Corp.,
| |
| 40 T.P.C. 1227 (1968); 41 Y.P.C. 4 (1 53), aff'd, 402 U.S. 515
| |
| ~
| |
| Crisp County Power Commi;sior v Georgia Power Co. , 37 F.P.C.
| |
| (19'J1);
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| 1103 (19377, 42 F.P.C. 1179 (19t ,) wity of Paris v Kentucky Utili-ties Co., 38 F.P.C. 269 (1967); Shrewsbury Municipal Light Depart-ment v New England Power Co., 32 F.P.C. 373 (1964), aff'd sub nom.
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| New England Power Co. v FPC, 349 F.2d 258 (1st Cir. 1965).
| |
| 92/ For example, DL's acquisition of the electric light system of the Borough of Aspinwall was approved by the FPC (ses Ducuesne Light Co., 37 F.P.C. 1051 (1967) (A-263), as well as by the Pa PUC (A-262)). Compare I.D. at 91 with pp. 271-74, infra.
| |
| L
| |
| | |
| I may be granted only if, after opportunity for hearing, the Commis-sion finds the acquisition " consistent with the public interest" (id.).
| |
| See e.g., Citizens of Allegan County, Inc. v FPC, 414 F.2d 1125 (D.C. Cir. 1969). And such a "public interest" finding may be made only after taking account of any anticompetitive effects which flow from the acquisition. See Gulf States Utilities Co. v FPC, supra, 411 U.S. at 757; Commonwealth Edison Co., 36 F.P.C. 927 (1966), aff'd sub nom. Utility Users League v FPC, 394 F.2d 16 (7th Cir. 1968), cert. denied., 393 U.S. 953 (1973). Sections 9 and 10 of the Public Utility Holding Company Act (15 U.S.C.
| |
| 93/
| |
| $$ 79) & 791)- complement this authority by requiring a regis--
| |
| tered ho'sding company (like OE) seeking to " acquire, directly or indirectly, any securities or utility assets or any other interest in any business," to file with, and get approval from, the Securities and Exchantei Commission ("SEC") prior to the contemplated acquisition.--9J/
| |
| 93/ The Holding Company Act and the Federal Power Act must be read together as providing a comprehensive scheme of federal regulation. Structurally, the Holding Company Act is Title I of the Public Utility Act of 1935; Title II of that Act amended the Federal Water Power Act of 1920 by adding Parts II and III, which form the basis of FPC regulatory authority over the electric utility industry. See generally 4 L. Loss, Securities Regulation 2275 (supp. 1969). In Comnenwealtn Edison Co., 36 F.P.C. 927, 66 P.U.R.3d 417, 421-22 (19T6), the FPC emphasized the integrated nature of the' entire Public Utility Act by holding that, consistent with the statutory design "to bring the electric power industry under effective and continuing control," review of merger proposals under Section 203 cf the Federal Power Act must include 'ot only the substantive standards of that Act, but also the " integrated public utility" concepts and corporate simplification st7ndards of the Holding Company Act.
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| 94/ The SEC cannot approve an acquisition unless it finds that such acquisition: (a) will not " tend towards interlocking relations," nor " unduly complicate the capital structure," nor be (Continued next page) 9
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| | |
| r In addition, pursuant to Sections 205 and 206 of the Federal Power Act (16 U.S.C. 55 824d & 824e), the FPC may insti-tute a proceeding, either upon its own motion or upon complaint, to investigate the terms and conditions of any contract on file with the agency. The agency has construed this investigative power 5 broadly (see, e.g., Pacific Gas & Electric Co., 5 F.P.C. 1030, 1038 (1974); Indiana & Michigan Electric Co., 49 F.P.C. 1232 (1973)). It includes, of course, the authority to hear and adju-dicate any antitrust claims raised with respect to contractual provisions. See, e.g., City of Huntingburg, Ind. v FPC, 498 F.2d 778 (D.C. Cir. 1974) (anticompetitive effects of interconnection agreement). Furthermore, the " rule, regulation, practice or contract affecting [the jurisdictional) rate" under investigation need not involve jurisdictional activities. See, e.g., FPC v Conway Corp., supra, 426 U.S. at 280-82; and see Niagara Mohawk Power Corp. v FPC, 583 F.2d 966, 971 (2d Cir. 1976) (even assuming 94/ (Cont'd) detrimental to carrying out the reorganization provisions of the ;
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| Act (15 U.S.C. 55 79)(b)(1) & (51, 79)(c)(1)); (b) is not in vio- '
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| lation of any applicable state law (15 U.S.C. 5 79j(f)); and (c) ,
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| "will serve the public interest by tending towards the economical j and efficient development of an integrated public utility system" ,
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| (15 U.S.C. 5 79)(c)(2)). The SEC may also impose terms and condi- D tions on the acquisition "necessary or appropriate in the public interest or for the protection of investors or consumers." 15
| |
| ~
| |
| U.S.C. 5 79j(e). One noted commentator has characterized this and other provisions of the Holding Company Act as "a special type of antitrust and corporate reorganization law" which is " designed to restore the effectiveness of state and federal regulation rather than the effectiveness of competition in a free market." 1 L.
| |
| ~
| |
| Loss, Securities Regulation 135 (1961) (emphasis added). I As a result of its holding company status, the acquisi- ;
| |
| tions of OE have, of course, been subject to the scrutiny of the l SEC. See Ohio Edison Co., SEC Holding Company Act Release Nos.
| |
| l 15367 (Dec. 20, 1965) (Lowellville) (A-218); 17703 (Sept. 22, 1972) .
| |
| (Norwalk) (A-223); 17842 (Jan. 5, 1973) (Hiram) (A-220); 18951 (April 25, 1975) (East Palestine). Compare I.D. at 109-13 with pp. 223-28, infra.
| |
| | |
| I arguendo that FPC has no authority to compel wheeling of power, it is not plainly beyond its jurisdiction to investigate a l refusal to wheel. power alleged to be an integral part of an l interstate program and combination to unlawfully monopolize the electric utility industry).-95/
| |
| It bears repeating that Applicants do not view this broad policing power of sister agencies as obviating the need for antitrust review by this Commission of " activities under the
| |
| [ nuclear] license" pursuant to Section 105c (see nn. 36 & 82, supra). We do insist, however, that due regard for such outside constraints on the ability of electric utilities to control prices and exclude competition is essential to a meaningful evaluation of the conduct under attack as anticompetitive behavior. As more fully explained below, it simply cannot be assumed in the regu-latory setting under scrutiny that the dominant utilities have, 95/ In the past this authority has been used by the FPC to investigate, among other things, antitrust claims relating to:
| |
| (1) the " availability" clause of a wholesale contract providing that service thereunder shall be "for use and resale to * *
| |
| * ultimate consumers by a private or municipal utility" (Carolina
| |
| . Power & Light Co., 49 F.P.C. 645 (1973)) -- compare 7.D. at 136-37 with n.271, infra; (2) the terms and conditions of a wholesale contract aimed at preventing duplication of facilities (South-western Electric Power Co., 50 F.P.C. 1597 (1973)) -- compare I.D. 137-43, 171-72 with pp. 195-99, 238-40, infra; (3) alleged refusals to wheel (Njagara Mohawk Power Corp. v FPC, supra) --
| |
| compare I.D. 76-80, 88-89, 124-29, 130-31, 173-82 with pp. 171-76, 180, 200-03, 228-34, infra; (4) various contractual arrange-ments between an investor-owned utility and other investor-owned, federal and municipal utilities allegedly strengthening the investor-owned utility's monopoly over generation and transmission (Pacific Gas & Electric Co. , supra) -- compare I.D. at 12-16, 187-203 with pp. 15-21, supra and with pp. 102-05, infra; and (5) anticompetitive implications of pooling arrangements, including reserve-sharing formulas, transmission arrangements, membership requirements and voting procedures (New England Power Pool Agree-ment, F.P.C. (1975) (A-270)) -- compare I.D. 39-41, TE7!203, 212-215 vith pp. 106-24, infra.
| |
| | |
| i 9
| |
| ~
| |
| or even can be expected to obtain, monopoly power within the meaning of Section 2 of the Sherman Act, the Licensing Board's lack of appreciation for this principle is fundamentally wrong.
| |
| D. FAILURE TO FRAME THE PROCEEDING IN TERMS OF AN ENTITY'S ABILITY TO EXERCISE MONOPOLY POWER IF A PROPEPLY DELINEATED RELEVANT MARKET In its Initial Decision. the Licensing Board has chosen to structure its analysis in terms of the two Broad Issues and eleven Matters in Controversy set forth for discovery purposes in Prehearing Conference Order No. 2 (see generally I.D. at 10-16).
| |
| Under this mode of analysis, it first had to be shown that Appli-cants had the ability to hinder or prevent non-Applicant entities from achieving the benefits of coordinated operation or development (Broad Issue "A"), and, then, that they had excercised that ability in a manner inconsistent with the antitrust laws (Broad Issue "B").
| |
| Putting to one side for a moment the nexus question (see Part III, infra), Applicants' basic quarrel with the Licensing Board's evalua-tion of the challenged , conduct within this framework rests essen-tially on its willingness to infer both the defined " ability" and an " inconsistent exercise" thereof from Applicants' stipulation of l dominance in generation and transmission in their respective service l -
| |
| areas (Tr. 440-41, 448-49). By discharging its Section 105c respon-l sibility by means of a convenient equation of Applicants' stipulated
| |
| ! dominance with monopoly power (I.D. at 23, 107), the Licensing Board l
| |
| w
| |
| -9
| |
| | |
| I' i either ignored or misapplied the requirements of Section 2 of the Sherman Act, and, as a result, erroneously concluded that Applicants' conduct "may constitute monopolization, attempted monopolization, and a combination to monopolize" (I.D. at 15).
| |
| The Section 2 proscription against monopolization requires that an entity under attack both possess monopoly power in the rele-vant market (United States v Grinnell, supra, 384 U.S. at 570-71),
| |
| and exercise that power in a manner that permits the inference of a general intent and purpose to do so (United States y Griffith, supra, 334 U.S. at 105). Proof of monopoly power requires evidence that an entity has "the power to control prices or exclude competi-tion." United States v E.I. duPont deNemours & Co., 351 U.S. 377, 389 (1956). In the absence of such a showing, it cannot be said that Applicants, either individually or collectively, have com-mitted a Section 2 offense by monopolizind any market. See, e.g., id. at 391; Times-Picayune Publishing Co. v United States, 345 U.S. 594 (1953); United States v Columbia Steel Co., 334 U.S.
| |
| , 96/
| |
| 495 (1948?.--'
| |
| While the Licensing Board initially recites these recog-nized concepts (see I.D. at 22-27), it fails to follow through with 96/ Applicants recognize that monopoly power is not a necessary element of the inchoate proscriptions against attempting to monopo-
| |
| _ lize and conspiring to monopolize. For the attempt crimes it is only necessary that an entity possess a degree of market power sufficient to suggest a dangerous probability that it will acquire See, e.g.
| |
| monopoly power in any relevant market. American Tobacco Co. v United States, supra, 328 U.S. at 784. HEwe,ver, the reasons l which support a finding that Applicants do not posses: monopoly l power also support a finding that Applicants are not likely to acquire monopoly power in any relevant market (see discussion at pp. 90-93, 95-98, infra). Compare United States v Empire Gas Corp., 537 F.2d 296, 305-07 (8th Cir. 1976), aff'g, 393 F. Supp.
| |
| 903 (W.D. Mo. 1975); Yoder Brothers, Inc. v California-Florida Plant' Corp., 537 F.2d 1347, 1366-69 (5th Cir. 197o).
| |
| .y. . . - . . - ,w. ,-,,,a- . - y
| |
| | |
| I, an actual application of the stated principles to the facts of
| |
| ~
| |
| record., From all appearances, the Licensing Board concluded (albeit imprecisely) that all of the Applicants had transgressed the monopolization interdiction (see, e,.3., L.B. Stay Order at 9-11). Thus, at least inferentially, the Board below must have found each Applicant to possess monopoly power in some relevant market. Yet, both Applicants and this Appeal Board are left to guess how : hat finding was reached and, more particularly, in which market or markets the Licensing Board found monopoly power to exist. Omissions of this sort are clearly erroneous.--97/
| |
| As nearly as can be determined, the Licensing Board was content to rest its Section 2 antitrust conclusions on the statement in United States v Grinnell Corp., supra, 384 U.S. at 571, that "the existence of [ monopoly] power ordinarily may be inferred from the predominant share of the market" (see I.D. at 23
| |
| & 107). This pronouncement in Grinnell has, however, repeatedly come under attack. Where it has been followed, courts have been careful to emphasize that the nature of the market then under evaluation supports the supposition that control by a single competitor of a large percentage of the market is indicative of insufficient competition to place adequate constraints on pricing and marketing conditions (and see A-190(Pace) 27-28). But a number of courts have declined to engage in ' c hat supposition merely on proof that a company has a statistically predominant 98/
| |
| ~~
| |
| share of an openly competitive market. Where an industry is 97/ See discussion at 137-39, infra, 98/ Compare United States v General Dynamics Corp., 415 U.S.
| |
| (Continued next page) t
| |
| | |
| subject to price and marketing regulation, a showing of statistical dominance is of even less assistance to the monopoly power analysis (see pp. 77 & n.88, supra). This is because control over prices and r
| |
| over competitors' entry into or exclusion from the market -- i.e.,
| |
| - " monopoly power" -- has, by virtue of such regulation, been taken out of the hands of the private entrepreneur and turned over to state and 99/
| |
| federal agencies (see A-190(Pace) 28-30).
| |
| Accordingly, the existence of government regulation over prices and other market activities will invariably defeat any statis-tical inference of monopoly power based on market shares, and the -
| |
| 100/
| |
| courts have so held. What is necessary in such circumstances -- as 98/ (Cont'd) 486 T1974). Adhering, instead, to the admonition in United States v E.I. duPont deNemours & Co., supra, 351 U.S. at 393, that "Section 2 requires'the application of a reasonable approach in determining th.e existence of monopoly power just as surely as did [Section] 1
| |
| [of the Sherman Act]," these decisions have understandably concluded that "[m]arket share is no holy talisman that alone determines whether a defendant has monopolizd an industry." United States v Interna-tional Business Machines Corp., 60 F.R.D. 654, 658 (S.D.N.Y. 1973).
| |
| See also Times-Picayune Publishing Co. v United States, supra, 345 U.S. at 612 (quoting United States v Columbia Steel Co., supra);
| |
| United States v United Shoe Machinery Corp., 110 F. Supp. 295, 343 (D. Mass. 1953), aff'd per curiam, 347 U.S. 521 (1954); Interna-tional Railways of Central America v United Brands Co., 532 F.2d 231, 240 (2d Cir. 1976).
| |
| _ 99/ See Hawaiian Telephone Co. y FCC, supra, 498 F.2d at 777.
| |
| Dominance or large market shares is not the exception in these circumstances; rather, both economic and regulatory forces encourage such a result, recognizing that a natural monopoly market structure in particular industries is in the public interest. See generally California v FPC, supra, 296 F.2d at 353 Moreover, the underlying premise of many Section 2 cases -- that something illegal must have occurred because one does not expect to find a firm with large market shares in a competitive industry -- is simply inappropriate in industries where large rather than smal) market shares are anticipated. See also pp. 98-102, infra.
| |
| 100/ See Nankin Hospital v Michigan Hospital Service, 361 F. Supp.
| |
| (Continued next page) l l
| |
| | |
| is the case here -- is a careful analysis of market boundaries and ongoing market activities with an eye to determining if any Appli-
| |
| . cant can control prices or exclude competition in the designated market. The Licensing Board, however, eschewed such a " pragmatic" and " factual" analysis (see Brown Shoe Co. v United States, 370 U.S. 294, 336 (1962)), opting, instead, for a consistently dis-credited " formal" or " legalistic" approach (1,d.) that necessarily
| |
| - finds Applicants, and, indeed, virtually every major electric util-ity, possessing monopoly power, irrespective of market definition By ignoring the S'preme Court's
| |
| ~
| |
| or ongoing market activities. u specific instruction to "take into account the unique federal and state regulatory restraints on entry into the line of commerce" (United States v Marine Bancorporation, supra, 418 U.S. at 627),
| |
| the Licensing Board artificially skewed the marketplace to fit the individual business of each Applicant. See Brown Shoe v United States, supra, 370 U.S. at 336; United States v United ,
| |
| Shoe Machinery Corp., supra, 110 F. Supp. at 303. Not sur-prisingly, such an approach has not only "been uniformly unsuc-101/
| |
| cessful in the district courts" but has received a similar
| |
| :- 100/ (Cont'd) 1199, 1209-10 (E.D. Mich. 1973); Travelers Insurance Co. v Blue Cross, 361 F. Supp. 774, 780 (W.D. Pa. 1972), 3ff' d, 481 F.2d
| |
| _ 50 (3d Cir.), cert. denied, 414 U.S. 1093 (1973).
| |
| 101/ See United States v Connecticut National Bank, 362 F.
| |
| Supp. 240 (D, Conn. 1973), vacated and remanded, 418 U.S. 656 l
| |
| (1974); United States v United Virginia Bankshares, Inc., 347 F.
| |
| Supp. 891 (E.D. Va. 1972); United j9tates v First National Ban-corporation, Inc., 329 F. Supp. 1003 (D. Colo. 1971), aff'd, 410 U.S. 577 (1973); United States v Idaho First National Bank, 315 F.
| |
| Supp. 261 (D. Idaho 1970); United States v First National Bank of ,
| |
| Maryland, 310 F. Supp. 157 (D. Md. 1970); United States v First l
| |
| - National Bank of Jackson, 301 F. Supp. 1161 (S.D. Miss. 1969);
| |
| United States v Crocker-Anglo National Bank, 277 F. Supp. 133 (N.D. Cal. 1967).
| |
| | |
| fate in the Supreme Court as well. United States v Marine Bancor-
| |
| . poration, supra, 418 U.S. at 627-28; United States v Connecticut National Bank, 418 U.S. 656, 66~ (1974).
| |
| 102/
| |
| I Accordingly, Applicants' stipulation as to dominance does not end the inquiry with respect to market definitions, but merely marks its beginning. The assessment still to be made is
| |
| - whether Applicants have the ability to control prices or exclude competition. And to this end, the delineation of an appropriate geographic and product market plays an important role, since it provides the analytic framework within which to evaluate the impact and significance of the economic and regulatory characteristics 103/
| |
| of the industry. In proposing market definitions that were ,
| |
| rejected by the Licensing Board (see Applicants' Supporting Brief at 220-49), Applicants attempted to select markets which "corres-pond to commercial realities" by focusing on consumer behavior in the electric utility industry and the impact of economic and 104/
| |
| legal restraints on that behavior. We continue to believe l
| |
| i 102/ See Tr. 440-41, 448-49. In Prehearing Conference Order
| |
| :i No. 2, Applicants' stipulation was erroneously restated in terms of an alleged dominance within the CCCT. It should be clear, however, that Applicants' stipulation went only to the dominance of each company within its own service area. Nor could the stipulation
| |
| . have been any broader, since none of the Applicants would be in a position to stipulate on the nature of any situation outside its service area. The Licensing Board perpetuates this mistake in the Initial Decision by relating Applicants' stipulation to "their combined service areas" (I.D. at 10-11). This further reflects the Licensing Board's propensity to erroneously and prejudicially treat Applicants as an unvariegated group (see n.30, supra).
| |
| 103/ See e.g., Pace, Relevant Markets and the Nature of Compe-tition in the Electric Utility Industry, 16 Antitrust Bull. 725, !
| |
| 727 (1971) ("In reality, delineating markets and assessing the I significance of competition to a large extent are inseparable since market definition must necessarily be founded on competitive
| |
| _ possibilities"). __ _. _ _ _ __ _
| |
| 104/ See Brown Shoe Co. v United States, supra, 370 U.S. at 336; (Continued next page)
| |
| | |
| that this is the proper approach.
| |
| Initially, Applicants objected to establishment of a retail market as having no relevance to any matter in controversy.
| |
| i The statutory directive of the present review process is to
| |
| - ascertain the antitrust consequences, if any, of licensing the Davis-Besse and Perry units. These are undeniably bulk power supply facilities. To the extent the nuclear " activities" may be suspect (which we dispute), the bulk power market, and not the retail market, obviously feels the direct impact. Even though there arguably may be some indirect effect at the retail level, it is so entwined with the nuclear access question vis-a-vis retail distributors, that resolution of the bulk power supply market 105/
| |
| question, will necessarily resolve any alleged retail problems.
| |
| Moreover, even if retail markets were to be viewed as at all relevant, they clearly could not be accorded the expansive geo-graphic definition suggested by the Licensing Board, i.e., five separate retail markets, one coincident with the retail service territory of each Applicant. Rather than addressing this issue, 104/ (Cont'd)
| |
| United States v United Shoe Machinery Corp., supra, 110 F. Supp.
| |
| at 303 (market definition " turns on discovering patterns of trade which are followed in the practice"); United States v Bethlehem Steel Corp., 168 F. Supp. 576, 592 (S.D.N.Y. 1958f-("Any definition of line of commerce which ignores the buyers and focuses on what the sellers do, or theoretically can do, is not meaningful").
| |
| 105/ While the Licensing Board disputes this conclusion (I.D.
| |
| at 51-53), analysis of the two examples it set forth -- involving alleged restraints imposed on the City of Painesville and on WCOE --
| |
| fully supports Applicants' view that if the nuclear access question is resolved, there is no need to clutter the battleground with an extraneous retail market. We would further note that, as a factual matter, the characterizations made by the Licensing Board with regard to Painesville and WCOE in its discussion on market defi-nitions are, in any event, not supported by the record (see pp. 176-82, 214-23, infra).
| |
| | |
| the Licensing Board reformulated Applicants' position to be that
| |
| " retail sales cannot meet the standards necessary to define eitner a relevant geographic or product market" (I.D. at 51). On the contrary, Applicants set out a careful and detailed delineation of the retail markets and carefully analyzed whether within those markets any Applicant had the ability to set prices or exclude competition.
| |
| In this regard, the economic and legal barriars to compe-tition which were discussed above result in geographic markets
| |
| , for retail sales of electric energy in Ohio and Pennsylvania closely parallel to the " checkerboard of 'open' and ' closed' towns" which the Supreme Court held to be crucial to market definition in United States v Connecticut National Bank, suora, 106/
| |
| 418 U.S. at 667. The category of "open" retail markets is com-posed of many separate markets, one each for the City of Cleveland and for each fringe area in the State of Ohio immediately surround-ing adjacent investor-owned utilities, municipal electric systems, and rural electric cooperatives. In Pennsylvania there are, of ,
| |
| course, no "open" retail markets since the regulatory scheme of that state absolutely precludes even fringe-area competition. The
| |
| " closed" geographic markets are thus each separate community in all areas of Pennsylvania and each separate community in all areas of Ohio (but Cleveland and the fringe areas) -- in these " closed" communities electric service is restricted by operation of state and local franchise authority to but a single electric supplier.
| |
| l 106/ "Open" areas are those where retail purchasers currently l have a choice of electric suppliers; " closed" areas are those where l_ .no choice of suppliers exists, or has a realistic prospect of existing in the future.
| |
| m . - - N
| |
| | |
| 1 In the " closed" areas, Applicants' rates are subject to state and local controls, and Applicants have no ability to oust the existing retail distributor from such a closed. market and to serve that distributor's customers without first obtaining permission from the local authorities of the community. See Ohio R.C. $ 4933 16; 53 P.S. $ 47471.. To speak in terms of monopoly power in these circumstances simply ignores commercial reality (see also A-190(Pace) 28-30).
| |
| As for the "open" areas, a similar conclusion follows.
| |
| Of the various "open" areas, Cleveland offers the greatest oppor-tunity for direct competition at retail. While CEI has long held the dominant position in this market, accounting for approximately 80% of the retail sales (A-132), such dominance cannot, ipso facto, be equated with monopoly power. CEI not only lacks any ability to control prices in the Cleveland market, but its competitor, the City of Cleveland, can set the retail rates of CEI by municipal ordinance, if it so desires (see Ohio R.C.
| |
| S 4909.34; Bingham 10191; Wilson 10997, 11021.-22; see also A-141; A-203). Similarly, CEI has no ability to hinder or exclude 107/
| |
| competition in the Cleveland market.
| |
| 107/ Pursuant to FPC order, CEI is obligated to provide power to Cleveland over a 138 kV interconnection at a rate set by the FPC
| |
| '~
| |
| (S-204; A-271) and subject to the FPC's continuing jurlacietion over CEI bo ensure compliance with those orders (Hauser 10554-56; A-134; see also A-100; A-101). As a result, even'if CEI desired to oxclude Cleveland, such power is not within the ability of CEI.
| |
| By contrast, Cleveland has constitutional authority to condemn all of CEI's electric facilities used to serve city inhabitants, and without any regulatory supervision or approval. See Ohio Const.,
| |
| art. XVIII, sect. 4. Although Cleveland now plainly does not have the financial capability to undertakej such action, it has expressed
| |
| ~
| |
| c clear intent to exercise this authority in the not-too-distant past'(A-204; A-205; A-206).
| |
| | |
| With reference to the other "open" retail markets in Ohio, there is no way to ascertain from this record the extent to which any of the Ohio Applicants may enjoy a dominant position in 108/
| |
| l one or more of the fringe areas. Accordingly, even on a mis-guided statistical analysis, any suggestion by the Licensing Board 1
| |
| of monopoly power in this context is wholly unwarranted. Going beyond mere numbers, however, it is clear that Applicants cannot control prices in the fringe areas, since the retail rates they charge are set by the PUC0 and they have no ability to control the rates charged by other electric systems which may wish to i
| |
| operate in the same fringe area, or actually do (see p. 54 & n.60, supra). Likewise, none of the Ohio Applicants is in a position to hinder or exclude retail fringe-area competition. Their behavior, and that of the adjacent electric systems is guided by Ohio law and .ke economic characteristics of the industry. It is those factors, and not the conduct of an Applicant, which inhibit
| |
| ; fringe-area competition in furtherance of the public interest and a declared state policy to minimize wasteful duplication of
| |
| , 109/
| |
| distribution facilities.
| |
| , 108/ While each Applicant entered into a stipulation regarding
| |
| ( its dominance as to generation and transmission in its respective service area (see n.102, supra), no stipulation was entered into I
| |
| with regard to distribution facilities. Since the fringe areas l- are by definition those open spaces between the distribution facil-l itles of two adjacent electric systems, there is no basis to infer that either holds a dominant position without some evidentiary showing as to location of actual distribution lines and numbers of retail customers in the various "open" markets.
| |
| 109/ We have heretofore explained the extent to which the economic characteristics of the industry discourage fringe-area competition (see pp. 60-65, supra). Even Dr. Wein, D0J's economic witness, was of the view that economic considerations would (Continued next page)
| |
| | |
| It is, therefore, perfectly clear that, however one looks at the retail markets for electric energy sales in Ohio and Pennsylvania, the institutional framework of the marketplace, both in economic and legal terms, precludes a finding that these Appli-cants ever had, have now, or will in the future have, the ability .
| |
| ; \
| |
| to cor'rol prices or to, hinder or exclude competition at retail. l Aside from the retaAl market, the Licensing Board defined two other product markets: a " bulk power services" market and I
| |
| a " regional power exchange transactions" market (I.D. at 47-50).
| |
| The lengths to which the Initial Decision goes to differentiate j
| |
| 110/
| |
| between these two markets is more puzzling than illuminating. As the Licensing Board accurately points out, the bulk power service:
| |
| market " consists of various intermediate outputs, not all of which have some impact on the effectiveness of delivered bulk power ser-
| |
| , vices" (I.D. at 49). Yet, the same can be said for the regional I'
| |
| power exchange transactions market (see D-587(Wein) 99(17-23)).
| |
| Whichever fancy market label is selected, however, there should be some cogent. rationale for grouping the referenced disparate prod-
| |
| :' ucts and services into a single product market. The Licensing 109/ (Cont'd)
| |
| ,' dissuade investor-owned utilities from engaging in competition for l, customers locating on their borders (Wein 6899(22-25)), and that
| |
| ! similar considerations severely limited the competition between municipal systems and investor-owned systems (D-587(Wein) 118 (13-17)). In addition, there are also the Ohio constitutional and o statutory inhibitions to fringe-area competition that we have
| |
| !! described earlier (see pp. 51-52, suora).
| |
| 110/ For the Appeal Board's reference, we would note that the bulk power services market is Dr. Hughes' " logo" for the " market" Dr. Wein labeled as regional power exchange transactions, except that Dr. Hughes' market includes firm wholesale power transactions which ihr. Wein elected to put in a separate market. Comoate S-207(Hughes) 17-18 with D-587(Wein) 98-99 and Wein 7013(3-6),
| |
| 7016-17(14-25 & 1).
| |
| w
| |
| | |
| r-Board's only explanation is that the assimilation of the various competitive alternatives " lends credence to the selection of var-i ious combinations of power transactions components into one product i market" (I.D. at 49). In all candor, Applicants do not have the faintest idea what that means. The Licensing Board's reliance on the line-of-commerce definitions in recent Supreme Court banking 111/
| |
| cases to support this conclusion is equally mystifying.
| |
| What is clear is that the " patterns of trade which are followed in the practice" (United States v United Shoe Machinery Corp., supra, 110 F. Supp. at 303) simply do not support the grouping together of the various power arrangements selected below into a bulk power services market on any sort of realistic applica-tion of the principle of " reasonable interchangeability" (United 112/
| |
| States v E.I. duPont deNemours & Co., supra, 3E U.S. at 404).
| |
| ; 111/ The thesir of the banking cases was that commercial banking, as a whole, and not the individual services offered by a bank, was the appropriate product because the ultimate consumer i generally looked to a single bank with which to deal. See United
| |
| [ States v Phillipsburg National Bank, 399 U.S. 350 (1970); United States v Philadelphia National Bank, 374 U.S. 321 (1963). Thus, because the purchaser viewed commercial banking as having " economic significance well beyond the various products and servicas involved,"
| |
| clustering of separate products into a single market corresponded to commercial realities. However, the claim here is exactly con-trary to that asserted in the banking cases. The allegation is not that the smaller CCCT systems desire or in fact will deal solely with App'licants, but, in fact, intend to shop around, to pick-and-choose services from a whole multitude of intermediate suppliers.
| |
| Thus, it is the separate services offered by each utility and not any utility's bundle or cluster of services that has economic significance (compare United States v Grinnel Coro., supra, 384 U.S. at 572 (there.is "no barrier to combining in a single market a number of different products or services where that combination reflects commercial realities")).
| |
| 112/ As Dr. Pace accurately pointed out, purchasers of electric energy do not consider emergency and maintenance pcuer, for example, substitutable for such transactions as joint or staggered construc-tion of facilities or the purchase of dependable firm capacity (Continued next page) l
| |
| | |
| r f
| |
| Rather, a pragmatic analysis of the marketplace indicates that there is a single wholesale market composed of two separate submarkets:
| |
| (1) the short-term operating coordination transactions such as emergency. power, maintenance power and economy energy; and (2) the long-term developmental coordination transactions such as joint or staggered construction of facilities and sales or purchases of dependable or firm capacity (see A-190(Pace) 31(10-21)). Such a division is commercially realistic and far more reflective of
| |
| " purchaser reaction -- the willingness or readiness to substitute" (United States v Chas. Pfizer & Co., 246 F. Supp. 464, 469 (E.D.N.Y. 1965)).
| |
| In addition, the market definition suggested by Appli-cants fully recognizes both the economic and regulatory barriers to competition at the wholesale lavel and how those restraints 1
| |
| interact to deny Applicants the ability to control prices or i
| |
| exclude competition therein. This is, of course, particuarly true with regard to long-term developmental coordination transactions.
| |
| Arrangements of this etrt are viable only to the extent that they are based upon mutuality and reciprocity (A-121(Slemmer) 8-9(23-25
| |
| & 1-20); Slemmer 8964(11-17); Mayben 7635-36(23-25 & 1-9); see also pp. 102-05, infra). As such, the entrants or potential entrants into the long-term dependable capacity submarket are only those L
| |
| 112/ (Cont'd)
| |
| (A-190(Pace) 31(2-9)). Dr. Wein likewise acknowledged the non-substitutability of economy energy and joint ownership of genera-ting units, even though he insisted on placing them in the same market (Wein 7014(15-21)). Dr. Hughes had the same difficulty with economy power transactions and unit power tra'nsactions (Hughes 4007-08(25 & 1-6)). The suggestion of reasonable inter-changeability between short-term emergency arrangements and long-term coordinated maintenance arrangements were equally
| |
| ( troublesome to him (id. at 4013(9-12)).
| |
| e - - . _v. . .
| |
| | |
| electric systems capable of conferring scale-related benefits on l
| |
| l the other parties to the transaction in proportion to the benefits I
| |
| 113/
| |
| received. This alone acts as a practical barrier to entry for l! the small electric entities in the CCCT. And, precisely because l'
| |
| it is unrealistic to talk in terms of large and small systems actually engaging in " coordinated" development (A-190(Pace) 34(4-20)), it is meaningless to say that Applicants have exercis-able monopoly power which is usable against the non-Applicant CCCT
| |
| ; entities in this submarket. Nor can any different conclusion be
| |
| , reached with respect to the remaining long-term and short-term i
| |
| power transactions in the wholesale market -- which effectively pass through to Applicants' wholesale customers the scale bene-114/
| |
| fits of developmental coordination (See A-190(Pace) 9-11).
| |
| These arrangements are. fully subject to FPC regulation, which, by design, effectively removes from Applicants the ability to control prices or to hinder or exclude what little " competition" can be S 113/ See A-190(Pace) 34(4-20); A-120(Slemmer) 14(10-20); Hughes 3801, 3817-18, 4027; Kampmeier 5872-74.
| |
| 114/ Even under the Licensing Board's flawed statistical ana-lysis, it cannot properly be concluded that any of the Applicants has monopoly power with respect to wholesale sales. The high percentages set forth in the Initial Decision to support such a finding (I.D. at 33-34) are inaccurate in two major respects.
| |
| First, they erroneously include a category referred to by Dr. Wein as " captive wholesale sales" (D-587(Wein) 98(18-22)), or those sales which Applicants make directly to their ultimate consumers at retail (see id. at Tables 2 and 3; Wein 6983-84(24-25 & 1-23)).
| |
| In the context of the antitrust allegations in this proceeding, such an inclusion is legally impermissible. See United States v Blue Bell, Inc., 395 F. Supp. 538 (M.D. Tenn. 1975); International Tel. & Tel. Corp. v General Tel. & Electronics Corp., 351 F. Supp.
| |
| 1153, 1175-77 (D. Hawaii 1972); United States v International Tel.
| |
| & Tel. Corp., 324 F. Supp. 19, 27 (D. Conn. 1970). Second, they erroneously exclude wholesale sales made by Buckeye Power, Inc_ to the rural electric cooperatives located in the areas served by OE and TECO. Inclusion of the Buckeye Power sales would have reduced the percentage figures attributed to each of these companies to below 50% (Wein 6691 (10-14)).
| |
| | |
| 115/
| |
| found to exist at the wholesale level.
| |
| j It can thus be seen that " monopoly power" is a theoret-ical concept having no practical application to Applicants in the
| |
| .[ 116/
| |
| / present context in any relevant market. The Licersing Board
| |
| '. ! 115/ As previously stated (see pp. 54, 78-79, supra), the ,
| |
| FPC not only has full authority over wholesale rates in the ,
| |
| electric utility industry, it also can order interconnections il among utilities and, so long as it does not require an expansion of generating capacity, can mandate the services to be provided over those interconnections under regulated conditions. This authority extends to reserve sharing arrangements, emergency, maintenance and economy power transactions, and such other short-term operating transactions as the FPC may deem desirable and beneficial. Moreover, if utilities agree to participate in coordination transactions yielding long-term dependable capacity,
| |
| .FPC approval of the terms and conditions is necessary.
| |
| 116/ We cannot leave the matter of market definitions without a final word on the Licensing Board's curious finding that the geographic boundaries of its bulk power services market was the CCCT (I.D. at 55). Even while recognizing that a market larger than the CCCT might exist, the Licensing Board apparently was persuaded by Dr. Wein's misguided notion that unless a non-CAPCO company signs the CAPC0 contracts and obligates itself to do everything in those contracts, it cannot be considered within the bulk power ser-vices market (Wein 7045(12-15)). Thus, Ohio Power, for example, was, strangely enough, excluded from the relevant geographic market even though its interconnection with a CCCT entity, i.e. Orrville, has virtually been completed (A-186; Lewis 7940(6-10T)T ,Moreover, i the Board chose to confine-the market to the CCCT area notwithstand- l
| |
| ! ing evidence that sales and purchase of electric power between i Ohio Power and OE exceed the magnitude of similar transactions among the CAPCO companies (see A-104; Wein 7260(4-13)).
| |
| The rationale for. this result is obscure. Apparently, the Licensing Board's choice of the CCCT as a relevant geographic area rests in part on & theoretical analysis based on lack of access to alternative supply sources outside the CCCT. See S-207
| |
| , (Hughes) 21-22 and Wein 7032(12-18), both of whom assumed that access to non-CAPCO power supply options required use of an Applicant's transmission system. Howeys , this analysis was unsubstantiated by any engineering study, and is in fact directly contrary to the study undertaken in this area (see A-162(Caruso) 18-19). The Licensing Board, apparently intent on remaining unencumbered by the facts, seeks to bolster its market definition on sheer speculation that "[t]he 'one-system' concept suggests i that the CAPCO pool or its present members may be regarded by adjacent buyers and sellers as a separate regional market" (I.D.
| |
| at 55;' emphasis added). Once again, the analysis is based on a mistaken (Continued next Page) l 1
| |
| V . - -. , . _ _ . .
| |
| | |
| was therefore plainly wrong in its conclusion that Applicants' stipulated dominance renders all exclusionary conduct suspect.
| |
| (I.D. at 18, 24-25). Perhaps in a normally competitive market I structure, where the dominance of one, or even a few, firms is not a natural or desired consequence, such suspicions are warranted.
| |
| I Indeed, this seems to be the teaching of Judge Learned Hand in United States v Aluminum Company of America, supra. Since domi-nance was not expected in the aluminum ingot market, an intent to maintain dominance could logically be inferrd merely from exclu-sionary activities that allowed Alcoa to continue as the dominant firm. It was in this context that Judge Hand stated "no monopo-list monopolizes unconscious of what he is doing " (148 F.2d at 432).
| |
| Such logic does not, however, fit the present circum-stances. Here, by contrast, it is to be expected that large fully-integrated, natural monopolies -- like Applicants -- not only exist, but will continue to exist, within the electric util-ity industry (see pp. 45-50, supra). Clearly, the antitrust laws do not require that they remain in a state of " passive 116/ (Cont'd) impression that CAPCO oua CAPCO buys and sells power (see also i pp. 12-13, 23-25, supra). Nothing could be more untrue; each indi- ;
| |
| vidual Applicant transacts its own business and deals with its.own neighbors. See generally S-104. There is simply no such thing as a CAPC0 pool transaction.. Similarly, it is wrong to speak in terms
| |
| , of a "CAPCO net dependable capacity" of 11,735 mw (F/F No. 2) or of I CAPCO transmission as consisting of "4,753 pole-miles of transmis- )
| |
| i sion line 69.kv and above" (id.). Thess capacity and pole-mile '
| |
| l figures are but an aggregation of the separate ipplicants' systems, only a very small portion of which represent ec.pacity and transmis-sion jointly committed pursuant to the CAPCO Memorandum of Under-i: standing (see S-184,.~.1_2.1 & 4.3.1, pp. 2,. 5-7; and see CAPCO Transmission Facilit.es Agreement,. S-185, 11 3.01 .03, 3.05, pp.
| |
| 7-11, 12-13).
| |
| 15 ,
| |
| | |
| 117/ i stagnation". As pointed out in Ovitron Corp. v General Motors Corp., 295 F. Supp. 373, 378 (S.D.N.Y. 1969): "[T]he natural monopolist is entitled to compete vigorously and fairly in a i
| |
| struggle for a market which cannot support more than one sup-plier." See also Philadelphia World Hockey Club, Inc. v Phila-delphia Hockey Club, Inc., 351 F. Supp. 462, 511 (E.D. Pa. 1972).
| |
| And, once he is successful, it is not the design of Sect'.on 2 of the Sherman Act to bar that dominant entity from continting to engage in " active, enterprising and dynamic" business activity (A.G. Antitrust Report at 60). Judge Hand acknowledged as much in United States v Aluminum Company of America, supra, 148 F.2d at 430 n.2, when he quoted with approval the following remarks from Mr. Justice Day's dissent in United States v United States Steel Corp., 251 U.S. 417, 460 (1920): ;
| |
| *** the [Sherman] Act offers no objection to the mere size of a corporation, or to the con-tinued exertion of its lawful power, when that size and power have been obtained by lawful means and developed by natural growth, although its resources, capital and strength may give to such
| |
| , corporation a domin ming place in the business
| |
| ! and industry with which it is concerned. [Empha-sis added.]
| |
| Accordingly, " transactions neutral on their face"
| |
| ,, (ALCOA, supra, 148 F.2d at 432) which have an exclusionary effect on the market do not so readily permit an inference of anticompet-itive motivation in an industrial setting such as the one involved here. As one leading commentator has emphasized with particular reference to allegations of refusals to deal, "the premises for 117/ Attorney General's National Commission, Antitrust Report 60 (1955) ("A.G. Antitrust Reoort").
| |
| ~ - - , - -
| |
| | |
| -100-more restrictive standards governing refusals to deal by monopo-118/
| |
| lists are inaccurate as applied to electric utilities". In this regard, "[s]anction or condemnation can only follow an analysis of what role such refusals may play in relation to industry institu-tions and practices" (id.).
| |
| The same holds true for acquisitions of small municipal systems once located within the service area of a particular Appli-cant. "The characteristics of a natural monopoly make it inappro-priate to apply the usual rule that success in driving competitors from the market is evidence of illegal monopolization." Green-ville Publishing Co., Inc. v Daily Reflector, Inc., 496 F.2d 391, 119/
| |
| 397 (4th Cir. 1974). Where, as is the case on this record, the electric systems that have been acquired were unable to survive due to their own financial, technical and administrative difficul-ties, it is clear error to attach antitrust overtones to their 118/ Shenefield, Antitrust Policy Within the Electric Utility Industry, 16 Antitrust Bull. 681, 697-98 (1971). The Licensing Board proceeded otherwise, concluding that "[s] elective refusals to deal" may be exclusionary and for that reason alone violative of Section 2 of the Sherman Act (I.D. at 26-27). Without regard for " industry institutionr, and practices" (Shenefield, supra, at 697), it thus proceeded *,o fault mucL of the conduct of CEI (I.D.
| |
| at 60-80, 85-89); DL (I.D. at 93-102); OE/PP (I.D. at 124-36, 146-53) and TECO (I.D. at 173-86).
| |
| 119/ During the period from September 1, 1965 to the present, which was by Board order the fo,as of this proceeding, seven muni-cipal systems were acquired: CEI and PP acquired none, while TECO acquired two (Waterville and Liberty Center), OE four (Lowellville, Norwalk, Hiram and East Palestine), and DL one (Aspinwall). The average peakload of these municipalities was less than 3.8 mw and the median size was 1.6 mw (see S-158). The very small size of
| |
| .these systems only confirms the conclusions of Mr. Gerber that those municipal systems which have left the market were too small to perform as efficient electric utilities, and their exit was therefore both understandable and economically desirable (see i A-189(Gerber) 13-14(22-26 & 1-4), 18(10-16, 20-23)). See also the discussions at pp. 185-89, 223-28, 271-74, infra.
| |
| 1
| |
| | |
| -101-elimination. See Lamb Enterorises, Inc. v Toledo Blade Co., 461 F.2d 506, 514-16 (6th Cir.), cert. denied, 409 U.S. 1001 (1972);
| |
| United Statqs v Harte-Hanks Newsoapers, Inc., 170 F. Supp. 227 (N.D. Tex. 1959). 'Yet, this is what the Licensing Bc_rd proceeded to do (I.D. 57-58, 91-93, 109-113, 161-65), without any regard for the fact that the fundamental nature of the electric utility industry, as heretofore explained, makes it plain that it would not "be convenient or economical from the standpoint of the public that there should be a considerable number of units [i.e., electric systems]" (United States v Western Union Telegraph Co., 53 F. Supp.
| |
| 120/
| |
| 377, 390 (S.D.N.Y. 1943)). Such indiscriminate condemnation 120/ The admitted predocinance in generation and transmission which each Applicant enjoys in its respective service area is a position it has long held (see D-587(Wein) 64(1-6), 66(1-4),
| |
| 70(11-18), 74(1-10)). While the evidence of record makes general reference to a number of pre-1965 municipal acquisitions by several of the Applicants (see generally the filed testimony of Dr. Wein (D-587) and tha filed testimony of A. Gerber (A-189)), no examination was made of the particulars of those acquisitions.
| |
| Testimony of a general background nature was introduced by Appli-cants, hcwever -- and was never disputed by the other parties --
| |
| indicating that, due to the sorry state of repair of the municipal systems by reason of financial and technical inattention over the years, it was the municipalities who usually initiated discussions concerning the possible acquisition of those facilities. Given the option of raising a large amount of capital to rehabilitate and maintain the equipment, or of obtaining much-needed funds for other unrelated municipal purposes (i.e., education, city building programs, and the like) through a sale of the facilities to a private utility, the municipality frequently chose, for its own reasons anc upon its own initiative, to sell either all or a part of its system. See expert testimony of A. Gerber (A-189(Gerber) 20-23; Gerber 11493(4-11), 11608-09(23-25 & 1-5), 11617-18). This testimony was corroborated by Mr. E. Sedlak, who had repeatedly
| |
| - witnessed this scenario with respect to Pennsylvania municipal i systems during his 25-year term with the Pennsylvania Economy
| |
| ! League (Sedlak 12325-26, 12378(2-7)). A similar pattern of inat-l tention was shown to exist with respect to the Cleveland municipal l system, leading once again to the total disrepair of that munici-pality's electric facilities (see A-136; A-207; A-208; A-209; A-210; S-45; Hinchee 2757-58, 2829-30; Kudukis 7491-92; Mayben 7630, 7658-60).
| |
| | |
| i
| |
| -102-misconceives the essential nature and purpose of Section 2 of the Sherman Act. See United States v United Shoe Machinerv Corp.,
| |
| supra, 110 F. Supp. at 344 (practices that are "the inevitable consequences of ability, natural forces or law" do not contravene ,
| |
| the Sherman Act).
| |
| E. FAILURE TO TAKE COGNIZANCE OF, OR APPLY, THE NET BENEFIT THEORY IN FINDING APPLI-CANTS' CONDUCT UNREASONABLE An equally egregious misconception of antitrust princi-ples, as applied in the present context, is found in the Licensing Board's statement that "[t]he existence of a situation inconsistent with the antitrust laws turns largely upon the fashion in which Applicants deal with one another in comparison to their treatment of other electric entitites in the CCCT area" (I.D. at 12). That premise assumes, notwithstanding the sizable and uncontroverted differences in system capabilities between Applicant and non-Appli-cant entities, that Applicants are to disregard such fundamental distinctions in dealing with the much smaller electric entities in the CCCT. Such preferential treatment is decidedly contrary to general practice in the electric utility industry, and the record below clee'ly reflects that, if required by this Commission, it would be counter-productive and against the public interest.
| |
| At the base of any coordination transaction are conflict-ing concerns, some pulling the entities together towards joint sction and others tearing the entities apart in the direction of individual action. This conflict arises because not every joint l
| |
| l
| |
| | |
| r-i
| |
| -103-action undertaken will produce a maximum benefit for each partici-pating system (see Williams 10309(20-23)). The best that can be hoped for is that the coordinated activity will maximize the benefits to the group as a whole, and that the total benefits will i be shared equitably among all the participants (A-122(Firestone)
| |
| P 8(10-14)). In his direct testimony, Mr. Firestone described the necessary course of conduct to achieve this goal in the following terms (A-122(Firestone) 9(1-10)):
| |
| [E]stablish common objectives at the outset, and then designate individual responsibilities which will result in establishing individual conditions which will maximize mutuality be-tween the parties thereby permitting maximum reciprocal transactions. Thus, even where there are coordinating parties with a great disparity of size, if they jointly establish individual responsibilities to achieve mutuality
| |
| * *
| |
| * and then carry out those responsibilities the relative benefits sill be in balance.
| |
| [ Emphasis added.] '
| |
| The key, then, to any coordination arrangement among interconnected utilities is in establishing individual responsi-bilities to achieve mutuality. See A-121(Slemmer) 8-12; A-122
| |
| ., 121/
| |
| q (Firestone) 6-9; Firestone 9221-23 Mutuality is present if it can reasonably be expected that the benefits one party derives and the responsibil'ities he undertakes will accrue in similar fashion
| |
| : to all parties in the coordinating transaction (A-122(Firestone) 6(1-7)), and on a basis which will, in the final analysis, result in a net benefit to each of the participants and a tc;.al net j 121/ The fundamental role played by mutuality in coordination relationships was clearly recognized by the FPC in Gainesville ;
| |
| Utilities Dept. v Florida Power Corp., 40 F.P.C. 1227, 1233 (1968),
| |
| aff'd, 402 U.S. 515 (1971) ("a prerequisite to viable and effective interconnected operations among all electric systems is an equit-able sharing of the responsibilities of interconnected operation").
| |
| y e ,-w --
| |
| --m ,
| |
| | |
| f
| |
| -104-benefit to the group as a whole (see A-121(Slemmer) 8-12; A-122 (Firestone) 6-9)). ,
| |
| We have already indicated some of the specific minimum respon-sibilities that must be assumed by each party to a coordinating transaction to assure mutuality (see n.20, supra). More generally, kaen we look to see which electric entities are actually capable of assuming these and other minimum responsibilities of intercon-nected operation (see A-121(Slemmer) 9-10(21-26 & 1-12), 12-15)),
| |
| we find, not surprisingly, that there are scale-related limitations on the number which can geaningfully become directly involved in such coordination. In this connection, the observation was made by Dr. Hughes in his article " Scale Frontiers in Electric Power" that, nationwide, only the largest 20 or so utilities achieve efficient performance by way of pool coordination; to the extent that the next 40 or so in size contemplate participation, they .
| |
| should do so by some sort of " satellite dependency on a nearby large system or minority membership in a tightly organized multi-lateral pool * * * [giving them] a minor role in planning decisions made by the large neighbor or the pool"; systems below the top 60 should become involved, if at all, "only as satellites or as weak 122/
| |
| dependent members of large pools" (see Hughes 3801).
| |
| This does not suggest, however, that the benefits to be j derived from coordination are available only to those relatively
| |
| ;_ few large utilities which are able to participate directly. Those electric entities in a satellite or functionally similar status !
| |
| l \
| |
| l l 122/ See Hughes, " Scale Frontiers in Elecric Power," in Techno-l logical Change in the Regulated Industries 1, 56 (1971). Dr.
| |
| l Hughes was questioned about various statements in this article on l cross-examination in the present proceeding.
| |
| | |
| r-
| |
| -105-also receive tangible benefits from coordination and power pooling, albeit less directly (see, e. ., Firestone 9430-31(21-25 & 1-4)).
| |
| Typically, the benefits are distributed to small, " dependent-satellite" electric entitics by way of " wholesale-retail speciali-zation," where "the retailer in effect relies on another power system to supply its requirements at wholesale through a firm 123/
| |
| requirements contract * * "" (Hughes 3809(1-3, 1-21)).
| |
| The Licensing Board measured the conduct of these Appli-cants vis-a-vis non-Applicant entities in total disregard of these mutuality principles. This was incorrect. While all electric entities should bear similar responsibilities, plainly not all entities can, or should be required to, fulfill those responsibili-ties by the identical conduct. Thus, the Licensing Board's assess-ment of the reasonableness or unreasonableness of Applicants' conduct should have focused on the nature of the responsibilities each electric system was asked to undertake -- to determine if there was a reasonable and aquitable assignment of responsibilities among all systems -- rather than on the particular manner in wnich Applicants fulfill those same responsibilities among themselves.
| |
| Had such an analysis been undertaken, the Licensing Board would have found reasonable much of Applicants' conduct it erroneously -
| |
| condemned.
| |
| 123/ See also I FPC, National Power Survey 273 (1964); Kampmeier 5876-85. In its 1970 National Power Survey, the FPC specifically endorsed such a concept (I-17-27):
| |
| Systems which serve their growing needs by power purchases receive reliability and economic benefits when their power suppliers participate in area-wide and regional coordination. Direct or indirect participation by smaller generating systems in the
| |
| .. benefits and responsibilities of coordinated planning and operation is fundamental if the most efficient use is to be made of our resources. However, when their supplier, alone er in cooperation with other (Cnntinued nart nnan)
| |
| | |
| -106-
| |
| : 1. Pool membership. The Initial Decision states that
| |
| : "[a]fter the inception of the CAPCG agreement, Applicants con-i tinued their maintenance of an anticompetitive situation by refusals to approve' membership requests in CAPCO from competing entities" (I.D. at 194). One would assume that this broad find-5 ing would somewhere be buttressed by an analysis of the evidence to show that the referenced refusals were unjustified and, there-fore, unreasonable. Significantly, it is not. Instead, after discussing at length the alleged refusal to admit Pitcairn to pool membership in 1968, the Licensing Board tucks away in a footnote the limited extent of its holding (I.D. at 199, n.'):
| |
| We make no findings as to whether Pitcairn's request for membership in CAPCO necessarily should have been approved at the time the request first was made. # # * [T]he desira-bility [of Pitcairn's membership] in the context of the CAPCO pool was not established.
| |
| Our concern is that the refusal was unreason-able and anticompetitive in the fashion in which it was effected.124/
| |
| And with respect to the alleged denial of CAPCO membership to Cleveland in 1973, the reasonableness issue is not even addressed 125/
| |
| (see I.D. at 200-03). ,
| |
| 1237 (Cont'd) systems. can install large-scale generation, benefits of the larger system scale become available to them.
| |
| [ Emphasis added.]
| |
| 124/ -Indeed, it is hard to see how the Licensing Board's position could be otherwise since under the license conditions it formulated, which limit CAPCO membership to entities "with a system capability of-10 mw or greater" (see license condition 4(a), I.D. at 259), Ap-plicants would have been entitled to reject the 1968 request for CAPCO membership by Pitcairn, which then had a system capability of only 3.0 mw (see n.21, supra). Today, of course, Pitcairn has no generating capability to CAPCO membership is similarly barred.
| |
| 125/ It is unlikely, that the Licensing Board could have con-sidered the refusal to accord full CAPC0 membership-to Cleveland
| |
| [ to be unreasonable since under the license conditions it formu-lated, restricting the voting rights of new members (see license condition 4(d), I.D. at 260-61 & n.'), Applicants would be en-titled to reject a present request by Cleveland for membership on
| |
| -terms ~similar to its earlier request.
| |
| | |
| r I
| |
| -107-Applicants know of no antitrust decision, and the Licens-i ing Board provides none, for the novel theory that, even though l
| |
| a refusal itself is not unreasonable, such action can still be condemned as a group boycott either because of the manner in which the " refusal" was effected (in the case of Pitcairn) or on some j other unstated basis (in thg case of Cleveland). It should be clear by now that whatever the facts of the Pitcairn and Cleveland requests may have been, the findings in this area must be reversed
| |
| - 126/
| |
| because of the erroneous legal standard employed. Moreover, if the merits of these two actions are examined, the record below shows that the admission of either Pitcairn or Cleveland to the i CAPCO pool would not have been consistent with the principles of 126/ At best, it could be argued that the Licensing Board employed a per se test to the alleged group boycott. Applicants have previously cautioned against such a heavy-handed approach to the Commission's antitrust responsibilities (see pp. 35-39, supra).
| |
| However, equally relevant here is the fact that the per se doc-trine has only limited effect when a group boycott is alleged. Its application depends in such a context on a showing of exclusionary intent as the principal motivation for taking collective action.
| |
| See DeFilippo y Ford Motor Co., 516 F.2d 1313,1318 (3d Cir. 1975);
| |
| E.A. McQuade Tours, Inc. v Consolidated Air Tours Manual Committee, 467 F.2d 178, 187 (5th Cir. 1972), cert. denied, 409 U.S. 1609 (1973); Joseph E. Seagram & Sons, Inc. v Hawaiian Oke & Liquors, Ltd., 416 F.2d 71, 76 (9th Cir. 1969), cert. denied, 396 U.S. 1067 (1970); Areeda, Antitrust Analysis 11 368, 388 (1967). Without a finding that the refusals were unjustified, it is not possible to conclude that the principal motivation was exclusionary. In this regard the courts have repeatedly held that the mere showing of a refusal to embrace additional, members is not sufficient to prove the necessary sinister motive. See Silver v New York Stock Ex-
| |
| . change, aupra, 373 U.S. at 350; Deesen v Professional Golfers' Association, 358 F.2d 165, 170-71 (9th Cir.), cert. denied, 385 U.S. 846 (1966); Rooffire Alarm Company v Royal Indemnity Co., 212 F. Supp. 166, 169 (E.D. Tenn. 1962), af f' d, 313 F.2d 635 (6th Cir.), cert. denied, 373 U.S. 949 (1963); United States v Insurance Board o7 Eleveland, 188 F. Supp. 949 (N.D. Ohio 1960). Moreover, the existence of legitimate business reasons for denying the membership requests (see pp. 108-11, infra) serves to explode the underlying logic necessary to find the unlawful combination or conspiracy (see also n.128, infra).
| |
| - - - -w , , ,n;---
| |
| | |
| -908-mutuality and reciprocity, and positions taken with respect to both membership requests were, in the circumstances, above anti-trust reproach.
| |
| It is difficult to believe that anyone could seriously dispute the inability of Pitcairn to meet the minimum responsibili-ties associated with participation in a power pool (see n.20, supra). In 1968, Pitcairn's electric system had a total capacity of 3 0 mw (see n.21, supra). The uncontradicted testimony shows that the availability of Pitcairn's resources would not have changed any of the pool requirements (Dempler 8805(13-17); see also Fleger 8637(19-23); s-17, pp. 3-6), and in particular, that:
| |
| First, the availability of Pitcairn's installed capacity would not have enabled the CAPCO com-panies to reduce their installed reserve require-ments (Dempler (8668-69).
| |
| Second, the availability of Pitcairn's installed capacity would not have enabled the CAPCO com-panies to reduce their operating reserve require-ments (Dempler 8671-74; see also 8838(2-8)).
| |
| Third, the availability of Pitcairn's installed capacity would not.have enabled the CAPCO com-panies to reduce their maintenance reserve require-ments (Dempler 8677).
| |
| Fourth, Pitcairn's generating costs were so high (A-3, pp. 7 & 14) that it would have been uneconomic for the CAPCO companies to consider purchasing energy from Pitcairn (Dempler 8684; see also McCabe 1832(17-20)).
| |
| Even the expert witnesses for both D0J and the NRC Staff conceded that Pitcairn's system was worthless (Wein 7129(11-18);
| |
| Hughes 3807(24-25 & 1-10)). In fact, Pitcairn's own consulting engineer concluded that participation in the CAPCO pool by Pit-cairn would be inappropirate (A-3, pp. 11, 14). The resultant costs that the Applicants and Pitcairn alike would have had to l
| |
| | |
| T r
| |
| -109-1 bear had the Borough been admitted were way out of proportion to any conceivable benefits that any of the systems, including Pitcairn, may have derived. In this regard, the record chows
| |
| {
| |
| that: i First, the cost of including Pitcairn in the i CAPC0 pool would at least equal and most probably exceed any benefit (Hughes 3807-08 (24-25 & 1-10)).
| |
| Second, the addition of Pitcairn would ad-versely affect the CAPCO decision-making process (see generally A-121(Slemmer) 12-13),
| |
| increasing the likelihood that future
| |
| ~
| |
| development of the pool would be frustrated (Dempler 8924(12-25)).
| |
| Th,ird, the addition of Pitcairn would require the alteration of many CAPC0 principles and the renegotiation and redrafting of the CAPCO contractual agreements (Dempler 8925-28).
| |
| Fourth, the addition of Pitcairn would have necessitated both Pitcairn and the CAPCO r
| |
| companies spending noney on a 345 kv inter-connection that all parties agree was unnecessary and wasteful (Dempler 8677-78, 8933, 8939; Fleger 8642-43).
| |
| The Cleveland request offers equally strong justifica-tion for the negative responses it received. At the time Cleve-m land sought membership, and even today, it neither had the m facilities necessary to meet its responsibilities as a pool participant, nor had it shown a sufficient capability to work 127/
| |
| together with the CAPCO. companies. The evidence of Cleveland's 127/ Indeed, the record makes it abundantly clear that Cleve-land had no real intention from the cutset of joining the CAPCO pool, but made a sham request for membership as a negotiating ploy to enhance its bargaining position on other matters concerning CEI l
| |
| (see, e.g., Kudukis 12726-32; Gaul 12433-34(20-25 & 1-3), 12434-35 (24-25 & 1-9)). And see discussion at pp. 141-45, infra.
| |
| I ww
| |
| | |
| -110-inadequacies is overwhelming:
| |
| First, within the past seven years Cleveland never has had sufficient generating facili-ties to meet its own load, let alone maintain
| |
| . adequate reserves (A-19 through A-23; A-134; A-136; A-207; Mayben 7645-56; Hinchee 2827, 2829-33).
| |
| ~
| |
| Second, the mismanagement and incompetence that led to Cleveland's sorry state of affairs is so egregious as to preclude the CAPCO
| |
| ~
| |
| companies from relying on Cleveland for '
| |
| mutual assistance in operating and planning their systems (A-207; A-208; A-209; A-210; A-211; see also A-159; A-160; A-200).
| |
| Third, Cleveland similarly lacks adequate
| |
| _ and competently-trained personnel to par-ticipate in CAPCO's committee structure (A-207; A-208; A-209; A-210; A-211).
| |
| Fourth, Cleveland never has been, nor is to-day, able or willing (see pp. 165-66, & n.196, infra) to meet and honor the financial commit-ments that membership in the CAPCO pool entail, even though CEI has repeatedly sought such assurances (A-23; A-135; A-140; A-211; A-212).
| |
| Nor is it realistic to argue that, even if Cleveland could not actively participate in, or benefit the other partici-
| |
| - pants of, the pool, its admission would not have been harmful.
| |
| Mr. Williams testified in detail why CAPCO membership was not in
| |
| ~
| |
| the best interests of either Cleveland or the CAPCO group. He noted: ,
| |
| First, adding Cleveland as a CAPCO member would make it more difficult to resolve
| |
| :- questions (Williams 10382(4-8)), particu-larly since Cleveland's economic objectives and cost structures are different than
| |
| __ those of the present CAPCO participants (Williams 10382(9-11)).
| |
| ~
| |
| Second, any fixed-charge rate advantage Cleveland might theoretically bring to the CAPCO group would be lost to the pool (and to Cleveland) due to the relatively insig-nificant size of the Cleveland system i (Williams 10382-83(16-25 & 1-4)).
| |
| | |
| -111-Third, due to the complexities of the CAPCO arrangement, it would be difficult even to agree on Cleveland's input data for one-system planning; ar! issue that is likely to be par-ticularly troublesome in view of the " unique"
| |
| - track-record of Cleveland's largest unit (Williams 10385-86(15-25 & 1-7)).
| |
| Fourth, because of the significant differences in size, location and financing structure between Cleveland and the present CAPCO '
| |
| participants, if CAPCO one-system planning
| |
| ~
| |
| did include Cleveland the results might not be in Cleveland's best interest, making CAPCO decision making much more difficult (Williams 10384-85(2-25 & 1-14)).
| |
| Fifth, if the one-system plan was not in
| |
| . Cleveland's best interest, one likely consequence would be an unwillingness of Cleveland to go forward, thereby stymieing pool action and degrading area-wide relia-bility (Williams 10386-87(7-25 & 1-5)). -
| |
| Sixth, given the extraordinarily long lead-time to construct generating facilities, it is advantageous to the CAPCO companies to delay reaching a decision to the last minute
| |
| , and then, when the last minute comes, acting very quickly (Williams 10400-01(21-25 &
| |
| 1-19)). Cleveland would have great difficulty doing this (Willia =s 10402-03(13-25 & 1-12)),
| |
| further impacting on the ability of the pool
| |
| - to add capacity and insure reliability (Williams 10401-02'.20-25 & 1-12)).
| |
| Seventh, because Cleveland's request for CAPCO membership was inconsistent with the specific requests for access contained in I that proposal (see pp. 147-48 & nn.173, 176, infra, e.g. participation sought only in nuclear facilities and not coal-fired units), the CAPCO i pool would not be able to take advantage of whatever scale benefits the addition of Cleveland would create when constructing ;
| |
| coal-fired units (Williams 10374-75(21-25 &
| |
| .. 1-24)) or oil-fired combustion turbines (Williams 10381(6-16)). ,
| |
| 7 There is no basis on this record to fault Applicants for the decisions not to embrace Pitcairn and Cleveland as pool mem- l bers. The Licensing Board's contrary conclusion appears in large part to rest on nothing more than the fact that the CAPCO companies l~
| |
| L
| |
| | |
| -112-communicated with one another about the membership requests (I.D.
| |
| at 194, 196-98, 201-03). The immediate question that comes to mind, of course, is how else would the Board propose that members of a group address the question of taking in possible additional l
| |
| )
| |
| members? Obviously, where a matter of this sort is raised there j is necessarily going to be some discussion among the existing pool participants, especially where the fundamental underpinning of the joint endeavor is that there be a proportionate sharing of respon-sibilities and benefits among all pool members in order to maintain mutuality. While the record below fully supports the fact that, as to both requests, the ultimate decision by each Applicant as to the impracticability of membership was independently made (albeit after 128/
| |
| discussions with some or all of the others), it matters not 128/ With reference to the Pitcairn request, the correspondence
| |
| , shows that Mr. McCabe, the Borough Solicitor, wrote simil.cly-worded letters to each Applicant on December 5, 1967 (see S-1 through S-5); that each Applicant responded separately and advised for various reasons, not all of which were identical, that it viewed Pitcairn's membership in CAPCO to be impractical (see S-6;
| |
| . S-7; S-9 and S-10). McCabe then wrote a second set of letters to each of the companies (see S-11; A-52; A-56 and A-59), explaining that the purpose of his earlier letter was "to institute discus-
| |
| ~
| |
| sions with the various companies" (S-11) and asking for a meeting to discuss the matter further. Again each of the companies wrote
| |
| , separately to McCabe indicating their willin6 ness to meet (see, e.g., S-12; A-53; A-57; A-60). McCabe, however, chose to pursue the matter only with DL (see S-17 and A-4; A-5). Following his meeting with DL, McCabe advised that company that he would discuss with his engineer certain points which had been raised by DL and
| |
| - then get back to the company (see A-4, p. 2). He also advised two of the other CAPCO companies that he would continue his discussions with DL before meeting with them (see A-58; McCabe 4230(11-22)).
| |
| However, he did neither (see pp. 247-77, infra).
| |
| With reference to the Cleveland request, it initially came in a letter to CEI only (D-181), and was later reiterated in correspondence sent to each of the CAPCO companies (see D-185).
| |
| However, Cleveland met only with CEI to discuss the matter (see A-25; D-291 pp. 8-14 and 18). While the CAFC0 companies dis-cussed the Cleveland request in general terms among themselves (see (Continued next page) l l
| |
| l_
| |
| | |
| l.
| |
| -113-in the circumstances presented whether one views these actions as I collective or singular. In either case, the existence of a "whole variety of non-conspiratorial motives involving the exercise of business judgment as to the unattractiveness" of making Pitcairn or Cleveland full participants in the CAPC0 pool, precludes the finding of an inconsistency with either the letter or the spirit of the antitrust laws. See First National Bank v Cities Service, 391 U.S. 253, 277 (1968); Dahl, Inc. v Roy Cooper Co., 448 F.2d 17, 19 (9th cir. 1971); Modern Home Institute, Inc. v Hartford 129/
| |
| ~
| |
| Accident & Indemnity Co., 513 F.2d 102, 111 (2d Cir. 1975).
| |
| : 2. Reserve sharing. The Licensing Board further found that the CAPCO method of reserve sharing had the "effect of dis-criminating against municipal" systems (I.D. at 213) by raising barriers to entry, and that the " knowing erection of entry barriers through the imposition of the P/N formula violates the antitrust laws" (I.D. at 214). Once again, the Board is in error (see also 130/
| |
| n.24, supra). Analysis of the P/N formula in terms of the mutuality 128/ (Cont'd)
| |
| - D p. 9; Williams 10404-05(25 & 1-3); D-103; D-104), the record plainly reflects that each company left the meeting of December 7, 1973 without having made any collective decision on the matter and with the understanding that each would independently formulate its position and communicate it to Mr. Rudolph (D-104; Williams 10405 (8-22)). This is the course that was followed (see D-581(William-son) 18(15-16); White 9514(9-15), 9515(21-24), 9516(12-16);
| |
| l' Willisms 10406(1-2); Arthur 8346(20-23), 8392(7-10); C-61; D-187).
| |
| l And see pp. 145-50, 277-80, infra.
| |
| l 129/ See also Independent Iron Works v United States Steel Corp., 117 F. Supp. 743, 747 (N.D. Cal. 1959), aff' d, 322 F.2d 656 (9th Cir.), cert. denied, 375 U.S. 922 (1963) ("[r]easonable busi-l nessmen.will act similarly when presented with the same problem"). 1
| |
| \
| |
| l
| |
| , 130/ We cannot help but note that here the Licensing Board is I not faulting Applicants for dealing with other systems the way they deal with each other, but rather for not dealing with these )
| |
| systems on some other preferential basis, such as equal percent reserves.
| |
| 1
| |
| | |
| -994-principles developed earlier clearly demonstrates that such i a method of sharing reserves is neither discriminatory nor unreasonable. To the contrary, the P/N computational tech-nique (see F/F No. 211) ensures that all the CAPC0 companies install sufficient generating capacity to enable the pool as a whole to meet its predetermined reliability standard (A-122 131/
| |
| (Firestone) 21(12-16)), . and that each participant is allo-132/
| |
| . cated an equitable portion of the pool's combined reserves on the basis of that participant's load characteristics i and the size and type of its respective generating units 131/ In an interconnected network a flow of energy between or among systems sharing reserves will occur automatically in an emergency situation, and the system in trouble will receive support instantaneously. Utilities make reference to an emergency energy schedule to arrive at the compensation charged for this service (see S-205(Hozer) 78(5-8); A-121(Slemmer) 15(26)). Under such a concept, pool participants establish a combined reserve for
| |
| ! the use of all members and charge when a participant draws from that combined reserve (A-121(Slemmer) 18(19-20)).
| |
| 132/ The CAPCO Memorandum of Understanding provides an opera-tional definition of equity; it states: "[J]ointly committed capacity shall be allocated among the parties so that each party,'s contribution to the reserves of the CAPCO Group is directly pro-portional to its potential use of said reserves" (S-184, 5 4.2).
| |
| Strict adherence to this principle -- which is the bedrock concept of the CAPCO pool -- is absolutely essential if mutuality among the CAPCO companies is to be preserved. This is because the contractual rate among the CAPCO companies for emergency service not returned-in-kind contains no demand charge but is based solely
| |
| , on operating costs (S-202, service Sch. A). Thus, if a system were to make use of this combined reserve disproportionately, it would be obtaining energy without any investment in the capacity associated with the energy -- that is, without ever paying the demand-related portion of the costs. The other pool participants would be shouldering that capacity cost by building, without ade-quate compensation, the generating facilities needed to maintain reserves at a level sufficient to produce an acceptable reliabil-ity standard for the pool as a whole. Functionally, then, a minimum reserve requirement ensures that companies providing
| |
| ~
| |
| emergency service will be fully compensated for the total costs
| |
| - to provide such service. l
| |
| | |
| , I' -115-133/
| |
| , (Williams 10362(1-4)). While the CAPCO approach is by no means the only possible method to allocate reserves, it is a 134/
| |
| sensible approach to the problem (A-121(Slemmer) 22(21-23)).
| |
| f This economic and engineering base for the CAPCO P/N formula -- evidence totally ignored below -- refutes any claim that such a method for allocating responsibility in generating i
| |
| capacity is either unreasonable or unduly restrictive. The
| |
| ,' 133/ This basis was chosen because the probability, or likeli-hood, that one system will use the combined reserves disproportion-ately more than the others depends upon the extent to which each member independently maintains proper system reliability from
| |
| ; supply sources other than the pool's combined reserves (A-121 (Slemmer) 18(21-25)). Failing to maintain the proper reliability level means that a system will be taking use of the pool's com-
| |
| ! bined reserves in greater proportion than its contribution to those reserves (A-121(Slemmer) 19(3-9)). When this happens, such
| |
| ; a participant, because it is contributing no investment costs, will be getting a " free-ride" (Firestone 9445(11-19)), and its i
| |
| disproportionate dependence on pool reserves without providing adequate compensation creates the impossible situation where one pool member is " leaning" or " riding" on all the other pool members I (A-121(Slemmer) 19(9-14)). It is only by adherence to the basic ,
| |
| I principle that a system's contribution to pool reserves should be directly proportional to its use of the pool reserven that the
| |
| ,:' members can hope to avoid such " free-riding" and receive adequate
| |
| ; compensation. And, this, in turn, requires that the systems in the pool install generating capacity commensprate with the size and types of their respective generating units and loads (A-121
| |
| (. (Slemmer) 18-19(25-26 & 1-2)).
| |
| 134/ The P/N formula directly addresses the factors that have significant impact upon reliability and, therefore, properly estab-lishes individual responsibilities which assure mutuality among the parties (A-122(Firestone) 21(1-9)). No other reserve method 1 Applicants are aware of deals with as many factors as.the P/N formula. Among the variables having an influence on reliability which are evaluated by the CAPC0 technique are: the size of
| |
| , generating units,_ maintenance schedules, the random outage.perfor-mance of generating units, seasonal and conditional de-rating of capacity, as well as simultating in detail the annual daily load to be, supplied (A-122(Firestone) 20(7-15)). Thus, by using reliability as a common denominator, the CAPCO method can accom-modate widely differing planning and operating philosophies among utility' systems with respect to choice of unit size, maintenance practices, forced outage experiences, and load characteristics (A-122(Firestone) 23-24(18-25 &~1-10)). When first developed, the P/N formula was presented for critical review and appraisal in a l
| |
| paper delivered before the IEEE (see A-124); that professional (Continued next Page) .
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| L- _ __ _. . . _ _.. _ _ _ . <
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| I
| |
| | |
| ~
| |
| -116-Licensing Board, howsver, argues that the P/N method has the recognized effect of applying " extraordinary" reserve requirements on small systems (I.D. at 213). If by " extraordinary" the Licens- )
| |
| ing Board means reserves not in proportion to the burden imposed on the interconnected network, they are simply wrong. If a small
| |
| ,' sy. stem, let's say like Cleveland, chooses to ignore reliability and install generating units that are overly large for ite system, it will, indeed, under the P/N method, be required to carry more reserves than if it had installed two or more smaller units. This merely " reflects the engineering facts-of-life that, all other
| |
| ; things being equal, a given amount of capacity from a single unit is less reliable than an equal amount of capacity from a number of units" (A-121(Slemmer) 24(21-25)). There is no good reason to require Applicants to underwrite the irresponsible capacity decisions of small systems and incur for themselves the added reliability costs associated therewith.
| |
| The Licensing Board counters by asserting that such reasoning places small systems in a dilemma, requiring chat they sacrifice economias of scale if they are to avoid large reserve requirements (I.D._at_213). But this is a dilemma all systems face (g, .. S -2 0 6_,_ _ p .. 21)_ . The P/N method does not cause the dilemma, it merely quantifies the problem. The root of the dilemma is the inefficiency that results when less than optimally-sized firms operate in the " basic natural monopoly structure" of the electric 135/
| |
| utility industry.
| |
| 134/ (cont'd) engineering peer group endorsed the method as a significant ad-vancement in determining appropriate reserve requirements among
| |
| . pool participants (A-121(Slemmer) 22(10-14); Slemmer 9028(1-14)).
| |
| 135/ The dilemma is really not insoluble if the small systems (Continued next page)
| |
| | |
| -T
| |
| -117-The Licensing Board goes one step further and finds that, while not the principal purpose, the P/N method was developed as an "exclusionary tool" (I.D. at 213). Applicants find the sheer logic of that suggestion incredible. Pursuant to the P/N method,
| |
| [ Lpplicants have in the past allocated, and will continue in the I
| |
| future to allocate, billions of dollars worth of investment respon-i sibility in generating units. To even suggest that Applicants would jeopardize the success of that program, and that each would i
| |
| incur its differentiated financial burdens, by adopting a computa-tional technique, one purpose of which is not to properly allocate capacity among the Applicants but to inhibit municipal membership in the CAPCO pool, is, to say the least, farfetched (see fr. 9356-57, i 135/ (Cont'd) and our adversaries would face up to the realities of the situation.
| |
| In his June 17, 1975 letter to WCOE (attached at the end of S-44),
| |
| Mr. Firestone suggested one particular solution. He noted (p. 1):
| |
| [I]f all OE customers (including WCOE) are to realize the economy and reliability con-
| |
| ; templated by the CAPC0 capacity program the t
| |
| OE capacity must be operated as one system and the load must be served on a common basis. Any attempt to segregate a block of
| |
| ;, load along with a block of capacity will inevitably result in distortion of either the economy or reliability, or both, for
| |
| ;{
| |
| one or the other blocks of load unless the segregating is done in such a way as to duplicate perfectly the one system concept ,
| |
| , of operation. .
| |
| l :;. Unfortunately, such a proposal has been characterized in this pro- ,
| |
| ceeding as anticompetitive. l In addition, it should be mentioned that if small systems were to avail themselves of the offers of nuclear access contained :
| |
| in A-44, they could obtain the best of both worlds. Pursuant to !
| |
| those' offers, small systems can obtain capacity and energy from large-scale baseload nuclear facilities -- achieving whatever scale advantages are associated with those units -- cnd at the same time take appropriately sized increments from the units over a period of years so as not to adversely affect either the relia- ,
| |
| bility of their systems or the reliability of Applicants' systems (cf. Mayben 7734(7-16)).
| |
| | |
| -118-9375-77); that the Licensing Board went off on such a bizarre theory without any credible record support (see n.24, suora) is intellectually staggering.
| |
| It seems that the Board's fertile imagination strayed so far afield in part because of a mistaken assumption at the start that the "nore conventional" method of allocating reserves is on an equal percent basis or largest-single-unit-down standard (I.D. at 212). This premise, like most others made by the
| |
| : 136/
| |
| Licensing Board, is without record support. What the record does show is that, prior to adopting the P/N method, the CAPC0 companies studied and for good reason rejected the largest-unit-137/ 138/
| |
| down standard and the equal percent reserve method as being 136/ In fact, the record indicates that the P/N methodology is generally accepted in the industry (Slemmer 9028-31), and is a probability technique which is used in some variation by other power pools (see Mozer 3374(17-19); Slemmer 9028(20-22), 9029(2-4),
| |
| rather than " methodologies of percentages or other methods" (Mozer 3375(2-5)). Dr. Hughes testified that the CAPCO P/N technique was
| |
| " superior to percentage reserves as a way of pooling reserves" (Hughes 3700(9-10); see also Hughes 3699-700(4-9 & 1-8), 3822 (15-21), 4149-50). And D0J's expert, Mr. Kampmeier, while express-ing a personal preference for the equal percentage reserve formula D-450(Kampmeier) 42(17-22)), readily admitted that such a computa-tion could produce illogical results (Kampmeier 6100-04). And see A-122(Firestone) 24-27.
| |
| 137/ While the largest unit down standard does consider as an additional factor the size of a system's largest generating unit, it ignores too many of the other relevant-factors to be of much value to Applicants (Williams 10362(19-22)).
| |
| 138/ Under the equal percent reserves method, inatalled reserves are computed by applying some stated percentage, say 15 percent, to each system's annual peak-hour load and requiring each system to provide capacity equal to that annual peak-hour locd plus 15 percent (A-122(Firestone) 19(7-17)). It is clear l that so simple a calculation ignores many of the variables that l impact on reliability -- e.g., the load characteristics at all l times other than the peak-hour of the year, maintenance schedules,
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| : l. size of units in proportion to total load, random outage performance
| |
| ! (Continued next page)
| |
| | |
| -119-demonstrably incapable of producing a fair and equitable distri-
| |
| ~
| |
| bution of reserve capacity among the Applicants (Williams 10362 19-22); and compare A-122(Firestone) 19(21-25) with Firestone 9410-11(13-25 & 1-12)). There was no sinister exclusionary intent.
| |
| To be sure, the minutes of a June 5, 1967 meeting, to which the Licensing Board makes reference (I.D. at 213), reflect the. view of one employee of 0E that, in the absence of the P/N formula, muni-cipal systems might " demand preferential treatment" (C-48, p. 7).
| |
| But that statement, which is by the way entirely accurate, hardly suggests a recognition by the "CAPCO members", let alone by that single employee, "that the formula would be desireaole as an exclu-sionary tool" (I.D. at 213). Nor can such an attitude fairly be inferred from the initial allocation procedures adopted by the 138/ (Cont'c)
| |
| , of the generating units, etc. (A-122(Firestone) 20(1-17); Williams 10362(12-18); A-121(Slemmer) 23(1-10)). Thus, merely by setting reserves on an equal percent of load basis, the parties cannot ensure that each system will contribute to a pool's reserves in the same proportion it makes use of the reserves, and therefore cannot ensure against " free-riding" (A-122(Firestone) 19-20(18-25
| |
| & 1-2, 17-22); A-121(Slemmer) 23-24). The antitrust licensing board in Consumers Power Company, supra, constructed two hypo-thetical examples (2 N.R.C. at 67-69 n.7) illustrative of the con-clusion applicants believe is a truism, that: I applied indiscriminately [the equal percent of load formula] is impractical and may be unfair ;
| |
| to either the larger or the smaller party. In i,
| |
| other words, the general statement is: Sharing I l:
| |
| reserves on "an equal percentage" basis does not .
| |
| always result in each party receiving a benefit but may actually require increased reserves of
| |
| : one party or the other. [2 N.R.C. at 68; emphasis in original.]
| |
| In this proceeding Mr. Firestone ran a study showing that the equal percentage of peakload method rarely assigns reserve responsibility .
| |
| on an equitable basis, whereas the CAPCO technique does result in )
| |
| equitable assignment of reserves (A-122(Firestone) 24-27; A-123 I I
| |
| (Firestone Addendum) 1-2; A-125; A-126).
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| | |
| -120-CAPCO companics, which the Licensing Board glibly refers to as
| |
| : " arbitrary allocations in order to avoid dislocations among member 139/
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| companies" (I.D. at 214). Finally, the 1973 change made in the P/N computation lends no support to the Licensing Board's theme.
| |
| l Indeed, not even the Board could point to any evidence for its statement that this refinement in the formula was undertaken 1
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| 140/
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| '' "with the intent and purpose of raising entrance barriers" (id.).
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| l 139/ In the Memorandum of Understanding, Applicants jointly com-mitted four generating units, roughly spaced so each would come on i line at yearly it'.a fals between 1971 and 1974 (S-184, $ 2.1, p. 2).
| |
| ,, The periods betusen the projected in-service dates of the four i units were designated Periods "A", "B", "C", and "D", and the Appli-cants agreed upon the cumulative capacity allocation for each of those periods (S-184, 5 2.1, p. 3 & Exhibit B). The cumulative
| |
| : 1. capacity allocated for Periods "C" and "D" was calculated by use of the P/N formula (C-49, p. 9; C-50, pp. 8-9; C-44, p.19). The -
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| ;. allocation for Periods "A" and "B" was not. To leap from that 4 , fact to the conclusion that the earlier allocations were "arbi-trary", however, would be serious error. The " computer correct"
| |
| . results for Periods "A" and "B" were adjust.d during the CAPCO ij negotiatiotw on the basis of Applicants' judgment that this sort l~ of modification was necessary both to assist in the transition to pool operations (C-24, p. 2) -- as the Licensing Board notes (I.D.
| |
| : l. at 214) -- and to overcome as yet unresolved policy uncertainties and severe log. tical constraints. ;
| |
| Thus, w 11e Applicants did calculate a set of numbers for Periods "A" and "B" by use of the P/N method (C-24, p. 4), the l results for Period "A" made absolutely no sense (C-24, p. 2). As a result, the Period "A" capacity allocation was simply set at one-half the allocation calculated for Period "B" (C-50, p. 9; C-24, p. 2). It is only in this limited sense that the original allocations can be labeled " arbitrary". A number of factors contributed to making the " computer correct" results for Period
| |
| , "A" less than accurate (C-49, p. 9), so as to require slight modification. Harold Williams noted in a memorandum to Ralph
| |
| ! Besse, for example, that while two years had been spent in devel-oping the P/N method for overall timing of units, only two months
| |
| ;! were available for adapting the method for use in determining the i allocations to specific companies (C-24, p. 4). There also remained unresolved policy questions affecting exactly how the allocations should be made (C-25). Compounding the problems was a l
| |
| March-1 deadline for camputing the Period "A" and "B" allocations; this allowed just two weeks for that computation to be completed.
| |
| By comparison, nina weeks had been needed to allocate the Period
| |
| ,- "C"'and "D" capacicy (C-49, p. 9).
| |
| 140/- What the record does show is that in December, 1971, DL (Continued next page) i
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| . _ , _ - . . _ . . . _ . . _ _ _ . _ _ _ .,_.,..,_ ,_,,._.__ .___.,- .m~w...,,m-_ ---
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| | |
| -121-3 Wheeling. Equally infirm is the Licensing Board's bald assertion that Applicants " wheel" power for one another within the structure of the CAPC0 contracts (I.D. at 39). It is essen-i
| |
| ! tially on the basis of this misguided conclusion that Applicants i are condemned below for being unwilling tc enter into general i
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| third-party wheeling contracts with non-Applicant CCCT entities.
| |
| In point of fact, Applicants do not " wheel" powue under the CAPC0 contracts, as the record clearly shows (Williams 10390(6-7)), and it is only by a contrived misuse of the ambiguous and imprecise term " wheeling" that the Licensing Board has been able to state to 141/
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| the contrary.
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| I 140/ (Cont'd) circulated a memorandum dealing with the matter of allocating capa-city, pointing out what it believed to be deficiencies and internal contradictions in the recently adopted CAPCO allocation procedures (C-57). Those concerns stemmed chiefly from the inconsistent treat-
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| 'i ment CAPCO afforded jointly-committed generating units (where a
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| 'l pro rata technique was applied) vis-a-vis individually-owned gener-ating units (where the pro rata technique was not applied). This
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| . Inconsistency was compounded, in DL's view, by conflicting planning and operating rules relating to maintenance responsibility (C-57, pp. ?-2) and emergency backup support (id. at 3); by inappropriate i
| |
| treatment for retirement of individually owned units (id. at 4), l l installation of peaking units (id. at 4-5), and purchasi of power
| |
| , l (id. at 5); by reallocation computations thct degraded the accuracy of the allocation procedure (id. at 5); and by capacity allocation procedures that might unfairly benefit a new pool participant (id.
| |
| at 5). It was suggested that the CAPC0 Planning Committee under- ,
| |
| take a study of the entire allocation procedure and recommend modi-fications for any future allocations of CAPCO capacity (C-57, p. 6).
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| Throughout '972 and into 1973 the matter was studied and considered extensively by the Applicants, both independently and in various CAPCO committees (see C-58; C-41; C-42; D-283; D-284). As a result, j a change was made in 1973 (see D-372). Not one shred of evidence was ever introduced in this proceeding indicating that DL's con-cerns were not absolutely valid; nor can it realistically be denied that the studies undertaken revealed legitimate and compelling con-siderations for adjusting the CAPCO allocation procedures in the manner agreed to by the companies in 1973 141/ The Licensing Board disingenuously concludes that, although (Continued next page)
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| | |
| !i
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| -122-What the Applicants have committed to is a construction program whereby they plan and construct new transmission facili- !
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| 142/
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| ties using a one-system concept (S-184, $ 4.3 2, p. 8).-- But the I
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| 141/ (Cont'd) wheeling was defined differently by various witnesses, there was no substantial difference in concept (I.D. at 39, n.**). Dr.
| |
| i Hughes testified directly to the contrary, observing that there are several definitions of third-party wheeling which cennote different substantive arrangements (Hughes 3690(8-17); see also
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| . Hughes 3692(7-8)). This truism is deftly ignored by the Licensing Board by reference to the FPC definition of " wheeling," which is
| |
| , narrowly confined to the physical description of the process.
| |
| ; Under this physical definition, virtually every transfer of energy over transmission lines could be termed " wheeling" (see D-567 (Masters) 44-45(14-25 & 1-17); and see Schaffer 8552, 8580-82 8604-06 (discussing only the physical flows of power)). However, in the context of this proceeding, the physical process is of little relevance unless and until it is tied to the contractual relationship that the parties contemplate or have entered into.
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| Thus, whether or not the contracting parties agreed to a true
| |
| " wheeling" transaction depends on the terms and conditions of their contractual arrangement, and particularly on the agreed basis of compensation. As this Appeal Board reviews the factual bases of the wheeling claims, it should become evident that Applicants are willing to transport electricity over their respec-
| |
| .i tive lines for the benefit of another utility consistent with industry practice. In some cases various Applicants are not willing to transport such energy under a particular type of contract, i,.e., an open-ended, postage stamp, common-carrier type contract (see pp. 200-03, 228-34, infra). By an undiscerning use of the term " wheeling" -- which disregards both definitional differences of a substantive nature and, once again, industry practice -- the Licensing Board carefully camouflaged Applicants' position and then felt content to ignore it.
| |
| 142/ Based on the one-system plan the various Applicants are assigned construction responsibilities in specific transmission facilities. Each Applicant is obliged to construct that part of
| |
| ! the facility located within its service area; it also owns the portion of the facility so constructed (S-185 $ 6.01, p. 19; Schaffer 8551(3-16)). However, all Applicants, irrespective of legal ownership, may have an investment responsibility in the designated CAPC0 transmission line, a responsibility which is equal to the fixed charges and operating expenses associated with that facility (see S-185, $$ 2.07 & 4.02, pp. 6& 15). That investment responsibility, or rental, is allocated among the Applicants on the basis of the ratio of the average annual peak loads of each Applicant for the three calendar years immediately preceding commitment of the facility (S-185, $ 4.02, p. 15; Schaf-fer 8551(17-18), 8562(3-8)). Once determined, the allocation (Continued next page)
| |
| | |
| l l
| |
| -123-CAPCO companies very definitely have not contracted among them-selves to provide transmission services pursuant to a service j schedule charging for the use of the facilities (Bingham 8307(4-9, 143/
| |
| 12-24)). Cons! tent with industry practice (Williams 10391 (1-11)), when energy is transferred from one system to another over the transmission lines of a third party, it is done on a
| |
| " buy-sell" basis (Smart 10138(11-15), 10144(16-22)). That is precisely the arrangement used by Applicants under the CAPC0 144/
| |
| contracts. Significantly, at no time has any Applicant refused 142/ (Cont'd) percentages apply for the life of the facility (S-184, $ 4.3.4,
| |
| : p. 9), even if the transmission line no longer serves any purpose (S-185, S 6.08, p. 23). As a result of that rental charge, each Applicant may in fact have a limited property interest in all jointly-planned transmission facilities. In such a case it could not even be claimed that the transportation of energy over such lines meets the FPC's physical definition of wheeling. More-over, whether or not any energy is transported over the jointly-l planned transmission facilities,each Applicant still bears the full cost of the entire grid. Under this arrangement the Appli-cants need never worry whether the costs will be recouped; for that total cost is borne directly by each company without regard to the use made of the facilities. That, of course, is not the case with respect to a wheeling transaction, nor has any non-Applicant ever sought to undertake such responsibilities. Com-pare D-185, p. 7 of proposal, where Cleveland explicitly attempted to avoid such responsibilities in its request for CAPC0 membership (cf. Williams 10374(19-2n)).
| |
| 143/ Applicants would note that, consistent with this analysis, Mr. Mozer, the NRC Staff engineering expert, testified in his filed direct testimony that the CAPCO Transmission Facilities Agreement
| |
| ' (S-185) involved " coordinated planning and development" and not
| |
| " transmission services (wheeling)" which he defined in a manner similar to the Licensing Board (S-205(Hozer) exh. HMM-4, p. 4).
| |
| 144/ At F/F No. 11 the Licensing Board cites a list of authori-ties for its proposition that the CAPCO companies " wheel" power.
| |
| Those references, however, only support our view that under the CAPCO contracts Applicants are committed to a transmission con-struction program and not a wheeling tariff (see D-558(Rudolph) 213-14); that when power is transported from one system to another it is done through a " buy-sell" contractual arrangement and not by way of any " wheeling" schedule (see S-184, p. 18; S-185; D-567 (Continued next page)
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| | |
| -124-to buy and sell power in this same fashion for a non-Applicant CCCT entity. What some of them have refused to do is enter into a very different kind of contractual arrangement which they have never had with one another and which Congress has specifically declined to require of electric utilities. See Consumers Power Co., supra, 2 N.R.C. at 75. Such behavior suggests no incon-sistency with the antitrust laws (id. at 76-79).
| |
| I III. Nexus The aforesaid analytical errors in the Initial Decision, resulting from the Licensing Board's wooden application of general l
| |
| antitrust theory to the electric utility industry in Ohio and Pennsylvania, are vulnerable to separate attack because of the treatment below of the nexuc issue which is an integral part of 145/
| |
| Section 105c review. Nexus was found to exist in the present
| |
| 'I case both in terms of " structural abuses" and in terms of "re-straints on specific outputs of the Davis-Besse and Perry plants" (I.D. at 217-18). Neither jurisdictional underpinning survives close scrutiny.
| |
| 144/ (Cont'd)
| |
| (Masters) 42-43; D-568(Lindseth) 25); and this is true for the Michigan buy-sell transaction (see D-567(Masters) 44-45; D-573 (Fredrickson) 177-78; D-576(Keck) 105-06), as well se 'c the delivery of an Applicant's entitlement in a jointly-ey a.aucted generating unit (see D-578(Sullivan) P38-40).
| |
| 145/ The Commission has already had occasien to spet- on the nexus requirement in Waterford I and II, supra. As there announced,
| |
| ! the grant of antitrust jurisdiction in Section 105c coincides with
| |
| ! the regulatory " jurisdiction" of the Commission, which is, of course, " limited to nuclear facilities" (Waterford II, supra, 6 A.E.C. at 620). Thus, it is only those antitrust consequences occasioned or perpetuated by issuance of a license for such facilities which are the legitimate concern of the Commission --
| |
| i.e., those inconsistent situations which 4111 be created or liaintained by " activities under the license" (42 U.S.C. 5 2135(c)).
| |
| | |
| i -125-A. STRUCTURAL NEXUS The " structural" excuse for finding a meaningful tie between the licensed activities, on the one hand, and the incon-sistent situations, on the other hand, rests on the conclusion
| |
| ! that:
| |
| As described i CAPCO memoranda, far more is contemplated than the mere extension of a line from the site of the proposed nuclear ,
| |
| station to the closest terminal of the Ap-plicant in whose service area of [ sic] the plant is to be located. Applicants are engaged in substantial planning studies and construction programs specifically intended to develop a plan for high voltage transmis-sion at low cost among CAPCO members. There will be commingling, but the commingling
| |
| , will be on an extraordinary scale. [I.D. at 219-20.]
| |
| Such logic effectively reads the nexus requirement out of the statute, and on the very reasoning which the Commission faulted in Waterford II (stee 6 A.E.C. at 620). The only difference,
| |
| ; if indeed there be one, is a matter of degree. Here, the "com-mingling" rationale is deemed sufficient because the CAPCO companies have, under the one-system concept, concededly planned the integration of nuclear generation into their systems extremely well (see, e.g., Hughes 3732(11-12)).
| |
| We readily admit to being mystified by such reasoning.
| |
| The planning and actual integration of nuclear energy into an electric system depends in no small'part on where the nuclear facility is geographically located in relation to the load centers a
| |
| to be served by the applicant company or companies. But whether such integration is accomplished by a " mere [line] extension" l (I.D. at 219) or by a comprehensive " plan for high voltage trans-mission" (I.D. at 220) does not alter the commingling " truism" which the Commission found wanting in Waterford II as a basis
| |
| | |
| f -126-946/
| |
| for the jurisdictional tie. Indeed, the presumption is that electric systems will routinely plan the integration of nuclear power into their system as efficiently and economically as pcssible.
| |
| This merely serves to reinforce the Waterford " truism", not negate it. There is thus still left the nagging question, unanswered below, as to what it is with respect to this well-planned and fully integrated nuclear generation that will create or maintain the spe-cific situation found to be inconsistent with the antitrust laws.
| |
| The Licensing Board points to the " pronounced effect on the overall economies" of nuclear generation (I.D. at 220) 146/ We cannot let pass the Licensing Board's side comment to the effect that the "necessary transmission expansion [to supply nuclear power to Applicants' load centers] would make it increasingly difficult for small utilities to obtain necessary approvals ta constrQct alternate transmission systems since these systems in essence would duplicate portions of an already adequate transmission system owned by Applicants" (I.D. at 221). If the Board has in mind an " alternate transmission system" directly tied
| |
| ; to the nuclear plants, we do not understand what conceivable purpose would be served by such duplication; Applicants have
| |
| ~
| |
| already committed their existing transmission network for purposes of transferring nuclear energy to requesting CCCT entities, and
| |
| .I also for backup purposes when a nuclear plant is down (see pp.133-34, infra.). If the Board's reference to " alternate transmission systems" contemplates an extension of lines to outside power sources, such " alternate transmission" would not as a factual matter " duplicate" the transmission system planned by Applicants i
| |
| to tie the nuclear facilities to their respective load centers.
| |
| l Moreover, Mr. Caruso testified that, even assuming some of the alternate transmission lines were to run parallel to existing lines for some distances, the Ohio Power Siting Authority wonld not withhold approval of new facilities where an adequate need j could be shown (Caruso 10973(15-23)', 10974(11-13), 10975(2-8)).
| |
| In this regard, Mr. Caruso was far more informed on the matter than was Mr. Mozer (compare Caruso 10967-70 with Mozer 3470-71,
| |
| . 3476-77, 3478-79). Plainly, if that "need" argument is in terms of obtaining access to outside power sources, and not in terms of ob-
| |
| ~
| |
| taining access to the subject nuclear facilities ~ (as it cannot be)
| |
| (see A-44), there is no basis for assuming Applicants' "trans-mission expansion" will have any impact whatsoever on a small utility's ability to obtain the necessary approval for its alter-nate transmission. Nor does the need of a non-Applicant system to construct such an " alternate transmission system" to outside ,
| |
| power sources bear any relationship to the nuclear activities '
| |
| being licensed in this proceeding.
| |
| | |
| -127-as reason to assume that Applicants will derive a competitive advan-147/
| |
| tage by virtue of the Perry ar.d Davis-Besse facilities. We would initially observe that, what appeared to Applicants several years
| |
| > j ago to be "the superior base load choice" (see, e.g., S-207(Hughes) 30-31(19-23 & 1-8); and see I.D. at 223 n.') may no longer be nearly so attrective from an economic standpoint (see Gerber 11545 (16), 11546(15-20), 11576(19-23)). Even passing that, however, whatever economies there still are in nuclear generation, the i record below makes it abundantly clear that they will be shared by 148/
| |
| the municipal electric system in the CCCT.
| |
| This is because all but three of those systems are whole-149/
| |
| sale customers of one or another of the Applicants. As such, I
| |
| they currently receive their power at Applicants' systemwide aver-
| |
| ' age embedded costs (A-190(Pace) 10(19-22)). "This means that all
| |
| ! 147/ It should be understood that such a finding is an absolute prerequisite to the Licensing Board's " structural" analysis. As Dr. Pace testified, there first must be made a " determination of whether or not the nuclear plant offers to its owners cost advan-t tages of such a magnitude that those excluded from access to the nuclear unit in question or to similar units are at a significant li competitive disadvantage" (A-190(Pace) 5(9-13)); if that is not the case, the analysis need be carried no further (id. at 5(24-26)).
| |
| 148/ Continuing Dr. Pace's analysis, in assessing the possible l
| |
| . ;( cost advantage offered by a nuclear unit, alternatives that must !
| |
| be considered are the possibility of wholesale purchase and self- l
| |
| . generation (A-190(Pacr) 7-8(13-26 & 1-15)). As is indicated below, both the wholesale power option (see pp. 127-28, infra) and the l ability to construct a small fossil-fired plant (see n.155, infra) I would offer non-Applicant CCCT entities a source of power at a
| |
| : j. cost competitive with Applicants' cost of nuclear power.
| |
| 149/ See nn.19 & 21, supra. As of the close of the record, only the cities of Painesville, Newton Falls and Orrville were not purchasing wholesale power from one of the Applicants. Painesville has entered into an interconnection agreement with CEI which pro-vides for the sale of power thereunder upon completion of the line (S-203; Hauser 10594(17-25); Pandy 3'120(7-22)). Similarly, Newton Falls has entered into a wholesale power contract with OE and is ,
| |
| only awaiting construction of the interconnection (see a-231). l Orrville has an interconnection agreement with Ohio Power Company !
| |
| (A-186; A-186a).
| |
| | |
| -128-i i
| |
| customers, wholesale as well as retail, share in the benefits derived from large scale and from advancing technology, and that all customers shoulder the cost burdens associated with inflation" (id. at 10(22-26)). In this manner, " wholesale power transactions provide a form of access to the nuclear units" (id. at 10(18-19)).
| |
| I Moreover, the record reflects that it is now a cheaper form of ac- ,
| |
| cess than direct participation by, say, a unit power purchase.
| |
| 1 Both Dr. Hughes and Mr. Kampmeier confirmed that at the present i
| |
| ! time wholesale power sold at Applicants' systemwide average embed-ded cost is below the cost of nuclear power (Hughes 3660-61(6-25 &
| |
| "i 150/
| |
| j' 1-6); Kampmeier 6042-44)).
| |
| Thus, the Licensing Board's reliance on nuclear economies as justification for its structural nexus rationale is entirely misplaced. The installation of the Perry and Davis-Besse facili-i ties will neither create nor maintain any situation inconsistent I
| |
| - with the antitrust laws so long as the companies offer to other electric entities in their service areas the option of purchasing wholesale power. (See A-190(Pace) 8-9(23-26 & 1-9), 11(9-12),
| |
| il
| |
| '' 14(7-9); Pace 11731(6-10)). It is undisputed on this record that this is precisely the situation in the CCCT, and that the munici-palities are taking full advantage of it.
| |
| [ Moreover, Applicants have~made clear that, in addition i
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| 150/ No evidence was offered by the opposing parties to indi-cate .that this situation is likely to be altered in the future.
| |
| The one attempt to make such a cost comparison on a projected
| |
| ; basis fell flat. Dr. Wein, to F s considerable embarrassment, finally had to admit that his s: 4ematic which showed wholesale costs and nuclear costs approac A;ng asymptotically (D-596; wein 7270-72) was simply incorrect. Rather, as he ultimately conceded (Wein 7286(9-14)), the correct result was the one depicted on
| |
| ;- exhibit A-105: so long as costs continue to rise, the incremental l cost of installing new.baseload nuclear generation will be above l' the then existing wholesale rate (Wein 7268(1-9)), and the dispar-l ity between the two will widen rather than narrow (Wein 7268(9-14)).
| |
| ( .._- - -- _. - ,- - . - . - .
| |
| | |
| -129-to (not in lieu of) the wholesale power purchase option, they are prepared to give to any municipal entity in the CCCT making a timely request therefor either ownership or unit power access to the designated nuclear facilities in reasonable amounts and on terms and conditions which provide for adequate transmission to deliver the nuclear power, or to furnish back-up support when the
| |
| . 151/
| |
| nuclear units are dcwn (A-44). This commitment is a matter of company policy adopted by each Applicant (see Tr. 8335-36). Not only does it remove any prospective concerns as to what "incon-sistent situations" the issuance of these licenses may create (see discussion at pp. 129-34, infra), but it also eliminates entirely whatever force may have been left to the " maintenance" argument.
| |
| Compare Municipal Electric Association v FPC, 414 F.2d 1206, 1209 (D.C. Cir. 1969) (provisions for access to hydroelectric plant "sufficiently guarantee that [the] project will not be used as part of [a group boycott]"). Indeed, as Dr. Pace pointed out, without contradiction below (A-190(Pace)'17(3-9)):
| |
| Given the subsidies provided to [ municipal and cooperative] utilities, providing
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| , proportionate access to nuclear units via ownership entitlements would represent a form of overkill. The impact of the nuclear unit on the competitive situation would be more than neutralized -- small municipal and cooperative systems would gain a new and very significant competitive advantage over the Applicants.152/
| |
| 151/ Applicants' offer of access to the nuclear facilities in the form set forth in A-44 was filed with the Licensing Board as proposed license conditions on March 15, 1975. That offer was subsequently extended to cover access to Davis-Besse 2 and 3 See
| |
| " Applicants' Reply To The City Of Cleveland's Petition For Leave To Intervene", filed April 8, 1975, p. 4 n.4.
| |
| 152/ See also A-190(Pace) 18-19(5-26 & 1). Dr. Pace defined (Continued ne', page) l L
| |
| | |
| f
| |
| -130-The Licensing Board's only retort seems to be that A-44, "while better than nothing" (I.D. at 222 n.Cs, fails to provide a complete response to the structural nexus argucent because its reserve sharing prov .~~n effectively " discourages the use of nuclear power from Davis-Besse and Perry for competitive purposes" 153/
| |
| (I.D. at 2,22). ~ This conclusion rests on the misguided belief that requiring a participating system to maintain reserves at least equal to its largest single block of nuclear power (A-44, 1 3(a), at pp. 5-6) imposes too heavy an obligation on a small 1 E2 / (Cont'd) the term " proportionate access" to mean that "the system seeking to share in a new unit would have to be limited to obtaining no greater proportion of its requirements from the new unit than that which the constructing system would obtain" (id. at 13(21-24)).
| |
| Such a limitation was considered necessary to eliminate the discriminatory pricing aspects inherent in ownership and unit power access (see id. at 9, 11-13, 14-18, 20). Significantly, even after removing these discriminatory aspects by means of affording proportionate access, Dr. Pace viewed the option of ownership -- which Applicants offer in A-44 -- as according to the customers of non-Applicant entities in the CCCT preferential treatment to the detriment of Applicants' customers.
| |
| 153/ While the Licensing Board also makes passing reference to a " denial * *
| |
| * of emergency and maintenance power," it simply misreads A-44 on this point. Applicants explicitly agree therein to provide back-up services when the designated units are down, whether for maintenance or due to an emergency (see A-44, 1 2(a)(ii) & (iii), at pp. 3-4). Moreover, in view cf the fact that the municipal entities in the CCCT are receiving firm whole-sale power from one or another of the Applicants on a full or partial requirements basis, in addition to whatever ownership or unit power access they may seek from the nuclear plants, the availability of emergency and maintenance power is assured.
| |
| We also take strong exception to the Licensing Board's marginal description of A-44 as containing "anticompetitive
| |
| - provisions -- i.e., restaints on resale or use of power by rival entities" (I.D. at 222 n*; see also id. at 237). A reading of A-44 is alone sufficient to discredit-that reading of Applicants' offer of nuclear acccess. What we suspect the Licensing Board had in mind, netwithstanding its calculated misuse of the plural pos-sessive, was the proposal for nuclear access formulated by CEI in response to Cleveland's requests (see D-192). That proposal does not, however, contain provisions which unreasonably restrain the resale or use of nuclear power (see pp. 150-53, infra).
| |
| 1 I
| |
| | |
| -131-entity seeking access to these units. In point of fact, such a requirement should never measure the upper limit of a participant's reserve r.esponsibility; instead, it will in almost every case set the lower limit.
| |
| This is because the reserve requirement set forth in A-44 contemplates that electric entities will make reasonable requests for nuclear access (see A-44, 1 1, at p. 3). Since nuclear power is baseload power, and economic only when used as baseload power, it is unrealistic to think that any entity will seek access to the nuclear units in excess of its baseload needs (see Kampmeier 5887(3-6)). However, the baseload portion of an electric system's load curve is never likely to exceed one-third of the system's peakload (Kampmeier 5887(7-17)). Thus, even if an entity were te satisfy 100% of its baseload needs out of a single nuclear unit, its reserve obligation under A-44 would not exceed 33% of its peakload. Moreover, if that entity were to make the sounder engineering decision to divide its baseload requirement among at least two plants (Kampmeier 5944(6-14); A-122(Firestone) 25-27), its reserve obligation would be only 17% of its peakload.
| |
| Such a reserve responsibility is nei,ther onerous nor unreasonable. In all probability it is below what the requesting entity would prudently set for itself irrespective of any require-154/
| |
| ment imposed by A-44. In no circumstances can it legitimately 154/ Since five nuclear plants are being licensed in this pro-ceeding, a CCCT entity has the option of satisfying its baseload needs (or any portion thereof) out of two or more facilities over a period of time to allow for-its projected load growth. By so doing, the participant can reduce even more its minimum reserve obligation while providing for itself at the same time a more reliable source of bulk power.
| |
| m
| |
| | |
| J
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| -132-i be said to act as a barrier to participation in the Davis-Besse i
| |
| 1 or Perry facilities on an ownwership or unit power purchase basis.
| |
| Accordingly, even on.the mistaken assumption that a structural nexus can be found on a showing that the commingling of nuclear power into Applicants' system has taken place "on an extraordinary scale" (but see Waterford II, supra, 6 A.E.C. at 620), there is no basis on this record properly to conclude that uuch commingling will either create or maintain any undesirable situation in the
| |
| ; 155/
| |
| CCCT, be it incor.sistent with the antitrust laws or otherwise.
| |
| 155/ Further support for this conclusion is found in the colloquy with Mr. Kampmeier on cross-examination below. Although somewhat disjointed, that exchange indicates that, given a munici-pal or cooperative system's lower cost of money, due to both tax and financing advantages conferred on such electric entities (see also A-190(Pace) 17(10-19)), a single or small group of such systems may well be able to build a small coal-fired plant in Ohio or Pennsylvania and get power at a total cost equal to, or closely approximating, the cost of power to Applicants from the
| |
| , large nuclear. facilities being licensed (Kampmeier 5894-921).
| |
| Mr. Gerber was even more confident that such could be the expected result (Gerber 11151-70). The availability of such an option provides the non-Applicant CCCT entities with the ability to obtain an independent power resource on a cost basis that would permit wholesale comp'etition with Applicants -- if tnat -
| |
| is really desired. It would, moreover, require these " wholesale competitors" to assume much the same planning, managing and
| |
| ; operating responsibilities that Applicants presently undertake,
| |
| ; thereby providing the stimulus for greater efficiencies that must exist if competition'is to be viable (cf. A-190(Pace) 19(8-16); ---
| |
| I Gerber 11567-68(22-25 & 1)).
| |
| The Licensing Board's dismissal of this alternative as "so frivolous as not to require elaborate discussion" (I.D. at 238), is understandable in view of its careful reformulation of the argument advanced. Thus, the Initial Decision sets up for easy rejection the " straw man" argument, which-it ascribes to Applicants, that non-Applicant CCCT entities can build small
| |
| . fossil-fueled plants at a cost lower than the construction costs Applicants would assume building "the same small less efficient
| |
| ; fossil-fueled plants" (I.D. at 238, emphasis.added). That is l clearly not the premise advanced by Applicants or addressed by either Mr. Kampmeier or Mr. Gerber. Rather the cost comparison, as noted above, is between a municipality's small fossil-fueled plant and Applicants' large nuclear plants. Had the Licensing ,
| |
| + Board focused on that premise, it would have had no trouble with
| |
| .the conclusion Applicants advance.
| |
| 1 L
| |
| : m. . . . . . . . , , , . . , . . _ _ ._ . - . . . . . _ _ _ , _ . , _ . . - , _ _
| |
| | |
| -133-Nor is this conclusion reached in disregard of the " wheel-ing" provisions in A-44 (see 1 2, at pp. 3-5). Applicants' offer of access specifically provides for sufficient transmission services to assure delivery of the nuclear power to the purchaser and to back up that power during maintenance periods or in times of an emergency (either from Applicants' own systema or, if requested, by wheeling in power from another source). Dr. Pace considered this to be " clearly * *
| |
| * sufficient" (A-190(Pace) 24(25); and see id. at 21(4-9)). Moreover, as Cleveland's expert witness, Mr.
| |
| Mayben, observed, such a transmission; obligation allows entities participating in the units to engage in coor/.nated operation and development with respect to those units (Mayben 7601(4-8)). If
| |
| " reasonable access" contemplates participation in nuclear genera-tion for purposes of satisfying all or part of an entity's baseload needs (Kampmeier 5887(3-6); A-190(Pace) 8(10 .5), 21(14-15)),
| |
| plainly no additional transmission is needed.
| |
| Perhaps even more significant is the fact that any trans-mission services other than those provided for in A-44 have no tie whatsoever to the nuclear units. Such additional " wheeling" is certainly not necessary in order to insure that " activities under the license" will be free from antitrust implication. Indeed, Congress has long taken the view that no legitimate public interest will be served by imposing a general wheeling requirement on the 156/
| |
| electric utility industry. We are hard pressed to understand 156/ See Consumers Power Co., supra, 2 N.R.C. at 75 ("[i]n the electrical industry, there is no act of Congress requiring wheelinc as a public utility" notwithstanding "[f]orty years of effort" 'o enact such "a requirement * * '").
| |
| l
| |
| | |
| -134-why the commingling of nuclear power into Applicants' respective systems, even if done "on an extraordinary basis", should provide any excuse for suddenly compromising that sound legislative judgment. It is not the function of this Commission, under
| |
| * the guise of antitrust review, to restructure the industry by requiring wholesale dedication of investor-owned rtilities' transmission lines to common carrier usage having no nexus to the subject nuclear facilities. The Licensing Board's insistence on overreaching its legitimate jurisdictional responsibility under Section 105c to foster such a result is entitled to no respect on appeal.
| |
| B. PARTICULARIZED NEXUS Sensing the infirmity of its structural nexus position, the Licensing Board found in the alternative that there existed on this record six " situations" of-anticompetitive conduct having a direct relationship to the licensed activities (I.D. at 224).
| |
| Basically, we have no conceptual difficulty with this more par-ticularized approach to the nexus issue, which is decidedly t
| |
| required by the statute. As pointed out in Consumers (pwer Co.,
| |
| , supra, 2 N.R.C. at 51, "[t]he question of nexus remaira a primary and predominant matter which must be resolved as to each alleged l
| |
| l anticompetitive practice" (emphasis added). The Commission so instructed in Waterford II, placinc similar emphasis on the need to link the licensed activities to particular "anticompetitive practices" said to exist or to have a reasonable probability of existence (6 A.E.C. at 621).
| |
| It is, after all, the nature and extent to which the
| |
| | |
| -135-activities under the nuclear licenses will be " misuse [d]" that lies at the heart of the Section 105c inquiry. Consumers Power 157/
| |
| Co., supra, 2 N.R.C. at 55. Thus, to the degree antitrust
| |
| ~
| |
| condemnation is warranted,' such'a audgment necessarily must be confined to those specific antitrust practices that can be tied directly to the planning, construction and operation of the subject plants. All others "however serious -- which have no substantial connection with the nuclear facilit[ies], are be-yond the scope of antitrust review under the Atomic Energy Act" 158/
| |
| (Waterford II, 6 A.E.C. at 621). ,
| |
| However, the Licensing Board's " particularized" analysis of the nexus question pays no heed to this Waterford II instruction.
| |
| Instead, the conclusion is reached b6.'ou that the six "significant direct relationships" set forth in the Initial Decision (I.D. at 224-227) are sufficient to sustain a finding of nexus as to all the other inconsistencies found to exist. This is patently wrong.
| |
| 152/ As stated in the Joint Committee Report accompanying the 1970 amendments, the essential inquiry is "whether * *
| |
| * it is reasonably probable that activities under the license would.,
| |
| when the license is issued or thereafter, be inconsistent with any cf the antitrust laws or the policies clearly underlying those laws" (H.R. Rep. No. 1470, 92d Cong., 2d Sess., reprinted in [1970]
| |
| U.S. Code Cong. & Ad. News at 4494).
| |
| l-l 158/ It is for this reason that Applicants argued throughout the proceeding that the Licensing Board shoula at the outset ascer-
| |
| ,L tain which of the alleged antico ,etitive practices were, on the j basis of the pleadings and the Sepuember 5 Filings, shown to have a sufficient tie to the licensed activities to warrant consideration at the evidentiary hearing. See Applicants' Memoranda filec with the Licensing Board on the following dates: May 10, 1974;' August 15, 1974; November 19, 1974; April 21, 1975; September 15, 1975; September 23, 1975; october 7, 1975; October 8, 1975; October 30,
| |
| ;- 1975. And see Applicants' Prehearing Brief at 121-43. Instead, the Licensing Board, contrary to the admonition in Waterford II, proceeded to hold a hearing in indiscriminate fashion on "all .
| |
| alleged anticompetitve practices in the electric utility industry" l (6 A.E.C. at 621). In so doing, it was clearly in error.
| |
| | |
| -136-At best, the referenced " unreasonable restraints on the dispostion or use of power to be generated by the licensed facilities" (I.D.
| |
| at 224) -- if the factual record below actually supported any of 159/
| |
| ~
| |
| l them -- establish a nexus only as to each of those itemized
| |
| " situations". Thus, in these six particulars alone (assuming arguendo their correctness) is there a basis for finding an anti-
| |
| . trust inconsistency resulting from " activities under the license";
| |
| and it is only as to each such " situation" that relief in the form of license conditions could properly be framed (see Part V, infra). .
| |
| In this connection, we cannot help but note the paucity of "anticompetitive" conduct which the Licensing Board was able to relate to the nuclear facilities. _
| |
| In fact, nothing that TECO and PP have been accused _of doing could _(for good and obvious reasons) be faulted under the Licensing Board's " particularized nexus" test (see I.D. at 224-227). Of course, Applicants' position throughout the proceeding has been that the myriad of antitrust allegations raised by our adversaries were not for this forum in light of the jurisdictional limits imposed by Section 105c (see n.158, supra).
| |
| It is unfortunate that so protracted and expensive an evidentiary 159/ Significantly, each of the six " unreasonable restraints" selected by the Licensing Board are. factually inaccurate and cannot
| |
| ~
| |
| withatand a full review of the evidence. Thus, as to situation "(A)"
| |
| relating presumably to OE (I.D. at 224), it depends on testimony of Mr. Lyren which was in fact recanted on cross-examination (see pp. 213-15, infra). Situations "(B)", "(C)" and "(E)", relating presumably to CEI (I.D. at 224-225), make reference to anticom-petitive restraints on offers of nuclear access which are belied by the record (see pp. 150-53, 176-82,, infra). Situation "(D)",
| |
| relating presumably to DL (I.D. at 225-26), is likewise contrary to the evidence (see pp. 106-09, supra, and pp. 274-77, 280-82, infra). Finally, Situation "(F)", relating oresumably to all Applicants (I.D. at 227), which even on its own terms does not suggest an unreasonable restraint, is simply factually inaccurate (see pp. 147-48 & n.174, infra).
| |
| | |
| -137-h20 ring hnd to be undortokcn to confirm this point -- espacially since it was so obvious from the beginning. Just as regrettable is the fact that the Licensing Board, having launched itself on much a wayward journey, declined at the conclusion to give a fair reading to the extensive factual record it unnecessarily forced the parties to compile. The many errors that resulted from its selective, and even in some instances distorted, reading of the
| |
| ~
| |
| evidence, are set forth below.
| |
| IV. The Factual Record The fault to be found with the Licensing Board's findings of fact is as overwhelming as the errors already exposed in its antitrust analysis and nexus pronouncements. Thus, the Initial Decision contains numerous " findings" which, by necessity rather than oversight, are without record support. In addition, a large set of facts material to the inquiry at hand and fully supported by the evidence below were conveniently ignored by the Licensing Board. The extent of the error in this regard is so great as to render suspect the entire fact-finding process, and, in view of the Appeal Board's conclusion that the weight to be accorded to an initial decision under review is limited to "the probative force it intrinsically commands" (Niagara Mohawk Power Corp. (Nine Mile Point Nuclear Station, Unit 2), ALAB-264, 1 N.R.C. 347, 356 (1975)),
| |
| a thorough re-examination of the entire record below is plainly.
| |
| 160/
| |
| required.
| |
| 160/ It is clear beyond peradventure that in reviewing an initial decision this Appeal Board is not fettered by a substan-tial evidence test as a court reviewing a decision of this agency
| |
| * auld be, but_that "[o]n appeal from or review of the initial decision, the agency has all the powers which it would have in making the initial decision * * *." 5 U.S.C. 5 557(b); see Duke Power Co.-(Catawba Nuclear Station, Units 1 & 2), ALAB-355, 4 Nih.C. 397, 402-05 (1976).
| |
| | |
| -138-In undertaking that re-examination, this Appeal Board
| |
| ^
| |
| 4 should bear in mind two particular objections Applicants have with
| |
| ) the factual findings rendered by the Licensing Board. First, the f..
| |
| Licensing Board casually asserted as fact allegations which were i
| |
| hotly disputed below. By frequently ignoring the evidence directly 1
| |
| contrary to that relied upon, and providing no explanation as to
| |
| ~
| |
| the basis for its choice, the Licensing Board not only violated the settled principle that reasons be provided for decisions on 161/
| |
| disputed material facts, but also severely hampered the process of. review by submerging _the true controversies beneath a bland _
| |
| ,, 162/
| |
| , , refusal to acknowledge that_controver_sy_ exists.. . Second, _ _
| |
| ,' the Initial Decision consistently failed to provide a rational i'
| |
| basis for the Board's leap from a primary fact to an ultimate conclusion -- for example, its leap from statistical dominance to i
| |
| 161/ See 5 U.S.C. 5 557(c)(3)(A) (decision must include a '
| |
| statement of " findings and conclusions, and the reasons or basis therefor, on all the material issues of fact, law or discretion ,
| |
| presented on the record"); 10 C.F.R. $ 2.760(c)(1).
| |
| {
| |
| 162/ In Greater Boston Television Corp. v FCC, 444 F.2d 841, 851 (D.C. Cir. 1970), cert. denied, 403 U.S. 923 (1971), Judge 1L Leventhal explained in comprehensive terms the need a reviewing body has for such reasons:
| |
| The function of the court is to assure that the agency has given reasoned consideration to all the material facts and issues. This calls for insistence that the agency articu-
| |
| {l~ late with reasonable clarity its reasons for
| |
| ;' -decision, and identify the significance of the crucial facts, a course that tends to assure that the agency's policies effectuate
| |
| - general standards, applied without unreason-able discrimination. As for the particular
| |
| -subject of_ comparative hearings, the findings
| |
| ~
| |
| must cover all the substantial differences between the applicants and the ultimate conclusion must be based on the composite i- consideration of the findings as to each .
| |
| ;- applicant.
| |
| I
| |
| , - + - ec , -*,,-e - 3e -y,. -e,- - - .-----,---n .,%.,-.---------wm-,---.-- -
| |
| w- - , -- * -ww.-
| |
| | |
| 9+
| |
| -139-
| |
| ~
| |
| monopoly power. By failing to " articulate [a] * *
| |
| * rational connection between the facts found and the choice made" (Burlington '
| |
| Truck Lines, Inc. v United States, 371 U.S. 156, 168 (1962)), it is not possible to determine if the Licensing Board has "really taken a 'hard look' at the salient problems, and has * *
| |
| * genuinely engaged in reasoned decision-making" (Greater Boston
| |
| ~
| |
| Television Corp. v FCC, supra, 444 F.2d at 851), as this Appeal Board 163/
| |
| must do if it is to affirm the decision below.
| |
| With these principles in mind, we can now turn to a detailed examination of the voluminous record compiled during the course of the seven-month evidentiary hearing, and an evalua-tion of the facts gleaned by the Licensing Board from that record.
| |
| Each Applicant's response to those findings is discussed seriatim.
| |
| A. CLEVELAND ELECTRIC ILLUMINATING
| |
| * The basic thrust of the allegations against CEI relate to its dealings with Cleveland; only to a much lesser extent is
| |
| ;l its conduct towards Painesville called into question. In approach-ing the CEI-Cleveland relationship, there are three principal s factors -- all totally ignored by the Licensing Board -- which have a direct bearing on the present antitrust inquiry.
| |
| ~
| |
| First, since early 1971 Cleveland has been litigating 163/ In National Ass'n. of Food Chains v ICC, 535 F.2d 1303, 1314 (D.C. Cir. 1976), a decision of the ICC was vacated for its failure to provide adequate discussion of the competing consider-
| |
| . ations that had been rejected. The court reasoned that "[a]n l order 'cannot be upheld merely because findings might have been made and considerations disclosed which would justify its order as l an appropriate safeguard for the interests protected by the Act.
| |
| l' There must be a responsible finding * * *.' SEC v Chenery Corp.%
| |
| 1 318 U.S. 80, 94 (1943)."
| |
| * Primary responsibility for the preparation of this section of the Appeal Brief was assumed by CEI's corporate counsel,with the assistance of Squire, Sanders & Dempsey.
| |
| | |
| -140-before the FPC various matters relating to the terms and conditions of an FPC-ordered interconnection between itself and CEI. As a result of that ongoing litigation, the FPC has been actively supervising not only the rates at which CEI provides bulk power electric service to Cleveland (see A-20, pp. 5-11, 12-13; A-21, pp. 2-7; A-202) and the terms and conditions under which that service is provided (see A-19; A-20, pp. 4-5, 11-12; A-21, pp. 7-8; A-22), but also the conduct and progress each of the parties has made in meeting the orders of that agency, including allegations of anticompetitive conduct (see A-18; A-20, pp. 13-15; A-23; A-100; A-101; A-201). This supervision, as earlier noted (see pp. 77-79, 85-88, supra), denies CEI the ability to control prices or exclude
| |
| , competition, and thereby precludes a finding that CEI now possesses monopoly power or is reasonably likely to possess such power in the future.
| |
| Second, the interconnection ordered by the FPC, and the contracts subsequently negotiated by the parties with respect there-to, have radically changed the " situation" from what it was in the mid-1960's or even the early 1970's. Nhile one would never-know it from the tone of the Initial Decision, the parties have estab-lishes a synchronous 138 kv interconnection between their two electric systems, over which CEI provides to Cleveland emergency power (S-204, service sch. A, 55 2 3 & 3 2), short-term power (id, ,
| |
| at 55 2.4 & 3 3), limited-term power (id. at SS 2.5 & 3.4), and firm power service (A-271, service sch. B). In addition, the parties have been negotiating a transmission service schedule (see D-177; A-75; A-76; A-78; A-79; A-80, p. 3; A-83; A-E4; A-86; A-96; A-97). Moreover, CEI has, as all the Applicants have (see
| |
| : p. 129, supra), offered to Cleveland the benefits of nuclear
| |
| | |
| -141-gcncration (A-44). CEI has ovcn taken tha cdditional stop of providing Cleveland with a detailed participation proposal 164/
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| (D-192). It is within this framework that the case against CEI must be decided, an approach clearly not taken by the Licensing Board.
| |
| Third, the actions and motives of Cleveland also must be evaluated within the context of the ongoing FPC dispute. The record below makes abundantly clear that Cleveland has always acted with the purpose and intent of bolstering its position before the FPC and increasing its leverage over CEI at the bargaining table.
| |
| In fact, the history of this proceeding clearly shows that Cleve-land's intervention was merely another part of its legal maneuver-165/
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| ings in connection with the FPC proceeding.
| |
| 164/ That proposal, which was tailored to Cleveland's August 3, 1973 request, provides for either ownership or unit power partici-pation in the four nuclear facilities identified by Cleveland, and in the quantities specified (D-192, $$ 1.1 & 1.13; Hauser 10528(14),
| |
| 10583(22-25); Williams 10388(14-22); Mayben 7782(8-11), 7792(15-17),
| |
| 7797(16-22)). The offer states further that CEI: (a) will provide transmission services on its 345 kv network (as requested by Cleve-land) to deliver Cleveland's entitlement of power from the nuclear facilities to Cleveland (see D-192, S 3); (b) will schedule and dispatch Cleveland's entitlement of power for the benefit of Cleve-land and as requested by Cleveland (see D-192, S 4.1); and (c) will provide emergency and backup support for Cleveland (see D-192, 5 4.3). Finally, CEI made a commitment to communicate on a timely and consistent basis with Cleveland as to future load and power supply plans; to freely exchange information regarding planning, engineering, dispatching, maintenance and. fuel supply activities of each system; and to cooperate and assist Cleveland in obtaining participation in future nuclear generating units in which CEI is a joint participant with other utilities (see D-192, S 2.1).
| |
| 165/ Precisely because of the ongoing FPC proceeding, the NRC Staff, in reponse to Cleveland's Davis-Besse 1 intervention peti-tion, proposed that: "[A]ny hearing held in this matter be post-poned until the Federal Power Commission issues a final decision on the question of the interconnection * * * [so as to] obviate duplication of efforts and materially assist the Commission in considering the antitrust contentions raised in this matter." See
| |
| " Answer of AEC Regulatory Staff to Petition of the City of Cleve-land to Intervene and for a Hearing," dated February 7, 1972, at l p. 4. The Licensing Board, however, chose to conduct its own review as if the FPC proceedings had never existed.
| |
| | |
| -142-That legal odyssey began in 1971 when Cleveland first filed its complaint with the FPC (see A-18, p. 1). Throughout the long and multifaceted proceedings before that administrative body, Cleveland sought to avoid the obligations and responsibilities it was ordered to undertake by the FPC. Cleveland's approach was disarmingly straightforward: it would simply not comply with the orders (see e.g., A-23; A-212); it would simply not pay CEI for the
| |
| , services i'; was receiving pursuant to those orders (see, e.g. , A-135; A-140); it would simply shop around for a fresh forum to hear its complaints, and thus enhance its bargaining position with CEI.
| |
| The fresh forum Clevel2nd eventually focused on was the then Atomic Energy Commission with its virgin "prelicensing anti-trust review" procedures and the pressures of project delay inherent in such procedures. The excuse Cleveland used to seek a further review of its claims was CEI's application in March, 1973, to build and operate the Perry Plant (see S-154). A few years earlier (July 6, 1971), Cleveland had sought to intervene in the Davis-Besse 1 proceeding and no action had ever been taken on that peti-tion.' But the lesson from that rebuf seemed quite clear: Cleveland need only create a paper record by writing a letter to CEI asking for CAPCO membership (6-181); on second thought, Cleveland might ask for nuclear access, too -- the second thought occurred to 166/
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| Cleveland nine days after it wrote its CAPCO letter (D-182).
| |
| 166/ One month after CEI's permit filing for Perry, the letters were written. They were not written by the Mayor of Cleveland, or by Cleveland's Director of Public Utilities, or by Cleveland's l Commissioner of Light and Power, or by the President of the Cleve-l land City Council, but came out of the Law Department (see Hart
| |
| : l. 4936-37(18-25 & 1-8)) and were signed by Cleveland's Director of (Continued next page) l l
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| | |
| r
| |
| -143-From the very outset it was crystal clear to CEI (see D-291, p. 22; D-190; D-191, p. 2; D-192, p. 2; A-64, p. 2), and we wouJd have thought it would have been similarly obvious to the Licensing Board, that Cleveland had neither the technical expertise nor the financial capability to purchase an interest in nuclear generation or to participate in the CAPCO pool. CEI's worst fears -- i.e., that Cleveland's " requests" had been made solely for the purpose of exerting greater leverage in its continu-ing negotiations and struggles with CEI before the FPC -- were shortly confirmed. In testimony at public meetings of the Utilities and Finance Committees of the Council of the City of. Cleveland on March 4 and 5, 1974, Raymond Kudukis, Director of, Cleveland's Department of Public Utilities, unabashedly stated that Cleveland's
| |
| " requests" were a negotiating ploy, in effect, no more than a sham.
| |
| ; Mr. Kudukis testified that it was not the intention of Cleveland to become a member of CAPCO (Gaul' 12433-34(20-25 & 1-3)) nor to acquire an ownership interest in or participate in nuclear generating facilities (Gaul 12434-35(24-25 & 1-9)). He acknowledged to those _
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| committees that it was a fair statement that the requests with s 166/
| |
| ~
| |
| (Cont'd)
| |
| Las -- a rather ominous harbinger. In respense to these letters,
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| ; CEI suggested a meeting (D-183); however, nothing further was heard from Cleveland for four months.
| |
| ~
| |
| ~
| |
| Then, on August 3, 1973, Cleveland's Director of Law again wrote to CEI, with copies to the chief executives of each of the other CAPCO companies, requesting admission to the CAPCO pool and presenting a special program for participation not only in the Perry units -- as had been requested in the earlier letter -- but also in other, specified nuclear plants (D-185). This program for CAPCO participation was not only special, it was preferential, affording to Cleveland benefits and privileges not available to the other CAPC0 companies (see pp. 147-48, infra).
| |
| Even so, CEI acceeded to all of Cleveland's demands for participation in specific facilities (D-192; Mayben 7782(5-19), 779 ;15-25),
| |
| 7797(16-22)).
| |
| l l
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| n - -, . -- -- --- . , .
| |
| | |
| r
| |
| -144-respect to CAPCO membership and nuclear access could be charac-terized as maneuvering to obtain a more favorable negotiating f
| |
| position for the purchase of power frem CEI (Gaul 12433-34(24-25 r'
| |
| 167/
| |
| & 1-3)).
| |
| This outrageous abuse of the administrative process by Cleveland has been perpetrated upon this Commission only because the Licensing Board inexcusably chose to close its eyes and ears to every single bit of this evidence, and without so much as even a passing, explanatory footnote. Had it not proceeded in such ostrich-like fashion, Cleveland's requests and CEI responses would obviously have been perceived in an entirely different light. For a fundamental threshhold question to be answered in connection with Cleveland's allegation of a refusal by CEI to deal, or even i of a group boycott, is whether "a firm demand or offer to buy" had r been made by Cleveland; a mere expression of desire or statement
| |
| ! 168/
| |
| of need is legally insufficient. In this regard, any demand
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| [ must be "on a bona fide basis" and must indicate that the request-169/
| |
| ing entity was " ready, willing and able to pay." A refusal to i
| |
| 167/ See Kudukis 12727-28(24-25 & 1-3, 14-19), 12729(16-18, 23-25), 12730(1, 6-7, 12-21, 23-25), 12731(1-2, 6-21), 12732(5-17).
| |
| Mr. Kudukis' testimony of Ma'rch 5, 1974, was tape-recorded (C-168),
| |
| and is transcribed in the record at 12726-37. See also A-213; A-281; A-282. ,
| |
| 168/ Cleary v National Distillers & Chemical Corp., 505 F.2d 695, 697 (9th Cir. 1974); see also Dahl, Inc. v Ray Cooper Co.,
| |
| supra, 448 F.2d at 19; Royster Drive-In Theatres, Inc. v American Broadcasting-Paramount Theatres, Inc., 268 F.2d 246, 251 (2d Cir.), cert. denied, 361 U.S. 885 (1959); Webster Rosewood Corp. v Schine Chain Theatres, Inc., 263 F.2d 533, 536 (2d Cir. 1959).
| |
| 169/ Standard Oil Co. v Moore 251 F.2d 188, 198-99 (9th Cir. 1957).
| |
| (Continued next page) i
| |
| | |
| -145-deal on special terms is not tantamount to an absolute refusal l l
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| to deal (see Daily Press, Inc. v United Press International, 412 F.2d 126, 135 (6th Cir. 1969)), especially where the request for preferential treatment is made precisely because the requesting 170/
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| entity is in no position to deal on the normal basis. This settled principle obviously has special application here, and further undermines the Licensing Board's faulty analysis below --
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| which is, in any event, not supported by the factual record that has been fantastically distorted in the Initial Decision to reach what could only have been a predetermined result.
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| : 1. , Cleveland's recuest for nuclear access and CAPCO 171/
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| membership. The Licensing Board states that "[c]ommencing 169/ (Cont'd)
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| The question presented was whether a demand for supplies of gaso-line had actually been made by a gasoline retailer and refused by certain of the major oil companies. While the court ultimately
| |
| .i found a refusal to deal, it did state:
| |
| [I]t could not be found that a particular source of 3
| |
| supply was unavailable to [a retailer] unless it were i shown that he offered, on a bona fide basis, to pur-chase gasoline and diesel fuel oil from such source, and that he was ready, willing and able to pay the current market price of such source applicable to. retail gasoline dealers of [his] classification and category, and that such source refused to sell to him at its current market price applicable to dealers of that
| |
| ;_ classification and category. [ Emphasis added.]
| |
| 170/ Compare Milwaukee Towne Corp. v Loew's, Inc., 190 F.2d 561, 568:39 (7th Cir. 1951) (refusal to deal claic rejected for lack of bona fide demand).
| |
| a 171/ It should be clear at the outset that nuclear access and CAPU5 membership are two separate and distinct issues (and see nn.
| |
| 173 and 176, infra). They are being treated together only because Cleveland's requests treated these issues as one and it was within that framework that CEI r,esponded to the requests. The Licensing Board, however, perceived a superficial nexus between access to Perry and membership in CAPCO because Karl Rudolph's letter of l April 17, 1973 (D-183) indicated that Cleveland's requests " raise l'
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| (Continued next page)
| |
| | |
| -146-March 1971, Cleveland requested participation in nuclear generation available to CEI through CAPCO membership" (I.D. at 81). That is simply untiae and we are therefore not surprised that no record citation could be found to support this " finding". What the evi-dence in fact shows in that Herbert Whiting, Cleveland's Director of Law, first wrote to Karl Rudolph on April 4, 1973, requesting
| |
| " admission to and participation in the CAPC0 Power Pool" (D-181);
| |
| no mention was made of nuclear generation. However, one week later, on April 13, 1973, Whiting wrote again to Rudolph, this time requesting " access to the Perry Plant either through the purchase of unit power or through ownership participation," but making no mention of CAPCO membership (D-182). Four days after receipt of this second letter Rudolph wrote back suggesting that Whiting arrange a meeting with Lee Howley, then CEI's General 172/
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| Counsel, to discuss both requests (D-83). Cleveland did not, 171/ (Cont'd)
| |
| 'l the sate questions" (see I.D. at .202). Far from indicating a
| |
| " direct nexus", that statement merely confirms what we have pre-viously noted -- i.e., that the benefits of coordinated operation and development can be achieved in many ways, not all of which involve direct participation in a power pool (see pp. 104-05 supra).
| |
| i In this case, CEI believed for good and legitimate reacons (see pp. 109-11, supra) that the most advantageous way to proceed was for Cleveland to participate directly in the nuclear units and not by executing all of the CAPCO multiparty contracts (see D-188).
| |
| 172/ The Licensing Board correctly notes that at the time of his response to Cleveland, Rudolph also forwarded copies of Cleveland's correspondence to the other CAPCO companies and the matter was an agenda item at the April 27 meeting of the Executive Committee (I.D. at 200-01). The minutes of that meeting show only that the nature of CEI's response to Cleveland a.d the status of the meeting suggested in that response were discussed (D-98, p. 9).
| |
| What inference the Licensing Board would draw from these facts is obscure. We have already noted why it should be expected that
| |
| ; such communications would take place (see pp. 112-13 , supra). If anything the facts confirm that CEI was acting unilaterally, and, j (Continued next page)
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| | |
| -147-however, immediately pursue the meeting with Howley. Instead, it deferred arranging that meeting pending preparation of a specific proposal which was not forwarded to CEI until August 3, 1973
| |
| ( D- 185 ) .' In this proposal Cleveland now combined its requests for CAPCO membership and access to nuclear generation, broadening the latter to include access to the Beaver Valley and Davis-Besse facilities as well as the Perry Plant. The absolutely essential fact to keep in mind -- which was simply and inexcusably brushed away by the Licensing Board (I.D. at 201, n.') -- is that the 173/
| |
| Cleveland proposal wa s inherently contradictory.
| |
| In order for CEI to provide a meaningful response to these inconsistent requests, CEI studied all conceivable benefits 174/
| |
| to Cleveland from full participation in CAPCO (D-292; C-146),
| |
| 172/ (Cont'd) only after its response had been formulated, were copies sent to the other Applicants for clearly legitimate informational purposes
| |
| ( see , e.g. , D-264) .
| |
| 173/ Although Cleveland ostensibly proposed " full membership in CAPC0" (D-185, p. 2 of proposal), the conditions, qualifica-tions and types of participation it actually specified are clearly inconsistent with CAPC0 membership (Williams 10373-74 (21-25 & 1-10)), and appear to be more tailored to a bilateral arrangement between CEI and Cleveland. For example, the request to participate in four specific CAPCO generating units and in specified amounts (D-185, p. 3 of proposal) is contrary to CAPCO planning principles on allocation of capacity (see Williams 10374(16-18)). Similarly, Cleveland's statement that it "will dedicate generating capacity to planned reserves in proportion to the percentages dedicated by the CAPCO participants" (D-185,
| |
| ! p. 5 of proposal) is at odds with the entire theory of CAPCO reserve planning, which does not levelize reserve percentages among members (see pp. 113-20, supra; Williams 10374(12-15)).
| |
| 174/ At various places thoughout the Initial Decision (see I.D.
| |
| at 209-10, 227, 237) the Licensing Board relies on a January 11, 1974 memorandum t,y Victor Greenslade, a CEI attorney (D-292; C-146), to establish that CEI's counterpropostl offered Cleveland less benefits than what full participation in CAPCO would offer.
| |
| (Continued next page)
| |
| | |
| -148-as well as the disadvantages likely to result (Williams 10381-87).
| |
| In particular, CEI studied the nuclear participation phase of Cleveland's requests, and concluded that an offer of nuclear participation as requested by Cleveland (D-188), coupled with an interconnection agreement for synchronous operation at 138 kv (D-191), would, in fact, give Cleveland more advantages than Cleveland would obtain by formally executing all the CAPCO con-tracts (Williams 10387-99; see also pp. 110-11, suora). On this
| |
| , basis, nuclear access was offered to Cleveland and in the quan-tities and from the particular units contained in Cleveland's August 3, 1973 request (see D-192).
| |
| At this point,the Licensing Board attempts to obfuscate what actually occurred by confusing and misstating the chronology of events that followed. Thus, by making reference to a memoran-dum reflecting the position CEI intended to take in negotiating 175/
| |
| license conditions with DOJ, it asserts incorrectly that by 174/ (Cont'd)
| |
| However, on its face that memorandum sets forth nothing more than
| |
| .. What the author anticipated Cleveland might argue in this proceed- '
| |
| ing. It concludes with the statement, conveniently overlooked below, that (id. at 2): "Against the so-called benefits which have been suggested above, of course, must be weighted the cost to the l
| |
| Municipal Light Plant as a price for membership in the CAPCO Group" l' (emphasis added). That position is, of course, entirely consistent with, and fully supportive of, CEI's posture throughout.
| |
| 175/ Minutes of the August 8, 1973 meeting are found in a run-l ning chronology of this proceeding kget by Donald Hauser (see l D-291). A fair reading of that ch-irhl;gy shows that the positions
| |
| : p. taken by CEI were to be presente? te DOC in connection with its l ongoing antitrust investigatirt'vgrvEanu to the Perry applications.
| |
| Whatever the merits or demeriis ci
| |
| * rose pusitions, CEI's negotiat-ing posture with DOJ is irreltfanL, particularly since CEI decided to acquiesce and offer Cleveland more thsh it was originally will-ing to commit to in the form of license conditions. In this context the Licensing Board's comment that the chronology evidences the need for " collective approval" (I.D. at 206) is entirely misplaced.
| |
| -(Continued next page)
| |
| | |
| -149-August 8, 1973, CEI had determined to deny Cleveland access to Davis-Besse and Beaver Valley 2 and to deny Cleveland partici-pation in CAPCO (I.D. at 201 & 206). It thereafter erroneously finds that, in an August 17, l'973 letter, CEI communicated to the other Applicants its intent to exclude Cleveland from CAPCO parti-cipation (I.D. at 201); however, no such letter exists. The Soard also states that, at the December 7, 1973 meeting of the CAPCO Executive Committee, Cleveland's request for nuclear access was considered by all the Applicants (I.D. at 208). The record shows, however, that the meeting was called for the purpose of dis-cussing Cleveland's request to participate in CAPCO (see D-103),
| |
| and that is precisely what was discussed (see D-104). The error is further compounded by the Licensing Board's description of the deposition testimony of Karl Rudolph (see D-558(Rudolph) 245) and the December 10, 1973 letter of John Arthur (see D-187) as relating to Cleveland's request for nuclear access (I.D. at 208-09), when, I in fact, they both dealt solely with Cleveland's. request to participate in CAPCO.
| |
| It is on the basis of this fast-and-loose treatment of the evidence that the Licensing Board was able to reach its de-sired (albeit unwarranted) conclusion that~CEI's actions amounted f
| |
| to a " boycott and refusal to ceal" (I.D. at 203, n.'). Had it but paused momentarily to reflect on the nature of Cleveland's dual and inconsistent requests, the Board would have realized j 175/ (Cont'd)
| |
| Since all of the CAPCO companies were co-applicants on the Perry applications, once CEI formulated a negotiating position vis-a-vis DOJ, obviously each of the other companies had to be informed.
| |
| ~
| |
| L
| |
| | |
| r
| |
| -150-that no rational argument existed for concluding that CEI, or, for
| |
| ^
| |
| 176/
| |
| that matter, any other Applicant, boycotted Cleveland. Instead, the Initial Decision lashes out at the conditions attached to CEI's nuclear participation agreement, calling them " unreasonable" (I.D. at 209) and "an outrageous affront to the policies underly-ing the antitrust laws" (I.D. at 83). However, examination of those conditions belies any such characterization.
| |
| First, the Licensing Board asserts that CEI's "right of first refusal" (see D-192, S 1.3), would have prevented Cleveland 7
| |
| from selling surplus nuclear energy or engaging in coordinated operations with others (I.D. at 81, 224-25). The testimony of 177/
| |
| William Mayben relied upon below is, however, nonsupportive.
| |
| 176/ The underpinning of any group boycott is an absolute refusal to deal. See, e.g., Fashion Originators' Guild of America v FTC, 312 U.S. 457 (19V1); Klor's, Inc. v Broadway-Hale Stores, I,nc., 359 U.S. 207 (1959). Here there was no refusal to deal.
| |
| Cleveland originally had made two requests, one for membership in i CAPC0 and one for access to the Perry units. At a later time, Cleveland combined those two requests into a single proposal.
| |
| But in so doing, Cleveland presented CEI with a package that was inherently self-contradictory. If CEI offered Cleveland member-ship in CAPCO, then it could not have agreed to Cleveland's specific request of access to the four specified nuclear units.
| |
| Faced with a choice of what to offer Cleveland, CEI made a bona fide counterproposal that it had every reason to believe gave Cleveland exactly what the municipality was really seeking.
| |
| 177/ Thus, reference is made to testimony of Mayben that the right of first refusal would be priced at Cleveland's cost and not at the most advantageous price Cleveland could negotiate with a third party (Mayben 7612(20-25)). Ignored, however, is Mayben's immediate caveat that, even then, "you would have to look to all of the conditions imposed for right of first refusal before you could form a total judgment" (Mayben 7613(1-3)). Also passed over are Mayben's remarks on cross-examination that his earlier testi-mony in this area was based on his " recollection" that the right l of first refusal was specifically so priced in the participation i' agreement (Mayben 7617(13-18); see also id. at 7616-17(22-25 & 1-3)).
| |
| In point of fact, Mayben's recollection was inaccurate (see D-192,
| |
| $ 1 3). As explaihed by Hauser, the right of first refusal which CEI was reserving is no different from any other right of first (Continued next page)
| |
| --,w
| |
| , - , , , ---.-#e----.-p ,g . . - -
| |
| -9
| |
| | |
| -151-Moreover, the Licensing Board's view ignores the legitimate reason CEI advanced for the right of first refusal -- 1.e., that CEI had offered to make available to Cleveland nuclear power from facilities well after the planning for those facilities was completed (Hauser 10588(13-16)). That power had originally been planne to meet the needs of CEI's customers (id.); indeed, the need for this capacity had been justified by CEI as part of its initial applications to this Commission. In such circumstances, it was not at all unreasonable for CEI to request that if Cleveland had excess capacity, it make that excess capacity available to CEI on a first-refusal basis to alleviate some of the burden caused by 178/
| |
| accommodating Cleveland's tardy request.
| |
| 177/ (Cont'd) ,
| |
| refusal. If Cleveland goes out and negotiates a deal with a third party, it must offer the same deal to CEI first; Cleveland is not obligated to sell capacity to CEI on any less favorable terms than it negotiated with the third party (Hauser 10588(1-11)).
| |
| The Licensing Board also refers to Mayben's testimony that, price aside, the right of first refusal "might well" result in Cleveland losing opportunities for coordination (Mayben 7618(1-13)).
| |
| When pressed on that statement, however, Mayben had to concede that, before he would recommend coordination of the sort he was theoriz-ing aoout, a " substantial amount of study would be required" (Mayben 7618(14-21)) which had not yet been undertaken (Mayben 7619(1-2)).
| |
| Plainly, Cleveland's specific request for nuclear participation, made after some study (see D-185), did not contemplate an increment of nuclear capacity sufficient to allow this theoretical coordina-tion which Mayben speculated about. Thus, whatever theoretical infirmities might be imagined with respect to a "right of first refusal" requirement, such a provision had absolutely no restrain-ing impact on the nuclear access requested by Cleveland and granted by CEI.
| |
| 178/ The whole issue of the right of first refusal is something of a red herring. CEI's position on this condition was clearly set forth in its original proposal (see D-188) and, as correctly stated by the Licensing Board (I.D. at 82), consistently repeated in all CEI proposals thereafter. Prior to the evidentiary hearing phase of this proceeding, Cleveland never once objected to this provision, and this is true notwithstanding its representation by (Continued next page)
| |
| | |
| -152-Second, the Licensing Board asserts that a requirement that Cleveland not resell the nuclear power "below cost" is unreasonable because it would give CEI control over Cleveland's rates (I.D. at 81). Quite frankly, such a view is sheer nonsense, and CEI made that explicitly clear to Cleveland when its repre-sentatives expressed a similar concern (see D-191, p. 2). This condition was an effort by CEI to assure through contract that Cleveland, a municipal corporation, would be held to the same antitrust standard as is CEI (see Hauser 10763(1-4)). Moreover, since this was a covenant Cleveland had already entered into with its bond trustee by way of indenture (see A-102, p. 15; Hart 5380-84, 5388-89), there is no reason to. assume that CEI's insis-tence on a similar guarantee would have any greater restraining influence on Cleveland than that which already existed. In any event, there is no evidence that CEI required such a condition at any time after February 7, 1974, and it certainly was not included in the draft nuclear participation agreement sent to Cleveland two weeks later (see D-192; Hauser 10760-62).
| |
| 'f Third, the Licensing Board notes that CEI requested Cleveland to withdraw its intervention petition as a condition to l nuclear access (I.D. at 81-82), and then concludes that such a l
| |
| condition was " unreasonable and had the effect ni maintaining a situation inconsistent with the antitrust laws" (I D. at 209).
| |
| The simple answer, which was conveyed to Cleveland on February 7, 178/ (Cont'd) knowledgeable counsel who objected to some of the other conditions (see D-291, pp. 19-21; D-189; see also A-63; A-66). Moreover, neither Cleveland's September 5 Filing nor its prehearing brief took issue with CEI's right of first refusal (compare "Prehearing Brief of the City of Cleveland", dated November 26, 1975, at p. 21).
| |
| | |
| e
| |
| -153- 1 1974 (see D-191), is that DOJ's advice letter in Perry made this condition moot and it was not thereafter pressed by CEI. Thus, whatever situation may have been " maintained" as a result of the 179/
| |
| withdrawal request lasted no more than four days. Nor did it in any way deny Cleveland access to the subject facilities.
| |
| To the contrary, the record shows that it has throughout been CEI which has attempted to negotiate a nuclear participation agreement, 180/
| |
| and it has always been Cleveland which has dragged its heels in 179/ Even had this condition not been mooted by the DOJ advice letter, it is anything but " unreasonable". CEI does not deny that it viewed with concern the prospect of a protracted antitrust hear-ing that would impact on the schedule for licensing Davis-Besse and Perry; the withdrawal of Cleveland's intervention petition was seen as a means of removing at least one potential roadblock to meeting that schedule (see D-191). But, to suggest that CEI's design was to thwart Cleveland's opportunity to have its alleged "
| |
| antitrust grievances scrutinized is unrealistic. CEI was not dealing with Cleveland in a vacuum. There were ongoing legal proceedings between the parties before the FPC, the Ohio courts, and the federal court of appeals; all were still pending at the time of CEI's access offers. While CEI had serious doubts as to the bona fides of Cleveland's access request (D-192, p. 2), CEI nevertheless responded in good faith, but quite properly sought assurance that Cleveland would not use the NRC proceeding as a whipsaw to force settlement of these other proceedings. These were the circumstances surrounding CEI's request for withdrawal of the intervention petition; from this perspective, such a request certainly does not deserve antitrust condemnation.
| |
| 180/ As has been indicated, CEI committed itself to affording Cleveland nuclear access on December 13, 1973 (D-188). On Febru-ary 27, 1974, CEI transmitted to Cleveland a draft participation
| |
| , agreement setting out in detail the specifics of its nuclear access offer (D-192). However, despite continuing requests by CEI for a response to the participation offer, Cleveland did not respond for some ten months (see A-64 through A-70). Finally, on l December 13, 1974, Cleveland sent CEI its own draft participation agreement (D-315). More than two years after CEI first submitted its proposal, Cleveland arranged to meet with CEI to discuss nuclear participation (see A-71). And, following that meeting, Cleveland's technical consultant, William Mayben, wrote to CEI seeking specific information about the nuclear units so he could " finally evaluate for the City of Cleveland the magnitude of participatory shares
| |
| [it] will seek" (id,.; emphasis added).
| |
| The information requested by Mayben was supplied by letter of June 23, 1975 (A-72; A-43),
| |
| almost two years ago. Cleveland still has not advised CEI of the (Continued next page)
| |
| | |
| -154-
| |
| , an effort to gain bargaining leverage over CEI on other unrelated matters (see pp. 141-45, supra).
| |
| : 2. Interconnection with Cleveland. Such unscrupulous tactics are perhaps no better evidenced than in Cleveland's nego-
| |
| ~
| |
| tiating posture with respect to the construction and operation.of the synchronous 138 kv. interconnection -- a fact which the Licens '
| |
| ing Board very carefully stayed away from despite the wealth of evidence introduced on this point. The Board's approach was to devote an inordinate amount of attention (see I.D. at 60-76) to a "who hit who first" analysis of the interconnection issue, without ever once so much as acknowledging, let alone giving any effect to, the rulings of the FPC -- before whom this entire matter was fylly litigated and resolved in CEI's favor in a decision that has been affirmed by the Court of Appeals for the District of 181/
| |
| Columbia (see also p. 75, supra). The instant Initial Decision 180/ (Cont'd) cuantity of power it wants from any nuclear unit. Even so, CEI's offer to Cleveland remains outstanding (Hauser 10587(18-19)).
| |
| However,- judged by the length of time that other utilities have been required to keep participation offers open in previous NRC antitrust proceedings, it can hardly be contested that Cleveland's nuclear commitment is long overdue. Compare Public Service Company of Indiana (Marble Hill Nuclear Generating Plant, Units 1
| |
| & 2), LBP-76-25, 3 N.R.C. 847 (1976).
| |
| 181/ In its initial complaint filed on May 13, 1971, Cleveland sought a permanent interconnection with CEI pursuant to Section 202(b) of the Federal Power Act, an order under Sections 202(c) and 205 of that Act to preclude CEI from terminating its existing temporary service through five load transfer interconnections, and a determination of the lawful rate and alleged arrearages related to that temporary service (see A-18). Subsequently, that complaint
| |
| ~
| |
| was amended to include charges that CEI's conduct was anticompeti-tive (A-18; A-201). An evidentiary hearing was held during which Cleveland had full opportunity to present any objections as to both past and future conduct, services and rates. In March, 1972, the FPC ordered an emergency interconnection at 69 kv (A-19). The (Continued next page)
| |
| | |
| \
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| 'I
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| -155-does not supplement the findings and conclusions reached by the FPC, it flatly and directly contradicts them, while at the same time completely ignoring the mandatory nature of the orders issued by that sister agency. In short, the Licensing Board undertook, j sub silentio, nothing less than a collateral attack on the adjudi- l cator'y authority of the FPC -- an attack contrary to the statutory 182/
| |
| language of both the Federal Power Act and the Atomic Energy 181/ (Cont'd) initial decision on the antitrust claims and on the rate and inter-connection matter was issued on July 12, 1972 (A-20); Cleveland appealed to the full Commission which affirmed in Opinion No. 644, 49 F.P.C. 118, issued January 1, 1973 (A-21). Cleveland applied for a rehearing which was denied, 49 F.P.C. 631 (1973) (A-22). ;
| |
| Cleveland then appealed to the United States Court of Appeals for the District of Columbia Circuit, which, while remanding for further Commission consideration certain minor aspects of CEI's billing procedure during the period from February 15, 1970 to May 17, 1972, affirmed the FPC orders in all other respects, including the FPC's orders establishing the service to be provided, and the terms and conditions thereof, including the rates for wholesale electric service to be provided by CEI to Cleveland. City of Cleveland v FPC, 525 F.2d 845 (D.C. Cir. 1976).
| |
| 182/ Authority to order an interconnect'_on and to " prescribe the terms and conditions of the arrangement to be made between the persons affected by such order" has been vested in the FPC (16 U.S.C. 5 824a(b)). Jurisdiction to review those orders rests with the courts of appeals (16 U.S.C. S 8251). Subject to review by the Supreme Court, such final, nonappealable orders of the FPC are not subject to collateral attack in subsequent proceecings.
| |
| Callanan Road Improvement Co. v United States, 345 U.S. 507, 512' (1953); see also City of Tacoma y Taxpayers of Tacoma, 357 U.S.
| |
| 320, 335-36 (1958); United States v Utah Construction & Mining Co., 384 U.S. 394 (1966); McCulloch Interstate Gas Corp. v FPC, 536 F.2d 910, 913 (10th Cir. 1976). And even on review by the court of appeals, that body is to "defe[r] to the [FPC's] expert judgment" (Gainesville Utilities Dept. v Florida Power Corp., 402 U.S. 515, 527 (1971)) and not to make a de novo determination of the issues (see Otter Tail Power Co. v FPf, V75 F.2d 1253,1257 (8th Cir. 1973)). If it is taproper for a court of appeals to substitute its judgment for that of the FPC with respect to the terms and conditions of an interconnection order, a fortiorari, it i is indefensible for an administrative hearing board having no l particular expertise on such matters to enter findings which I
| |
| completely contradict the FPC's earlier findings and orders.
| |
| | |
| -156-183/
| |
| Act and in disregard of the legislative history of the 1970 184/
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| ' amendments establishing Section 105c antitrust review. See also n.85, supra.
| |
| Equally astounding is the fact that this collateral attack is premised on findings which are even contrary to the record established in this proceeding. The evidence shows that between 1962 and 1966 CEI offered to interconnect with Cleveland (L-2G3; D-295; D-296;'D-298; D-399). At no time during this period did Cleveland request an interconnection. The various offers by CEI were rejected by Cleveland; there is not even any evidence to suggest that Cleveland ma'.e any effort to negotiate i
| |
| the offers with CEI. Indeed, the only evidence of record is the
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| . 185/
| |
| clear finding by the FPC supporting CEI's position. That agency found (A-20, p. 15):
| |
| The charge of CEI's refusal to build a parallel line as an anticompetitive practice is ironic in light of this record which shows clearly that the City repeatedly turned down such pro-posals in an effort to remain self sufficient and independent of the CEI system.
| |
| l 183/ See Sections 271 and 272 of the Atomic Energy Act, 42 U.S.C.
| |
| ] $$ 2018 & 2019 (1970).
| |
| 184/ See Prelicensing Antitrust Review of Nuclear Powerplants:
| |
| Hearings Before the Joint Comm. on Atomic Energy, 91st Cong., 1st Sess. 135 (1969) (testimony of Walter B. Comegys).
| |
| 185/ The Licensing Board makes reference to a February 17, 1965 letter from then Mayor Locher to Ralph Besse (D-297), as evidence that Cleveland has long desired an interconnection with CEI (I.D.
| |
| at 63). This' sole document runs counter to all the other evidence
| |
| : e. 10578-79(23-25 & 1-8);
| |
| on Cleveland's position (see, A-152, pp. 1 & 3; D-599, p. 1) T,g., Hauser is contrary to the finding of the FPC based on its experience with Cleveland since 1942, and quite frankly, can, at best,-only be viewed on its own terms as a self-serving statement not indicative of Cleveland's true desires.
| |
| -- - - - , - ,_+=+y -'cW-+y-yet-r 1mM--=f-4m--Tw wY-Y
| |
| | |
| r 4
| |
| i -157-Since 1942 when the City rejected FPC's
| |
| " urging very strenuously that an inter-
| |
| - connection * *
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| * be set up" the City
| |
| ; has rejected all proposals for inter-connection on the ground it would result in the loss of " independence" and put the City "at the mercy" of CEI. Conversely, CEI has expressed its willingness to inter-connect since 1942. [ Record references
| |
| ~
| |
| omitted.]
| |
| The Licensing Board reversed this FPC finding,by charac-terizing CEI's offers to interconnect as a refusal to interconnect except upon unfair terms (I.D. at 60-61) and as an attempt to forestall expansion of the Cleveland system (I.D. at 62-63).
| |
| While it is true that the early offers to interconnect did include a condition that Cleveland raise its retail rates to the level of CEI's rates, this condition was included for reasons that CEI considered as making good economic, social and political sense
| |
| '(D-559(Besse) 162-63(6-25 & 1); see also I.D. at 61). The Licensing Board, while not disputing the validity of CEI's logic, brushes the rationale aside by concluding that an " attempt to g fix" rates is a per sjt violation of the antitrust laws (I.D. at 61). Even accepting the view that per sji analysis should be 4 applied -- and we clearly do not (see pp. 35-38, supra) -- CEI J knows of no legal support for the view that an " attempt" to do L ,
| |
| anything is a per se violation of Section 1. In the absence of a ls_ consumated contract, there simply is no joint action; and if there y is no joint action there can be no Section 1 violation, either on
| |
| ' a per se-or rule of reason basis. Furthermore, this " rate equali-l zation" condition was not raised by CEI in response to any request l l-by Cleveland for an interconnection; it was, instead, put forward l l
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| l by CEI as an element of the interconnection proposals it (CEI) initiated in the mid-1960's because CEI then believed such a w
| |
| I 1
| |
| | |
| -158-result would be in the overall best interest of the citizens of Cleveland, Whatever infirmity might have attached to those i
| |
| early proposals (and we believe -- as did the FPC -- that there was none), negotiations with Cleveland never got off the ground. It was not until several years later that Cleveland first seriously requested an interconnection in 1969 (see pp. 159-60, infra); at that time, and throughout all the interconnection negotiations thereafter, the matter of municipal rates was never even discussed.
| |
| As for the forestalling charge, not only is it a " damned if you do and damned if you don't" situation (see I.D. at 62, n.'),
| |
| it, too, is a finding contrary to the facts and unsupported by the record below. The essential part of F/F Nos. 39 and 40 depends on a general description of " forestalling" included in the testimony of Dr. Wein (see D-587(Wein) 32-34). However, under Dr. Wein's analysis, a necessary element of the forestalling charge is the
| |
| " selling of inputs to a competitor at a price which is so low as to be unprofitable to the celler, or which yielde profits much below its earnings on otn r parts of its business" (id. at 33 (20-23)). Significantly, there is no evidence in this proceeding that CEI was offering to interconnect with Cleveland at less than renumerative rates. As a result, it is illogical to assume that CEI's early interconnection offers would have hampered Cleveland's 186/
| |
| ability to supply final markets. In fact, as the record shows, 186/ On its face, the very act of interconnecting and supplying
| |
| _ power to Cleveland would appear to increase Cleveland's ability to supply final markets. As a general proposition Dr. Wein reasons l that when the seller offers his product at unprofitable levels the
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| ~
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| purchaser may forego building its own capacity, which, if built, might permit the buyer to " challenge the seller in final markets (Continued next page)
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| | |
| - i l
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| 1
| |
| -1Es- 1 Cleveland did go forward with its plans to construct additional generation in both 1962 and 1968. And, while Cleveland eventually j
| |
| . decided not to build the interconnection with Painesville and Orrville, that decision could not have been as a result of CEI's l 187/ j unaccepted interconnection offer. J In any event, between mid-1966 and early-1969, there is no indication that any communications took place between CEI and Cleveland regarding an interconnection. When Cleveland first ;
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| approached CEI in 1969 on this matter, its interconnection request was specifically limited to obtain from the compcny temporary ser-vice only, while certain generating units were removed froL service to permit installation of air pollution control equipment (Hauser 18b/ (Cont'd) or in markets for inputs" (D-587(Wein) 34(4-5)). Obviously, when the seller does not offer its product at unprofitable rates that logic does not hold true. Moreover, there is no evidence of record that Cleveland could ever construct generation which would be lower in cost than CEI's generation. The very claim in this proceeding is that because of scale limitations non-Applicant entities never can build such generation by themselves.
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| 187/ Special note must be taken of the evidence relied upon to support this charge. The Licensing Board first cites the testimony of Donald Hauser that CEI offered to interconnect with Cleveland as "an alternative" to the Orrville-Painesville tie (Hauser 10864 (12-15)). That certainly does not indicate that the offer was made "to forestall construction of competing transmission lines by Cleve-l 1&nd" (I.D. at 62-63; emphasis added). In fact, the next cited l refereace, the deposition testimony of Elmer Lindseth, indicates that I the offer was made because CEI believed that "the proposed intercon-nection was economically unsound" and was made in " good faith" (D-568 (Lindseth) 58(5 & 16)). The reference to exhibit C-94 indicates just how readily the Licensing Board was willing to run roughshod over th3 rights of CEI, and for that matter, the rights of all Ap-plicants. That exhibit was rejected below (see Tr. 7866(6-10)).
| |
| Finally, as has already been indicated, the reference to Dr. Wein's prefiled testimony (D-587) as evidence that the offer "uas anticom-petitive in purpose and intent" is disingenuous at best since tnct tastimony had absolutely nothing to do with the activities of CEI.
| |
| | |
| -160-188/
| |
| 10539(2-5)). CEI responded affirmatively to this request, and
| |
| . engineers from both systems met for the purpose of korking out a method to provide the desired temporary service (Hauser 10539 (8-11)).
| |
| ~
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| By June, 1969, a method had been agreed upon and a September 15, 1969 in-service date was contemplated (Hauser 10660-61(22-25 & 1)). Yet, nothing further was done until December, 1969, 189/
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| . . when Cleveland experienced a generating outage (F/F No. 43).
| |
| 1 CEI responded to this emergency by proposing to put into effect
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| ~
| |
| immediately the " temporary service" plan (referred to as " load 188/ The Licensing Board maintains that based on informal discussions with representatives of Cleveland, CEI knew that Cleveland wanted a permanent, synchronous interconnection (I.D. at 64). That is simply inaccurate. In fact, the memorandum from Lester to Bingham cited in support of this proposition (C-127; D-331) indicates that there was an internal dispute on this matter between certain Cleveland representatives who personally favored a permanent interconnection, and the Cleveland administration, which did not. Thus, the memorandum, in discussing the likely outcome of Cleveland's in-house review of the situation, opines that "they
| |
| [ meaning the Cleveland representatives at the meeting with CEI] ;
| |
| . will strongly press for [ Cleveland, i.e., the administration] to ,
| |
| initiate action to secure a permanent interconnection" (C-127, p. ;
| |
| 2). The only conclusion to be drawn is one contrary to that ;
| |
| reached by the Licensing Board, i.e., that at this time Cleveland i was far from decided on the desirability of a permanent intercon- I nection. The Lester deposition testimony, also cited by the Board, fully supports this understanding of the situation (see D-561(Lester) 26-28). This is not to deny, of course, that at a later date, i.e., January 1970, Cleveland did seek a permanent interconnection. .
| |
| 189/ Although it is not clear from the Initial Decision, it should be made clear that nothing further was done because Cleveland-did not pursue the matter (Hauser 10667(16-17), 10669 (11-13)); this is not a case of delay on the part of CEI.
| |
| l l
| |
| | |
| t 1
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| -161-transfer service") originally designed to assist Cleveland during
| |
| . 190/
| |
| . installation of precipitators (Hauser 10539(12-24)). As a 190/ The Licensing Board, however, found CEI's quick, good faith response in coming to the aid of Cleveland to be evidence of "anticompetitive motivation and conduct" (see F/F Nos. 47-50, 54-55). In se doing, it ignored the fact that the charges in this regard are extetly the type that should be, and have already been, l litigated bercre the FPC, and with precisely the opposite results i (see A-20, p. 1; A-23, p. 1; A-20, p. 16) (Cleveland's " allegations
| |
| - that its difficulties in maintaining service to its customers are due in whole or in part to CEI's anticompetitive practices are not supported by the record in this consolidated proceeding. This
| |
| , record indicates that [ Cleveland's] past inability to furnish reliable, dependable service on [its] system to its own customers has been due primarily to incompetent management and inefficient operations").
| |
| Moreover, the terms and conditions of the load transfer service have always been on file with the FPC (see S-195), and that agency has continuously monitored CEI's performance in pro-viding load transfer service (see A-134; Hauser 10554-56) and has, in fact, ordered CEI to continue providing such service (Hauser 10553-54(19-25 & 1-8); see A-19, pp. 2, 7; A-20, p. 16; A-202).
| |
| Cleveland has never once objected to the manner in which such i service was provided, but, rather, has in fact actively supported the continuation of the load transfer service before the FPC (see A-19; A-20). In the face of this history, the Licensing Board, apparently deeming itself more qualified to pass on such matters
| |
| , than the FPC, proceeded to "second-guess" its sister agency. First, it found that CEI refused to provide anything other than emergency service to Cleveland, thereby preventing the maintenance of
| |
| ', Cleveland's generating equipment (I.D. at 70, 75). However, the clear terms of the FPC order indicate that CEI was required to provide short-term power and limited-term power in addition to l'
| |
| emergency service (A-20, p. 19). Its full compliance with these
| |
| ;'- requirements is reflected in its summary of monthly reports on the load transfer service which CEI made to the FPC; at no tine did
| |
| : the company refuse to provide service because it was requested for
| |
| - maintenance purposes (see A-134). To the contrary, those monthly reports show that load transfer service was provided on an almost continuous basis (Hauser 10552(15-25)), so that Cleveland had
| |
| ,_ ample opportunity to perform routine maintenance, if it so desired (see Hauser 100 m(16-18)). Nor can it ever be said that the
| |
| , criteria CEI employed in determining if load transfer service should be provided would have prevented Cleveland from maintaining its equipment; quite the opposite is true (Hauser 10554(12-17)).
| |
| Ignoring all this direct evidence, the Licensing Board reaches i
| |
| a contrary conclusion solely in reliance on the uncorroborated testimony of Mr. Hinchee -- testimony, we might add, that was in
| |
| . error on numerous occasions (see nn.193, 197, 200, 204, 207, infra).
| |
| The Licensing Board found that CEI imposed operating prob-
| |
| _ - lems and administrative delays resulting in unnecessary sarvice interruptions to Cleveland's customers (I.D. at 71-72). It is true l
| |
| 4 (Continued next page) w
| |
| -.~ , - ., , . . . ,.w .-.c -- u- -
| |
| | |
| -162-practical matter, this load transfer service was the only means available to CEI on such short notice to meet Cleveland's needs 191/
| |
| during the emergency situation (Hauser 10541(21-24)).
| |
| At the same time, however, CEI agreed also to enter into a permanent, parallel interconnection with Cleveland (A-198; Hauser 10539-40(25 & 1-4)). A letter agreement of January 20,
| |
| - 1970, subsequently filed with the FPC, formalized the terms and conditions of the load transfer service and also included a 190/ (Cont'd) that, by its very nature, load transfer service requires short
| |
| , interruptions in service when load is connected and disconnected.
| |
| But those interruptions were clearly contemplated by the parties when they agreed to load transfer service, and they were equally contemplated by the FPC when it ordered CEI to continue that service.
| |
| Moreover, the outage record of Cleveland, as " objectively" set forth in Cleveland's own records (see A-200; A-159; A-160), demonstrates that outages due to the disconnect-reconnect requirements of load transfer service were small in comparison to outages suffered as a result of Cleveland's own inefficiencies. It is therefore unfounded speculation that alone serves to sustain the Licensing Board's idle musings that customers transferred from Cleveland to CEI because of load transfer service (I.D. at 72; compare id. at 75-76). Equally ephemeral is the Licensing Board's astounding
| |
| : conclusion that "[a] further onerous feature of * *
| |
| * the 11 kv load transfer was the requirement that a block of load be trans-ferred at one time" (F/F No. 49). The Board itself conceded that
| |
| "[t]he evidence does not establish whether the requirement was unreasonable" (id.). Thus its gratuitous and unsupported comment on the " onerous" nature of such a requirement is of no significance whatsoever.
| |
| Finally, the Licensing Board found that when CEI lacked sufficient generation of its own, it did not attempt to reach other bulk power suppliers to meet Cleveland's needs (I.D. at 73).
| |
| Incredibly, the very record references listed by the Licensing Board as supporting this proposition, explicitly and directly refute it (see, e. 10698(7-10), 10700(13-17), 10702(22-24), 10704(3-10)T.g.,It Hauser was, of course, fully contemplated by the FPC that CEI would obtain power from other electric systems and a i charge for such service was included in the load transfer service l rate (see A-20, p. 19).
| |
| 191/ At the time of the emergency, the people in charge of Cleveland's municipal electric system clearly recognized that the load transfer service was the only option open to Cleveland. See letter of Ben Stefanski, Director of Public Utilities for Cleveland, to Howley, dated January 15, 1970, recommending the load transfer service as "the. city's suggestion" (A-189).
| |
| | |
| 1
| |
| -163-commitment to interconnect the two systems permanently (S-195).
| |
| Amendments of June 9 and July 22, 1970, " reaffirm [ed]" LEI's commitment to enter into a permanent interconnection (S ~95).
| |
| Negotiations locking to the construction of that interconnection then ensued (Hauser 10564(5-25 & 1-2)).
| |
| The Licensing Board states that it was CEI's private intention to avoid a permanent parallel interconnection (I.D. at 192/
| |
| : 68) and that CEI thereafter delayed in reaching a mutual agree-
| |
| , 193/
| |
| ment on the interconnection (I.D. at 69). Once again, the facts 192/ The two documents cited by the Licensing Board simply do not support the view that CEI's private intention was to avoid a permanent interconnection. Exhibit D-334 expresses the view of William Bingham prior to the time CEI committed itself to a perma-nent interconnection with Cleveland. Quite obviously Bingham's position was not adopted by the management of CEI, and the specific type of interconnection he proposed was not the one that Cleveland and CEI proceeded to study. Exhibit C-82 is a short technical memorandum prepared by the CEI System Operation and Test Depart-ment describing the mechanics of how the 11 kv load transfer service was to be operated. As such, CEI does not dispute any-thing stated therein. However, there is no basis to infer from this technical description that CEI intended to avoid a pernanent interconnection. Significantly, at the time this document was introduced, Cleveland originally offered it to show that CEI had such an intention (Tr. 7436-37(14-25 & 1-3)), and CEI objected on the ground that the document did not support the offer (Tr. 7850-52).
| |
| Cleveland then amended its offer and introduced the document solely to demonstrate "the manner in which CEI intended to operate the 11 kv [ service]" (Tr. 7852(9-11)). CEI thus withdrew its objection, and the Chairman admitted the document subject to the " amended offer" (Tr. 7852(13-14)). In light of this history, it is to us astounding that the Licensing Board has chosen to rely on C-82 for the very purpose which was recognized by everyone at the hearing to be an improper reading of the document.
| |
| 193/ The Licensing Board's reference to action of CEI which it believes evidences the delay of CEL (I.D. at 69-70), is misplaced.
| |
| Thus, while the Board correctly states that D-337 indicates that on the advice of Mr. Hauser, a meeti.ig was not scheduled on the date requested by Cleveland, the Ecard erroneously ignores the rest of the sentence which states that the legal department "will arrange an . internal meeting of [CEI's] involved personnel prior to the [ Cleveland] discussion." In fact, ue know tnat a meeting between CEI and Cleveland personnel was held, since on September 30, 1970, CEI wrote to Cleveland reporting the results of the " jointly studied engineering, economic, financial and operating considerations to (Continued next page)
| |
| | |
| -164-belie the Board's assertions. In early 1970 both sides realized that it would require a minimum of two years to implement a permanent interconnection (Hauser 10541(1-8)), which was to be Phase III in the Cleveland-CEI construction program (Hauser 10564-194/
| |
| 65(4-25 & 1-2)). By July 15, '1970 Cleveland officials had 193/ (Cont'd) provide an interconnection" to replace the load transfer service (A-200, p. 2). The Licensing Board also relies on testimony of Warren Hinchee to the effect that, upon his taking office, CEI engineers advised him that no engineering investigation had yet been undertaken. This is just another example of where the uncor-roborated testimony of Mr. Hinchee is simply false (see also n.190, supra, and nn. 197, 200, 204, 207, infra). Evidence of record shows that, prior to the meeting with Hinchee, CEI did undertake a study of the proposed interconnection; the bulk power planning department proposed five different alternatives for implementing the interconnection (see D-336, pp. 1-2 and the four one-line diagrams at end of exhibit; C-135). Moreover, Hinchee's tcf;imony ignores CEI's September 30, 1970 letter to Cleveland (A-200, pp.
| |
| 2-3). (Note, a misnumbering of transcript pages occurred early in the proceeding and by letter of January 5, 1976, Ace-Federal Reporters corrected that mistake; the Licensing Board's reference to the Hinchee testimony incorporates the old, wrong page numbers.)
| |
| Finally, the Licensing Board relies on a July 8, 1971 memorandum of Mr. Hinchee's to support the view that CEI agreed to begin study of the permanent interconnection only as of that date (see D-6, p. 3). Ignored is a July 22, 1971 letter from Lee Howley to Cleveland objecting to Hinchee's memorandum as a " report of a meeting that was more inaccurate and misrepresentative of the facts" than ever before read by the letter's author (see A-27, p.
| |
| 2). Moreover, the Howley letter states CEI's position "with regard to resuming studies of the engineering, economic, financial, and operating considerations" of the permanent interconnection (id. at
| |
| : p. 1; emphasis added). As we have seen, the objective facts (e.,g., D-136) support Howley's view, and dispute Hinchee's view.
| |
| 194/ Phase I of the construction program was the temporary load transfer service which was effected as soon as possible so as to relieve Cleveland's emergency situation (Hauser 10540(1)). Phase II was a firmer load transfer arrangement (Hauser 10540(2)). This l transition was necessary because some of the equipment CEI rushed into service to meet the crisis was required for CEI's own use.
| |
| Thus, the location of load transfer points had to be slightly altered (Hauser 10562-63(10-25 & 1-14)). Mr. Bergman, Cleveland's Commissioner of Light and Power, reported to Mr. James, Director of Law, that by July 15, 1970, approximately'six months after Cleve-land's emergency, Phases I and II had been completed and CEI was actually carrying "a great deal more of [ Cleveland's] load than originally planned" due to Cleveland's further operating problems (A-199).
| |
| | |
| s
| |
| -165-met with CEI te discuss the permanent interconnection and it was agreed that engineers from both systems would begin work on the problem (A-199). It was expected that a report covering this work would be available as of September 1, 1970 (id.).
| |
| On September 30, 195/
| |
| , 1970, CEI submitted the report (A-200, pp. 2-3), which was trans-mitted by William Gaskill, Cleveland's Director of Utilities, to Anthony Garofoli, President of Cleveland's City Council '(id. at p. 1).
| |
| Cleveland, however, apparently never replied to this report.
| |
| In early 1971, by which time Warren Hinchee had become Commissioner of Light and Power, a status meeting was held on the i
| |
| 138 kv interconnection (Hauser 10565(4-6)). Hinchee was advised that CEI would not negotiate further until Cleveland took steps to reduce the more than $1 million in pa'st due indebtedness owed 196/
| |
| for load transfer service (Hauser 10565(6-11)). Rather than i
| |
| 195/ The status report noted that Phase III had been " jointly studied," and that "basec or these studies", CEI's understanding was that "a nonparallel star.dby interconnection is the most desirable from the standpoint of the [ Cleveland] Municipal Electric Light PJant" (A-200, p. 2). It further set forth CEI's offer to continue on a permanent basis the load transfer service; to increase the capacity of such standby service to 50 mw by making available "two 10/12 mva transformers that can be operated in parallel to supply [ Cleveland's] entire Collinwood area load" at an estimated cost of $150,000; or to continue study on a parallel interconnection at an anticipated cost of $3 to $5 million (id.).
| |
| 126/ There can be littic doubt that CEI's hesitancy to negotiate with Cleveland for new forms of service while past bills are out-standing and continuing to escalate is justifiable. Indeed, D0J indicated only recently in oral argument before this Appeal Board that CEI should not be required to provide services under the license conditions if Cleveland could not, or was unwilling to, pay (see transcript of March 9, 1977 argument at p. 97(20-25)).
| |
| Yet, the Licensing Board chose to totally ignore the uncontested fact that, almost from the inception of service, Cleveland became in arrears (see A-135, exh. C). The " policy" of non-payment --
| |
| and CEI views it as a " policy" of Cleveland's given the failure to pay throughout the last seven years -- continues to the present (Continued next page)
| |
| | |
| I t
| |
| -166-tender payment to CEI, Cleveland filed a complaint with the FPC (see n.181, supra). Throughout the rest of 1971, CEI and Cleveland met, sometimes under the auspices of the staff of the FPC, inHan
| |
| )
| |
| attempt to settle their differences (Hauser 10565(19-23)).
| |
| On February 7, 1972, Cleveland experienced yet another outage, and the next day filed with the FPC a request for a temporary emergency interconnection (see A-19, p. 3; Hauser 10566(1-11)). Following an investigation. the FPC ordered the parties to establish a 197/
| |
| temporary 69 kv nonsynchronous interconnecti.on. While the 69 kv 196/ (Cont'd) day. As of May 10, 1976, Cleveland was delinquent in its payments to CEI in the amount of $12,955,402.53 (A-135, p. 2). As of April 1, 1977, the total indebtedness of Cleveland to CEI has reached
| |
| $17,103,331'45.
| |
| To protect its interests, CEI filed suit in February 1971, in the Cuyahoga County Common Pleas Court to collect arrearages, which at that time totaled in excess of $1.3 million (Hauser 10565 (11-14)). On July 22, 1971, in an effort to settle the matter, CEI
| |
| ,j agreed to refund any disputed amounts if later proceedings should hold them to have been improperly collected (A-27); Cleveland still refused to pay. In its April 8, 1974 Order, ths FPC found Cleve-land's delinquencies to be inequitable to CEI (A-23). In December 1975, the FPC took the almost unprecedented step of filing suit against Cleveland in federal district court to enjoin Cleveland from continuing to refuse payment of the amounts due and owing ( A-212).
| |
| : CEI has intervened in that case (Hauser 10618(14-22)). CEI also counterclaimed for paynent of past due bills in Cleveland's civil antitrust suit against Applicants (Hauser 10619(9-12)). On September 21, 1976, partial judgment in the amount of $9,525,067.50 plus interest was entered on counts 2 and 3 of the counterclaim.
| |
| Judgment on a further claim for $3,925,460.98 plus interest was entered on April 7, 1977. In a memorandum of February 24, 1977 (attached hereto as Exhibit A), the federal district judge hearing Cleveland's antitrust suit understandably had harsh words for the
| |
| " cavalier approach" of Cleveland to its debt (see Exh. A, infra, slip op. at 5).
| |
| 197/ The Licensing Board faults CEI for operating the 69 kv tie nonsynchronously, pointing out that the FPC order mandeting che interconnection did not preclude synchronous operation /r/F No. 51).
| |
| Once again the dubious support for this proposition is ta; *cetimony l of Mr. Hinchee (see nn.190, 193, supra, and nn.200, 204 PS.. -1.fra).
| |
| l It should be compared to the mandate in paragraph "(B)" of the FPC (Continued next page) l
| |
| | |
| -167-interconnection was not part of the three phase program (see A-106), CEI, in accordance with the FPC order, proceeded with j 198/ l c
| |
| construction of this interconnection (Hauser 10566(22-24)).
| |
| l As with the 138 kv interconnection, construction and operation
| |
| - of the 69 kv line was delayed, and the delay was attributable to 199/
| |
| Cleveland (Hauser 10570-71(13-25 & 1-7)). Finally, by the summer 197/ (Cont'd) initial de71sion which emphatically directs that "the 69 kv connec-tion must be operated in the open-switch mode at all times except when used for emergency or short-term service to [ Cleveland]. The 69 kv emergency nonsynchronous interconnection should transmit energy from CEI to [ Cleveland] on an if, as, and when available basis only" (A-20, p. 19; emphasis added). Nor was this conclusion based on mere whim; the FPC decision discusses in detail why both
| |
| .CEI and the staff of the FPC believed synchronous operation would impair the reliability of CEI and why that agency considered those concerns to be legitimate reason for requiring open-switch operation (see A-20, pp. 11-12; see also A-19, pp. 4-5). The Licensing Board reached a contrary conclusion without even undertaking a superficial look at such concerns, let alone giving the matter the same thorough consideration that it received before the FPC.
| |
| ! 198/ Notwithstanding the FPC's order to construct a 69 kv tie, the Licensing Board finds that a two-step approach, i.e., 69 kv followed by 138 kv, was part of a CEI plan to maximize Cleveland's economic burden (F/F No. 46). Although badgered by counsel, the deposition testimony of Karl Rudolph, relied upon by the Board, shows that CEI's motivation was not to maximize the burden on Cleveland (D-558(Rudolph) 92-93). The need for the 69 kv tie arose only because Cleveland had delayed in reaching agreement on the 138 kv interconnection, and the lead time to construct that facility was too long to meet Clevelr7d's immediate needs in the early spring of 1972 (Hauser 10567(5-14); A-19, p. 4). In fact, the testimony of Mr. Hinchee indicates that Cleveland was very interested in securing a 69 kv tie and, after failing to interest
| |
| : CEI in that proposal, brought the matter before the FPC (Hinchee 2669(8-15)). The " brainstorming" session confirmed what was already obvious -- that it would cost Cleveland more to construct both a 69 kv tie and a 138 kv interconnection than just the 138 kv facility (C-138). CEI is not, however, to blame for that. The true culprit was Cleveland's unwillingness to move ahead on the i 138 kv interconnection.
| |
| l l 199/ For example, Cleveland did not let the contract for pro-tective relaying equipment until March 19, 1973 (see A-98; Hauser 10570(18-23)), more than one year after the FPC's decision ordering ,
| |
| the 69 kv interconnection. And ever. then, Cleveland did not expect the equipment to be installed prior to the end of 1973 (A-98).
| |
| | |
| tt
| |
| .-168-of 1974, work on.the 69 kV tie was finished and operations over 200/
| |
| that line commenced (Hauser 10570(24-25)). Throughout this
| |
| ; period FPC personnel reviewed the status of work on the intercon- ;
| |
| !I nection and filed official progress reports (see A-100; A-101).
| |
| e ;
| |
| 200/ While the interconnection as ordered by the FPC was not l
| |
| finished until the summer of 1974, the poles and conductors ,
| |
| between the two systems were in place prior to that time and it was possible physically to energize the facility (Hauser 10572(5-12)). In December, 1972, and January, 1973, Cleveland requested that service be provided over the uncompleted facility (Hauser
| |
| .- 10572(1-4)). After consideration within the company, both
| |
| ! requests were granted (Hauser 10572(13-17)). The Licensing Board faults CEI for its delay in agreeing to Cleveland's two requests (F/F No. 52). However, the company was certainly justified in fully analyzing its own situation prior to energizing the 69 kv line under the circumstances and in light of the lack of protective equipment -- even if such an analysis resulted in some delay in service (see also n.197, supra). Nor is the Licensing Board on sound ground in finding that the administrative delays in ener-gizing the 69 kv tie were worse than the delays encountered with the 11 kv system (I.D. at 74). Again, reliance is placed on the testimony of Mr. Hinchee (see nn.190, 193, 197, supra, and nn.204, ,
| |
| 207, infra (note, because of the Licensing Board's confusion over l t
| |
| : the transcript pagination the two references in F/F No. 52 are redundant)). Mr. Hinchee, however, left Cleveland in September, 1973, prior to operation of the 69 kv line after completion of all
| |
| . construction (Hinchee 2813-14(21-25 & 1-4)). He apparently was unaware that following energization of the facility in July, 1974, service was provided over the line almost continuously until it
| |
| '3 was necessary to take it out of service to complete the 138 kv interconnection, during this period the record shows that there
| |
| ' were no administrative delays (see A-134, pp. 7-10).
| |
| The Licensing Board further criticizes CEI because, in
| |
| : agreeing to provide service over the 69 kv line, the company required Cleveland to execute a street lighting contract with CEI (I.D. at 75); the company position is incorrectly characterized as
| |
| : i. a'" tie-in sale" for the purchase of street lighting service.
| |
| However, Cleveland was already taking that service from CEI; all that was requested was that a contract be executed. At the time,
| |
| ; CEI had been providing electric service for about half the street lights in the City of Cleveland, and had been doing so without a l' contract for over a year (Hauser 10572(20-22)). The " condition" I imposed was that Cleveland execute a contract for that service; the contract being the same as the contract that every one of the 90 other municipalities in the CEI service area had executed,
| |
| -except that Cleveland's payment terms were more favorable (Hauser 10573(2-16)). To label such action a " tie-in sale" -- especially in light of Cleveland's non-payment " policy" (see n.196, supra) --
| |
| strains credulity.
| |
| i.
| |
| | |
| I
| |
| ! i
| |
| -169- j In the meantime, the FPC issued an initial decision on i Cleveland's original request for a permanent interconnection, i
| |
| ordering the construction of a 138 kv permanent synchronous i f interconnection (A-20, pp. 4-6 & 8). In early 1973 the full r Commission affirmed and specifically directed Cleveland to begin construction (A-21, p. 9). Even following this FPC decision, 201/
| |
| Cleveland procrastinated on completing the 138 kv line. Sus-tained negotiations between Cleveland and CEI took place only after the Utilities Committee of the Cleveland City Council initiated investigations and issued a report on January 20, 1975 (A-136), directing Cleveland to negotiate with CEI on an intercon-nection agreement (Hauser 10576-77(9-25 & 1-4)). In the ensuing three months, the parties were able to negotiate the agreement (S-204), which was finally executed on April 17, 1975 (see A-143 202/
| |
| through A-157).
| |
| As of the close of the record Cleveland was purchasing almost 80 percent of its needs over the 138 kv interconnection
| |
| .u 201/ The record shows that CEI submitted a draft of a proposed t
| |
| interconnection agreement to Cleveland on February 7, 1974 (Hauser 10573(17-25); D-191, p. 3). A whole series of conversations and correspondence between CEI and Cleveland then followed in an effort to get some response from Cleveland with regard to the proposed interconnection agreement (Hauser 10574(1-8); see A-65; A-66; A-67,
| |
| : , p. 2; A-69; A-70). Finally, on December 13, 1974, Cleveland i responded with proposed drafts of a facilities agreement and an operating agreement (D-315; Hauser 10574(9-16)).
| |
| Thus, while Cleveland and the Licensing Board accuse CEI of delaying completion of the permanent interconnection, Cleveland sat on CEI's proposed agreement for almost one full year before responding in any form.
| |
| 202/ This last period of negotiations confirmed once again, however, that there were still people associated with the Cleveland system who opposed the 136 kv interconnection -- just as Cleveland had been opposed to interconnection throughout the 1960's'-- on the basis that an interconnection would be the beginning of the l
| |
| end of the Cleveland municipal system (Hauser 10678-79(17-25 &
| |
| l 1-8); see A-152).
| |
| l l
| |
| l
| |
| | |
| -170-(see A-271). The Licensing Board, however, found that the agreement l 1
| |
| requires Cleveland to carry a reserve margin of 70 percent, which t
| |
| places an " unusual and unjustifiable burden" on the Cleveland system (I.D. at 76). That is simply untrue; there is no minimum
| |
| , reserve requirement in the CEI-Cleveland agreement (see S-204).
| |
| William Mayben, Cleveland's engineering expert in this proceeding, and the consultant retained by Cleveland to assist it in these very negotiations, testified unequivocally that the agreement merely places an upper limit on the obligations of the parties and does not impose any reserve obligation whatsoever (Mayben 7794-95(17-25
| |
| & 1-7)). That the Licensing Board would totally ignore this testimony and rely on the uninformed and conjectural testimony of Mr. Mozer only serves to highlight (but not excuse) the lengths to 203/
| |
| which the Board was willing to go to fault CEI. Moreover, the view below that the interconnection agreement denies Cleveland the full benefits of coordinated operation and development underscores the Board's complete lack of understanding of the true relationship between the Cleveland and CEI systems -- i.e., that of purchaser
| |
| ! and seller under what amounts to a full requirements wholesale contract. Cleveland simply has no facilities, technical expertise
| |
| ~
| |
| or managerial competence that it could bring to a coordination i arrangement (compare pp. 102-04, supra). Thus , the most rational, and indeed, even from Cleveland's standpoint, the optimum way to 203/ While the Licensing Board restates Mr. Mozer's testimony in absolute terms, examination of the prefiled testimony shows that it was carefully cast to state that the agreement "could" result in unjustifiable burdens because it "could" require Cleve-land to maintain large reserve margins (see S-205(Mozer) 51(7-10, 17-18)). The reason for such qualification became obvious during the cross-examination of Mr. Mozer; he simply did not understand -
| |
| how the provision operated (see Mozer 3447-50).
| |
| | |
| ~
| |
| r
| |
| -171-
| |
| - pass through to Cleveland the benefits of CEI's coordinatioL is by w'ay of an FPC-filed wholesale rate (compare pp. 104-05, supra).
| |
| _ 3 Wheeling for Cleveland. The only remaining charges I relating to CEI's dealings with Cleveland are various alleged refusals to wheel power (I.D. at 76-80). Initially, we would note that the Licensing Board's analysis of the wheeling issue is tainted by two erroneous premises: first, that Cleveland's access to non-CEI power resources is possible only over CEI's transmission system 204/
| |
| (F/F Nos. 34 & 60), and second that, as a result, wheeling is 204/ The potential for Cleveland to obtain power from sources other than CEI without use of CEI's transmission facilities was succinctly analyzed in the expert testimony of H.E. Caruso. See A-162(Caruso) 12-22. Caruso studied the feasibility of Cleveland constructing a transmission facility from its Lake Road generating plant to any one of four interconnection points with utilities other than CEI: 1.e., to an Ohio Power Company substation, to a Penelec substation, and to two separate substations of OE (A-162
| |
| ( Caruso) 13(1-20)). He concluded that it is today feasible for Cleveland to construct the four specific transmission lines and that it was feasible in the past for Cleveland to do so ( A-162 (Caruso) 17-18(21-25 & 1)). Then, based upon an analysis of the s expected cost of power available to Cleveland had it constructed such lines in the past, or were it to construct such a line today, Caruso concluded that it "was and is feasible" for Cleveland to
| |
| , have access to non-CEI power sources using*non-CEI transmission
| |
| , facilities (A-162(Caruso) 22(4-7); Caruso 10936-37(22-25 & 1-5)).
| |
| The Licensing Board, however, preferred to rely on a " study" (I.D.
| |
| at 80) described by the ubiquitous Mr. Hinchee as having been performed by Cleveland in early 1971 (Hinchee 2684-(24-25)),
| |
| which was r.ever " formalized" (Hinchee 2834(22-23)), and which Cleveland conveniently was unable to produce during the hearing
| |
| >i (Hinchee 2834(18-19)); indeed, Hinchee could not even remember if it had ever been reduced to writing (Hinchee 2835(3-12)). Not only do these factors make accuracy of the " study" suspect but they also served to prevent CEI from probing beneath Hinchee's conclusory testimony -- which CEI had every reason to doubt based on Hinchee's many other inaccurate statements at the hearing (see nn.190, 193, 197, 200, supra, and n.207, infra). Moreover, by relying on the Hinchee testimony, the Licensing Board completely lost sight of the fact that, as part of Cleveland's own request for CAPCO membership (D-185, p. 7), Cleveland proposed to construct i'
| |
| transmission facilities to intercennect with CEI's lines at three o CEI substations, two of which are located outside the boundaries (Continued next page)
| |
| | |
| -172-necessary if Cleveland is to remain a " viable competitor" of CEI 205/
| |
| (F/F No. 57). Even apart from these unfounded assumptions, however, the findings of the Licensing Board in this area are further flawed by its refusal to acknowledge that CEI has offered
| |
| ,e to Cleveland transmission services that would permit coordination i
| |
| with virtually any electric system the city desired (see, e.g.,
| |
| A-97; Hauser 10595(1-11)). The " wheeling" policy of CEI, as stated in a July 22, 1975, letter from Karl Rudolph, President of CEI, to Ralph Perk, Mayor of Cleveland, is (A-75):
| |
| [t]his company [CEI] is willing to provide transmission services for the City of Cleveland under terms and conditions similar to those contained in the [0hio Power -
| |
| AMP-0 contract (S-141a)] with respect to ,
| |
| electric energy as to which there is no legal or conspiratorial impediment which would prevent this Company from making a like purchase at a like price.
| |
| See also Williams 10388-89(25 & 1-2); Hauser 10491-92(17-25 & 1-5)).
| |
| This offer remains outstanding and is unconditional (Hauser 10592 (19-25), 10595(8-9)). It would permit Cleveland to obtain access to power from other investor-owned utilities (e.g., Ohio Power or 204/ (Cont'd) of Cleveland (Fox substation is located in the City of Brooklyn nd Harding is located in the City of Cuyahoga Heights) and the third of which (Inland substation) is located near the eastern
| |
| : f. boundary of Cleveland (see A-111). In proposing this construction,
| |
| .' which would go through the highly congested areas of the city, Cleveland obviously felt no " cost", " environmental", or " siting" l
| |
| constraints which would make such construction " impractical" (compare I.D. at 80).
| |
| 205/ The Licensing Board reasons that since Cleveland was able to obtain only emergency power from CEI, wheeling was nect'=ary for competitive viability. As we have seen, however, more than l emergency power always has been available to Cleveland (see n.190, supra). Aside from this faulty assumption, the Board relies solely on the testimony of Mr. Hinchee. Put quite simply, that testimony says "we need wneeling" (see Hinchee 2709-10(23-25 &
| |
| 1-3), 2711(18-25)) without so much as giving a single basis for such a conclusion.
| |
| | |
| 'f
| |
| -173-J Penelec) (Hauser 10592(3-4)), municipal utilities (e.,g.,
| |
| Richmond, Indiana) (Hauser 10592(7-8)), or rural electric cooperatives (e.,g.,
| |
| 206/
| |
| Buckeye Power) (Hauser 10592(5-6, 8-12)). It would not, however, r
| |
| } commit CEI to wheel hydroelectric preference (i.e., government-
| |
| - owned) power not equally available to CEI (e.,g., PASNY) (Hauser i
| |
| j - 10592(2-3)).
| |
| With' respect to the wheeling of PASNY power, CEI does not 207/
| |
| deny that it has refused to wheel such power (see F/F No. 58).
| |
| 206/ Notwithstanding the policy statement of Karl Rudolph and the testimony of Donald Hauser, the Licensing Board found that CEI
| |
| , had refused to wheel such power (I.D. at 79). The basis for that finding is the testimony of Robert Hart, Cleveland's Assistant Director of Law, indicating that Hart did not fully comprehend what CEI's wheeling policy meant and therefore viewed it as a refusal to wheel. The farsical nature of this testimony is evident from an examination of the underlying correspondence (see D-177; A-75; A-76; A-78 through A-81; A-83; A-84; A-86; A-94; A-96; A-97) '
| |
| ; and the cross-examination of Hart (see Hart 4920-22, 4925-33, 4935-38, 4947-55,-5343-44). Moreover, the Licensing Board over-states Mr. Hart's testimony, which shows that Cleveland never even ll spoke to CEI about wheeling Orrville power (Hart 4713(19-22)), has made no attempt to follow up on its initial inquiry concerning an alleged source of power from Richmond (Hart 5389-90(21-25 & 1-5)),
| |
| and has shown no further interest in Buckeye power since the early I' correspondence (Hart 4942(4-13), 4944-45(2-25 & 1-19)). The initial requests coming well after the start of these proceedings I and Cleveland's failure to pursue these sources following CEI's lk
| |
| : statement of willingness to wheel such power, leads CEI to question once again the bona fides of Cleveland's actions.
| |
| L 207/ CEI does, however, dispute some of the ancillary findings relating to the wheeling'of PASNY power. The Board asserts that
| |
| ;i AMP-0 received a commitment from the Power Authority of the State i.
| |
| ~
| |
| of New York for 22.7 mw of hydroelectric power.(I.D. at 77). In-terestingly, while the Licensing Board makes reference to some documentary exhibits, not one is from PASNY. Such correspondence is in the record, however, and it shows that competing "applica-tions from the Vermont and Pennsylvania allottees" had been received.(A-191, item 4, p. 1), that before a " comparison of the relevant merits of the competing applicants" could be undertaken, AMP-0 uould be required to submit further information (id.), and that any decision on allocation "will be'the subject of a public hearing" (id. at p 2). Rather than litigate its right to the 30 mw,1 AMP-0, by telegram of September 26, 1973 (A-191, item 2) and j
| |
| letter of 0ctober 1, 1973 (A-191, item 1), officially withdrew its I
| |
| application in favor of the Pennsylvania application. The Board's (Continued next page)
| |
| | |
| l l
| |
| -174-However, the merit or demerit of a 1973 decision not to wheel 30 mw of PASNY power is a matter which has no legitimate rele-vance to the present proceeding. Our position as to why that action bears not the slightest relationship to " activities under the license" has been adequately set out in papers flied in con-
| |
| . nection with Applicants' motion for summary disposition of l AMP-O's intervention petition (see filings of August 15, 1974 and August 18, 1975; see also Part III, supra). Moreover, an examina-tion of the circumstances attendant to CEI's refusal to wheel PASNY power demonstrates that such action was not at all incon-sistent with the antitrust laws and had no adverse anticompetitive impact on Cl'eveland.
| |
| First, it has always been feasible for Cleveland to con-struct its own transmission line to receive PASNY power (see A-162 207/ (Cont'd) reformulation of the facts to be that the Pennsylvania applicant is receiving AMP-O's allocation pending arrangement of transmission to Cleveland (I.D. at 77, n.0 1 is inaccurate. If there is to be a later reallocation from the Pennsylvania entity to AMP-0, there would have to be a further determination by PASNY and a hearing on that decision (see C-167, pp. 10-11; A-191, item 1, p. 2).
| |
| The Licensing Board once again relies on the testimony of Hinchee to establish that a commitment had been received by AMP-0.
| |
| When pressed on cross-examination, Hinchee insisted that the PASNY i " commitment" was in writing in the form of a letter of intent (Hinchee 2839(16-23)), which he presumed had been executed by i Mr. Berry for PASNY (Hinchee 2840(6-11)) and by Mr. Engle for AMP-0 (Hinchee 2813(20-22)). Yet, no such letter was ever pro-duced, and, in response to a subpoena seeking copies of the referenced document, PASNY advised that it had "not been able to locate any such document in the files of the Power Authority, nor
| |
| * *
| |
| * any document in the Authority's files which could reasonably be considered to fit [that] description" (A-191, p. 1). In response to questioning about the Vermont and Pennsylvania competing applications, Hinchee attempted to brush these facts aside by testifying that Vermont's application was not filed while he was at Cleveland (Hinchee 2841(17-19)). Characteristically, Hinchee's testimony on this point 1.s also not true (A-191, item 4).
| |
| | |
| F
| |
| -775-(Caruso) 13-14, 18, 20-21, exh. HEC-4). In 1973, when AMP-0 first requested CEI to wheel for the benefit of Cleveland, the 30 mw of PASNY power under discussion was then unavailable for at least the next two years (see A-91, item 4, p. 2). Thus, the transmission line from Cleveland to Penelec studied by Mr. Caruso could have been built during that period (see Caruso 10954(6-11)), without Cleveland losing a " drop" of hydroelectric power.
| |
| Second, since well before 1973, Cleveland has always had available to it an alternative source of power and practically on a continuous basis -- i.e., bulk power from CEI. As of today, Cleveland is taking the lion's share of its power requirements from CEI on a wholesale basis (A-271). Neither Otter Tail Power Co. v United States, supra, nor, to our knowledge, any other case, requires an electric utility presently supplying wholesale power to a municipal utility also to wheel power for that entity. To impose such a requirement on CEI would be to open the CEI transmis-sion network to " common carrier" status. No law places such an obligation on CEI, and certainly not Section 105c of the Atomic Energy Act. As it is, CEI has voluntarily agreed to wheel for Cleveland any power also available to CEI under like terms and con-
| |
| ~
| |
| ditions (see pp. 172-73, supra). Thus, it cannot even be said that CEI's refusal to wheel PASNY power " ties" Cleveland to CEI as its only bulk power source. Cleveland can choose from a whole array of non-CEI power sources, assuming, of course, that there really exist any such viable options -- which certainly has not been j demonstrated in this proceeding (see pp. 67-70,' supra).
| |
| Fundamentally, CEI continues to believe that, entir61y consistent with the antitrust laws, a company may refuse to make ;
| |
| l '.._
| |
| | |
| r i
| |
| -176-r its individually-owned capital assets available for use by its competitor, on demand, to provide that competitor access to a resource (no matter how " unique") which the refusing company cannot itself obtain. Such action does not deprive a competitor
| |
| - of any market advantage which is available to others. Unlike the situation faulted in Terminal Railroad Associstion, Associated 208/
| |
| Press, or Gamco, Inc., CEI's position with regard to wheeling PASNY power does not deprive Cleveland of access to CEI's trans-mission facilities, but only denies the city use thereof in the limited situation where such use is also barred to CEI itself.
| |
| Thus, in very practical terms, the referenced facilities are "m,2 ally" available to both Cleveland and CEI .n precisely the sense intended by the Supreme Court in its Terminal Railroad decision (224 U.S. at 411) and emphasized in the later cases of a similar ilk. The fact that the company has declined to go further and provide Cleveland with a form of preferential access which neither CEI nor any other public or private utility enjoys, suggests no infirmity under the antitrust laws. See DeFilippo y Ford Motor Co., supra, 516 F.2d at 1320-21 (anticompetitive purpose cannot be inferred from the deprivation of benefits under a contract offered on special terms).
| |
| : 4. Painesville. When one plows through all the might-have-beens, early negotiating positions, quickly disgarded offers and counter-offers, there really is very little of substance left with respect to the Painesville findings (I.D. at 83-90). The 208/ See United States v Terminal Railroad Association, 224 U.S. 383 (1912); United States v Associated Tress, 326 U.S. 1
| |
| ~
| |
| (1945); Gamco, Inc. v Providence Fruit & Produce Building, 194 F.2d 484 (1st Cir.) cert, denied, 344 U.S. 617 (1952).
| |
| w m- ww*
| |
| | |
| 2- e e t
| |
| ,s
| |
| -177-fact of the matter is that there now exists an interconnection between CEI and Painesville over which that municipality receives emergency, short-term and limited-term power, as well as economy interchange and coordination of scheduled maintenance (see S-203; Hauser 10602(2-14)). While the Board finds that CEI's conduct in this relationship also evidences a refusal to interconnect except upon unfair terms (I.D. at 85-88), it once again has elected to rush headlong to its desired conclusion unencumbered by the facts of record, which indicate quite the contrary.
| |
| CEI has been discussing interconnection with Paines-ville on an on-again, off-again basis for more than ten years.
| |
| In 1964 or 1965 it was CEI who first proposed interconnection 209/
| |
| to the municipality (A-195(Milburn) 10(1-3)). - That offer was turned down (id. at 10-11(14-25 & 1-3)) because for many years the municipal electric staff was opposed to interconnection, as were Painsville's independent consultants (id. at 27(8-25),
| |
| 34(1-3)), and the Painesville city council (id. at 68(2-13)).
| |
| However, following a st ike in early 1974 both the municipal
| |
| :=
| |
| staff and city council changed their views in support of an interconnection with CEI (id. at 34(3-6), 68(5-11)). Wayne Milburn readily conceded that "a lot of [the] delays (thereafter 209/ Wayne Milburn, former Law DiPector of Painesville and since deceased, was unable to testify in this proceeding because of ill health (see A-195a). However, his deposition testimony (A-195) was received into evidence. That testimony is crucial, since the central rcle that Milburn played throughout the' CEI-Painesville negotiations was clearly recognized by all parties to those. negotiations including Joseph Pandy, presently Paines-ville's electric power superintendent (Pandy 3184(2-13)). Only l Milburn knew the full history of the negotiations. Pandy started l with Painesville in July 1971; prior thereto, he worked for CEI (Pandy 3096(5-13)).
| |
| | |
| r
| |
| -178-t in effecting the interconnection] were our [Painesville's] delays" (id. at 27(8-10)).
| |
| The Licensing Board asserts that because negotiations on this matter involved home discussion about the sale of Painesville cut tomer" in Perry Township, an anticompetitive motive can be ascribed to CEI (I.D. at 87). However, contrary to Pandy's second-hand guess as to the nature of the correspondence on this point between Milburn and Lee Howley (of CEI), Milburn testified very directly that, at one time Painesville proposed a transfer of customers to CEI, together with a sale of the faciitties which served these customers, as a possible means of assisting itself in
| |
| : financing its share of the cost of interconnection (A-195(Milburn) 210/
| |
| 32(8-17), 70-72). significantly, and again contrary to Mr. Pandy's impressions, the proposed transaction was to be a one-sb;c deal; f
| |
| there was no discussion abouc precluding Painesville from seeking to serve future customers in the area (id. at 33(1-5)). In any event, Painesville's proposal never advanced beyond a first-look stage. It is therefore clear that the entire matter has absolutely 211/
| |
| no antitrust significance.
| |
| 210/ The Licensing Board also found that on occasions prior to 197E7 CEI offered to trade customers and territory with Painesville.
| |
| However, while the Board reluctantly admits that there never has been any territorial agreement between CEI and Painesville (F/F No. 67), its discussivn Of the. various proposals is inaccurate. As the text indicates, the 1974 discussions did not involve exclusive l_ territories, and to the extent that the Board viewed it as such (see I.D. at 85, 87), that was error. In addition the testimony of Dale Helsel is inaccurately cited to support F/F No. 70; that testimony dealt with a 1962 proposal that could not possibly have had any bear.ag on the 1974 interconnection discussions.
| |
| 211/ The Licensing Board's reference to a " rate equalization"
| |
| - condition as an element of the interconnection negotiations (I.D.
| |
| (Continued next page)
| |
| -r ,-, --
| |
| -. - - ,. .-- , , .. -, ,___ g , s -
| |
| | |
| -179-Equally infirm is the Licensing Board's finding that CEI misused its alleged' " dominance and monopoly power to secure an anticompetitive and oppressive interconnection" (F/F No. 71). To support this view, the Initial Decision once again resurrects the
| |
| ~
| |
| fallacious argument that provisions in the agreement setting upper limits en a party's obligations actually mandate lower limits and therefore place a " serious burden" on Painesville (see p. 170 &
| |
| n.203, supra). In addition, the Board questions the inclusion of a "special provision" which the record shows was included to 212/
| |
| comply with the FPC's Sierra-Mobile doctrine. We again remind the Appeal Board that this contract, like the CEI-Cleveland contract, has been filed with the FPC and an opportunity for
| |
| -211/ (Cont'd) at 67).similarly finds no real record support. While this finding is pegged to Pandy's direct testimony, the Board carefully avoids later statements by Pandy when asked specifically whether Paines-ville's rate increase was in response to CEI's urgings. He then responded: "I don't know whether that was a consideration or not.
| |
| *** The primary reason the rates were raised was to provide funding for the interconnection. To be able to sell additional bonds and cover those bonds * * '" (Pandy 3203(12-16)). And, when then asked if CEI's urgings were any part of t'he consideration, he "I don't know" (id. at 3203(20-22)).
| |
| l replied:
| |
| l l 212/ The provision in question does not permit CEI to uni-laterally cancel the agreement (Hauser 10607(4-7)). No matter
| |
| ! what CEI contracted for, it could never have that power, since FPC approval is required prior to termination of service (id.;
| |
| see 16 U.S.C. 5 824d(d); 18 C.F.R. S 35.15 (notice of cancellation or termination)). What the provision does is make it possible for the parties to adjust rates, subject to FPC approval, during the term of the contract pursuant to the Sierra-Mobile doctrine (Hauser 10606-07(12-25 & 1-11), 10607-10). See United Gas Pfpe 350 U.S. 332 T1956); FPC v
| |
| ~
| |
| Line Co. v Mobile Gas _ Service Co.,
| |
| Sierra Pacific Power Co., 350 U.S. 348 (1956); United Gas Pipe Line Co. v Memphis Light Gas & Water Division, 356 U.S. 103 (1958);
| |
| Richmond Power & Light v FPC, 481 F.2d 490 (D.C. Cir.), cert.
| |
| denied, 414 U.S. 1068 (1973). The Board's contrary finding further evidences its ignorance of FPC regulation and under-scores the error arising because of its failure to recognize the impact of such regulation on industry conduct.
| |
| | |
| r
| |
| -180-protest has been given (see 41 Fed. Reg. 33942 (August 11, 1976));
| |
| however, no protests were lodged before the FPC.
| |
| Finally, the Licensing Board faults the interconnection agreement for not including a wheeling provision, finding that CEI
| |
| , refused a " general request" for third-party wheeling (I.D. at 88-89). The basis of that charge is a single sentence in a letter from Howley to Milburn stating that CEI "could not agree to the Transmission Service Schedule which is third party wheeling" (S-141). This record does not even indicate what the Painesville proposal was. Thus, the Licensing Board felt itself sufficiently informed to determine the reasonableness or unreasonableness of Painesville's request and CEI's response thereto without knowing what was requested and what was refused. There clearly is no law in support of such a broadbrush approach to the problem. In any event, suffice it to say that CEI has since offered to wheel power to Painesville in accordance with its stated policy (Hauser 10595 (1-11); see pp. 172-73, supra).
| |
| The Licensing Board's final charge is that CEI has denied Painesville access to nuclear power (I.D. at 89-90). As the Board
| |
| * correctly notes Painesville expressed an " interest" in partici-pating in the Perry facilities on April 11, 1973 (S-136a; Hauser 10595-96 (11-25 & 1-11)). Milburn explained that the " interest" was communicated to CEI because "it doesn't hurt to put it on the record" (A-195(Milburn) 21(4-5)). Howley responded to the Painesville " interest" by offering to meet with Milburn to discuss participation (S-136b). That meeting was held (A-195 (Milburn)
| |
| L 21(15-16)), at which time Howley quite correctly pointed out that participation would. cost "several million dollars to even get a
| |
| | |
| I
| |
| -t@1-small piece of it" and suggested instead that the interconnection agreement being negotiated between the two systems could fulfill the needs of Painesville (id. at 21-22(17-25 & 1-2); Hauser 10596(17-21)).. There the matter rested; Painesville did not then pursue participation any further. Indeed, it was not until two years later, in July 1975, and during the Pandy deposition in this proceeding, that Painesville indicated to CEI a further interest in nuclear participation -- a position that was contrary to what CEI had earlier been led to believe was Painesville's true desire (Hauser 10598(8-21)). Painesville was then sent a copy of the technical and economic information previously submitted to Cleveland in order to assist Painesville in its consideration of the matter (A-43; Hauser 10598-99(19-25 & 1)). Once again, CEI heard nothing more during the ensuing six months.
| |
| On January 13, 1976, Pandy acknowledged during his testi-mony in this proceeding that the ball was then in Painesville's court, and that it would be up to Painesville to request further discussions on the subject of nuclear participation (Pandy 3160 (4-11)). Such a request was made thereafter in a letter dated March 20, 1976 '(A-137). CEI promptly responded (A-138); its
| |
| ! letter suggested several meeting dates and enclosed a copy of the l draft Participation Agreement previously sent to Cleveland (D-192) l l.
| |
| as an aid to Painesville in preparing for the proposed meeting.
| |
| l- The Board finds that response to be "obviously insufficient" (I.D. i at 90). But what more could CEI have done? It had already supplied Painesville with a full package of technical information.
| |
| Certainly, CEI was in no position to draft contract terms for Painesville since it did not know what it was that Painesville in
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| + - % - - - -
| |
| | |
| F =
| |
| -182-fact desired. Moreover, Painesville's reply, an April 17, 1976 letter from Charles Cannon, Painesville Director of Law, advised CEI that he could not meet on the suggested dates, but that he would attempt to arrange a meeting on some later date (A-139).
| |
| As of April 1, 1977, one year later, nothing further had been heard on this subject from any official -- high or low -- of the City of Painesville.
| |
| : 5. Alleged territorial agreement with OE. The Licensing Board erroneously found that CEI had entered into an agreement with OE to recognize territorial boundaries (I.D. at 110-19). The 1 only support for the charge is a single unsponsored, internal OE document (D-488), clearly of a hearsay nature. Ironically, the document itself relates to active competition between the two systems and the problems being caused because both CEI and OE desired to serve a new customer. What the Board relies on, however, is the statement that at one time " ten years or more ago" (the memorandum is dated April 4, 1974), as to a particular dispute relating to a boundary customer, a resolution of that dispute was reached on the basis that "the company with the lowest cost should serve." It will always be true that when a boundary dispute is resolved (and because of the nature of the industry specific disputes must always be resolved if a customer is to l receive service (see p. 45, supra)), an " agreement" as to that dispute is reached. Such a resolution does not, however, consti-tute an agreement to restrict competition. In this regard, the Board erroneously ignored the last paragraph of D uB8, which reads:
| |
| | |
| -183-
| |
| ~
| |
| CEI would explore the legality of a joint use agreement containing provisions assuring them that Ohio Edison would not serve any customers or i open land on Boston Road for the area covered by i the agreement. ;
| |
| The clear conclusion from a full reading of D-488 is that in 1974 there was no territorial agreement between the companies, and that CEI would explore the legality as to whether such an agree-ment could be entered into. There is absolutely no evidence that, after legal exploration, such an agreement later was entered into; in fact, there is no such agreement. Nor does the deposition testi-mony of Karl Rudolph indicate otherwise. While Rudolph, who is not a lawyer, admittedly misstates the law of Ohio as to service to new customers (D-558(Rudolph) 53(17-18)), the Board completely ignores Rudoph's later statement that "I said that I thought this ;
| |
| was the law. This is not a matter of agreement" (id. at 54(10-11)). ,
| |
| i The Board's twisting of the confused examination of this witness into evidence supportive of a finding of a territorial allocation agreement is inexcusably wrong.
| |
| : 6. Conclusion. Perhaps, more than anything else, the prejudicial nature of the Initial Decision is best evidenced in
| |
| [ the Licensing Board's continual willingness to read all documents and evaluate all testimony with an eye to seeing the worst -- as in the case of tba just referenced Rudolph deposition testimony --
| |
| even when the evidence supports no sinister finding. Such an
| |
| ( approach to the conduct of CEI is reflective of the erroneous conclusions reached by the Licensing Board on all aspects of CEI's l
| |
| l behavior. Clearly, for the many reasons we have discussed, the l
| |
| findings against the company must be overturned on this appeal.
| |
| + ,
| |
| yw - r., .,r
| |
| | |
| -184-l 1
| |
| B. TOLEDO EDISON #
| |
| ~
| |
| With respect to the Licensing Board's findings of fact and conci.usions of law regarding TECO, the question ocmes down to whether certain isolated activities of this comparatively small investor-owned utility, occurring at distant points in time and having no demonstrable anticompetitive purpose or effect, can properly be held to run afoul of the proscription in Section 105c(5), which is aimed at antitrust inconsistencies resulting from the licensing of the subject nuclear plants. The answer on this record must be "no". To the extent that the Licensing Board reached a contrary conclusion, it misunderstood and misstated the facts surrounding the practices of the company, improperly assigned probative value to certain matters presented by the opposition parties which were inherently suspect, and chose to disregard or reject relevant and exculpatory evidence presented by TECO. More-over, the underlying legal analysis of the Licensing Bua-d was in error, including its concept of the jurisdictional limits of the instant inquiry. Indeed, in this latter respect, the Board
| |
| - was unable in its discussion of particularized nexus (see I.D. at 2P.4-27) to point to a single " situation" (inconsistent or other-Wise) in the TECO service area linking that company's behavior to 213/
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| the subject facilities (see p. 136, supra). For all these
| |
| * Primary responsibility for preparation of this section of the Appeal Brief was assumed by TECO's General Counsel, Fuller Henry Hodge & Snyder.
| |
| ,213/ We note that the Licensing Board does make a passing refer-ence to the nexus question in connection with remarks attributed by Mr. Hillwig to Mr. Smart at a meeting on August 27, 1975 (I.D.
| |
| at 173-74). Even on its own terms, we do not understand how the refere :ced testimony of Mr. Hillwig -- which is, at best, disjointed, (Contin:9d next page)
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| | |
| -185-reasons,'the Licensing Board's findings against TECO must be set 214/
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| aside as both factually unsound and legally impermissible.
| |
| : 1. Acauisitions. With reference to what the Licensing Tsoard has characterized as "a considered and deliberate acquisition policy of [TEC0]" (I.D. at 161), we are at a loss to understand what antitrust violations can possibly attach to the practice of an electric utility in this " basic natural monopoly" industry (Gulf States Utilities Co. v FPC, supra, 411 U.S. at 759) of acquiring municipal systems within its service area which are unable to survive because of their admitted " inefficiencies and financial constraints" (I.D. at 161), See Lamb Enterprises, Inc.
| |
| v Toledo Blade Co., supra, 462 F.2d at 514-15. Certainly, with respect to any acquisition by TECO that occurred prior to the September 1, 1965 cutoff date (see I.D. at 93 n.**), the only permissible inference on this record is that it was due "to 4
| |
| natural scale economies, technological advances such as alter-nating current, and improved transmission techniques" (I.D. at 213/ (Cont'd) and certainly does not suggest the link between wheeling and the financing of future nuclear units found by the Board (Hillwig 2402(12-17)) -- lends any scoport to the jurisdictional issue.
| |
| Indeed, when read in conjunction with Mr. Smart's testimony on the same meeting (which testimony the Licensing Board inexplicably chose to totally ignore), Hillwig's remarks coincide with Mr.
| |
| Smart's description of the lengthy discussion that took place on that occasion as involving three major topics of conversation (Smart 10097(5-14)), two of which concerned future financing of nuclear plants in CAPCO (id. at 10097-99), and, in a wholly unrelated context, the matter of wheeling (id. at 10099-102, 10114(7-24), 10119-120(4-17 & 1-6)). The unenthusiastic atti-tude of TECO to the " postage-stamp" wheeling request made at that meeting is discussed at pp. 200-03, infra.
| |
| 214/ It should be reiterated that no plausible reason exists to ascribe to TECO any of the' conduct by the other Applicants as a result of its participation in the CAPCO pool (see pp. 111-13, supra), or otherwise (see pp. 12, 24-25, supra).
| |
| | |
| -186e 109) -- as explained by Mr. Gerber (see n.120, supra; and see pp. 100-02, supra). Nor does the Licensing Board find otherwise.
| |
| Moreover, no suggestion can properly be made that these early acquisitions had any adverse effect on " competition" (see, e.g., Moran 9590(7-15), 9910-12, 9914). Not only does the evi-4 dence below make it clear that municipal electric systems generally provide no meanir.gful competition at the wholesale or retail level in Ohio (see pp. 56-71, supra); but, more sp(cifical.i t, it is beyond cavil that once such a system is failing due to its own ineffi-ciencies and financial constraints, it cannct realistically be regarded as a competitive factor in the marketplace (see, e.g.,
| |
| United States v Western Union Telegraph Co., supra, 53 F. Supp. at 390).
| |
| Since September 1, 1965, TECO has acquired only two electric systems: the self-generating system of Waterville, and 215/
| |
| the distribution-only system of Liberty Center (S-158, p. TE-37) .
| |
| In both instances, the municipality had allowed its electric facilities to fall into a severe state of disrepair as a result of unwillingness or inability to provide financing for maintenance 216/
| |
| purposes. In the circumstances, a sale of the system to TECO, 215/ While the Licensing Board also refers to the acquisition by TECO of the generating system of Clyde in July, 1965 (I.D. at 165), no evidence of any kind was admitted on this acquisition since it took place prior to the September 1, 1965 cutoff date.
| |
| 216/ The evidence on this point is not disputed. As to Liberty Center, it was established that its system had serious " voltage problems" at the time of acquisition and that it "was in poor shape and they didn' t keep it up" (D-577 (Schwalbert) 16(9-13)). Rather than pumping more money into this faulty facility it was recognized that the system could be sold "to obtain capital for a needed l sewage system" (D-582(Cloer) 35(8-9)). And thir was the course l
| |
| , the city officials decided upon (D-139(a)). !
| |
| l (Continued next page) i
| |
| | |
| -187-which was seen as a scurce of much-needed capital for other muni-
| |
| . cipal projects (see D-582(Cloer) 35(8-9)), was deemed by city officials to be a sounder business decision than trying to invest large sums of money in an effort to repair the inadequate facili-ties, with no assurance that a different pattern would likely occur in the future (see, e.g., Gerber 11499-503).
| |
| There is no support whatsoever for the suggestion below that TECO contributed to the " demise" of the Waterville and Liberty 217/
| |
| Center systems. The fact that the certain company personnel may 216/ (Cont'd)
| |
| The Waterville experience is no differe's. That system also "provided poor electric service" and the citizenry exper-ienced "many outages" (D-541, attach. 2, p. 3). At the time of acquisition, "[t]here were a lot of people there that had poor service" (D-577(Schwalbert) 13(2-3)). Indeed, the situation had become so bad that "[t]he people couldn't iron if the lady next door was ironing and things like that" (id.). The explanation for Waterville's predicament was no different from what Mr. Gerber found to be applicable to a number of municipal systems in Ohio:
| |
| "[Tlhey don't have the resources to maintain their system properly and tend to let it get run down. They don't have adequate staff"
| |
| ( M. at 19(16-18)).
| |
| 217/ The sole basis for such an hypothesis rests on the fact that TECO failed at the eleventh hour to jump to enter into a wholesale power arrangement with Waterville (I.D. at 182-84).
| |
| There is no dispute that at the time the matter of a possible wholesale pcuer arrangement was firct raised by the city (see D-504; D-505; D-506), the deteriorated state of the municipal system was already well est-ablished (see n.216, supra). To be
| |
| * sure, TECO's initial reaction was an unenthusiastic one (see D-504; D-615 and D-619). As the notation at the bottom of D-615 explains: "We have not thought about any load here for years,
| |
| [and] don't know if we are interested * * *." The Licensing Board concludes that this was a carefu13y-worded negative response, referring to D-504 (I.D. at 184). Even accepting arguendo that reading, however, we are aware of no antitrust principle that would have imposed an affirmative duty on TECO to come to the rescue of a failing electric system when TECO had no hand in causing or contributing to ita failure. Here, there is absolutely no basis for concluding that TECO's reluctance actually caused the
| |
| " demise" of Waterville's system, or even precipitated the sale.
| |
| In point of fact, not even the city officials could agree that Waterville really wanted "some form of interconnection" (D-504).
| |
| Rather, the record clearly shows that two of the three city council members were " opposed" to the idea (D-615), and, for all (Continued next page)
| |
| | |
| -188-have had an understandable interest (I.D. at 164) in acquisitions of this sort (which has never been denied), and even encouraged municipalities to sell their antiquated facilities on occasion 218/
| |
| (albeit with limited success), cannot support the argument that
| |
| . TECO actually caused, either directly or indirectly, the deterior-ated condition and financial hardship that ultimately prompted the city to abandon its efforts to maintain and operate the acquired 219/
| |
| electric system.
| |
| The Licensing Board's condemnation of TECO in these cir-
| |
| ; cumstances is clearly erroneous. At the time of the acquisitions, i
| |
| 217/ (Cont'd) that can be determined, it was their opposition that signalled the abrupt end of further discussions regarding a whalesale power arrangecent with TECO. Certainly, nothing suggests that TEGO broke off negotiations in ceder to pressure Waterville to sell its system. The company has never pursued such a policy (D-583(Moran) 7(13-21)). Moreover, Mr. Gerber, who included Waterville in his examination of municipal acquisitions in Ohio and Pennsylvania (Gerber 11499-503), and was aware of TECO's general reluctance to furnish wholesale power to the city in the circumstances (Gerber 11502-03), stated unequivocally that he found no support for the hypothesis that the decision to " sell-out" was tied in any way to a failure of Waterville to obtain bulk power supply from another source (Gerber 11616).
| |
| [ 218/ Compare, for example, D-140 through D-144 (Napoleon) and D-15T through D-155 (Bryan). The Licensing Board's effort to fault TECO for actively participating with civic groups and before city councils in discussing the relevant considerations pertinent to selling the electric facilities (I.D. at 164 n.*, 184) is not well
| |
| ( taken. Whoever initiated such participation (compare Moran l
| |
| 9969(3-5); Gerber 23(2-10)), -- and'the record below is silent on this question as to both Waterville and Liberty Center -- plainly, an informed decision by local authorities was desirable. Moreover, l no evidence exists that TECO ever distorted or misstated facts in
| |
| ! order to influence a decision. ,
| |
| I
| |
| ; 219/ While the Licensing Board deems it relevant that some muni-
| |
| ! cipal systems in TECO'a service area "were profitable" (I.D. at 161), we fail to see what bearing that has on the electric systems of Waterville and Liberty Center, which clearly were not in that category, or, for that matter, on the whole question of TECO's acquisitions. No claim has ever been made in this proceeding that TECO acquired such a profitable municipal system.
| |
| | |
| -189- l the two municipalities were, as a result of their own inefficien-cies and diseconomies, incapable of providing reliable electric service to their citizens. The purchase of these systems not only spared Waterville and Liberty Center the sizable expense they would have otherwise had to incur in repairing and rehabili-tating their facilities (A-189(Garber) 21-22(26 & 1-9); Gerber 11526-27 (19-25 & 1-5), 11617(18-24)), but, equally important, it provided them with needed capital for other municipal projects
| |
| >I (A-189(Gerber) 22(12-13); Gerber 11618(4-15); D-582(Cloer) 35 (8-9)). Moreover, it guaranteed the citizens of Liberty Center and Waterville reliable electric service which they had long gone without and desperately needed. Thus, under any "public interest" standard, these acquisitions are not to be condemmed, particularly since, in the non-competitive market structure in which they took place (see pp. 40-56, supra), they plainly offended neither the 220/
| |
| letter nor the spirit of the Sherman Act.
| |
| : 2. Territorial allocations. The Licensing Board's adverse findings with respect to what it erroneously labels as s
| |
| 220/ Certainly, the acquisition of Liberty Center's distribu-tion-only system had no competitive impact whatsoever; TECO was providing the full power requirements to that community as much before the acquisition as after. Nor did the elimination of ,
| |
| Waterville's inefficient self-generation have any cognizable competitive impact for the reasons already stated (see pp. 56-65, supra). Even by the antitrust standards which measure horizontal and vertical mergers under Section 7 of the Clayton Act (15 U.S.C.
| |
| $ 18), these two acquisitions, whether considered alone or together (3.5 mw capacity), suggest no anticompetitive effect (see, e. 5.,
| |
| Brown Shoe Co. v United States, suora, 370 U.S. at 329; Crown Ze31erbach Corp. v FTC, 296 F.2d 600, 818 (9th Cir. 1961)) or improper monopolistic intent (see, e.g., United States v. Jerrold Electronics Corp., 187 F. Supp. 545, 566, 566 (E.D. Pa. 1960),
| |
| aff'd per curiam, 365 U.S. 567 (1961)). And this principle has been recognized as having full application to acquisitions by electric utilities (see Commonwealth Edison Co., supra, 36 F.P.C.
| |
| at 941).
| |
| m.
| |
| | |
| -190-
| |
| " territorial allocation" arrangements stand on no firmer footing.
| |
| To the extent the conclusions in this area are grounded upon appli-cation of per se reasoning, they are entitled to no weight on this appeal for the reasons set forth earlier (see pp. 36-40, supra). What the Licensing Board should have done is examine each of the challenged relationships in terms of its economic and institutional underpinnings to ascertain whether any agreement (if indeed there be one) had or has as a purpose or effect to unreasonably restrain trade within or on the fringes of the i CCCT. Had such an analysis been undertaken on a full review of the evidence introduced below, the results would have been entirely different.
| |
| As to those territorial agreements TECO was found to have entered into with neighboring investor-owned utilities (I.D.
| |
| i at 166-70), the Licensing Board's analysis is seriously flawed in every major respect. First, there is precious little evidence supporting the conclusion that TECO ever had any such agreements.
| |
| For example, the Licensing Board bases its findings of an unlawful territorial agreement between TECO and Ohio Power entirelv upon one piece of evidence: a single unsigned map prepared in the early 1960's solely by TECO to show the distribution lines of Ohio Power 221/
| |
| and TECO in the Fremont, Ohio, area (D-536; and see Tr. 8123).
| |
| 221/ The Licensing Board chose to ignore entirely the direct testimony of company officials that TECO and Ohio Power brid never entered into an agreement to respect t's integrity of the other's
| |
| ; service area (see D-579(Kozak) 68(5-8); D-581(Williamson) 50(8-13);
| |
| Moran 9904-05(13-25 & 1-9)). Also ignored was the uncontested testimony that from 1965 to the present, both TECO and Ohio Power have pursued customers locating in the Fremont area (Moran 9910-11 (19-25 & 1-6)).
| |
| | |
| -191- ,
| |
| Even the NRC's expert witness, Dr. Guy, acknowledged that it is
| |
| ~
| |
| not at all uncommon for electric utilities to unilaterally prepare and maintain such drawings for perfectly legitimate reasens (Guy in 3075-76(23-25 & 1)). Nor is there any greater basis for inferring the existence of a market division agreement between TECO and Con-I sumers Power Company. Indeed, a separate antitrust panel of this agency had earlier so ruled on precisely the same evidentiary showing (Consumers Power Co., supra, 2 N.R.C. at 89, 106), and the
| |
| ;, refusal of this Licensing Board to give that prdor decision on the identical issue and involving the same parties collateral estoppel 222/
| |
| jl effect was error (see p. 7S & n.85, supra). Finally, while a 222/ The evidence below that was relied upon to support this
| |
| : finding was, as pointed out in Consumers Power Co., supra, 2 l N:R.C. at 106, all of the hearsay variety (see D-108(6), (7),
| |
| (8) and (9); Darling 5192-93(20-25 & 1-20)). It consisted entirely
| |
| ) of second-hand accounts of remarks in 1966 attributed to Mr.
| |
| Schwalbert of TECO during meetings with representatives of the Southeastern Michigan Rural Electric Cooperative ("SEM"), in which
| |
| ;i he is said to have referred to an understanding between the two l'
| |
| companies not to " cross the [ Michigan /0hio] state 1:ne into the h
| |
| other company's territory" (D-108(9)). However, Mr. Schwalbert, 3< when asked about such an " understanding" directly, tesuified that he had no knowledge thereof (D-577(Schwalbert) 69-71(10-14, 12-25
| |
| & 1-6)). So did Mr. Keck, who attended the February, 1966 meeting and recalled no contrary indication being given by Mr. Schwalbert
| |
| . during that discussion (D-576(Keck) 145(13-24), 151-52(11-25 &
| |
| i 1-17)). No direct evidence was introduced to refute this testimony.
| |
| Instead, the Licensing Board was content to infer an agree-ment on the basis of TECO's refusal in 1966 to supply energy to SEM (I.D..at 167-69). The record below show;, however, that the e essential reason for TECO's negative response at that time was its j legitimate desire to remain free from FPC jurisdiction by not crossing state lines (D-576(Keck) 143(4-7), 146(2-4), 149(5-7);
| |
| Moran 9899(2-10); and see Moran 9899(11-19), 9901-02(18-25 & 1),
| |
| 9906(3-13);~D-107; D-108a; D-108b). In this regard, the Licensing Board's reference to the Colton decision (I.D. at 169) is wrong as a matter of law. Following its interconnection with Detroit Edison in 1970 (D-108(8); Moran 9903(3-7), 9906(3-14)), thereby removing the jurisdictional concerns, TECO began negotiating anew with SEM in 1971 at the cooperative's request to purchase energy
| |
| - for its Michigan company (D-84; D-86; D-87). Careful studies
| |
| ' undertaken by TECO at that time (D-579(Kozak) 5(18-22), 45-47(5-25, 1-25 &-1-20); Moran 9985(1-6)) showed that the 34.5 kv transmission l -(Continued next page) l-
| |
| | |
| -192-memorandum prepared in March, 1966, by an employee of OE suggests that there existed at that time " signed confidential maps" between TECO and OE which OE used in its " day-to-day operations" (D-519; and see D-516; D-517), no one at TECO was aware that such maps existed or that anyone at TECO had used them for any purpose whatsoever (see D-581 (Williamson) 50(8-13); Moran 9903(9-16)).
| |
| Certainly, the series of TECO maps introduced below, which show the distribution facilitics of TECO and OE in the fringe area where both of these companies serve (D-534; D-535; D-537 through D-540), are not the " signed" maps to which the OE employee made reference.
| |
| Second, even assuming the existence of territorial agreements of the sort described (and certainly that is not the case), they clearly cannot be said to have had any impact on competition in the CCCT or its fringe areas. As to any existing retail customers of the respective companies located on the fringes of one or another service area, the e ' ," anti-pirating" statute (R.C. S 4509.261) has the practical eIfect of foreclosing possible customer switches back and forth between TECO, on the one 222/ (Cont'd) line over which the service wo'lld have to be provided was close to full capacity due to TECO's own load growth (Moran 9984(13-25),
| |
| . 10086-87 (4-25 & 1-3)), and would .. ave to be rebuilt and reinforced before TECO could accommodate SEM's request (D-579(Kozak) 45-47 (5-25, 1-25 & 1-20), 49-50(14-19 & 22-25); Moran 9984-86, 10090 (1-14)). While these engineering difficulties precluded an affirm-ative response by TECO in 1971 (D-86; D-87), the company promptly began the construction work necessary to upgrade the 34.5 kv line to 138 kv (A-129). The effort is now completed and TECO has committed to provide the direct wholesale service into Michigan which SEM requested (A-255; A-256; A-257; D-580(Bosch) 21-24; D-581(Williamson) 46(3-9), 66-67(22-25 & 1-20); Moran 9905(11-16),
| |
| l 9912(7-14)). Not only does this evidence -- ignored by the Licens-ing Board -- explode the inference of any territorial allocation agreement between TECO and Consumers in 1966, but it similarly underscores the fact that there has been no such agreement between
| |
| ( these two companies since that time.
| |
| | |
| -193-hand, and Ohio Power Company, or OE, on the other hand (see p. 52
| |
| [ & n.55, supra). Thus, it is at best only the " competition" for new retail customers locating in that narrow area,between the 9
| |
| external perimeters of each system's network that could conceiv-224/
| |
| ably be affected by a territorial allocation arrangement. But, such " competition" is highly theoretical in this industry gener-ally, and in Ohio in particular, due both to the one-time nature i
| |
| t of such " competition" (see pp. 60-61, supra) and the diseconomies
| |
| '! that would be involved in competing for these potential retail loads -- which are de minimis in comparison with t~e n respective 7
| |
| companies' aggregate load commitments (see p. 62 & n.70, , supra).
| |
| I Indeed, it is precisely because of these economic considerations, which can have an unfair impact on the rates charged to an entire class of customers (see id.) -- and not as a result of any market allocation agreements -- that TECO has routinely followed the sound industry practice of serving fringe-area customers on all of its external borders only if its existing facilities are " closest 223/ While this statutory provision would similarly preclude a switching back and forth by wholesale customers of each company (see n.55, supra), if any existed in the fringe areas, there is no need to linger over this point since no evidence has been introduced below to suggest, even remotely, the existence of wholesale customer allocation agreementt between TECO and other investor-owned utilities. The referenced maps all depict distri-
| |
| !' bution facilities in_the fringe areas. We would point out in passing that there is not even a hint on this record (as there could not be) that any new wholesale customer has moved into the fringes surrounding TECO's service area in the past 10 years, or that there even exists the prospect of such an occurrence. ,
| |
| 224/ There are, however, practical limitations on this happen-ing'in certain of the areas surrounding TECO. Thus, the terrain in the fringe area between TECO's and OE's cystem is largely marshlar.4 (Moran 9911(21-24)), which is not conducive to the building Of residential, commercial or industrial establishments.
| |
| There has been little growth in thin area over the past ten years (Moran 9911(9-20)).
| |
| y - -,
| |
| , --y-, , , r y-,y--,,e,---,-
| |
| | |
| -194-to them and * *
| |
| * can most economically serve them" (D-576(Keck) 206(10-12)). The suggestion in these circumstances that an I agreement with another investor-owned utility to divide the f.*inge area between the two companies' facilities would have the effect of foreclosing, or even impeding, competition in supplying elec-tric energy simply blinks at reality.
| |
| . Finally, even if we were able to accept everything else the Licensing Board found with regard to this matter (and we obviously cannot), its conclusions are unwarranted. The testimony is undisputed that, whatever may have once been the " situation" no such territorial allocation agreements to which TECO is said to ll have been a party are in existence today (D-581(Williamson) 50(8-13);
| |
| D-579(Kozak) 68(5-8); D-577(Schwalbert) 69-71(10-14, 12-25 & 1-6);
| |
| Moran 9904-05(16-25 & 1-9)). It therefore necessarily follows that no current inconsistency with the an titrust laws can be drawn in this respect that would arguably be "naintained" by activities under the nuclear licenses. See Consumers Power Co., supra, 2 N.R.C. at 62-64. And this conclusion has particular force in light of the fact that all the alleged past territorial agreements related only to retail service (see n.223, supra) on the fringes of the referenced utilities' service areas. By no conceivable
| |
| . stretch of the imagination can a nexus be found between such stale retail " situations", on the one hand, and the nuclear access question raised here on behalf of "other electric entities", on the other hand. I Similarly, there exists no meaningful relationship be-L tween the licensed activities associated with the abject nuclear l plants and an earlier contract provision (i.e., Provision 8) l y v - - -
| |
| | |
| I
| |
| -195-in expired agreements which TECO once had with most of its full requirements wholesale municipal customers. These municipalities are now taking power from TECO under a filed FPC tariff which 225/
| |
| has no similar provision; any amendment thereto will, of course, first to have undergo careful scrutiny by that agency (see 16 U.S.C. 5824(d) and 18 C.F.R. S 35.01 et seq.). Accordingly, it cannot realistically be argued that the current " situation",
| |
| insofar as TECO's wholesale municipal customers are concerned, suggests even a " reasonable expectation" (Consumers Power Co.,
| |
| supra, 2 N.R.C. at 63) of an antitrust inconsistency that might 226/
| |
| be " maintained" by the licensing of these nuclear facilities.
| |
| Moreover, the Licensing Board had no legitimate reason to fault Provision 8 in the first place. By its terms, it required the contracting municipalities to obta3n prior written consent from TECO before extending municipal service beyond the corporate limits; conversely, TECO had to obtain prior consent from city 225/ See A-35 through A-42; A-259; A-260; Moran 9882-83(1-25 &
| |
| . 1-11). By the terms of the new tariff (see A-42), a municipality is classified according to the size of its load and will receive energy under one or the other of two filed rate schedules (Moran 9882-83(1-25 & 1-11)). While the Licensing Board stated that the Genoa contract still contained Provision 8 as of the date the Initial Decision issued (I.D. at 172), once again it is factually in error. The Genoa contract expired by its own terms on December 31, 1976 (S-117), and that municipality is also currently receiving power under TECO's filed FPC tariff.
| |
| L 226/ While the Licensing Board makes the marginal statement tha'-
| |
| t "[t]he effects of the situation created by this restraint would not be dissipated in a short period of time" (I.D. at 171 n.'), it, not surprisingly, could find no record support for any such conclusion. Moreover, as discussed infra, Provision 8 cannot reasonably be said to have had any "anticompetitive" ef-fect, either directly or indirectly, on TECO's municipal customers.
| |
| Indeed, to the extent it no longer exists in the company's whole-sale municipal contracts, the elimination thereof will permit the full operation of Article XVIII, Section 6 of the Ohio Constitu-tion, which is a greater restraining force on the ability of municipalities-to serve outside their corporate limits than Provision 8'ever was.
| |
| "k -
| |
| | |
| -196-officials before it could extend its service within the city limits (see S-112; S-114 through S-120; S-122 through S-125, Pr. 8). This reciprocal consent provision had no demonstrable impact whatsoever on " competition" in the affected fringe areas, and the Licensing Board's suggestion to the contrary is just 227/
| |
| wrong.
| |
| At best, a theoretical argument can perhaps be made that Provision 8 served to discourage municipalities from extending their primary distribution facilities so as to take away TECO's existing fringe customers. However, such a consequence coincides squarely with the stated policy objectives of the State of Ohio to minimize the wasteful duplication of facilities in the electric 227/ The record shows that, as a practical matter, the activity of new retail customers moving into such border areas has been de minimis in the TECO service area (Moran 9909(3-15)). The movement of wholesale customers has simply been non-existent (see n.223, supra). Given this virtual inactivity, it is difficult to imagine what " actual rather than theoretical [ limiting] effect" (I.D. at 172) the Licensing Board had in mind. It is undisputed that Provision 8 was "never invoked by either party" (Moran 9886(3); see also Moran 9884-85(21-25 & 1-4), 9908-09(22-25 &
| |
| 1-5)).
| |
| The real difficulty we have with the Licensing Board's treatment of this subject comes as a result of its reliance on the testimony of Mr. Hillwig to support the notion that Provision 8 L had some sort of chilling effect on the expansion of municipal service into the suburbs (I.D. at 172 & n'). To be sure, Hillwig testified that the questioned provision somehow provided a disincentive to Bowling Green's expansion (Hillwig 2377(16-20)).
| |
| However, as Applicants pointed out to the Licensing Board (see Applicants' Supporting Brief at 514), Hillwig's statements make no sense whatsoever because the TECO/ Bowling Green contract (S-45) was different from the other municipal contracts and contained absolutely no restriction whatsoever on the city expanding its electric service to new retail customers moving into the fringe areas. Moreover, it is plain that the wholesale customer to locate on the borders of Bowling Green has been the Village of I Tontogany, and it has long been receiving its energy from the j municipality (see S-45). Thus, Hillwig's testimony does not permit the blanket indictment for which the Licensing Board used it. Nor does D-551, which essentially concerns the matter of an annexation of new territory by the City of Edgerton, a practice which was fully available to TECO's wholesale municipal customers l under Provision 8 (see D-583(Moran) 77(6-14)).
| |
| i
| |
| | |
| I i -197-i
| |
| ),
| |
| ; utility industry that would necessarily result from such " pirating"
| |
| - activities. See generally R.C. 5 4905.261 Were not restraints such as the "90-day disconnect" provision in effect, the increased costs that would be associated with unfettered practices of this sort would be passed on directly to the consumer in the form of r 228/ l
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| 'l
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| . higher rates -- which is decidedly not in the public interest.
| |
| .r The State of Ohio has not been timid in its approach to this problem. As earlier pointed out (p. 51 & n.53, supra),
| |
| Article XVIII, Section 6 of the Ohio Constitution effectively f
| |
| precludes municipal electric systems from providing electric service outside the city limits except to the extent that they have " surplus" energy, and, even then, there is a limit on how much of that " surplus" is available for external use -- a limit 1
| |
| which the Constitution sets at 50% of the kilowatt hours sold by the municipality inside the city. Undeniably, a municipality f
| |
| receiving its energy under a full requirements wholesale contract
| |
| -- as is the case with all the former TECO contracts containing Provision.8 -- is purchasing from its bulk power supplier an 228/ We have already discussed the sound economic reasons for insuring that consumers are served by the electric utility which has the closest primary distribution lines and can furnish the service at the lowest overall cost (see pp. 62-63, supra). The
| |
| ! Ohio regulation aimed at insuring such a result has as its principal h objective the same purpose as the antitrust laws: 1,.e., the effi-cient allocation of resources. Plainly, in this capital-intensive i industry (A-189(Gerbec) 6(19-24)), both municipal and investor-owned utilities make "a substantial investment in facilities" which they understandably do not want to see " terminated before
| |
| [their] normal life" (D-583(Moran) 82(20-21)). It is not only in their business interest to guard against such an occurrence; it is, from an economic view, in the public interest as well. In this regard, it is not only the consumers served by the system which has extended its primary facilities to reach the new load
| |
| .w ho feel the economic effects; they are felt equally by those p taking service from the former distributor whose - supplanted l facilities now lie dormant (Gerber 11603-04(24-25 & 1-6)).
| |
| ~
| |
| a- - r -- - - - .a. -----.--m e - , ,e --- ,4 e w
| |
| | |
| i -198, amount of energy sufficient to satisfy the total peak decand on its system at any point in time, but no more (see Guy 3506(17-25);
| |
| Gerber 11655(6-8)). It therefore does not have, and necessarily cannot have, any " surplus product" (Art. XVIII, Sec. 6) available for distribution outside t'he corporate limits (Guy 3507(1-4)). In short, the constitutional provision operates as an absolute bar in such circumstances against the full-requirements municipal utility furnishing electric energy in the fringe areas.
| |
| TECO, however, had agreed with its wholesale customers to abstain from seeking enforcement of that prohibition provided that the company's written consent was obtained prior to any use being made of TECO's bulk power supply for resale to fringe-area customers. Thus, the Ohio constitutional restraint is effectively ameliorated by Paragraph 8 to permit municipalities having no
| |
| " surplus product" to extend their service outside the city, but under a consent procedure thLt leaves intact the state policy of minimizing wasteful duplication of distribution facilities. The Supreme Court has specifically recognized the desirability of encouraging such private action, rather than condemning it under the Sherman Act. See United States v Citizens & Southern National Bank, supra. And, it observed in Citizens & Southern that the possibility that there may have been available a less restrictive alternative provides no basis for faulting the ameliorative action actually taken (422 U.S. at 114-20).
| |
| No different result is warranted here. The impact of Provision 8 has clearly not been to enhance TECO's existing market power in its service area. Whatever n3w cuatomer loads it may have picked up in these so-called fringe areas during the past
| |
| | |
| .+.-
| |
| -199-10 years are, even in the aggregate, infinitesimal in comparison
| |
| ~
| |
| with the company's tctal load (cf. nn.72 & 227, supra). More to the point, to the extent that consumer relocations on the municipal borders, such as they were, may have offered marginal opportunity for some degree of " fringe competition" between TECO and its wholesale municipal customers, that opportunity was enhanced by the contract consent provision, not impeded. Without TECO's forbearance from enforcing the Ohio constitutional prohibition, these cities could not have ventured outside their corporate limits at all. Nor is there any indication in this record that TECO's consent has ever been unreassnably withheld (Moran 9884-86 (9-25, 1-25 & 1-13), 9908-09(2-24 & 1-15); cf. Hillwig 2422(6-13)).
| |
| To characterize Provision 8 as "anticompetitive" in such circum-stances simply ignores industry realities. In light of these realities, there is plainly no room to conclude that the contracts in question either created or contributed to any sort of "incon-sistent situation".
| |
| 3 Bulk Power Services. The remaining case against TECO essentially relates to what the Licensing Board has charac-terized as a " denial of bulk power services" to the cities of Bowling Green and Napoleon. Once again, the point should be made that TECO's activities in this area have'not been shown to have any relationship to the subject nuclear facilities, thus failing to satisfy the Commission's Waterford II nexus requirement (see also 229/
| |
| n.213, supra). Of equal impcrtance, moreover, is the fact that 229/ With specific reference to the wheeling question, for example, it is undisputed on this record that TECO has never been i requested to wheel power to a municipality from the subject (Continued next page)
| |
| L
| |
| | |
| .- .-. . -_ - - . . . . _~ . .- - -
| |
| t-i
| |
| -200-the findings below in this area as well (I.D. at 173-82) cannot survive a fair evaluation of the full evidentiary record.
| |
| For. example, the Licensing Board faults TECO for refus-ing to " wheel" power to Bowling Green, relying upon the testimony of Mr. Hillwig (Hillwig 2386-88). However, what the Licensing Board failed to consider is that at no time did Bowling Green (or any other municipality or group of municipalities) come to TECO with a wheeling request having any specificity, either as to the quantity of energy desired or as to the outside power source 230/ .
| |
| contemplated. Instead, TECO was asked only to enter into an open-ended, general third-party wheeling arrangement which con-
| |
| , templated a " postage-stamp" rate (Smart 10100-01(6-25 & 1-2),
| |
| i 229/ (Cont'd) nuclear facilities (see, e.g., A-17; Hillwig 2453-54(24-25 & 1-2);
| |
| Smart 10150(2-15); Moran 10019-20(13-25 & 1)). However, TECO is 1 affirmatively committed, if asked, to provide whatever transmis-sion services are necessary to permit entities in its service area to obtain meaningful access to the nuclear facilities, as well as to get back-up power as needed when those facilities are down (see A-44; and see pp. 129-33, ~;upra).
| |
| 230/ 'The Licensing Board seeks to create the impression that the wheeling request of Bowling Green specifically referenced Ohio Power Company as an outside power source ready to sell energy to Bowling Green (I.D. at 174, 180-81). The evidence indicates no such thing. At best, the record suggests that Bowling Green had engaged in separate discussions on its own with Ohio Power in 1972 concerning the possibility of obtaining wholesale energy from that company (Hillwig 2404-05(19-25 & 1-25)). There is also an indica-
| |
| _ tion that AMP-0 had talked with other potential suppliers about such a prospect (Hillwig 2433-34(15-25 & 1-2)). However, if, as the Licensing Board suggests (I.D. at 180-81), Bowling Green had in mind that "particular supplier" at the time it raised with TECO the matter of wheeling, never did it communicate that information to TEC0; nor did AMP-0. To the contrary, the evidence shows con-clusively that neither Bowling Green (Hillwig 2453-54(24-25 & 1-6))
| |
| nor any;other municipality (A-17; Hillwig' 2452(2-24); Moran 10016-18(7-25,-1-6 & 1-18)), "yet [had) access to any power supply sources that would require wheeling by Toledo Edison" (A-17), and they so advised the company (id.).
| |
| e.
| |
| T- ->r , - .-,r ,e-
| |
| | |
| r I -209-10119(4-17), 10131(1-9), 10141-43(1-25, 1-25 & 1); Hillwig 2453-54 (10-25 & 1-6)). Not even the most broad reading of Otter. Tail suggests that the antitrust laws rer,uire an investor-owned utility to respond affirmatively to so nebulous a wheeling request.
| |
| Significantly, when the matter was raised with TECO in June, 1972(seeA-J7),therecordmakesitabundantlyclear--
| |
| and, indeed, the Licensing Board could not find support for its statement to the contrary (see I.D. at 173) -- that the company did not give a negative response. Rather, TECO's articulated position was that it would be amenable to entering into a wheeling arrangenent with Bowling Green or any other interested municipali-ties subject to working out the complex pricing details of such a
| |
| . 231/
| |
| transaction (see S-50; A-131; Moran 10071(10-12)). No municipality 231/ This is, of course, entirely consistent with Mr. Smart's testimeny referenced in the Initial Decision (I.D. at 180) to the effect that the company could certainly agree in principle to a wheeling arrangement subject to negotiation of specific details (Smart 10105(4-7h 10121-22(14-25 & 1-3)). Moreover, the sound economic reasons for such an approach were fully explained by Mr.
| |
| Smart. As he testified in some detail (Smart 10100-02(6-25, 1-25
| |
| & 1-12), 10107-08(13-25 & 1-4)), without a clear indication of such factors as the identity of the outside power source, the quantity of energy to be wheeled,. the time-frame within which and distance over which the wheeling is to take place, and the reli-ability and reserve capac)ty of the supplier's system,,it is virtually impossible to 'p. .ce the transaction with any degree of accuracy. TECO was partiJularly sensitive to the need for such specificity as an element of pricing the wheeling transaction because of its experience with the Buckeye arrangement. There,
| |
| . the same set of factors were known to all parties and contributed to the intricate formula used to determine the transmission use charge (see S-188, Art.3, pp. 10-13 and Appendix C). TECO's admitted "dissatisfac. tion" with that wheeling rate (A-17; Moran 10016-18(7-25, 1-6 & 1-18), 10071(1-3)) came about largely as a result of its disagreement with the " mix" that was settled upon (Moran 9853(14-23)). Having suffered financially as a result of an underpricing of the Buckeye wheeling transaction (Smart 10165 (13-19)), TECO was understandably not receptive to embarking on another open-ended wheeling arrangement based on a " postage stamp" rate.
| |
| -r
| |
| | |
| r
| |
| -202-ever approached TE00 with such a proposal. More than three years later, when the general subject of wheeling was raised again at an August, 1975 meeting, Mr. Smart of TECO agreed to meet with repre-sentatives of the municipal systems "and negotiate with them in good faith possible wheeling rates at their request" (Smart 10114(20-21); see also Smart 10153 (19-22), 10158(5-11); and see S-50; A-131 and A-250; Moran 9890-91 (22-25 & 1-7), 10071(10-12)).
| |
| To date, the municipalities have not followed up on this offer (Smart 10114(22-24); Moran 9895-96(23-25 & 1-2)) -- a circumstance, we would note, which lends further weight to our earlier conclu-sion that there are in fact no bulk power sources outside the CCCT currently desirous of selling wholesale power or energy to non-Applicant CCCT entities (see pp. 67-71, supra).
| |
| In any event, the evidence introduced on this subject simply does not support the Licensing Board's conclusion that TECO's behavior in this area has been inconsistent with the antitrust laws. Clearly, the company has no general policy 232/
| |
| against wheeling. Nor does it have any reluctance to give serious consideration to a wheeling request from any electric entity which comes to the company with "something to wheel" (Moran 10019(22-24)). But, for very sound economic reasons (see n.231, 2 / See, e. 66-67(22-25 & 1-20);
| |
| D-5 (Moran)E(k.,D-581(Williamson)58(1-3),13); Moran 9929-30(24-25 & 1-2), 9849 1-3 & 1-20)). It has, for example, been a party to the Buckeye
| |
| ~
| |
| Power Delivery Agreement since 1968, which specifically calls for the wheeling of Buckeye power (see S-188, Art. 3, pp. 10-13 and i Appendix C; A-287, Item 4; Smart 10165(13-16)). In this regard the Licensing Board's conclusion in F/F No. 14 is simply inaccurate.
| |
| Moreover, by letter dated December 27, 1972, TECO advised AMP-0 in no uncertain terms that it had no anti-wheeling policy (see A-250 and A-131). And there is also the affirmetive wheeling l
| |
| - policy to which TECO is committed in connection with affording i access to the nuclear facilities (see A-44, 1 2(a)).
| |
| | |
| m-i i
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| -203-supra), the request must be more precise than one simply seeking general use of TEC01s transmission facilities under some unspeci-fled compensation arrangement contemplating a " postage stamp" wheeling rate. We know of no antitrust principle that condemns such a response.
| |
| Nor is antitru.st condemnation warranted in connection with TECO's dealings with the City of Napoleon. Here, the Licens-ing Board relies primarily on an affidavit prepared by Mr. Lewis describing three separate meetings he had with representatives of TECO in late 1971 and early 1972 (S-127). The affidavit account of those meetings was disputed in every material respect by Mr.
| |
| Moran, but the Licensing Board gave credence to the written statements on the mistaken belief that, while not a contempora-neous document, it was prepared "not in contemplation of these proceedings" (I.D. at 176 n.'). In point of fact -- as TECO on13 discovered after the close of the record -- DOJ knew full well at the time of the hearing that Lewis testified incorrectly on the matter (Lewis 5617-18). The affidavit was actually prepared.by Mr.
| |
| Lewis in response to a direct request by DOJ of Mr. Ardery, counsel for AMP-0, in connection with D0J's Section 105c antitrust investi-
| |
| . 233/
| |
| gation of these Applicants. In light of this we would submit that it is Mr. Lewis' crdibility that is tarnished and this Appeal Board need feel no constraint judging for itself the veracity of Mr. Lewis' affidavit and his testimony relating thereto (see also l p. 231 & n.260, infra).
| |
| I j[[l/ See " Applicants' Response To Motion Of Department Of Justice Pertaining To The Filing Of Affidavits And The Reopening Of Discovery", at p.3 n.3, filed with this Appeal Board on February 24, 1977.
| |
| ;~
| |
| | |
| p
| |
| -204-Similarly, there is no reason for the Appeal Board to accept the Licensing Board's unfair characterization of Mr.
| |
| Moran's Lestimony regarding the City of Napoleon (I.D. at 176 n*).
| |
| Since the decision below to accord less weight to Mr. Moran's remarks was based on what the Licensing Board viewed as "certain inconsistencies [in] or attempted qualifications [of]" (id.) his earlier deposition testimony (but compare Moran 10018-19(20-25 &
| |
| 1-9) with D-583(Moran) 71-72(23-25 & 1-13); and see D-583(Moran) 41-53)), and not at all on the witness' demeanor or bearing at the evidentiary hearing -- as indeed it could not be -- this Appeal Board is perfectly able to make its own independent judgment in this regard on a full review of the record. When Mr. Moran's testimony is weighed against his prior statements and TECO's actual conduct following the meetings referenced in S-127, we are confident that Mr. Moran's credibility will be fully confirmed, and that it is Mr. L .is' credibility which properly will be suspect.
| |
| For example, the Lewis affidavit states unequivocally that TECO flatly refused to establish a delivery poldt for Napoleon so that the city might receive Buckeye power from Tricounty Electric Cooperative, Inc. ("Tricounty") (S-127, pp. 4-6). Mr. Moran's recollection was that TECO's response was only partially negative (Moran 9847-49, 10010(17-19)) -- that is, the company was indeed unwilling to construct such a delivery point some 10 miles outside the city (Moran 10077(17-20)), but it definitely would consider Mr. Lewis' alternative proposal (Lewis 5614; S-127, pp. 4-5) of locating the delivery point for Buckeye power at an existing sub-
| |
| !- station where Napoleon was already taking power at wholesale from l
| |
| | |
| ~
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| -205-
| |
| ~
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| TECO (Moran 9926(6-8)). This latter alternative was the more economic cnd, even in Mr. Lewis' view, the preferable one (Lewis 5642(13-161). Perhaps more to the point, however, especially as a
| |
| . measur.e cf TECO's conduct in this connection, events subsequent to the 1971-72 meetings confirm Mr. Moran's recollection of the referenced discussion. Thus, 1.3gotiations ensued between TECO, Tricounty and Napoleon, with all parties focusing their attention on the preferable delivery point located av the " existing 69/12 kv substation owned by Napoleon * * '" (S-128; and see Dorsey 5260-61 (22-25 & 1-3)). Not only did TECO give the matter careful consider-ation, it ultimately advised Tricounty that the company would provide "a delivery point at [the] present location for the purpose of wheeling suppelmentary power to Napoleon Municipal" (D-301; and see s-129; A-252).
| |
| The cryptic reference in the Lewis affidavit to TECO's unequivocal refusal to operate its system in " continuous synchro-nism" with Napoleon if the city entered into a contract with Tricounty (S-217, pp.4-6; and see I.D. at 179-80) is similarly belied by reference to the tripartite negotiations just mentioned.
| |
| Here, also, Mr. Moran's recollection was that his negative response to Lewis was not absclute, but was qualified (Moran 10078-79(18-19
| |
| & 1-5)). He had merely expressed some reluctance based upon safety
| |
| - considerations to operate in parallel with Napoleon unless the city was willing to see to it that adequate safeguards were installed
| |
| ~
| |
| to prevent possible severe damage to TECO's system (Moran 9854 234/
| |
| (10-17), 10031(10-14), 10091-92(21-25 & 1-8)). That this was l
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| l 234/ TECO's concern was that the addition of a Buckeye delivery L point at the Napoleon substation would create operational hazards
| |
| '- on TECO's system if adequate safeguards were not installed (Moran (Continued next page)
| |
| | |
| -206-indeed a concern of TECO is evidenced by a marginal note on D-148.
| |
| I It was a matter of discussion with Tricounty throughout the nego-tiations for the requested delivery point (see A-129; A-252).
| |
| Indeed, the company's position in this regard is well documented.
| |
| TECO was perfectly willing to operate in synchronism with Napoleon provided that Tricounty could assure TECO that adequate safety and protective equipment would be installed to guard against potential interruptions in service caused by problems in the other's system 235/
| |
| (id.)
| |
| Thus, in the final analysis the Licensing Board's quarrel with TECO's dealings with Napoleon focuses solely upon the company's insistence on adherence to the "90-day disconnect" requirement con-tained in the Ohio statute (R.C. $ 4905.261) and incorporated, by specific reference to the statutory provision, into the Buckeye 234/ (Cont'd) 9935-36(19-25 & 1), 9848(5-25), 9849(1-20)); the company obviously '
| |
| was not receptive to the idea of operating in parallel with Napoleon under such circumstances (Moran 10076(12-18)). Nor was this a concern just directed at the Napoleon substation; rather, it.was more general and would have to be factored into any request i contemplating the combined use of facilities by TECO and another bulk power supplier (Moran 10030(7-20)). l l
| |
| 235/ On these facts, it is difficult for us to understand how the Lewis affidavit can be accorded any weight. What it character- 1 izes as blanket refusals by TECO were obviously not nearly as !
| |
| negative as the affidavit suggests (and see pp. 209-11, infra). !
| |
| To be sure, Mr. Moran did not rush to endorse any of Mr. Lewis' plans -- and understandably so. However, as the negotiations with Napoleon and/or Tricounty on each of the proposals unfolded, it is equally clear that TECO was not taking a recalcitrant stand. If i Mr. Lewis really did leave those initial meetings with the impres- !
| |
| sion be conveyed in his affidavit, prepares at least one year later for this proceeding, the negotiating posture of the company l in subsequent discussions adequately dispells the notion that TECO actually followed the course Mr. Lewis anticipated. But, then, )l Mr. Lewis would have been unaware of these later events, since he was abruptly relieved of his responsibilities as censultant for the city since the feeling of the local authorities was that he had " sold Napoleon down the river" (D-147).
| |
| l l
| |
| | |
| 9
| |
| -207-Power Delivery Agreement (S-188, t 1.1, p. 3). See I.D. at 177-79. There is no dispute that TECO was unwilling to waive this requirement for Napoleon (see S-129 through A-131; A-252; D-150; D-542; Dorsey 5261-62, 5282(10-13), 5269(14-19); Moran 9945(3-1'3)).
| |
| Similarly uncontested is the fact that the m'inicipality, while unhappy about the prospect of depending on its own generation capa-bilities for 90 days (Dorsey 5265-66(23-25 & 1), 5269(3-5); D-302; and of. D-303 through D-307), had the " confidence in its generating plant * * * [to] permit the disconnect to take place" (D-309). It so advised TECO (D-149; and see D-308; D-309; A-90; Dorsey 5264
| |
| : (8-13), 5270(14-16); Moran 9945(3-7)), and proceeded to take steps l 236/
| |
| l towards that end (D-308 through D-310). The record also makes it clear that the city for its cwn reasons ultimately decided not to go forward with the disconnect but to' continue taking power from TECO (A-92; and see A-91; Dorsey 5274-75 (4-21 & 1-2), 5292-97).
| |
| i The Licensing Board's reliance on this series of events L as reason to fault the company underscores further the uncomprehend-
| |
| :. ing nature of the Initial Decision. We have heretofore explained
| |
| '-~
| |
| the legislative policy behind the Ohio " anti-pirating" law (sae
| |
| : p. 52, supra). The incorporation of that statutory provision into l-236/ Contrary to the sinister light that the Licensing Board casts on the matter (T.D. at 178-79 & n.'), Mr. Dorsey testified that TECO was helpful and cooperative in explaining the disconnect l procedures and the procedures for a reconnection in the event that
| |
| ! -Napoleon confronted an emergency situation during the 90-day period (Dorsey 5295(8-14)). While some disagreement arose as to the preferable method for accomplishing the disconnect, with TECO and Napoleon, each wanting to follow that procedure which posed the least threat to its system operation (compare Dorsey 5273(2-25) with Moran 9861-62, 9945-46, 9951, 9953, 10073, 10082), resolution of this difference became academic when Napoleon decided at the
| |
| :_ last minute to abandon its plans for other reasons.
| |
| | |
| -208-the Buckeye contracts was, as explicitly stated therein, in direct furtherance of that policy -- i.e., "to minimize any unnecessary 237/
| |
| or uneconomic duplication of facilities" (S-188, 1 1.1, p. 3).
| |
| r Moreover, the 90-day disconnect requirement was only inserted into
| |
| - the agreements after it had been submitted, carefully reviewed and awarded written advance clearance from Mr. Donald Turner, then Assistant Attorney General, Antitrust Division, under DOJ's busi-238/
| |
| ness review procedures (A-248; and see A-289).
| |
| +
| |
| Accordingly, the Licensing Board was in error to view 7
| |
| as an antitrust abridgement TECO's insistence that Napoleon operate I
| |
| on a self-sustaining basis for the prescribed contract and statu-tory period before taking Buckeye power from Tricounty. The Supreme Court expressly held in Parker v Brown, 317 U.S. 341 (1943), that activity which " derives its authority and its efficacy from the legislative command of the state and was not intended to become I
| |
| (
| |
| 237/ As already indicated (see n.55, supra), the intended coverage of R.C. 5 4905.261 was to include " consumers" who resold
| |
| ,- the electric energy they purchased, as well as " consumers" who could be classified as end-users. This was the understanding
| |
| , of DOJ at the time it issued the business review clearance letter L. (A-248; and see A-287, p. 27 ft). While the term " consumers" is nowhere defined in Chapter 4905, the Ohio Supreme Court has had occasion to interpret the term as it is used in Section 4905.03(A)(4)
| |
| ,I of the Revised Code with reference to an Ohio public utility supplying electric energy. Thus, in Shopping Centers Association v PUCO, 3 Ohio St. 2d 1, 208 N.E.2d 923 (1965), it held that for l purposes of PUC0 jurisdiction over Ohio utilities, a " consumer" l
| |
| '' was not only the ultimate recipient of the energy sold, but included also one who buys at wholesale for resale. The Shopping i Centers decision was recently reaffirmed by the Supreme Court of l Ohio in Mohawk Utilities, Inc. v PUCO, 37 Ohio St. 2d 47, 307 N.E,2d 261 (1974), when the court, while not called upon to reach the direct question as to wholesale customers, once again declined to give the term " consumers" an overly restrictive interpretation.
| |
| 238/ In addition, the Buckeye agreements were scrutinized and i explicitly approved by the PUCO. See Nunc Pro Tunc Finding and 1
| |
| _ Supplemental Order in In the Matter of Application and Petition of Ohio Power Company, et al., Case No. 34,576 (March 1, 1966), a j copy of which is appended hereto as Exhibit B.
| |
| | |
| -209-effective without that command" (317 U.S. at 350) is beyond reproach
| |
| , 239/
| |
| under the federal antitrust laws. No plainer example of such a situation can be found than a contractual provision which, as here, has as its effect "* *
| |
| * to restrict sales by Buckeye members to municipalities only insofar as the present Section l
| |
| 4905.261 of the Revised Code of Ohio would restrict such sales" (Turner clearance letter (A-248); emphasis added), and for pre-cisely the same purpose that prompted passage of the referenced I code provision (see S-188 1 1.1, p. 3). TECO's actions thereunder, i and pursuant thereto, thus provide no legitimate basis for an j 240/
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| adverse finding against the company.
| |
| : 4. Joint ownership of generating facilities. A final word is required with respect to the Licensing Board's finding that TECO refused the request of " Napoleon and other municipal electric systems in the State of Ohio" to " consider joint ownership of large-1 239/ See also Asheville Tobacco Board of Trade, Inc. v. FTC, 263 F.2d 502, 509 (4th Cir. 1959); United States v Pacific South-west Airlines, 358 F. Supp. 1224, 1228 (C.D. Cal . 1973); George l R. Whitten, Jr. v Paddock Pool Builders, Inc. , 424 F.2d 25, 30 l (1st Cir. 1970); Washington Gas Light Co. v Virginia Electric &
| |
| Power Co., 438 F.2d 248, 251-52 -(4th Cir. 1971). Nor does the Supreme Court's recent decision in Cantor v Detroit Edison Co.,
| |
| t supra, contradict the Parker principle. There, the Court declined m to extend the doctrine of Parker v Brown so as to immunize from antitrust scrutiny a utility's unregulated sales of electric light
| |
| ; bulbs. Howevce, the continued vitality of the doctrine in areas L where states have in fact chosen to regulate was fully recognized (96 S.Ct. at 3119, 3126-27, 3133).
| |
| 240/ While Mr. Justice Stevens' plurality opinion in Cantor sug- ;
| |
| l gested that Parker v Brown left open the question whether private !
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| I action taken under color of state regulation was entitled to immun-ity from the antitrust laws, a majority of the Justices found the
| |
| - reasoning on this point singularly unpersuasive ( 96 S.Ct. at 3123, 3126, 3129). The better accepted view thus appears to be that action taken in direct furtherance of state law, whether by pri-vate citizens or by state officials, comes within the intended scope of the Parker v Brown protection.
| |
| __m
| |
| - --p- - , - - - - - - - - ..7 ,, -*--.' - g g -- m w- y-- y--m w- T y
| |
| | |
| r
| |
| -210-241/
| |
| scale generating facilities" (I.D at 185; emphasis added). Even assuming arguendo the correctness of that finding, we know of no antitrust principle that would impose upon any firo, whatever its size or market position, an affirmative obligation to enter into a joint venture involving the construction of new large-scale
| |
| !.. 242/
| |
| facilities. Passing that point, however, the record below makes
| |
| ~
| |
| it abundantly clear that TECO was not only willing to seriously consider such proposals, but that, contrary to the Licensing
| |
| ; Board's statement (I.D. at 186), it actually so advised munici-243/
| |
| palities in its service area, including the City of Napoleon.
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| 7 241/ Once again the Licensing Board takes unwarranted liberty with the record by broadly stating that this matter involves not just Napoleon, but also "other municipal electric systems in the State of Ohio". Such an assertion finds no support in the evidence cited by the Board; nor is it sustained by any other evidence in-troduced below.
| |
| 242/ This is, of course, a much different situation from the one i involved in cases such as United States v Terminal Railroad Asso-ciation, supra. The " facilities" there were already jointly-owned, were in existence at the time of the request for access, and were found to be a " unique resource." Nothing contained in those deci-
| |
| - sions, or their progeny, remotely suggests that such a rationale can be stretched to the point of condemning as anticompetitive the refusal of one party to enter into a joint venture with another t party, upon request, for the purpose of building large-scale facilities.
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| 5 243/ The sole basis for the Licensing Board's conclusion to the contrary is, once again, the Lewis affidavit (S-127 at pp. 6-7).
| |
| In contradiction, Mr. Moran testified that the su'ggestion of such a " joint ownership" arrangement was raised briefly in the Jeptember, 1971 meeting only, "as [ Lewis] was preparing to leave" and "was putting papers in his briefcase" (Moran 9857(2-5)); it occupied but "a few seconds of discussion" (Moran 9915(19-23)). He could recall no discussion of the matter at the outset of the meeting when Mr. Lewis outlined his proposals (Moran 9857(17-21)., 10036 (23-24)), and, indeed, Mr. Lewis did not even make mention of it when testifying as to the scope of his assignment as Napoleon's consultant (Lewis 5608(2-18)). Mr. Moran further stated he had no
| |
| ~
| |
| recollection of advising Mr. Lewis that TECO would not consider such a proposal (Moran 9857(7-16)), and TECO's subsequent conduct bears this:out. Thus, following the meetings referenced in the (Continued next page)
| |
| | |
| r
| |
| .'t.
| |
| -211-Moreover, while the Licensing Board suggests that "it is j reasonable to conclude" that a negative response in this connection by TECO (assuming one had been given) " effectively precluded" the affected. municipalities from obtaining access to Davis-Besse and Perry (I.D. at 186), its speculation in this regard is totally unfounded. Mr. Lewis made it perfectly clear in his testimony that his alleged request for consideration of a joint ownership arrangement did not have reference to any CAPCO planned nuclear units (Lewis 5633(15-20); see also Dorsey 5315(19-23)). Further-more, as to those facilities, TECO has affirmatively committed to granting requesting entities in its service area access on an ownership basis (A-44). Thus, this last reason of the Licensing Board' for finding an " inconsistent situation" from TECO's conduct, let alone an inconsistent situation having any meaningful tie to
| |
| : the subject nuclear plants, is as shallow as the rest.
| |
| : 5. Conclusion. The Licensing Board's findings regard-
| |
| ,' ing TECO reflect a combined misunderstanding of the facts and misapplication of the law. Within the context of the economic realities of the industry and'the regulatory framework in which TECO must operate, the opposition parties clearly failed to l
| |
| demonstrate that TECO's activities either contravene the Sherman
| |
| ~
| |
| P M/ -(Cont'd)
| |
| Lewis affidavit, TECO entered into discussions with Napoleon concerning joint participation in a new refuse-burning power plant i (Moran 9858-60; D-151). These discussions were later expanded to I
| |
| . include the cities of Bryan and Bowling Green (D-582(Cloer) 60 l (8-25), 62(9-15); smart 10156(1-7); A-253 and A-254). On the same note,.TECO also advised AMP-0 of its interest in exploring a pos-sible arrangement with that group involving joint participation in generation (see A-131; and see A-250). This hardly bespeaks of a negative attitude on the part of TECO with respect to considering the prospect of a joint ownership arrangnent with municipalities in its service area.
| |
| e , m.-,- - , . , - -- - . -
| |
| , .-,,.-w- - . , , , -m,, ,
| |
| | |
| 4
| |
| -212-Act Section 1 proscription against joint conduct which unreason-ably restrains trade or the Section 2 interdiction against monopo-lization and attempted monopolization. In the last analysis, the record shows that TECO provides dependable, full requirements wholesale service to municipalities (including Napoleon) located in its service area at FPC controlled rates and the recipients of this service thereby receive the full benefits of coordinated operation without its attendant financial obligations and risks.
| |
| Moreover, these municipalities also will be afforced full access to present nuclear facilities by TECO, if they so choose (A-44).
| |
| Accordingly, neither the facts nor the law support any adverse finding against TECO under Section 105c of the Atomic Energy Act and the Licensing Board's contrary conclusions as well as the relief directed against TECO should be overturned.
| |
| C. OHIO EDISON AND PENNSYLVANIA POWER
| |
| * Ohio Edison and Pennsylvania Power (the "0E Companies")
| |
| believe the decision below is erroneous in its entirety. In no small part, this pervasive error can be traced to the Licensing Board's total insensitivity to the due process rights of all of the Applicants, and particularly of the OE Companies (see pp. 3-12, supra). Without reiterating all that has been said already on this point, we believe it is vital that this Appeal Board appre-ciate fully the position in which the OE Companies found themselves in preparing their defense to the charges made against them by
| |
| *Prinary responsibility for the preparation of this section of the Appeal Brief was assumed by separate counsel for OE and PP,
| |
| ._ Winthrop, Stimson, Putnam & Roberts.
| |
| i 1
| |
| i-1
| |
| | |
| r h
| |
| -213-Cleveland, D0J and the NRC Staff. Prior to the September 5, 1975 filing (see n.n.7, supra), the OE Companies had every reason to believe -- on the basis of the charges made, the discovery afforded, and the absence of requests for nuclear access or petitions to intervene by any municipality or rural electric cooperative in their respective service areas (see nn.5 & 6, supra) -- that the case against them at the time of hearing would deal solely with their involvement in CAPCO. It was only at the eleventh hour that these companies were, for the first time, apprised of a host of new charges against them of anticompetitive conduct (see pp. 4-7, supra). They had no alternative but to enter the evidentiary hearing and answer these new charges without adequate advance notice and without adequate opportunity to conduct meaningful discovery (see n.8, supra).
| |
| Had the Licensing Board (1) required parties opposed to the grant of an unconditional license to clenrly delineate their charges in the early stages of this proceeding (2) admitted only evidence having a reasonable relationship to those charges, f
| |
| (3) discourag#d the formulation of more new charges in the midst of the hearing, and (4) applied the proper nexus standard to the charges made, the deprivation of the due process rights of the OE Companies might not have had so severe an impact. Instead, the Licensing Board, both prior to and at the hearing, took an advo-cate's role which had as its purpose the very objective which this l
| |
| l Commission discouraged in flaterford II (6 A.E.C. at 621) -- i.e.,
| |
| the development of a comprehensive antitrust case relating to all .
| |
| l facets of Applicants' businesses. This role resulted in an attitude I w
| |
| - + ,
| |
| | |
| . r-
| |
| -214-which permitted the opposition parties undue latitude in the sub-244/
| |
| mission of evidence, thereby further compounding and perpetuating the unfairness that resulted from the deprivation of the OE 2
| |
| : Companies' due process rights. Having adopted such a stance, the Licensing Board then proceeded to rest its findings on misstatements of the OE Companies' contentions and of the evidence below. A full review of the record will make it abundantly clear that the Initial Decision cannot withstand the present appeal.
| |
| : 1. Nuclear access. One of the first witnesses called by the opposition parties was William Lyren, the Service Director
| |
| ,a 245/
| |
| j of Wadsworth, Ohio. Although Lyren has no background in power ;
| |
| generation (Lyren 2109-10(25-26 & 1-8), 2111(3-12)), although his duties as Service Director concern him far more with parks, streets, water service, and other public works (Lyren 2111-13),
| |
| a and although his testimony was often confused and-puzzling, even t
| |
| ' to the Board itself_ (see , e.g. , Tr. 2335-38, 2347-48(1-25 &
| |
| 1-15)), nevertheless the Licensing Board chose to rely on certain of Lyren's statements to reach the conclusion that OE had placed unreasonable restraints on providing access to nuclear power. On this basis alone there was found to exist a particularized nexus
| |
| ~
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| with regard to all of OE's conduct (I.D. at 224).
| |
| We have already indicated'why the Licensing Board's nexus analysis in this regard is infirm in any event (see pp. 134-37, supra).
| |
| 244/ For instance, over objections Lyren was permitted to testify regarding OE's acquisitions (Tr. 2031(22)-2035(7)), craig testified regarding an alleged refusal of OE to wheel , power (Craig 2927-35) and Lewis testified about a refusal to wheel (Levis 11340-42).
| |
| 245/. Wadsworth is a small municipality which retails the power p it buys at wholesale. In recent years, Wadsworth'has been a full
| |
| ; requirements wholesale customer of OE (Lyren 2029(14-15)).
| |
| | |
| E
| |
| -215-l Even more to the point, however, is, that neither Lyren's testimony, nor the testimony of any other witness, supports the position adopted by the Board; and there is no documentary evidence sustaining it.
| |
| The Initial Decision states that Lyren "was informed by officials of Obia Edison that sale of. nuclear power to Wadsworth
| |
| ^
| |
| Ind the WCOE group would be conditioned upon agreement not to use
| |
| ~
| |
| that power for resale to present customers of Ohio Edison. Lyren Tr. 2030-31" (I.D. at 224). This reading of the referenced testi-mony fails, however, to take account of the undisputed fact that Lyren, when questioned on this very point, acknowledged that his conclusions as as to restraints on resale were based, not on conver-sations with OE representatives, but entirely upon his personal understanding of the OE-Wadsworth wholesale power contract (Lyren 2244-45(15-25 & 1-13)). There followed a rather confusing discus-sion regarding Lyren's " understanding" of the contract in which the Board actively participated (Tr. 2335-38, 2344-48). That exchange is instructive, for it reveals that the contract provision which Lyren originally regarded as impeding a resale by Wadsworth or
| |
| 'i the WCOE members of baseload power purchased from OE (including 246/
| |
| power from Davis-Besse and Perry) (Lyren 2030-31(25 & 1-20)),
| |
| l no longer exists, and has not for some time (Lyren 2337(3-23)).
| |
| Moreover, this discussion confirms, through Lyren himself, what is in fact the case: that there are no contractual restrictions on municipal wholesale customers of OE, including Wadsworth, in determining their own normal load growth, including growth for 246/ The Board Chairman elicited this testimony with a question which we believe mischaracterized the witness' earlier testimony Ond improperly suggested the answer the Chairman sought (Tr. 2030-31 (25 & 1-7)).
| |
| | |
| -216-whatever new customers they may wish to add (Lyren 2351(10-21);
| |
| and see id. at 2341(6-9), 2341(6-9), 2345(3-5)) -- whether those customers are inside or outside the corporate limits (L;ren 2344(13-20)).
| |
| This is hardly evidence of an unreasonable restraint on the resale of nuclear power -- or, for that matter, any other power.
| |
| Even Lyren acknowledged that he had suggested such a possibility on the basis of a misunderstanding. When alerted to the fact that there was no restrictive contractual provision in existence, Lyren revised and qualified his earlier testimony. The Board Chairman left counsel with the distinct impression that Lyren's misguided (albeit subsequently corrected) testimony regarding a deleted contract provision would be accorded little weight (Tr. 2192(13-22)) -- which, of course, should have been the case. We are therefore astounded to find it cited thereafter in the Initial Decision as the sole support for 11nding a particularized nexus between OE's faulted conduct and the licensed activities. Such mistreatment of the record is inexcusable. It is even more incredible when recognition is given to the other testimony which indicates that there were no restrictions on the resale of pur-chased power by WCOE members to OE's customers (Cheesman 12155 (17-24; Firestone 11242-271).
| |
| We are equally troublad by the Licensing Board's recasting of OE's negotiations with WCOE in connection with an FPC settlement to bear on the nuclear access question in the 247/
| |
| present proceeding (I.D. at 133-36). OE's participation in the 247/ There was not even a charge relating to these negotiations, let alone the suggestion that they concerned a request for nuclear
| |
| ! (Continued next page)
| |
| | |
| r
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| .217-CAPCO arrangement, and its commitment to participate in the owner-ship of all but one of the nuclear facilites which are the subject of this proceeding, have been public knowledge for a number of years. At no time has an entity in the area served by CE ever requested membership in CAPCO (see White 9615(4-10); Mayben 12579(10-14)). Moreover, no such entity has ever approached CE requesting acccss to OE's share of any of these nuclear units.
| |
| Nor has an entity in OE's service area ever intervened in these proceedings to question any conduct of the compu.cj or to challenge as inconsistent with the antitrust laws the manner in which OE proposes to use its share of the designated nuclear plants on grounds that the licensed activities will create or maintain an anticompetitive situation.
| |
| Certainly, the OE-WCOE negotiations require no qualifi-cation of the above statements. Those negotiations were decidedly not for the purpose of discussiong nuclear power proposals, with the municipalities; and, indeed, no proposals of this sort were ever advanced by WCOE (see S-44). Instead, the discussions had as a common objective shared by both parties the establishment of a new bulk power supply relationship between them which would provide a mutual benefit (Mayben 12517(8-12)). This is confirmed not only by Cheesman's statement that nuclear power was never dis-cussed in isolation during the WCOE negotiations (Cheesman 12214),
| |
| l~ 247f (Cont'd)
| |
| ! aconss (which they did not), made by the opposing parties in their September 5 Filings. Rather, the allegations in this area were confined -- as they only could have been -- to purported refusals of nuclear access to Cleveland, Painesville and Pitcairn. The respenses to these charges have been fully treated elsewhere in
| |
| = the Brief- (see pp. 106-13, 145-50, supra and pp. 274-80, infra).
| |
| | |
| -218-r but also by the R.W. Beck Study (S-44) itself, which centions n'uclear power only as a part of OE's resources and fails to make any st?tement with regard to the possible advantages of nuclear power as compared with other forms of generation.
| |
| For the Licensing Board to have found that the proposals, g
| |
| positions and concerns articulated by OE during the give-and-take of those negotiations constituted a placing of restrictions upon its wholesale municipal customers, either in terms of access to nuclear power or in any other respect (I.D. at 130-34), is almost beyond comprehension. The central infirmity with any such conclu-sion is that it totally disregards the very underpinning for the talks in question. They were, undeniably (see F/F No. 130), an outgrowth of a 1972 rate proceeding before the FPC (see A-9), in which the parties (OE and WCOE) entered into a settlement evidenced in part by a " Memorandum of Agreemeno" calling for " studies and investigations" by both to determine the feasibility of devising a bulk power supply arrangement between OE and WCOE that would be "to the mutual advantage of the municipalities and the Company" 248/
| |
| (A-7; emphasis added).
| |
| 248/ The Memorandum of Agreement provided (A-7, Appendix C ):
| |
| The parties will conduct studies and '
| |
| investigations of the engineering, financial, and legal feasibility of an arrangement or arrangements under which the municipalities would by ownership in whole or in part, or by special contractual agreement, be in a position to participate directly in the output of specific generating capacity. In the event that the studies and investigations show that an arrangement appears to be feasible and to the mutual advantage of the municipalities and the Company, and if a ;
| |
| (Continued next page) !
| |
| | |
| r
| |
| =l
| |
| -219-It was with this understanding that OE and WCOE came to the negotiating table (Mayben 12517(8-12)). OE never suspected that ths proposals it advanced in this context would some day be distorted and viewed as " restrictive conditions" imposed either upon the topics which WCOE could study or upon WCOE's access to 4
| |
| nuclear power. Plainly, at the time that OE voiced its negotiating posture, and made known its concerns, there was no such restrictive purpose in mind (White 9620(2-6); Firestone 1243 k9; and see Fire-
| |
| ?49/
| |
| stone letters attached to A-44). Nor were the matters raised by 250/
| |
| * the company then viewed in such a light by WCOE. Moreover, it 248/ (Cont'd) sufficient number of municipalities '
| |
| agree to participate in the arrangement, Ohio Edison and those ir.terested munici-palities will thereupon enter into appro-priate agreements therefor and will use their best efforts to put the arrangement into effect. [ Emphasis added.]
| |
| 249/ The single exception concerns the question of general third-party wheeling, which OE did not discuss in the context of the FPC settlement negotiations because the topic was outside the scope of the Memorandum of Agreement; however, OE made it clear that it would be receptive to considering wheeling requests of a specific nature at any time so long as_such a request was made and negotiated separately and independently from the ongoing FPC negotiations (see discussion at pp. 228-34, infra).
| |
| l- 250/ In this connection, we can perhaps most quickly dispose of the " restrictive" label placed on OE's proposale by looking to what l
| |
| WCOE did in fact study.. Thus, while the Licensing Board (I.D. at 131) and Cheesman 12162-63(5-25 & 1-5)) conclude that the ability to study access to existing generation was foreclosed, the R. W.
| |
| ! Beck Study shows this opportunity was not only studied, but was
| |
| : j. actually embraced within the recommended prepayment plan envision-ing a payment to OE equal to that portion of the company's existing net plant allocated to WCOE (see S-44, pp. vii-1-2). Similarly, while the OE proposals for a percentage, and in a separate context a megawatt, limitation on the amount of power WCOE could take from i any OE unit, are listed as additional areas precluded from study (I.D. at 131-32), the R. W. Beck Study confirms that both proposals were in fact studied by WCOE (see S-44, pp. v-6-7). The Licensing l- (Continued next page)
| |
| | |
| ,r
| |
| -220-cannot in fairness be said that any of the negotiating proposals by OE lacked a sound business justification based upon the parties' agreed objective that the arrangements entered into be mutually 251/
| |
| advantageous.
| |
| In these circumstances, it is difficult te ascertain the basis for antitrust condemnation below. This is especially so in view of the uncontroverted fact that, after all is said about OE's 250/ (Cont'd)
| |
| Board's further conclusion that GE's proposal regarding use of the P/N formula restricted study in in this area (I.D. at 133-34) is also belied by reference to the R. W. Beck Study, which specifically includes an evaluation of this matter (S-44, pp. v-1-3).
| |
| ~
| |
| And, so too, is the Licensing Board's reference to the OE proposal that WCOE purchase from the company its requirements not satisfied by WCOE generation (I.D. at 134). The prepayment plan recommended by the R. W. Beck Study necessarily includes a consideration of that concept (S-44, pp. vii-1-2). As to the OE proposal regarding the resale of excess baseload capacity (I.D. at 133), the content and structure of the Beck Study shows that this proposal foreclosed no inquiries (see S-44).
| |
| 251/ Although the Licensing Board refused to accept the Fire-stone letters as negotiating croposals -- despite the fact that
| |
| , the documents themselves leave no room for doubt in this connection and Firestone testified unequivocally that such was their intended purpose and effect (Firestone 11243-49) -- it is clear that OE
| |
| , adopted an initial bargaining position in its February 28, 1975 letter whien it subsequently modified in certain respects in its superceding June 17, 1975 proposal. This second letter explains in clear terms the reasoning behind OE's negotiating position.
| |
| Further explanation was provided at the hearing (see, e.g., Fire-stone 11268, 11282-83; White 9620-22). It is clear from this evidence that, contrary to the Licensing Board's assertions (I.D.
| |
| at 135-36), OE's negotiating posture was not unreasonable, clearly would not have denied the members of WCOE the benefits of coordi-nated operation and development, in no way hindered " competition" either inside or outside of the OE service area (even assuming arguendo that such a " competitive"-concept has meaning in the circumstances, which it does not (see pp. 56-71, supra), and certainly did not amount to a denial of access to nuclear genera-tion. Even one of the WCOE representatives, Mr. Mayben, made it plain that the bargaining positions taken by OE were a legitimate l negotiating posture (Mayben 12521(8-20), 12523(13-22), 12566-67 i
| |
| (11-25 & 1-11)), and that OE bargained in good faith (id. at l 12548-49(6-25 & 1-2)) during arms-length negotiations Tid. at i
| |
| 12519(24-25)). '
| |
| w y - ----^*
| |
| | |
| ['
| |
| -221-proposals and expressed concerns during negotiations, there exists not one shred cf evidence that WCOE made a single proposal or .
| |
| counterproposal to OE that was rejected. On the contrary, the evidence is clear that WCOE presented only one proposal for OE's 4
| |
| consideration. That was the " prepayment of power purchases" plan recommended in the R. W. Beck Study undertaken at the request of, and solely on behalf of, the WCOE group (see Firestone (1252(14-25);
| |
| White 9761-62(24-25 & 1-3), 9782(24-25); Mayben 1254-25(24-25 &
| |
| 1-12)). The basfc prepayment concept was there described in the following terms (S-44, at Section VII-2):
| |
| The method proposed herein attempts to eliminate or at least minimize the Company's return on net investment and associated taxes and replace the Company's capitalization rates with those of the WCOE. Since all other charges and expenses are allocat i at cost, the Company's cost-of-service to the WLJE should, theoreti-cally, be equivalent to that cost-of-service of a public owned utility.
| |
| Based upon the aforedescribed parameters, we assumed that the WCOE would make a purchase power prepayment equivalent to the net plant allocated to the WCOE. This prepayment, or contribution in aid, would eliminate the Com-pany's return and associated income taxes !
| |
| ,L on that portion of allocated plant. Since l WCOE woulc contribute an amount equal to its allocated net plant, there would not be cap-italization costs of net plant allocated to the WCOE by the Company. The debt service charges for the bonds issued in making the l purchase power prepayment will be consider-ably less than the capitalization charges that J l -- i would be allocated by the Company to the WCOE were not the purchase power prepayment made.252/
| |
| l 252/ There can be no doubt that this proposal was considered by WCOE's outside consulting engineer to be a highly desirable option for the member municipalities. As articulated in the Study (id. at Section VII-2):
| |
| (Continued next page) -
| |
| i L
| |
| | |
| e
| |
| -222-DE agreed in principle to this proposal and advised WCOE that OE would enter into a joint effort with the municipalities to reach a final agreement on the legal, engineering and financial matters relevant to implementation of the proposal (see F/F No. 129; Lyren 1992(12-17); White 9627-28(10-25 & 1-3); Wilson 11147(8-14)).
| |
| Tnat the matter has not advanced much beyond this point is not due to any fault of OE. Counsel for the municipalities was to draft a letter of intent for the parties' signatures, memoriali-zing their agreement on the prepayment concept and reflecting their intent jointly to study and implement the proposal (see -
| |
| A-15; A-178; A-170; Firestone 11262(2 13)). This has not been done (see A-16). Every indication is that the problem lies in the failure of WCOE to reach an agreement internally on what the mem'ber municipalities really want. There is also uncertainty over financing (Mayben 12,546(7-12); Cheesman 12254(12-13); A-16; A.-177). Whatever the causes, however, the failure of WCOE to prepare a letter of intent is a basic impediment to the two parties moving forward with the joint study and with implementation of the prepayment plan (see White 9631-32(16-25 & 1-7), Firestone 253/
| |
| *11,262(2-13); A-170).
| |
| 252/ (Cont'd)
| |
| This arrangement i, expected to insure the WCOE members a reliable source of power at cost which permits-full utilization of the municipals' tax exempt status and not for profit principals [ sic] to the mutual benefit of the WCOE and the Company and provide WCOE an opportunity to exercise greater control over future power and supply decisions and costs.
| |
| L 253/ OE is obviously in no position to proceed with a study of the WCOE prepayment plan until the member municipalities are ready (Continued next page) l-
| |
| | |
| -223-However, OE's readiness to proceed along the line recom-mended in the R. W. Beck Study is not seriously disputed. Its dealings with its wholesale municipal customers with regard to this entire matter have been straightforward, fair, and wholly
| |
| - consonant with the principles set out in the Memorandum of Agree-ment entered ipto by the parties as part of the 1972 FPC settlement.
| |
| Viewed in their proper perspective, the referenced OE-WCOE negotia-tions suggest no inconsistency with the antitrust laws. Nor do they support.the notion that OE has endeavored to deny to the member municipalities the benefits of coordinated operation and development.
| |
| Rather, the prepayment plan which has been proposed for joint study (S-44, at Section VII), and which OE considers acceptable in principle, affords the WCOE members access to all of OE's generation, existing and future, fossil and nuclear, at a cost lower than that which other OE customers enjoy (see S-44, at viii-1-2).
| |
| : 2. Acquisitions. The Licensing Board's findings with regard to the four municipal systems acquired by OE since 1965 (I.D. at at 109-13) stand on no better an evidentiary foundation. .
| |
| The Initial Decision states, for example, that "the record does l not demonstrate the circumstances surrounding the acquisitions" of the Lowellville, Hiram and East Palestine systems (I.D. at 113).
| |
| This is simply not so, at least as to Lowellville and Hiram, which.
| |
| matters are amply treated in the record below (see especially
| |
| !- A-218 through A-220; A-242; D-446 through D-448; White 9538-42; and see D-587).
| |
| 253/ -(Cont'd)
| |
| ~
| |
| to commit to such an arrangement and work with OE at implementing it. WCOE's internal disagreements in this regard, and the outstand-ing question regarding the financial ability of the municipalities
| |
| ~
| |
| to go forward with the. joint study, have effectively brought the negotiations to a standst'ill (see Firestone 11272-76).
| |
| | |
| 'm
| |
| -224-Contrary to the Board's intimations, neither of those acquisitions can be faulted on any grounds. Indeed, because OE is a registered public utility holding company, it was required to obtain approval of its acquisitions from the SEC. Yet, no
| |
| ' ~
| |
| mention is made below of the fact that both the Lowellville and Hiram acquisitions were approved by that sister agency as being
| |
| " appropriate in th= public interest", and on a record far more complete than that which was before this Board (see A-218 and A-220). Similarly, SEC approval was obtained for the East Palestine acquisition (see n.94, supra). While the Licensing I' Board seems to take some satisfaction in the fact th'at no evidence was introduced on this matter, the explanation is a simple one.
| |
| The Board dismissed the charges concerning the East Palestine acquisition (Tr. 11756 (1-2)) making it unnecessary for OE to go forward with its proof of the-legitimacy of this transaction (Tr. 11823-24(11-25 & 1-2)).
| |
| Even so, the Licensing Board ascribes antitrust overtones to the aforesaid acquistions on the ground that they. constituted part of a continuing " pattern of consolidation by acquisition in 254/
| |
| [0E's] service area" (I.D. at 113). But that " pattern" (if indeed there be one) provides no basis for such a conclusion. The testimony of Mr. Gerber, which was "~ accepted" by the Licensing 254/ While the Licensing Board leaps to the conclusion that Lowellville, Hiram and East Palestine were "those potential direct horizontal competitors" of OE, there is not a shred of evidence to support such a conclusion. To the contrary, the economic and
| |
| - institutional barriers in Ohio which are fully documented in the record (see discussion at pp. 45-56, supra) make it unlikely that any of these systems could ever become " competitors" of OE.
| |
| Certainly, at the tir.e of acquisition, they had (through no fault
| |
| !_ of OE) no " potential" whatsoever to survive, let alone become
| |
| ( " competitive".
| |
| l_
| |
| t
| |
| | |
| l
| |
| -225-Board (I.D. at 109), makes it clear that the consolidation exper- )
| |
| ience within OE's service area prior to 1965 was due to natural causes (see n. 120, supra) as to which "no anticompetitive infer-ence" can ottach (I.D. at 109). Plainly, without some affirmative showing that the acquisitions since 1965 of Lowellville, Hiram and East Palestine do not fit the same mold (and there was none), they similarly cannot be faulted. This is especially the case in a natural monopoly structure such as the electric utility industry, where scale economies and technological advances make a " pattern
| |
| ~
| |
| of consolidation" more the expected result than the unexpected (see pp. 98-102, supra).
| |
| CE's acquisition of the Norwalk system is wholly consis-
| |
| , tent with this conclusion. Once again, the acquisition had SEC approval (A-222 and A-223). Moreover, to the extent the Licensing Board found that the company unduly influenced the decision of the municipality to sell, it was in error. In this connection, the f
| |
| picture painted in-the Initial Decision bears little resemblance to the facts of record. Thus, the Board states that Norwalk was 255/
| |
| "a viable electric utility"; in point of fact, the municipal system was experiencing at the time serious power supply problems (D-436), did not have dependable capacity for future 'needs (A-240),
| |
| ~
| |
| 255/ Interestingly, the Licensing Board reaches the conclusion that "[i]n a free competitive environment, many options would have been open to [Norwalk] for survival" (I.D. at 110; emphasis
| |
| <- added). Whatever the validity of this assumption, it is plain that the Norwalk electric system did not exist in "a free competi-tive environment" due to the regulatory constraints we have
| |
| - already discussed (see pp. 50-56, supra). Recognition of this fact might well have deterred the Licensing Board from attempting to "second-guess" the conclusion reached by the SEC that, in the environment that did actually exist, this acquisition was in the public interest (A-222 and A-223).
| |
| I
| |
| | |
| -226-and had inadequate generation facilities for long-range purposes
| |
| ~
| |
| (id). It was for these reasons that Norwalk, not OE, initiated discussions about a sale of its system (White 9698(4-9)), and, in fact, requested bids from other electric entities (A-221). Clearly,
| |
| - - the city did not consider OE the "only potential buyer" (I.D. at 109), as the Licensing Board would like to have us believe (see, ,
| |
| e.g., D-426; D-434; D-436).
| |
| Insofar as Norwalk's ability to explore with OE alterna-tives to a sale of the municipal system, the Licensing Board is, once again, off base in its suggestion that OE was unreceptive to such discussions (I.D. at 110-112). The documentary evidence leaves no doubt that OE stood ready to help Norwalk develop, evaluate and implement the several alternatives being considered
| |
| , by city officials (A-428). It advised Norwalk that the company would "look into any approach that is feasible from an engineering standpoint" (D-434). 'certainly, the city's consultant did not share the Licensing Board's view that other avenues (besides a sale of the system) were foreclosed by OE from consideration (id.).
| |
| Moreover, far from being " frustrated" in pursuing a possible partial requirements arrangement with OE, Norwalk was actually
| |
| ~
| |
| I purchasing part of its power from OE throughout this period 256/
| |
| (A-225).
| |
| 256/ The Licensing Board also makes passing reference to the possibility of wheeling power, "perhaps from Buckeye Power",
| |
| for Norwalk as an alternative (I.D. at 111; and see id. at 128).
| |
| The unfairness of this reference, calculated further to taint OE's conduct, is no better demonstrated than by advising that the Licensing Board dismissed the charge of a refusal by OE to wheel Buckeye power to Norwalk as unsubstantiated by the evidence (Tr. 11754).
| |
| 'h
| |
| | |
| -227-Perhaps most troub]esome is the Licensing Board's finding that "0E refused to buy Norwalk's generators unless the distribu-1 tion system was included" (I.D. at 110). OE took no such stand, as D-422 (the document on which the Board principally relies)
| |
| - makes clear. What is so disturbing about the contrary suggestion below is that when DOJ sought to introduce D-422 to eptablish this
| |
| ~
| |
| very point (see Tr. 5616, 6169), counsel for OE objected on the ground that the document itself "makes clear that [0E] was willing to accuire certain portions of the generating system of the City of Norwalk * * * [a]s to other portions of the generating units
| |
| * *
| |
| * the company made clear that the steam units were not suited to the OE system * * '" (Tr. 6169(18-19 & 23-25); see also D-437).
| |
| EOJ then amended its offer of proof as to D-422 so as to make it clear that the alleged refusal pertained only to " steam generating" units (Tr. 6182(6-10)). Even then, the document was accepted into evidence on a " limited-weight" basis (Tr. 6192(1-3)), with the Board Chairman stating that "[t]he Board may take some notice with
| |
| . respect to it being reasonable for [0E] not to wish to acquire steam generating units except under certain conditions" (Tr. 6191 (22-24)). The reasonableness of OE's attitude in this regard is apparent from a reading of D-422 (and see A-189(Gerber 10-11(26
| |
| ~
| |
| & 1-2); A-240); no contradictory evidence was introduced. Yet, j the Licensing Board faulted the company by returning to D0J's overblown charge that even DOJ earlier recognized could not be 257/
| |
| sustained by the very document the Board relies upon. Such is l
| |
| 257/ The fact that OE ultimately agreed to purchase the steam generating units is not suspect. The company recognized that, if (Continued next page)
| |
| | |
| -228- 1 1
| |
| l the frailty of findings regarding the Norwalk acquisition. They clearly cannot withstand scrutiny under a fair and impartial reading of the evidence.
| |
| I 3 Wheeling. Neither OE nor PP considers itself to
| |
| , be a common carrier of electricity (White 9641(2-17)). Yet, the opposition parties and the Licensing Board fault OE for refusing
| |
| ~
| |
| wheeling requests which were so general in nature that only a s
| |
| common carrier could have answered them affirmatively. Thus, without any specification as to the identity or size of the
| |
| - outside power source, where it would be introduced into the OE system, or where it was to be delivered, and without any indication as ta the duration of the transaction, the question concerning wheeling posed in the Stout letter (S-30) to which the Licensing Board makes reference (I.D. at 124) was nothing more than an inquiry of OE as.to whether or not the company was willing to consider itself a common carrier of electricity. It admittedly j was not (White 9639-41; 9704(10-20); 9819-20(5-25 & 1-18).
| |
| As the legislative history of the Federal Power Act makes clear, Congress has repeatedly resisted efforts to render electric utilities common carriers. Taking full cognizance of the Supreme Court's decision in Otter Tail, the law does not require that the transmission systems of electric utilities be open to
| |
| {
| |
| any requesting entity to use as it sees fit. See Consumers Power
| |
| ,m i 257/ (Cont'd) l Norwalk chose to sell its distribution system, it, too, would have
| |
| ! no use for the steam units, and thus the sale of those units would l have to be part of the overall purchase of the system. This reasoning is not only spelled out in D-422, but John White testi-
| |
| . fled on the point in similar fashion at the hearing (White 9543-44, l- 9696-97).
| |
| | |
| i ,
| |
| -229-l Co., supra, 2 N.R.C. at 75. Thus, OE's negative response to Stout's open-ended wheeling inquiry is not inconsistent with either legislative or judicial pronouncements in this area. Nor i is it without legitimate business justification. As has al-ready been explained at'some length (see n.231, supra),in the absence of the sort of specificity described above, it is impos-sible to price a wheeling transaction with any precision or accuracy. In assessing each request, the company which owns the transmission facilities must measure the proposed transaction not only in terms of the requesting entity's desires, but also I
| |
| in terms of the impact on its own customers and stockholders (White 9611(4-12); 9639-41, 9704-05(10-25 & 1-7), 9809-10(5-25 &
| |
| 1-18)). On this basis, the reluctance of the OE Companies to assume common carrier status with respect to the transmission of electric energy is perfectly understandable.
| |
| Significantly, there is absolutely no evidence of a refusal by OE to consider entering into a specific wheeling arrange-ment with another electric system. When the question concerning general third-party wheeling was raised in the OE-WCOE negotiations, John White made it clear this topic was not one embraced within the FPC Memorandum of Agreement (White 9600(17-22)), and that to
| |
| . include it in the discussions would only complicate the already difficult prcblem of working cut a bulk power supply arrangement contemplated by the settlement (White 9600-01(23-25 & 1-4); see also Lyren 1918-19(20-25 & 1-2)). However, he made it clear at that time that 0E would provide whatever point-to-point transmission ser-l vices were needed to insure utilization of the generation capacity l_
| |
| | |
| r
| |
| -230-made available to WCOE under the agreed arrangement (White 9601-02 258/
| |
| (6-25 & 1-6)). Moreover, he specifically advised a representative of WCOE, Mr. Stout, at a subsequent meeting that OE would be willing to discuss wheeling transactions separately with the municipalities in OE's service area (White 9631(4-7), 9701-02(10-25 & 1-4); Wilson 11086(10-25 & 1-4)) -- but not as an element of the FPC negotiations.
| |
| These are not facts which warrant the conclusion that OE
| |
| [
| |
| refused to wheel power upon request. The record supports only the I conclusion that the company was not willing to entertain a general, third-party wheeling request -- and especially not as an element
| |
| ! of a complicated negotiation to reach a partnership arrangement with WCOE with respect to OE's generating capacity (see pp. 213-22, supra) -- although it was perfectly receptive to a specific wheeling transaction if presented with one (see White 9608-11).
| |
| The Licensing Board's attempt to establish that such specific.
| |
| i requests had been sade and refused (I.D. at 128-29) is almost ludicrous. It relies, without record references, on an alleged refusal to wheel Buckeye Power to Norwalk, notwithstanding that I this charge was dismissed for lack of any supporting evidence (Tr. 11754 (8-9)). The Board also makes reference to a refusal to wheel Buckeye power to Newton Falls, despite the fact that the
| |
| :p documents and the testimony show conclusively that the municipality never made any such request of OE to do so (Craig 2953 (16-22);
| |
| 258/ Similarly, of course, OE has agreed to provide point-to-point transmission services to the extent necessary to deliver nuclear power from the subject facilities to the requesting entities' doorstep; moreover, such transmission services as may be needed for delivery of back-up power when the nuclear plants are-out of service has been offered by OE. See A-44, and the
| |
| . discussion at pp. 133-34, supra.
| |
| | |
| -231-259/
| |
| ^
| |
| S-84). Finally, it refers to a wheeling request made by the City of Orrville, based on the testimony of Mr. Lewis. However, Lewis' recollection in this regard is highly suspect, and finds 260/
| |
| little support in the documents he relied upon. Moreover, the alleged request is said to have come in a meeting between represen-tatives of OE and Orrville on June 11, 1973, attended also by White and Firestone. Yet, both men testified that the subject of wheeling was never raised at the meeting (White 9579-80(21-25 &
| |
| 1-2); Firestone 11209(5-16)), and Firestone's contemporaneous notes (A-174; A-175) fully confirm their testimony (see also A-127).
| |
| 1 We therefore find it incredible that the Licensing Board reached the conclusion that OE had received any meaningful wheeling 259/ No charge was made regarding a refusal by OE to wheel Buckeye power for Newton Falls. However, the Licensing Board, over Applicants' objection, allowed the NRC Staff to probe this ,
| |
| matter with Mr. Craig at the hearing (Craig 2927-28, 2935-38), i
| |
| ; and to offer documents into evidence (S-84, S-210). However, i no showing was made that OE had ever been approached concerning such a wheeling transaction. Craig testified that his impres-sions as to OE's possible unwillingness to entertain a wheeling
| |
| ; request were derived solely on the basis of his communications with Mr. Cummins of Buckeye Power, Inc, (Craig 2928(1-4); S-84).
| |
| He never discussed the matter with OE, nor did he ever contact a i i
| |
| rural electric cooperative about the prospect of a power purchase !
| |
| (Craig 2953(16-22)). Indeed, at the time that S-84 was introduced ;
| |
| into evidence, even the Board Chairman acknowledged that "in and of itself the document may prove very little with respect to
| |
| [0E's] policies of wheeling or transmitting" (Tr. 2935 (2-16)). ;
| |
| 260/ Lewis' testimony on this point was initially said to be based on a review (the day before his appearance) of his hand- ;
| |
| written notes of the June 11, 1973 meeting, when the wheeling j request was allegedly made (Lewis 8019(2-9)). However, the i notes make no reference to a wheeling discussion, but only have a marginal notation mentioning "True interconnection * * '" l l (A-180). Lewis' effort to relate this phrase to the wheeling request is entirely unsatisfactory (Lewis 11341-45). Moreover, I
| |
| not even this notation found its way into Lewis' typewritten version of.his notes (A-127), which admittedly do not mention anything about a wheeling request or any refusal (Lewis 11349-50(7-25 & 1-10)).
| |
| | |
| -232-requests from mur. cipalities in its service area, let alone that there had been " refusals" by the company in this area. Nor does the discussion in the Initial Decision regarding the buy / sell
| |
| ~
| |
| agreement between OE and Ohio Power (I.D. at 125-27) alter that conclusion in any respect, especially when the infirmities in that analysis are exposed. OE's participation in the Buckeye Power arrangement, by way of the Ohio Edison-Ohio Power buy / sell agreement, permitted distribution cooperatives in OE's service area to change from full requirements purchasers of OE to full requirements purchasers of Buckeye. That situation represents the single instance in the history of the company when it was directly requested to permit use of its transmission system for a purpose other than for OE to transmit a reliable low cost bulk power supply to its own customers.
| |
| The Licensing Board appears to fault OE for insisting l upon a buy / sell arrangement with Ohio Power, rather than agreeing to a wheeling transaction (I.D. at 126-27). The reasons for this position, however, are well documented, and contain no antitrust f overtones. Foremost among them was, quite clearly, that OE believed insufficient compensation was provided for in the proposed Buckeye
| |
| - Power Delivery Agreement (White 9726-27(23-25 & 1-6), 9554-57; i: D-573(Frederickson) 112-13(24-25 & 1-10)); D-572(Mancrield) 114, l .'
| |
| 119-20; cf. Smart 10165(17-19)). Key company personnel viewed the buy / sell alternative as providing the requested transmission service l
| |
| l
| |
| ! at an appropriate price, and with less of an adverse effect on the revenues of the company (compare Smart 10164-65(25 & 1-19)).
| |
| While it is stated below that one of the motivations for OE's willingness to enter into such an arrangement with Ohio Power
| |
| | |
| l
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| -233-was that "it preferred that the co-ops not have their own transmis-sion" (I.D. at 127), this conclusion was reached by the Licensing Board on the strength of a document which was not even in evidence;
| |
| [ D-479 was rejected by the Board when D0J attempted to introduce it (Tr. 6239). Moreover, the referenced deposition testimony by r
| |
| ! Mansfield disputes, rather than supports, the Board's finding.
| |
| ; While acknowledging that such a consideration was a " dominant i
| |
| factor for Mr. Sporn's [of Ohio Power] argument for the whole i
| |
| concept to all the Ohio companies", Mansfield stated emphatically that "that argument was not persuasive for us [0E] * * '" (D-572 (Mansfield) 119(1-7); emphasis added). There is thus no sound basis for condemning OE because it is a party to the Buckeye Power buy / sell agreement. In fact, that agreement received careful r
| |
| regulatory scrutiny (see A-224) and was submitted to DOJ for business clearance along with the Buckeye Power Delivery Agreement i
| |
| (see pp. 207-09, supra). Assistant Attorney General Donald Turner 4 found no legitimate antitrust basis for faulting it ( A-289).
| |
| Nor can we agree with the Licensing Board's apparent criticism of OE tocause the company's delivery of Buckeye Power to the seven cooperatives in its service area did not commence under the buy / sell arrangement until six month's after the Buckeye i Power Delivery Agreement became effective (I.D. at 126). The l^
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| l explanation for this six month's difference is well developed in the record. It is the result of the cancellation provisione in OE's prior wholesale contracts with the distribution cooperatives (see D-17 through D-23). A reading of the stipulation contained in D-616, together with the earlier contractual notice provisions
| |
| | |
| t
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| -234-261/
| |
| and attached correspondence, will demonstrate that OE was more than fair in the manner in which it permitted its distribution cooperatives to terminate their wholesale power contracts. Far from insisting upon its. contract rights during this period of l
| |
| negotiation, OE four times permitted the cooperatives to extend the date upon which they would have to give notice of the cancel-lation of their-contracts (id.). The cooperatives availed themselves '
| |
| of the company's reasonable accommodation and thereby were able to withdraw from their contractual obligations to OE two years r.fter giving notice they desired termination, rather than having to face the automatic five-year renewal period. Ohio Edison cannet be faulted for requiring parties with which it contracts to abide by their commitments, especially in view of the great leeway it was willing to allow in this instance.
| |
| : 4. Territorial agreements. The Licensing Board also I
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| reached the conclusion that OE entered into territorial agreements with neighboring investor-owned utilities (I.D. at 114-24), with its municipal wholesale customers (I.D. at 137-41) and with rural electric cooperatives in its service area (I.D. at 136-37). The support for these findings rests almost exclusively upon documentary material that was generated a number of years ago. In every case,
| |
| : the market-division arrangements that were found to have once existed are no longer in effect and cannot be said to have any influence over the company's current cperations.
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| 261/ See the nearly identical letters of December 31, 1966, June 29, 1967, December 6, 1967, and May 17, 1968, which are appended to each of Exhibits D-17 through D-23 I
| |
| f
| |
| | |
| -235-It is, therefore, surprising that so much emphasis was placed on this matter below. Activities under the nuclear licenses for the Perry and Davis-Besse units, which involve essentially the matter of affording meaningful access to the power to be generated from these plants, cannot on any terms be linked to the " situation" found by the. Board to have existed in the latter part of 1960's, at the latest, but to no longer be in existence today. See Consumers Power Company, supra, 2 N.R.C. at 62. There simply are no OE inhi-bitions, in terms of impermissible contractual restraints on areas in which other investor-owned ut:ilities, municipalities or rural electric ccoperatives may distribute their purchased nuclear power, that the Licensing Board, or anyone else, can point to as a basis for concluding that issuance of the subject licenses will " maintain" an antitrust situation. Nor has anyone pointed to a single licensed activity that will likely " create" such market divisions in the future. On these terms, it is, therefore, of no significance under Section 105c antitrust review that OE may in bygone years 262/
| |
| have participated in territorial agreements.
| |
| Even apart from this jurisdictional infirmity in the Licensing Board's analysis, however, the findings below in this area clearly constitute reversible error. The most obvious flaw relates to the Board's per se approach to the evidence of past territorial agreements in complete disregard of the public interest considera-tions involved. As we have diccussed already (see pp. 35-40, supra),
| |
| 262/ It is to be remembered that at the time in question there was reason to believe that such arrangements in this industry would not be ceemed to run afoul of the antitrust laws in the same manner as in other industries. See Cantor "'
| |
| v Detroit Edison Co., supra, 96 S. Ct. at 3120, n.35.
| |
| . . - - - - m -
| |
| | |
| -236-when dealing with thic matter in an industrial setting that is subject to government regulation, automatic condemnation of territorial relationships must give way to a rule of reason analysis. See United States v Pan American World Airways, Inc.,
| |
| supra, 193 F. Supp. at 33-34. Thic is particularly so in the I
| |
| electric utility industry, and for good reason:
| |
| Suppose, for instance, in a case when adjacent electric power wholesalers had engaged in a market division agreement, that it could be shown such competition as might exist in the absence of the agreement would be on balance harmful to
| |
| , the public interest. If that were demon-strated, it would seem unwise to press 4
| |
| blindly for institutional rearrangement within the electric utility industry to introduce competition [Shenefield, supra, 16 Antitrust Bull. at 689.]
| |
| The logic of this approach is well demonstrated with respect to the territorial agreements found to have once existed between OE and other investor-owned utilities. It is undisputed 263/
| |
| that, to the extent such agreements existed, they concerned only " fringe area competition" between the involved private utili
| |
| , ties at the extremities of their respective service areas (see F/F Nos. 104, 108, 109, 111). We have heretofore explained the limited nature of such competition in the electric utility industry (see pp. 60-65, supra). As to existing customers who may wish to switch suppliers, the Ohio " anti-pirating" statute (R.C. S 4905.261) effectively removes all incentives to engage in such an exercise by requiring a 90-day disconnect period (see p. 52 & n.55, supra).
| |
| 263/ The Licensing Board's finding of a territorial agreement between OE and CEI is in error, (see pp. 182-83, supra). See also pp. 192-95, supra, with reference to the finding of a TECO-0E agree-l ment.
| |
| l
| |
| | |
| -237-The rivalry in the fringe areas, therefore, such as it is, revolves almost entirely around new customers who may move into these locations. Due to very practical, economic considera-tions, the record below demonstrates that private utilities determine on their own whether to extend their lines to serve the new customer on the basis of which potential supplier is closest and can provide the cheapest service (see n.70, supra). This not only disecurages a needless duplication of facilities -- as urged by the Ohio legislature (R.C. S 4905.261) -- but it also insures that all customers of the same class will not be unnecessarily burdened with higher rates (see n.70, supra). In this regard, the Licensing Board was simply wrong in its conclusion that the consumer suffers by being denied a free' choice among naighboring utilities (I.D. at 120). To the contrary, the economic benefit can be traced not simply through to-the consumers of the ultimate 1
| |
| ~
| |
| supplier, but also to the consumers of the more remote company i that declined the service.
| |
| :L It is in recognition of these fundamental economic con-i
| |
| -i cepts that we urge this Appeal Board not to jump so readily -- as did the Licensing Board -- to condemn past territorial agreements among investor-owned utilities. As Mr. Shenefield urger: "A sensible and balanced weighing of the value of competition * * *
| |
| [should] take into account not-only the economic costs but the
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| ;, social costs of * *
| |
| * landscape clutter that duplication of * *
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| * 264/
| |
| transmitting facilities woufd entail." On such terms, it can 264/ Shenefield, supra, 16 Antitrust Bull at 689-90.
| |
| | |
| i~
| |
| -238-hardly be said that the public interest was ill-served if terri-torial agreements resulted in less rivalry for new customers on the borders of OE's service area. And, when this realization is coupled with the knowledge that OE no longer has such territorial 265/
| |
| agreements as were found to hav: existed years ago, there is no reasonable basis for faulting the company in this regard under Section 105c of the Atomic Energy Act.
| |
| f A rule of reason analysis similarly underscores the in-3 appropriateness of finding that the " territorial" provisions in OE's earlier contracts with its municipal wholesale customers were 266/
| |
| per se unlawful (D-24 through D-43). These provisions required the municipalities to obtain from OE prior written consent before extending retail service beyond the corporate limits. Conversly, OE was required to obtain the consent of local officials before serving any new customers located inside the city. The record below clearly reflects that the consent requirements were freely 267/
| |
| agreed upon by the contracting parties (White 9523(14-24)),
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| 265/ John White testified that no territorial agreements between OE and other investor-owned utilities exist today (White 9536(1-6)).
| |
| He further stated that, in 1972, as a result of growing sensitivity to the application of antitrust principles to the electric utility industry in light of the Otter Tail decision, he ordered all OE employees to discontinue any practices that might rest on under-standings as to territorial market divisions to the extent they
| |
| 'l had not ceased doing so already (White 9747-48 (18-26 & 1-6)).
| |
| t 266/ It is readily acknowledged that these contract provisions were deleted more than four years ago at the company's suggestion
| |
| ; (White 9531-34; A-10; A-11; and see F/F No. 139).
| |
| l 267/ Although Lyren's testimony touched on this, his knowledge l was based solely upon a conversation he had with his subordinate, l Clevidence, nine years before. Lyren himself described portions of his testimony on this issue as "second or third hand" (Lyren-2204-12). He tdmitted at one point to not even understanding a key (Continued nex; page)
| |
| | |
| -239-and that a major purpose for their inclusion was to " eliminate or at least very substantially reduce the possibility that there would be duplication of facilities" (White 9524(16-18); and of.
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| I Craig 2910-11(10-25 & 1-14); A-215; D-484). Moreover, few, if any, of OE's municipal customers viewed the contract as a bar to 268/
| |
| extra-municipal service, and OE's consent was both asked for, and given, during the period that the provision was in effect (see generally D-410 through D-414 (Niles); D-441 and D-442 (Hubbard);
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| D-449 and D-456 through D-461 (Wadsworth); D-481 through D-485 269/
| |
| (Cuyahoga Falls); and see A-215).
| |
| 267/ (Cont'd) term he had used in relating the conversation (Lyren 2208(3-12)),
| |
| and also admitted he didn't have a good recollection of the importance that was put on variots items in the negotiating sessions in 1965 (Lyren 2211(18-21)).
| |
| 268/ While Lyren indicated that the exisnence of the "terri-torial" provision discouraged him from seekf.ng OE's consent te serve new customers outside the city limits of Wadsworth (Lyren 2267(2-18)), his confused testimony regarding the earlier whole-sale contract (see pp. 214-16, supra) makes it doubtful that he was influenced at all by the consent requirement. For example, Lyren's i focus on the operation of the contract provision as a restraining force dealt largely with the past four years; yet, the provision had by then been deleted and was no longer in effect (Lyren 2141-42
| |
| , (10-25 & 1-25)), a fact which Lyren should have known as a signatory I
| |
| tc the 1972 FPC settlement agreement (see A-7). Moreover, at the same time that he was ascribing to the contract provision (albeit erroneously) a chilling effect on Wadworth's desire to expand, it is clear he continued to actively pursue industrial customers of OE located outside the city liciLs regarding the possibility of serving them at retail (Lyren 1973-75, 2164-65(8-25 & 1), 2166(11-22)).
| |
| L 269/ While the Licensing Board makes reference 'o the " curious practice known as ' backing'" (I.D. at 139), its description thereof ,
| |
| is overblown and distorted. In a few instances, OE and one or l another of its municipal wholesale customers agreed that, in ex-change for the company's consent to provide municipal service in the fringe area, OE would be given permission to serve a similar number of municipal customers where it made good economic sense to do so (S-63; s-64). This was not a widespread " practice", however, as is suggested below. In fact, it occurred sporadically in only one of OE's ten districts, was at best short-lived, and has long since ceased.
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| 1
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| | |
| -240-In any event, this " territorial" provision suggests no antitrust infirmity. As already pointed out elsewhere (see n.53, supra), the Ohio Constitution, by virtue of its restriction upon r
| |
| t municipalities providing electric service outside the corporate limits except to the extent that they have a " surplus product" 3
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| (Art. XVIII, Sec. 6), has the very practical effect of barring 9
| |
| any expansion into these fringe areas by a municipal system tak-
| |
| ,1 ing power under wholesale requirements contracts, except, of
| |
| . course, by annexation (R.C. S 9709 01 et seq.). The import of this statutory limitation was not lost on the parties to these t
| |
| contracts (White 9524-26). Indeed, the municipalities saw the consent provision as a means of avoiding a court challenge to any extension of service they might wish to make outside the city limits (White 9526).
| |
| Thus, the earlier contract provisions under discussion 1
| |
| were, in a,very real sense, ameliorative of the state law in Ohio and, both in language and application, were less (not more)
| |
| L restrictive than the constitutional restraint relating to a i municipality's " surplus product". As such, they should not have been faulted on antitrust grounds by the Licensing Board. See United States v. Citizens & Southern National Bank, supra, 422 U.S. at 111-20. Nor should they have been blamed for having L ,
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| " permanently preempted" (I.D. nt 141) the fringe areas outside l l
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| city limits for OE (compare White 9669-71). To the extent there '
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| is any validity to such a " preemption" theory, "the damage had 270/
| |
| been done" (I.D. at 141) by the Ohio Constitution, not by OE.
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| 270/ This same response holds true, of course, insofar as the (Continued next page) 4
| |
| | |
| -241-This leaves for consideration only the territorial restrictions on rural electric coo;3ratives (I.D. at 136-37).
| |
| Since OE has no power contracts with the cooperatives in its service area, and has not since 1968, it is next to impossible to ascertain what possible significance the Licensing Board 271/
| |
| ! intended to attach to OE's early agreements with these entities.
| |
| I Insofar as it intimated that antitrust overtones can be found in the 90-day disconnect provision contained in the 1968 Buckeye agreement with Ohio Power, the unsoundness of this conclusion, both in law and fact, has already been discussed (see pp. 206-09, i supra). Finally, the Board's reference to a " territorial agree-ment with Holmes-Wayne Cooperative" (I.D. at 137) can be readily ,
| |
| 270/ (Cont'd)
| |
| Licensing Board erroneously concludes, without regard for existing Ohio law, that pre-1965 contract prvisions relating to power resales to industrial customers had a preemptive effect on industrial loads (I.D. at 137-38). Moreover, we take special exception to the fact that any such reference appears in the Initial Decision. As to these early contracts, the Licensing Board specifically indicated at the hearing that they were not available for such treatment (Tr. 4606(14-20)), and, indeed, even prevented the introduction of evidence relevant to the operation of these ore-1965 contracts on grounds of remoteness (Tr. 6195).
| |
| l~ In these circumstances, it is hardly the mark of an impartial trier-of-fact to base findings against OE on such material. !
| |
| 271/ in any event, the allegedly suspect provision (I.D. at i 1337 has a legitimate purpose within the context of rate design.
| |
| The price at which OE sold power to the cooperatives was pursuant to a graduated schedule, i.e., both demand and energy charges
| |
| - decreased as more power was used.- Without the limitation on purchase for resale, a single cooperative could purchase enough power for all,the cooperatives and resell that power to the other cooperatives. While OE would have no objection to such a practice ;
| |
| if the rate were designed to ensure adequate compensation, the '
| |
| graduated schedule available to the cooperatives would not have provided such assurance. In effect, the purchase for resale, which involves no economic function (see p. 66, supra), would permit the cooperatives to subvert the OE rate design by means of conjunctive billing. Thus, this " restraint" is really a rate matter fully within the jurisdiction of the FPC (see n.95, supra).
| |
| l .
| |
| | |
| l
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| -242-disposed of by a reading of the only document cited as authority 272/
| |
| for the propcsition, D-522. In short, the underpinning for the findings in this area are as shallow as the rest. They also are entitled to no respect on this appeal, either on their own terms or 1
| |
| on jurisdictional terms under the Waterford II nexus standard (6 A.E.C. at 620)
| |
| : 5. Refusals to deal. The Licensing Board has also found that "[f]or the purpose of maintaining and extending its monopoly position, OE has refused to sell bulk power" (I.D. at 146). In view of the fact that OE does not even have " monopoly power", or any ability to obtain it (see pp. 85-97, supra), the Board's conclusion rests on an incorrect legal premise. Nor does the evidence below, or for that matter the Licensing Board's own ensuing discussion in this area (I.D. at 146-53), support the general indictment, made without record reference, of a " refusal to sell bulk power". To the contrary, OE sells power at wholesale for resale to 21 municipalities, and has done so for many years a
| |
| (see n.19, supra.) In the last several years, which have been a period of financial stringency for OE as well as many electric 272/ Exhibit D-522 is not a model of clarity, and certainly serves as but a slender reed on which to hang a finding of a territorial agreement. While reference is made therein to an April 6, 1971 letter agreement, the memorandun j? unclear as to who the parties thereto actually were or what the terms, condi-tions and subject matter of that agreement were. Even on a most liberal reading, D-522 reflects only that there existed a 1961
| |
| ( agreement in form, but that it was not taken very seriously nor enforced by the parties. Indeed, as to the matter under discus-sion in the nemorandum, it is plain that the 1961 agreement (whatever its nature and scope) had no application. Before any decision could be reached on customer service in that instance, additional information was needed, information which as D-522 indicates, went well beyond simply where the customer would locate.
| |
| | |
| r9'
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| -2 '4 3 -
| |
| utilities, the company has had to be particularly careful that the financial commitments it undertakes will result in a general benefit for its customers (White 9560-61(24-25 & 1-4), 9567-68 (18-25 & 1)). In this connection, interconnection proposals and requests to take power at higher voltages have, most assuredly, been carefully scrutinized by OE. But to characterize the conduct of the company in this regard as amounting to " sham offers to interconnect" and " refusals to make power available in higher voltages" (I.D. at 146) is entirely unfounded. Nor will the record below support such e conclusion.
| |
| (a) The Licensing Board first condemns OE for advancing a " prepayment deposit" concept (S-81) as a means of financing a proposed interconnection being negotiated between OE and Newton Falls (I.D. at 147-48). It is unrefuted that, at the time of these negotiations in 1973 and thereafter, OE's financial situation was such tnat it could not realistically bear the costs of extending its facilities to meet the needs of new wholesale customers, or new needs of existing customers (White 9567-68(18-25
| |
| : & 1), 9571(2-22); and see S-77). Its proposal to Newton Falls was thus simply that the city initially advance the capital costs for the required line, which amount would be refunded to the city over I a five-year period, depending on usage of Jhe line (see S-77; and see Craig 2878(3-7)).
| |
| _ This proposal was basically acceptable to Newton Falls when first made (Craig 2879(17-24; S-79). Howevar, a legal dispute arose as to whether the city could, under Ohio law, finance this project with municipal bonds (compare S-74 and S-77 (opinion of l
| |
| w^
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| | |
| -244-273/
| |
| Newton Falls' counsel) with S-76 and S-79 (opinion of OE counsel).
| |
| OE's position understandably was that Newton Falls' alternative to the " prepayment deposit" proposal was to build and finance the line on its own (S-81; and s'ee S-76). Following what city officials called a " fruitful meeting at the Federal Power Commission" on November l', 1975 (A-33), Newton Falls adopted the suggested alterna-tive course of action as an acceptable compromise (Craig 2949-50 (24-25 & 1-4)) and has since taken steps to implement it ( A-32; A-33, A-34; Craig 2968(12-19)).
| |
| The Licensing Board's reference to this matter as exempli-fying a " refusal to deal" by OE is unwarranted. The record makes it clear that OE's negotiations with Newton Falls in this regard were undertaken in good faith and with a spirit of cooperation (see S-73; S-76; A-29; A-31). Resolution of the particular matter of construction costs required nothing more than that the expense be borne by those who would most benefit, i.e., the citizens of
| |
| ; Newton Falls. Plainly, the law imposes no duty or obligation upon OE to assume such a financial responsibility, especially where, as here, the company would derive no particular benefit from construc-274/
| |
| tion of a line.to Newton Falls.
| |
| ~'273/ While the Licensing Board asserts that Applicants do not contest the opinion of Newton Falls' counsel on this legal point (I.D. at 148), its statement is belied by the record as well as by Applicants, Supporting Brief at p. 560.
| |
| 274/ No different conclusion is possible regarding similar findings in connection with other OE interconnection negotiations (I.D. at 148-49). Niles was asked "to bear the cost of an extension of facilities in order to provide the service they want" (White 9567-68(8-25 & 1)). The " prepayment deposit" proposal was acceptable to Niles*and was included in the contract which the parties executed (Continued next page)
| |
| | |
| -245-(b) As a second element of its " refusal to deal" finding, the Licensing Board saw fit to fault OE on the ground that it declined to "41e with the FPC rates for new higher voltage service upon the request of a mrricipal wholesale customer (I.D.
| |
| . at 150-52). Significantly, the Board did not find that OE had ever actually refused service at the higher voltages; indeed, it could not since this record amply demonstrates OE's willingness to provide service at higher voltage to requesting entities (see n.275 infra). Rather, the focus below was directed solely on the availability of pertinent rate information prior to an FPC filing.
| |
| OE does not dispute that such filing requests have 274/ (Cont'd)
| |
| (A-268). There is no evidence to suggest that Niles was troubled by this arrangement, nor that OE proposed it for other than sound financial reasons (White 9567-68(8-25 & 1)).
| |
| Interconnection negotiations with Orrville have been included in the Initial Decision, notwithstanding the Chairman's statement at the time Lewis testified on this matter that "[i]n view of the concession by [DOJ] that they are not alleging any impropriety with respect to the 138 kv interconnection itself, no charges [are] being made against you. You are not being hurt by the testimony" (Tr. 7957(14-18)). The record shows that OE acted in good faith in its dealing with Orrville concerning a permanent interconnection (Firestone 11205, 11209-32; A-174; A-175; A-176).
| |
| Its recommendation that the city use a " loop" interconnection rather than a "T-tap" was dictated solely by technical considerations (Firestone 11211-12, 11215, 11220; A-176). Because the " loop" alternative required Orrville to bear higher costs than would be l required if it entered into an interconnection with Ohio Power (Lewis 7959-60 (25 & 1-25)), the city selected the latter company.
| |
| Lewis' efforts to attribute some sinister motive to OE during the L Orrv111e negotiations do not square with documents prepared conteLpo-raneously, which indicate that "there would be little difference from Orrville's standpoint between the Ohio Power and Ohio Edison o contractual arrangements" (A-183; and see A-184).
| |
| Finally, contrary to the impression that the Board leaves in its reference to Norwalk (I.D. at 149), there is no evidence even remotely suggesting that the salt of that system to OE was caused by the city's financing of a temporary interconnection with "on hand money", or even that OE was a party to the Norwalk decision to so fund the line in question. Nor does the Licensing '
| |
| Board find any record support for such an assumption (and see pp. 225-28, supra).
| |
| ~
| |
| e , .--
| |
| | |
| -246-received a negative response from the company on appropriate occa-sions. Such refusals occurred, however, only pursuant to Section 35.3 of the FPC's Rules of Practice (White 9735-36(5-25 & 1-13)),
| |
| which directs, in relevant part, that rate schedules shall not be f''ed "more than 90 days prior to the date on which the electric service is to commence and become effective * * "" (18 C.F.R.
| |
| 5 35.3). The intent of Section 35.3 is to protect the Commission against having to take the time to examine and approve speculative rates that might never become effective or might be outdated when they did.
| |
| There is no evidence of a refusal by OE to file rates for a new higher voltage service within the prescribed 90-dry period set by the FPC. The two requests to this effect from Niles and Cuyahoga Falls came well in advance of the final 90 days before commencement of service; both involved a rate at 138 kv (see D-421; and see F/F No. 152). OE was in no position to commit to a precise rate by making a filing so far in advance of the time service wculd be taken (White 9576-77(1-25 & 1); and see D-421).
| |
| However, coatrary to the Licensing Board's conclusion (I.D. at 151-52), the company did in fact communicate ample information to these two municipalities to enable them to make an educated estimate as to what would be the 138 kv rate. Thus, in both m
| |
| letters (D-419 and D-421) and discussions (D-417), OE advised that a "5% savings" would result "under the 138 kv rate", or "* *
| |
| * approximately $66,000 under present load and approximately $82,000 under future loads * * *" (D-417). And, in the same vein, it indicated that OE would employ the same 5% discount it gives to ic
| |
| | |
| ~
| |
| -247-its 138 kv industrial customers for purposes of estimating the new 275/
| |
| municipal rate (White 9576-77(11-25 & 1)).
| |
| F The Licensing Board states that this information was inade-quate because of a difference in OE's industial rates and municipal rates (I.D. at 152). This makes little sense. As the aforesaid documents make clear. OE never indicated to the municipalities that the 138 kv rate would be pegged to OE's industrial rates (and see pp. 258-59, infra). It merely advised that the municipalites could anticipate a 5% rate discount under the 138 kv service similar to the discount available to OE's industrial customers taking at 138 kv. This was clearly adequate for estimating purposes (White 9577-78(19-25 & 1-5)). Nor do we know where the Board derived its concl,usion that Niles and Cuyahoga Falls were unable "to proceed with the construction of high voltage facilities" (I.D. at 152) because they were not afforded sufficient rate information. No evidence is cited to support this assumption and we are not aware of any that could have been. Moreover, as a result of Niles' decision to proceed with the construction of high voltage facili-ties based on information OE made available to it, OE presently 276/
| |
| has on file with the FFC a rate for service at 138 kv.
| |
| 275/ Indeed, in a letter dated December 20, 1970 (D-421), White made specific mention to Duncan of Cuyahoga Falls of the 5% indus-trial discount on 138 kv service and confirmed that OE would study:
| |
| . . . the question of an appropriate rate for such service and design such a rate in light of the conditions as they exist at the time. While the use of the then-effective transmission voltage rate schedule, amended to provide for a 5% discount, now seems the obvious and most likely answer to the question, we believe we should not foreclose the possibility that some other answer will seem more desirable when the question has been studied. .
| |
| 276/ FPC regulations require a utility to file rates for service and the terms on which it will be provided in the next year of i (Continued next page) !
| |
| | |
| -248-OE stands ready to provide this higher voltage service to its munic-ipal wholesale customers when requested to do so. There thus exists no basis whatsoever for antitrust condemnation in this area.
| |
| d l _
| |
| It is readily apparent that the Licensing Board's findings of " refusals to deal" by OE are as infirm as the other portions of 1
| |
| its Initial Decision adverse to OE. At no time has OE refused to i sell wholesile power to its municipal customers; at no time has the company refused a requested interconnection or made unreasonable i_
| |
| demands in interconnection negotiations; at no time has OE declined to provide service to its existing customers at a higher voltage service or failed to communicate adequate information in order to permit a meaningful estimate of the higher-voltage rate. To j the extent the Initial Decision suggests otherwise, it is in error for the reasons stated above.
| |
| : 6. Capacity limitations. The Licensing Board further t found fault with proposals by OE concerning capacity limitations which were made during contract negotiations with Newton Falls (I.D. at 143-46). This finding is particularly curious in light of the irrefutable fact that there is :bsolutely no evidence o' a single instance in which a municipal wholesale customer of OE ha '
| |
| - been, or has any likelihood of being, required by the company to operate under a capacity limitation which prevents it from serving
| |
| ~
| |
| any new load it may wish to serve. Nor is there any evidence that OE was ever requested to modify a provision calling for a capacity limitation and refused to do so.
| |
| 276/ (Cont'd) service. As Wilson explained, 138 kv service to Niles was expected
| |
| _. . to commence during that test year and so the 138 kv service rate was included in the filing of all Ohio Edison rates made to the FPC in May, 1975 (Wilson 11042-43(21-25 & 1-16)).
| |
| ~ - - . , - , .
| |
| | |
| ~
| |
| I
| |
| -249-Newton Falls is a case in point. During the initial stages of its contract negotiations with OE, the city requested approximately 2,500 kva of capacity (Firestone 11199(11-22); -
| |
| S-71); it later increased the capacity requested to 4,000 kva
| |
| - (Firestone 11200 (12-20)). When the city thereafter indicated that it desired a larger commitment froc OE, the , company proposed
| |
| '~
| |
| a limit of 5,000 kva. As explained by Lynn Firestone, Newton Falls could not have utilized more power without overloading its transformer, thereby risking damage to OE's system (id. at 11201 (3-25)). However, because of enhanced cooling provided by electric fans, the capability of the transformer ultimately purchased by the city was 6,250 kva, and this permitted OE to agree to a limit of 6,250 kva (id. at 11201(3-25)).
| |
| This testimony, as well as a number of documents introduced into evidence (A-32, A-229 through A-233; S-71; S-72), demonstrate that the Licensing Board was in error in its conclusion that the Newton Falls' transformer was an "after the fact justification" for the capacity limitation provision.
| |
| Nor is the Licensing Board correct in discounting the
| |
| . need for OE to take the precaution of including in its municipal wholesale contracts a capacity limitation. Such a requirement essentially serves as a notice provision (White 9732(1-13)). If the customer needs or desires capacity in excess of the amount of power he normally would take, his ability to attempt to do so
| |
| - without consulting with, or obtaining permission from, the power !
| |
| supplier could have dire consequences either in terms of an
| |
| ~
| |
| overloaded line or insufficient capacity when the increased load is supplied (see Firestone 11196(2-20)). Either situation could
| |
| | |
| -250-cause an extended outage for other customers of the electric utility (Bingham 8219-22, 8241-44, 8246-47, 8262-65; White 9573-74 (3-25 & 1-21)).
| |
| In this connection, it is instructive to note that the OE-Newton Falls contract that was ultimately executed contains specific language whereby OE will u,ndertake to provide the city capacity in excess of the 6,250 kva limit upon receiving adequate notice to prepare for such load growth (A-34; and see Firestone 11203 (1-16)). Moreover, this " liberalizing" language was 277/
| |
| included at OE's suggestion (Craig 2917 (7-12). This plainly indicates no restrictive or anticompetitive " intent", as the Licensing Board chooses to infer (I.D. at 146). To the contrary, the testimony below continues that "there is absolutely none of that" (Firestone 11196-97(21-25 & 1-3); White 9574 (9-21). The provision in question is essentially no different from the similar capacity limitation requirement contained in OE's retail industrial contracts, and for the same sound reason (Firestone 11195-96(18-25
| |
| & 1-20), White 9572-73(13-25 & 1-20)). No municipality will be hindered or prevented from growth thereby, and any suggestion below to the contrary can only be based on a total misunderstanding of the purpose and effect of a capacity limitation provision.
| |
| Once again, the Licensing Board's flawed analysis cannot be allowed to stand.
| |
| . 7. Price Saueeze. Similarly, the Licensing Board's findings with respect to an alleged price squeeze (I.D. at 153-60) 277/ Similar language also appears in the OE-Niles wholesale power ~ contract (A-216), which also contains a limitation that was similarly arrived at on the basis of the capacity of a specific l piece of equipment -- there, it was a transmission line (A-269).
| |
| l l
| |
| | |
| -251-must be reversed. Based solely on a review of rate tariffs, it
| |
| - was found below that the OE Companies charge municipal wholesale customers "significantly higher rates than comparable sales to 278/
| |
| industry" (I.D. at 153). Thereafter, and without further price or rate analysis, nor any record support, the Licensing Board reached the ultimate conclusion of " price discrimination"
| |
| ,- (I.D. at 154). This approach is necessarily wrong and serves only to highlight the Board's lack of expertise in this rate matter.
| |
| ~
| |
| While the OE Companies may or may not have the burden of establish-ing a cost justification defense (compare I.D. at 159 n. *), the unsubstantiated conclusion that a price difference is inherently
| |
| " discriminatory", effectively relieved the opposition parties of 278/ In making this finding, the Licensing Board relied heav-ily upon D0J's expert witnesses, Messrs. Kampmeier and Wein.
| |
| Yet, neither witness made any sort of cost analysis to arrive at, or even to "erify, his conclusions. Instead, both were content to look at the filed rates charged by the OE Companies to their wholesale municipal customers and to their retail industrial customers and, on that. basis alone, to pronounce that a price squeeze existed (see D-450(Kampmeier) 35; see also Kampmeitr 6028-29(15-25 & 1-24); D-587(Wein) 123; Wein 6959-60(20-25 &
| |
| 1-13), 6973-74(14-25 & 1-13)).
| |
| Furthermore, when pressed on cross-examination, Kampmeier was unable to indicate a rational basis for the various rate schedule comparisons he did make. Thus, fo.c example, even though he believed that OE's wholesale customers would chiefly serve industrial customers with demands under 15 kva (Kampmeier 6004-05
| |
| - (20-25 & 1-2)), he chose to compare the wholesale rate with OE's industrial rate for demands in excess of (rather than be-low) 15 kva (see D-45). Moreover, Kampmeier was unable to ex-plain certain differences in the character of services for vari-ous OE industrial rates (Tampmeier 6003(12-18)); he brushed ,
| |
| this difficulty aside by stating that, whatever it meant, it was unimportant to his rate comparisons (Kampmeier 6003(19-24)).
| |
| Similarly, he compared PP's wholesale rate with an industrial rate requiring service to be taken at greater than 15 kv (see D-452), even though all of PP's wholesale customers take ser-vice at less than 15 kv (Kampmeier 6010-12(7-25, 1-25 & 1-6)).
| |
| All of this indicates that Kampmeier simply picked the least expensive industrial rate to use for comparison purposes, even if that was not the appropriate schedule to use for a valid comparison.
| |
| | |
| -252-l any burden to establish the charge initially, and impermissibly shifted to the OE Companies'the obligation to disprove the existence of a price squeeze. Moreover, the structure of the Initial Decision -- by immediately turning to the OE Companies' defenses -- fully confirms that the Licensing Board did adopt such an erroneous approach to the price squeeze issue.
| |
| ~
| |
| The OE Companies' primary " defense" always has oeen, and continues to be, that our adversaries failed to establish any price discrimination. With respect to the simple rate comparisons
| |
| - made by Messrs. Kampmeier and Wein, James Wilson, OE's chief rate c and valuation engineer, stated categorically that one cannot determine on the face of the wholesale and industrial rates whether or not a price squeeze exists (Wilson 11057-58(25 & 1-12, 21-26); A-166; A-167; A-168; see generally Wilson 11044-78). Yet, that is all that was presented against the OE companies below.
| |
| Even so, OE, not content to rely merely on the inability of the opposition parties to prove a price squeeze, responded with evidence proving the absence of any price squeeze ( A-166; A-167; 279/ *
| |
| ! A-168).
| |
| 279/ The testimony of Wilson, and his accompanying exhibits, demonstrate that, in every instance, a municipality being char-ged OE's wholesale rate can effectively compete on the basis of price for industrial customers, even in the extremely unlikely event that the industrial customer to be served made a 100%
| |
| contribution to the municipality's peak load. The Licensing Board responcs that even if this is true, a price squeeze may eyist if tne rates impose a " limit on the amount of profits they may realize" (I.D. at 157-580). Accepting, for purposes of argument only, that such a standard is appropriate, the Board's position only serves to underscore the infirmity of the evidence i supporting a price squeeze. The opposition parties did not l introduce any evidence on the relative profitability of municipal l systems, or even attempt to show that OE's rates depressed munic-ipal revenues. All they did was compare rate schedules.
| |
| t
| |
| | |
| -253-The Licensing Board, however, appears to have taken the position that, even if a price squeeze is ..ot presently in effect, the potential for one exists because the difference between the wholesale and retail rates has not been proven to be cost justi-fied (I.D. at 159-60). Conveniently ignored, of ccurse, is the evidence introduced below by OE that does in fact show that the
| |
| " differences" were cost justified. A study was conducted under Wilson's supervision, and that study demonstrated that the muni-cipal systems have a greater contribution to OE's peak load than 280/
| |
| do the industrial customers (Wilson 11046-65). Ac c ordingly ,
| |
| l 281/
| |
| there is a greater cost to serve the municipal systems. As a result, if either the FPC or the PUC0 were to set both the muni-cipal wholesale rate and the industrial retail rate, the wholesale rate would be higher for the same level of service (Wilson 11045-47 '
| |
| (21-25, 1-25 & 1-14)). The response of the Licensing Board to this justification for the cost difference between the two rates is a reference to the earlier prepared testimony of Kampmeier, which is said to " squarely dispute" this contention as being
| |
| ; " out- of- da te " (I.D. at 158) But the Kampmeier excerpt cited by the Board shows just how flimsy that testimony is (see D-450 282/
| |
| (Kampmeier 36(9-11)).
| |
| ~
| |
| -280/ The .99 contribution of the municipalities to peak used by Wilson in his testimony was later amended (Tr. 11969-72) to .96 summer and .94 winter. This, however, did not change the conclu-sions reached by Wilson.
| |
| 281/ Wilson's testimony that OE's rates are based on cost of ,
| |
| service and a reasonable rate of return is not disputed (see l Wilson 10997-11004, 11032(6-14), 11045(11-20)). j 1
| |
| 282/ In fact, as a full reading of Kampmeier's testimony (Continued next page)
| |
| | |
| -254-Nor is there any basis to assume that the difference
| |
| '' in wholesale and industrial rates is evidence of anticompeti- ,
| |
| tive motivation. As the Licensing Board found (see I.D. at 1
| |
| 159) and es OE witnesses testified (see White 9635(2-8), Wilson 11045(3-20)), OE does not even look to the present wholesale rate in designing its retail rates. The Board, however, would
| |
| ~
| |
| turn the testimony on its head and find, therefore, that OE does not knew if the rate differencea are cost justified (I.D.
| |
| ! at 159). That, of course, ignores the cost study run by OE for this proceeding. Moreover, it badly misperceives the nature of rate regulation, both at the state and federal level. It assumes that OE has complete control over its rates and has the ability to set those rates in a procompetitive or an anti-competitive manner, and that its failure to examine and minimize the difference in the respective rates was anticompetitive.
| |
| I In fact, OE does not set or establish rates; it designs and proposes rates. At the retail level those rates are established by the PUCO, and at the wholesale level by the FPC (Wilson 10997(10-16); White 9501-02(15-25 & 1-23); see pp. 53-56,
| |
| . 282/ (Cont'd) on this point shows, he was merely theorizing what might be the case; he had not conducted any detailed study as had 3
| |
| Wilson. Thus, his pre-filed testimony cagely states that he
| |
| ,- " understand [s]" that many municipal systems purchasing at wholesale from Applicants to not have their system peak at the time of Applicants' peaks (D-R50(Kampmeier) 36(18-21)). When asked about this on cross-exacination, he conceded that much of this was based on his judgment and opinion and was not fact (Kampmeier 6063(17-22)), that the Cleveland example listed in his testimony was the only system for which he had hourly data, l' and that for the others he was referring to time of year arid l not hourly coincidence (Kampmeier 6063-64(23-25 & 1-11)). His general lack of knowledge in this area is confirmed throughout the rest of that examination (see Kampmeier 60640671 For the Licensing Board to dismiss Wilson's study on the basis of Kamp-meler's conjecture is truly astonishing.
| |
| | |
| -255-supra). To the extent that GE proposes rates to these agencies, those rates are based on cost of service and a reasonable rate of return (Wilson 11045(11-20)). In this regulated environment, any presumption that OE can exact discriminatory rates is simply 283/
| |
| unjustified.
| |
| The Licensing Board's retort .? tha'c there is a " zone of reasonableness" within which rates are set, and that if that zone is too broad "there would be no basis to infer any differences in I the costs of service from the rates approved" (I.D. at 159). Yet,
| |
| , there is no evidence in this proceeding that the zones of OE's rates I
| |
| are in fact broad. This is but a further example of the Board's attempt to shift from the opposition parties to OE the burden e going forward. Moreover, the Supreme Court's recent decision in FPC v Conway Corp., supra, fully recognizes the responsibility of the FPC to consider, in determining wholesale rates within the zone of reasonableness, the competitive implications of those wholesale rates at the retail level (see p. 76 & n.86, supra).
| |
| Even under Conway, however, the OE Companies are not required to consider the competitive impact of their rates. The companies will continue to propose rates as they are individually cost-justified. Accordingly, even without reference to the barren 283/ As is clearly reflected in A-163, A-164 and A-165, the PUC0 does not merely " rubber stamp" OE's application for rate r, increases, but rather examines the proposed rate of return, the rate base, fuel and tax adjustment clauses and similar rate matters.
| |
| The independent action that the PUC0 takes in establishing rates is evidenced by its refusal to accept at various times: OE's proposed fuel adjustment ( A-163), proposed tax adjustment ( A-164),
| |
| proposed rato base ( A-164), proposed method of depreciation ( A-165),
| |
| or its proposed rate of return (A-165). Nor does the PUC0 auto-matically accept its staff's opinions on findings -- as is evidenced throughout these exhibits (Wilson 11025-28; A-163; A-164; A-165).
| |
| | |
| -256-state of the record here, it was grossly inappropriate for the l l
| |
| Licensing Board to undertake its simplistic review of the price i squeeze charge, especially since the FPC is obligated to undertake I a much more sophisticated cost anaylsis which is plainly within i
| |
| 284/
| |
| the particular competence and expertise of that agency.
| |
| : 8. Penn Power's conduct. A final and separate word must be said as to Penn Power. One is left with the clear impres-sion after reading the Initial Decision that, if Penn Power had not been a co-Applicant in this proceeding, no conduct on its own part would have triggered an antitrust hearing (see nn. 6 & 7, supra),
| |
| 1
| |
| '' nor any adverse findings. The Licensing Board was only able to reach the conclusion that Penn Power's behavior could be faulted
| |
| . because it chose to apply broad antitrust theory to carefully selected (and all-too-often impermissibly misshapen) bits of evidence, without taking proper cognizance of the institutional framework of the electric utility industry in the Commonwealth of Pennsylvania. As explained both earlier (see pp. 52-53, supra) and later (see pp. 264-67, infaa) in this Appeal Brief, Pennsylvania ,
| |
| P
| |
| [ is an exclusive franchise state (see 66 P.S. $1121, 1122; and see 53 P.S. $47471), and, as such, both state and local regulat?.on
| |
| ~
| |
| effectively removes the possibility of meaningful competition
| |
| ! between and among electric power systems.
| |
| 1' Recognition of this fundamental fact lays to rest the theoretical notion that the provision in PP's earlier municipal wholesale contracts -- which prohibited the resale of power to 284/ This Appeal Board, in passing on Applicants' stay motion, has itself recognized that the appropriate forum for rate matters is not the Nuclear Regulatory Commission. See Mem0"andum and Order, March 23, 1977, ALAB-385, slip op. at 23
| |
| | |
| -257-PP's customers without prior consent -- was "anticompetitive" or a
| |
| " restraint of trade." The state law of Pennsylvania very explicity allocates electric customers and territories (see 66 P.S. 551121, r 1122, 1141, 1171; 53 P.S. 547471). PP's contracts are, if anything, ameliorative cf these regulatory constraints by allowing wholesale municipal customers to provide the specified service on resale with 285/
| |
| company consent (see pp. 238-40, supra). Accordingly, under a reasoned approacn (see pp. 35-40, supra), the only permissible con-clusion is that PP's contracte suffer no antitrust infirmity. More-over, in view of the company's unilateral decision to eliminato i
| |
| the consent provision from its municipal wholesale contracts (see A-243 through A-247), there is no conceivable basis for concern with this matter in connection with " activities under the nuclear licenses" presently being sought. See Consumers Power Company, supra, 2 N.R.C. at 62.
| |
| i There remains little else for which the Licensing Board I deemed it appropriate to fault PP. The poverty of its price saueeze analysis has already been exposed (see pp. 250-56, supra).
| |
| I Similarly, we have discussed the matters relating to the Pitcairn and Cleveland requests to participate in the CAPCO contractual re-lationships (see pp. 106-13, supra). That leaves only the adverse <
| |
| I 285/ While the Licensing Board makes reference to Ellwood City !
| |
| as an example where PP's consent was requested but not granted (I.D.
| |
| at 142), Luxenberg's personal recollection of comments to this ef-fect, purportedly made by a representative of PP (Luxenberg 6400(10-17)) during contract negotiations, finds no support in the contract provisions finally agreed upon. Nor was Urian able to shed any light on this matter (Urian 5000(10-20)). Moreover, the record shows that PP has explicity agreed that Ellwood City can, at its discretion, serve certain apecified residential and commercial I customers of PP (D-71), and steps are being taken to effectuate the changeover (D-87 through D-89; and see brain 5018, 5017(17)-
| |
| 3018(13)).
| |
| | |
| -258-finding against PP due to its refusal to file a rate for 69 kv service at the request of Ellwocd City. This is equally devoid of merit.
| |
| ! PP did indeed respond negatively to Ellwood City's request, and it di.d so pursuant to the requirement in Section 35.3 of the FPC's Pules of Practice (see pp. 245-47, supra), which clearly states that such a filing not be made more than 90 days prior to the time service at that rate was to commence. Ellwood
| |
| : City's response was to file an FPC complaint challenging this re-g fusal, and the matter was fully litigated in FPC Docket No. E-8159; e
| |
| the orders issued by the FPC are in evidence as D-626 and D-627.
| |
| They show that, while the presiding administrative law judge was
| |
| ~
| |
| of the opinion that Ellwood City was entitled to information by i 286/
| |
| which a high voltage discount r$te could be computed, PP was not required to file a rate pursuant to the formula until 45 days before a municipality was prepared to take service. This resolu-I tion of the controversy was upheld by the full Commission (D-627).
| |
| The Licensing Board showed remarkably little deference i'
| |
| to the expertise or authority of any other agency. Nowhere is this error more significant than in its examination of the compe-titive situation in the PP service area, for if the Board had I shown proper deference to Pennsylvania state law, the ratemaking l
| |
| l 286/ PP has consistently raintained that essentially the same cost information was available to the municipalities after the decision as had been available prior to the hearing. Luxenberg ad-mitted that he was aware this was part of the Company's position.
| |
| (Luxenberg 6429(1)-6430(12)). significantly, at the close of the record no municipality had as yet given PP notice of being ready to take service at 69 kv, and accordingly, the company as of that time still did not have such a rate on file with the FPC (Urian 4980(8-21), 5004(2-16)).
| |
| | |
| -259-decisions of the Pa PUC and the FPC, and to the rules of the FPC concerning rates, there would have been no specific findings of anticompetitive conduct against PP. In light of the foregoing,
| |
| [ the imposition of the far-reaching, ill-considered license condi-tions upon PP is particularly inappropriate. No principle of antitrust law permits the attachment of a penalty in such circum-stances merely because PP is party to a pool arrangement, espe-cially when that arrangement cannot itself be faulted on any legitimate antitrust grounds. In short, the case against PP, always a case made by extension from the conduct of others, should I
| |
| for once be viewed separately, and found to be, as it is, without substance, in every respect.
| |
| : 9. Conclusion. The' issues to be decided by this Ap-peal Board range well beyond the novel and vital legal questions such as nexus, scope of licensed activities, separate treatment I of the Applicants, and the application of per se antitrust stand-ards -- all of which have been hand'edl improperly below. The issues to be decided by this Appeal Board must include as well, the narrow factual questions which were decided by the Licensing Board. The serious deprivation of the due process rights of the OE Companies and the inappropriate and prejudicial way in which the evidence against them was treated in the Initial Decision demand as much. In an advocate's brief, the glossing over of arguments, the treatement of all Applicants as a single entity, the resuscitation of dropped charges, the mischaracterization of l
| |
| the charges against Applicants, and the ignorance of Applicants' l defenses to various charges would be deserving of censure. In an l'
| |
| l Initial Decision by a Licensing Board of this Commission, such practices are deserving of both censure and reversal.
| |
| | |
| -260-DUQUESNE LIGHT
| |
| * The case found by the Licensing Board against Duquesne is most strange, as in Biblical imagery, "seen through a glass darkly."
| |
| It is largely confined to a two-year period, 1966-1968, a decade ago, -
| |
| during which Duquesne is alleged to have dealt in an anticompetitive manner with two very small separate borough electric systems --
| |
| 1 Aspinwall and Pitcairn. It is based almost exclusivJ y upon infer-ences by the Licensing Board as to.the existence of attitudes and states of mind, supposedly perceived in statements in documents of u
| |
| I that era, written in most cases by persons not called as witnesses.
| |
| ; Indeed, the opposition parties called only one live witness, the I
| |
| Solicitor of the Borough of Pitcairn, to support their contentions about Duquesne. The Licensing Board's findings, flowing from un-reasonable and biased interpretations of these stale and ancient documents, were erroneous magnifications, distortions and extrapola-
| |
| :; tions of time-worn trivia in matters which in many cases had been i
| |
| mooted by subsequent events.
| |
| i Nowhere is this better demonstrated than in the Licensing Board's emphasis on the Pitcairn matter. Whatever happened between Duquesne and Pitcairn in 1966-1968, the fact of the matter (con-veniently ignored below) was that the dispute had long since been resolved. It was the subject of a civil antitrust action begun by Pitcairn in 1968 which was subsequently discontinued "with projudice" pursuant to a settlement agreement (S-21). Significantly, the Licens-ing Board did not challenge Duquesne's behavior since then under that settlement agreement. What Duquesne and Pitcairn had long ago put 1
| |
| * Primary responsibility for the preparation of this section was assumed by Duquesne's General Counsel, Reed Smith Shaw & McClay.
| |
| p ._.7 - _
| |
| | |
| -261-aside as amicably resolved, the Licensing Board seized upon with un-seemly relish as an excuse for finding a present or future "inconsis-tent situation."
| |
| Particularly probative of the ephemeral char.acter of the
| |
| ; " case" against Duquesne is the total lack of any relationship between the conditions which the Licensing Board ordered im;>osed upon Duquesne's license and the Board's findings against Duquesne. Tim c,mpany's pur-ported misconduct as found below consisted of but four very discrete
| |
| " refusals": (1) to sell wholesale power, (ii) to grant Pitcairn full
| |
| ; " membership" in CAPCO, or otherwise to " pool" with it, (iii) to grant
| |
| , Cleveland full " membership" 1:1 CAPCO, and (iv) to provide Pitcairn access to Beaver Valley 1. Significantly, there was no finding that Duquesne refused to wheel power, to share reserves, or to sell economy, emergency, or maintenance power (although the Licensing Board did pre-sume to find -- or strongly intimate -- that the rate charged by Duquesne for emergency power under its Pa PUC-approved tariff was t
| |
| too high).
| |
| Notwithstanding the limited nature of the findings against the company, broad license conditions were applied.to Duquesne which had no relationship to its alleged misebnduct. Thus, the Licensing Board ordered Duquesne to do the very things, such as wheel power, sell economy energy, sell maintenance power, etc., which t'he company
| |
| ,282/ The Licensing Board did not require that Duquesne provide access to Beaver Valley 1; it did not require the company to grant Cleveland full " membership" in CAPCO (in truth, the conditions formu-lated below fully recognize the legitimacy of Duquesne's concerns about the effect that Cleveland would have on pool decision-making -- ,
| |
| compare I.D. at 260-61 with D-187, 12); it did not require Duquesne !
| |
| to grant Pitcairn full, or even subordinate, " membership" in CAPCO !
| |
| (even the Board recognized it would be undesirable -- I.D. at 199);
| |
| it did not even require Duquesne to sell wholesale power (which the Board has since confirmed is not necessary in light of Duquesne's present conduct -- see Memorandum of the Board Relating to the City of Cleveland's Motion for Clarification of License Conditions, dated February 3, 1977, at 6 ("L.B. Clarificatic: ")) .
| |
| ! l
| |
| | |
| -262-had neither refused, nor been alleged to have refused, to do. The Board structured its " punishment" not to fit Duquesne's particular
| |
| " crimes", but rather to correct on a broadside basis the antitrust faults that it' deemed (albeit erroneously) to be lurking in the
| |
| ! electric utility industry gener&1ly. The independent status of
| |
| , Duquesne, separate in all respects from the other Applicants, and i
| |
| the special circumstances of Duquesne's operations, were ignored.
| |
| This disregard of the separate identity of Duquesne and, for that matter, of the other Applicant companies, was a most funda-i
| |
| : mental error of the Licensing Board. By its persistent mischaracter-ization of condact by a single company as " Applicants'" conduct, the Licensing Board succeeded in creating the misleading and insidious impression that Duquesne was involved in wrongful activity it had never ever been accused of, let alone shown by the evidence to have engaged in. Such calculated imprecision perhaps explained, but certainly did not excuse, the Licensing Board's erroneous imposition on Duquesne of conditions directed to misconduct apparently found as to some of the other Applicants but not as to Duquesne.
| |
| 288/ For example, the Licensin5 Board persistently reiterated that " Applicants" has entered into territorial or customer allocation agreements (I.D. at 13, 15, 187, 188, 194). The fact of the matter was that Duquesne had never been a party to any such agreement; the Board made no finding otherwise, nor had anyone raised such a conten-tion. Similarly, the Initial Decision speaks generally and very critically of restrictive " conditions" which various Applicant com-
| |
| , panies supposedly placed upon sales by them of wholesale power, as I
| |
| if such " conditions" were imposed by all Applicants, or Applicants as a group, including Duquesne (I.D. at 15, 187, 227, 237). There is no evidence involving Duquesne in such practices, nor any finding below to suggest such a " situation" as to Duquesne. In like fashion the Licensing Board repeatedly involved Duquesne by innuendo in acts purportedly committed by certain of the other Applicants of which there was no evidence that Duquesne had any knowledge, let alone that it was a participant therein (see nn. 14 & 29, supra).
| |
| | |
| 5
| |
| -263-This same willingness of the Licensing Board to lump all the Applicants together as a whole was obviously what enabled it so easily to infer a conspiracy or combination from the evidence before it. At worst; the record below showed no more than that representa-tives of the several Applicants discussed requests, addressed to each
| |
| . of them, of Pitcairn, and later of Cleveland, concerning possible par-ticipation in a contractual relationship with the companies under the CAPCO agreements. There was, however, no evidence that Duquesne, or anyone else, participated in any joint decision concerning these matters. Rather, it is plain that Duquesne made its own independent decision as to how to respond to these requests, and for very sound 1
| |
| and valid reasons (see pp. 294-80 , infra). Yet, the Licensing Board, almost without exception, chose to distort the evidence that Applicants in a collegial fashion discussed and analyzed problems common to them as proof that Duquesne and the other companies agreed conspirator 11y
| |
| ; on joint positions with respect to such problems. This was clear error; to talk together is not to scheme illegally together. Indeed, were the law otherwise, and were a conspiracy established simply on a showing that companies talked together about matters in which all had a legitimate interest, then it would virtually impossible for parties to any pooling arrangement to avoid a determination of being participants in an unlawful combination or conspiracy, with conse-l
| |
| ;t quent vicarious liability. Under such a novel view of the law, few such pooling arrangements would remain alive for very long.
| |
| The Licensing Board also obviously labored under another fundamental misconception with respect to Duquesne. This was its persistent and erroneous belief that there was a relevant product market as to which Duquesne was or had been in competition with any
| |
| | |
| -264-
| |
| " entity" in any relevant geographic market. The thrust of the find-ings made by the Licensing Board against Duquesne was that the com-pany somehow behaved in an anticompetitive fashion with respect to two municipal electric systems in its service area, with the effect i
| |
| of limiting or eliminating the " competition" presented by those systems (see I.D. at 92 n.*, 105-06). The premise essential to such a conclusion -- i.e., that such systems were or could be in competi-tion with Duquesne -- was erroneous. That error destroys the essen- ,
| |
| tial basis for the Licensing Board's conclusions as to Duquesne's
| |
| " anti-competitive" conduct.
| |
| r This is because the Commonwealth of Pennsylvania does not allow competition in the electric utility industry. Pennsylvania is an exclusive franchise state (66 Purdon's Statutes $51121, 1122; and 53 P.S. 547471). Thus, Duquesne has a defined service area in which it provides electricity to recall customers (66 P.S. $1121;
| |
| , and see Retail Electric Suppliers Territorial Act [Act. No. 57, t
| |
| July 30, 1975, 15 P.S. 553277 et sec.]; S-157, Appendix M, pp. 2-3).
| |
| The company is under an affirmative duty to serve all customers located within that designated area under filed tariffs, and it may not discriminate within or among classes of customers in its rates or service. These rates and conditions of service are regu-lated by the Pa PUC (66 P.S. $91141, 1144, 1171 and 1172). No
| |
| :l other utility, whether privately or' publicly owned, may enter Duquesne's approved territory to serve at retail without permission of the Pa PUC (66 P.S. $$1121, 1122). Nor may Duquesne intrude on anothe:$'s approved territory except under the same procedure. More-over, without first obtaining the consent of local authorities,
| |
| | |
| -265-Duquesne may not cerve at retail in any borough of Pennsylvania which is providing electric service to its residents (53 P.S. 547471).
| |
| As a result of this pervasive regulatory structure Duquesne does not now, and has not at any time in the past, " competed" for customers with any other entity, including particularly the Boroughs of Pitcairn and Aspinwall. Nor can it be said that it has ever had, let alone exercised, monopoly power -- i.e., the ability to control prices or exclude competition (see pp. 85-97, suora).
| |
| As affirmed in Painter v. Pa. PUC, 194 Pa. Super. 558, 551, 169 A.2d 113, 115 (1961):
| |
| In the matter of the public supply of water, electricity and other public utilities this Com-mission has from the beginning adopted and pur-sued a policy whereby unnecessary and useless com-petition should be prevented.
| |
| To this end, the Pa PUC has directed utilities to avoid competitive situations of any nature since competition would place an unreason-l able burden on these utilities' customers and would not be in the 269/ State law recognizes the exclusive right of each borough in Pennsylvania to serve its own community, free from regulatory controls by the Pa PUC (66 P.S. $1141, 1171). As a result, such municipal systems have, in a very real sense, absolute and unregu-lated monopoly power within their municipal boundaries. However, if Duquesne is already providing electric service within a muni-cipality, it can be ousted only by the.Pa PUC and, before the municipality could take over Duquesne's facilities, the Pa PUC would have to determine if such action were in the public interest. 66 P.S.
| |
| $1122.
| |
| 290/ The Licensing Board, for an unexplained reason, seemed to find it ominously significant that Duquesne " relied" upon Pennsyl-vania law to " avoid competition" (I.D. at 13, 187). Such a state-ment demonstrates how completely the Board failed to understand Pennsylvania regulation of electric public utilities. Duquesne, simply put, has no ability under Pennsylvania law to compete for customers because Pennsylvania (not Duquesne) has decided that such competition is not in the public interest. Duquesne did not " rely" on the Public Utility Code; it obeyed it.
| |
| | |
| -266- ,
| |
| , public interost. It has even refused to permit one utility to take over service to a customer of another utility, despite a request by the customer for such a change and a showing that the rates of the new utility would be lower, precisel.y because such competition is inimical to the public interest and must be avoided.
| |
| Koppers Company v. North Penn Gas Company, 42 Pa. PUC Rep. 730 (1966); Manufacturer's Heat & Light Company v. Peoples Natural Gas Company, 39 Pa. PUC Rep. 440 (1962) (attached hereto as Exhibit C).
| |
| The Licensing Board inferentially conceded that there is no direct retail competition in Pennsylvania (I.D. at 187 n."), but advanced as a basis for its evaluation of the effect of Duquesne's actions that there was at least some possibility of potential or
| |
| " yardstick" competition offered oy the municipal systems (see I.D.
| |
| at 92-93 n. * , 187 n. * , 226 n. * ) . Such a view rested on pure specula-tion, and not on any legitimate evidentiary support. There was no evidence below indicating that the Pa PUC used, or uses, a "com-parative rate" approach, as opposed to the normal and customary
| |
| " cost of service" approach, in fixing Duquesne's rates to its cus-tomers (see pp. 53-55, supra). No showing was made that any borough rates were lower than Duquesne's rates and could provide a yardstick effect. Moreover, the Board's concept of potential competition was 291/ It was not probative admissible evidence, but the only record reference the Licensing Board could find to even mention in support of its theory was an observation by John O' Nan, a Duquesne Light employee, in a speech to a committee of the trade industry group, the Edison Electric Institute, that the price paid by Duquesne for the Aspinwall system was justified economically by the load diversity and growth potential of Aspinwall's electrical customer load (see I.D. at 92-93 & n.*, discussing D-321). With perverse perception the Licensing Board misinterpreted the reference to growth potential as an acknowledgment by Duquesne of a competitive
| |
| ; threat from that Aspinuall growth potential, rather than the obvious and straight-forward meaning of a possible future expansion of demand from the former Aspinwall customers when served by Duquesne.
| |
| | |
| -267-totally inconsistent with the exclusive service territories estab-11shed in Pennsylvania, from which an electric utility such as Duquesne can be ousted only by the Pa PUC-(and not by any method of competition). See, e.g., Koppers Company v. North Penn Gas Company, supra.
| |
| Furthermore, the situation the Licensing Board purported to find did not demonstrate legally cognizable potential competition.
| |
| There was no finding below that any municipality in Duquesne's ser-vice territory had the " inclination, resources and kncw-how to enter" the electric utility retail market (see United States v. Penn-Olin Chemical Co., 378 U.S. 158, 174 (1964)). That is, of course, the applicable legal standard, as even the Licensing Board seemed to recognize-(I.D. at 226 n. *). Plainly, however, in view of the strong
| |
| ~
| |
| constraints presented by the regulatory and statutory framework in Pennsylvania, there was no valid basis for postulating potential com-petition between Duquesne and municipals in its service territory and, hence, no anticompetitive effect to be inferred from Duquesne's dealings with such municipals.
| |
| The Licensing Board's unwillingness in this and every other respect to accept the economic and institutional realities of the Pennsylvania marketplace was in no small part "esponsible for its tortured findings concerning Duquesne's supposed trans-gressions some ten years ago. In this state at least, the legis-lature has declared in resounding terms that the public interest will not be best served by trusting competition to accomplish here what " competition does in other sectors of the economy" (Hawaiian Telephone Co. v. FCC, supra, 498 F.2d at 477). Blind allegiance to antitrust theory was thus wholly inappropriate as a measure of the conduct of Duquesne in its dealings with Aspinwall and Pitcairn.
| |
| | |
| -268-The Licensing Board's efforts to make the Duquesne dealings with these two boroughs violative of the Sherman Act was an exercise in attempting to fit the proverbial square peg into a round hole. It was factually and legally untenable.
| |
| : 1. The Aspinwall and Pitcairn matters. The bulk of the findings against Duquesne concerned its relations a decade ago (1966-1968) with the Boroughs of Pitcairn and, to a lesser extent, Aspinwall. At that time, both boroughs maintained a municipal electric system, the largest of which (Pitcairn's system) had a peak load of less than 1.7 mw and generating units ranging in size from 1.3 mw to 0 3 mw. By careful extraction of bits and pieces from outdated documents, the Licensing Board, with more cleverness than perception, attempted to construct the picture of En investor-owned utility selectively refusing to provide bulk power services to two " competing" municipal entities in an effort to drive them out of business and to force a sale of their systems. The Licensing Board's consistent interpretation of every word, phrase and sentence in these old and often ambiguous or cryptic textual materials in a manner hostile to Duquesne gives rise to real concern about its apparent bias against Duquesne. After all, Duquesne did not have the burden of proof -- but the company surely was treated as if it
| |
| !: did.
| |
| l -
| |
| Moreover, without zuch a hostile attitude toward Duquesne, the finding never could have been made that the company's conduct in 1966, 1967 and 1968 required the imposition now of license con-ditions to prevent the creation or maintenance of an inconsistent situation by activities under the subject nuclear licenses. The
| |
| ~
| |
| record below contained not a scintilla of evidence of impropriety
| |
| | |
| -269-by Duquesne over the past six years, during which time the company has been selling full requirements wholesale power to the Borough of Pitcairn on a continuous basis and under FPC filed rates (see S-21; S-22; S-23; and see Gilfillan 8433-34 (1-4, 21-25 & 1-4);
| |
| see also McCabe 1659 (16-20). Consequent.ly, Ducuesne's conduct in this regard cannot be the basis for imposing license conditions.
| |
| Indeed, as the Licensing Board itself indicated, the evidence does not permit a finding that Duquesne will refuse to sell wholesale power, End the Board felt no need to include such an obligation as an element of its relief. See L. B. clarification at 6.
| |
| Thus, the Licensing Board's preoccupation with a stale, indeed moot, dispute between Duquesne and Pitcairn that was settled by the parties many years ago was unwarranted. This is particularly true since the controversy was, at bottom, nothing more than a pricing dispute which involved no antitrust violation, notwithstand-ing the Licensing Board's intimations to the contrary (I.D. at 104).
| |
| Pitcairn was concerned in 1966, and the immediately following years, with obtaining back-up service for its own operation (see S-17, pp.
| |
| 1, 5). Borough officials thus approached Duquesne about a possible
| |
| " emergency interconnection" (D-1; and see A-114) for the principal purpose of protecting the Pitcairn electric system against a " double contingency outage" (McCabe 1719(16-22)). While several alternative power arrangements were proposed by Pitcairn (McCabe 1634(4-16)),
| |
| the record below made it clear that all of them -- whether framed in terms of a power exchange, purchase of base load power or some means of obtaining backup services -- were advanced with a single
| |
| : j. objective in mind: "* *
| |
| * to attempt to resolve Pitcairn's problem" l (McCabe 1825(19)) in the event of an unforeseeable elmergency situa-tion on its system (McCabe 1824(2-22)).
| |
| | |
| - 270 -
| |
| The response by Duquesne was not a matter of dispute.
| |
| The company did, indeed, decline to enter into any sort of whole-
| |
| ~
| |
| sale. power arrangement with the borough which would have required Duquesne to sell to the municipality' energy for general resale
| |
| _( see, e.g., S-13; S-14; S-16; S-18). However, as the referenced r documents indicated (and no one testified to the contrary), this response was given because Duquesne was not at that time in the business of selling wholesale power, had no filed rate for such a transaction, and was not receptive to initiating this new service just for Pitcairn -- a service which the company was not then, and l had never provided to other electric entities in or near its gen-eral service area. At the same time, Duquesne advised Pitcairn that it was willing to provide energy to Pitcairn in emergency situations under its filed " Rate M" emergency power schedule (S-16; S-18; S-19; D-203; and see S-13). The service offered was ad-j mittedly sufficient to resolve the problems which were of concern to the borough (McCabe 1642(1-5), 4202-03 (21-25 & 1-27)).
| |
| 292/ Such a response does not conflict with any antitrust princi-ple. Pitcairn had always generated its own power, operating in l
| |
| isolation (McCabe 1634(4-9)), and had never before looked to Duquesne for bulk power purchases. Duquesne's position with regard to the u matter of wholesale power sales was thus not one of discontinuing .
| |
| or terminating a " service previously provided." Compare Otter Tail v United States, supra. Nor was it one of denying to Pitcairn a 4
| |
| , service it provided to other electric systems. In this latter regard, it is important to note that Pitcairn was not requesting (as indeed it could not) that Duquesne enter into a bulk power interchange arrangement with.the company such as Duquesne had with other investor-owned utilities. Arrangements of this sort contemplated an exchange of power when and as needed to supplement a shortage.of generating capacity on one or another of the contracting party's system. This is far different from the Pitcairn proposal of a sale of wholesale power.for general resale, without any element of reciprocity-in-kind and without regard to the immediate needs of the purchasing system (see Gilfillan 8439(18-22), 8478-79(24-25 & 1-4)). Indeed, the FPC has explicitly recognized the difference between Duquesne's
| |
| . wholesale-sales transactions and its interchange transactions, which are separately reported by the company. See,e.E., S-163 (Duquesne's
| |
| :~ . 1973 Annual ~ Report to the FPC),at 412-13 (" Sales-for Resale") and at 424-24a (" Summary of Interchange")).
| |
| t a ..
| |
| | |
| r
| |
| - 271 -
| |
| i The Borough Solicitor indicated, though, that the com-pany's offer was unsatisfactory because it was "too expensive" (McCabe 1826(9-20)). It was this dispute over pricing which lay at the heart.of the controversy some 10 years ago. However, the fact that the Borough of Pitcairn might have considered this rate to be inflated imposed no antitrust. obligation on Duquesne to amend voluntarily its tariff downward. . Business Aides, Inc. v.
| |
| Chesapeake & Potomac Telephone Co., 480 F.2d 754 (4th Cir. 1973).
| |
| Pitesirn had a remedy under Pennsylvania law which provided a speci-fic procedure in the circumstances of such dissatisfaction for going before the Pa PUC and obtaining a re-examination of the questioned rate. See 66 P.S. 551149 The fact that Pitcairn failed to avail itself of that remedy hardly justified a finding some 10 years 1 ster that Duquesne's adherence to " Rate M" in the late 1960's (but not since 1971) was an antitrust violation, much less one contin-uing to the present.
| |
| No more justified was the Licensing Board's finding that Duquesne refused to sell wholesale power to the Borough of Aspinwall in order to force tne Borough to sell its system, and thereby i
| |
| eliminate " competition". Here, too, the Board engaged in the art-ful exercise of creating large shadows from small tidbits in old documents. The Aspinwall request for a wholesale power purchase did not even come until late 1965 (D-168; and see D-170), at a time 293/ Symptomatic of the Licensing Board's practice of using very loose and broad generalizations without factual basis is its reference in F/F Nos. 96 and 97 to " municipal electric systems, including Pitcairn and Aspinwall" as a basis for inferring anti-competitive conduct by Duquesne. In point of fact, there is not a single shred of evidence as to any such municipal electric systems or municipal entities aside from Pitcairn and Aspinwall.
| |
| 6
| |
| | |
| r i
| |
| - 272 -
| |
| when the Borough's facilities had deteriorated to a point where a sale of the system was under active consideration by borough offi-cials (see A-265; and see A-120). Duquesne was not then in the business of selling wholesale power to any entity (see, e.g., D-169; D-255; and see n. 295, infra), and it so advised Aspinwall (D-173; and see D-174, D-201). No one testified that Duquesne's refusal in this regard was motifated by a desire to eliminate Aspinwall; no one testified that Aspinwall's decision to sell its system to Duquesne was substantially (or even marginally) the product of Duquesne's refusal to sell wholesale power; nor did the Licensing Board cite any record reference to support its statement that Duquesne's action caused Aspinwall's sale (see I.D. at 104-05). On the other hand, there was ample credible evidence that Aspinwall sold its system because the facilities had not been properly main-4 tained due to the fact that system revenues had been diverted to l
| |
| general municipal needs rather than being used for system support (A-120 at pp. 5, 14-15, 16, 22, 30, 31; Flynn 12327-28(24-25 & 1-4);
| |
| Sedlak 12325-26(18-25 & 1-10). Continued ownership would have re-quired a considerable capital investment to rehabilitate and then maintain the equipment (A-120 at pp. 11, 5, 20-23), and thus would have been more a burden than a benefit. Consequently, the sale of the system was recommended to the Borough by the Pennsylvania Economy League (see A-120), a non-profit, municipal-service corpora-tion of unquestioned integrity, which had been independently retained by the municipality to conduct a study of its system (A-265).294/
| |
| 294/ The Licensing Board's self-serving afterthought that the Economy League's views can be discounted because of " institutional bias" and " thinness" of electrical expertise (L.B. Stay Order at 15-
| |
| : 16) seems uncalled for and irresponsibly hostile to Duquesne. In point of fact, the League had retained an experienced electrical
| |
| .: (Continued next page)
| |
| !L
| |
| -, _ , . . , . y-. - . ,
| |
| | |
| i~
| |
| 3 -273-In contrast with this unchallenged direct evidence, the Aspinwall case against Duquesne was but a flimsy fabric woven from remarks lifted from Mr. O' Nan's speech to the Edison Electric Institute on problems in buying municipal systems and strung together by nothing more than hostile inferences as to the signi-fp ficance of ambiguous language in internal memoranda by Duquesne officers concerning discussions with Aspinwall about sale of the deteriorated system. It is worthy of special note that each of the officers in question appeared as Duquesne witnesses and were asked no questions which produced concessions or admissions consistent with, or in any way supportive of, the Board's strained interpreta-tion of statements written a decade ago as somehow indicative of predatory, anticompetitive conduct.
| |
| In light of the unfortunate and inexcusable decay of the
| |
| : i. Aspinwall system, and the undisputed fact that borough inhabitants were receiving electricity prior to 1966 at a municipal rate well above the comparable rate being charged to Duquesne's customers at that time (A-120, at 35), Duquesne's acquisition some 10 years ago was decidedly in the "public interest." That this was the case was underscored by the Pa PUC and the FPC approvals of the purchase (see A-262 and A-263). The Licensing Board's effort to characterize 294/ (Cont'd) engineer to advise it on the Aspinwall study (Sedlak 12312), a fact l'" which no one controverted. As for the institutional bias charge, the " substantial contributions" from Duquesne, emphasized by the Board as the principal foundation for the bias charge, amounted to j- less than 3% of the League's total annual contributions and was merely one of hundreds of contributions received each year (Sedlak 12329-30 (12-16 & 1-19), 12352(1-9); and see D-629; D-630). Moreover, there was affirmative and uncontradicted evidence on the record that Duquesne did not in any way influence the findings or recommenda-l_ tions contained in~the Aspinwall study (Sedlak 12319(1-6, 13-22), 123.45
| |
| '(17-24), 12329-30(24 & 1-6); Flynn 12320(2-3)). At the hearing, the Chairman of the Licensing Board specially noticed the credibility of Mesens. Sedlak and Flynn (Tr. 12401), the authors of the report and the' witnesses who testified about the state of the Aspinwall electric.
| |
| system and the fiscal affairs of the municipality.
| |
| | |
| r-
| |
| [ -274-1 thiF as a " situation" demonstrating exercise of " monopoly power"
| |
| 'lNr Duquesne to exclude " competition" was truly perverse (see pp.
| |
| 85-97 , supra). The existing market structure in Pennsylvania --
| |
| .which explicitly recognized the exclusivity of service areas --
| |
| negates such a conclusion. Plainly, even if Aspinwall had been physically and financially capable of " competing" with Duquesne 3
| |
| (which it was not -- see A-120), it could not have done so under the state law. Accordingly, this dredged-up claim of bygone years provides no basis for finding in Duquesne's conduct improper activity under the antitrust laws.
| |
| ~
| |
| : 2. Pitcairn's Interest in the CAPCO Pool. The response by Duquesne to Pitcairn's expression of interest in participating in the contractual relations under the CAPCO agreements is similarly not suspect. We have heretofore discussed Pitcairn's December 5, 225/- It is to be remembered that, at the time in question, Duquesne was serving its customers pursuant to a filed rate, one part of which -- specifically Rule 18 -- precluded purchases for resale (S-211, at 118286; cf. Fleger 8632-33(21-25 & 1-25)). The Pa PUC, in approving that tariff provision after a full hearing, explicitly found that it had not been motivated "by any intention to discriminate improperly or to achieve an improper objective."
| |
| See Pennsylvania Public Utility Commission v. Ducuesne Light Co.,
| |
| 42 Pa. PUC Rep. 706 (1966) (see A-264j. As Mr. Gilfillan testi-fled, at that time "Duquesne was in the business of selling power at retail." Its rates were designed to provide service to the
| |
| " ultimate consumer".(Gilfillan 8426(7-9)). Its disinterest in these circums..nces in entering into a wholly new transaction with
| |
| _ Aspinwall which contemplated sales of power for general resale is not to be faulted. Even accepting the fact that Duquesne was
| |
| , interested in purchasing the failing municipal system (D-321) once it was brought to the attention of Duquesne that the community was considering a sale of its electric system (D-168), the antitrust laws do not require one company to launch into an entirely new ll line of business to rescue another company which is unable, or more t- to the point unwilling, to take steps necessary to survive on its
| |
| , own (see Shenefield, supra, 16 Antitrust Bull. at 698) -- and this is especially so in a natural monopoly structure such as exists in
| |
| :. the electric utility industry in the Commonwealth of Pennsylvania.
| |
| , See Lamb Enterprises, Inc. v. Toledo Blade Co., supra, 461 F.2d at 514-15
| |
| : j. -
| |
| I 1 - . ---. -
| |
| | |
| -275-1967 request to each of the companies to discuss the possibility of CAPCO participation (see pp. 107-109 & n. 128,. supra). The Board's description of Duquesne's dealings with Pitcairn in this connection unreasonably misstated what actually happened and impermissibly ex-trapolated an antitrust inconsistency misstatements.
| |
| ~
| |
| Contrary to the Licensing Board's intimations that Pit-cairn made a serious and meaningful request for membership in CAPCO (I.D. at 195-200), Pitcairn requested only to engage in " preliminary" discussions with Duquesne on this matter (see S-1; S-12; and compare A-58; A-59), but at no time asked for " membership". Such explora-tory discussions were held (S-17; and see McCabe 1839(2-6)), after which Mr. McCabe indicated he would check with his consulting en-gineer and then " advise [Duquesne] whether or not he [the engineer]
| |
| feels we should meet * *
| |
| * again" (A-4, p. 2). Pitcairn, not Duquesne, thereafter failed to pursue the matter further, and thus the question of the borough's " membership" in the CAPCO pool was never broached by Pitcairn. In any event, Pitcairn's participa-tion in the CAPCO arrangement would have been " impractical" in light of the size and capability of its system -- as Duquesne advised the Borough Solicitor on a number of occasions (see S-6; A-5; S-17, pp.
| |
| 3-6; and see Fleger 8623-24, 8637(19-23); Dempler 8667-69, 8671-74, 8684, 8838), as the other CAPCO companies independently concluded 296/ The Licensing Board attempted to lay Pitcairn's lack of follow-up at Duquesne's feet (I.D. at 200). However, reliance on McCabe'c testimony in 1975 is highly suspect ~, since the testimony is contradicted by McCabe's own contemporaneous letters in 1968. For example, on February 29, 1968 (8 days after the meeting with Duquesne),
| |
| McCabe wr6te'TECO indicating he did not want to meet with TECO representatives at that time because he wanted to complete his
| |
| " preliminary" discussions with Duquesne first (A-58); see also McCabe 4230(11-22)). Clearly, at that. time, he did not regard the matter as closed. It was only after a passage of more than 7 years that Duquesne's " preliminary" discussions with Pitcairn became trans-mogrified at tne hearing below into an " adamant" stance (McCabe 1725 (14-19)) purportedly justifying Pitcairn's silence thereafter.
| |
| | |
| -276-
| |
| _ (S-7; S-9 and S-10), as Pitcairn's own consulting engineer recog-nized (A-13, pp. 11, 14), as the NRC Staff's and DOJ's expert witnesses in this proceedings, Drs. Hughes and Wein, readily ac-knowledged (see Hughes 3807-08(24-25 & 1-10); Wein 7129(11-18)),
| |
| and finally, as even the Licensing Board made clear in formulating
| |
| . its license conditions (I.D. at 259, license condition 4).297/
| |
| Despite all this, the Board nevertheless found that Duquesne's " refusal" of Pitcairn's request, whatever it was and however impractical, was unreasonable and anticompetitive in the fashion in.which it was effected. (I.D. at 199 n.*). In the truest meaning of the phrase, such a finding elevated form over substance.
| |
| Nowhere did the Board suggest any authority for the proposition that poor manners create a violation of the antitrust laws (see pp. 106-07, supra). Indeed, it wns not even clear what was meant by the cryptic J
| |
| expression.
| |
| If the Licensing Board's reference was premised on an erroneous assumption that some sort of impermissible joint action was involved, there was absolutely no record support to give 297/ The Board also seemed to find significant that Duquesne re-fused to " interconnect" with Pitcairn (I.D. at 95-102). Duquesne cannot determine whether the Board meant by this merely that Duquesne refused to sell power to Pitcairn for general resale. If so, then the question has been discussed e'arlier. If the Board meant by
| |
| " interconnection" a mutual supoort and pooling-type of arrangement between Duquesne and Pitcairn, then its analysis and findings were unquestionably faulty. As the record made clear, such an arrange-ment involved the same complexities and infirmities as participa-tion by Pitcairn in CAPCO and was " impractical" for the same reasons (Dempler 8673-79; A-3, p. 14). Under such circumstances,
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| ,_ Duquesne's behavior was not unreasonable, nor anticompetitive.
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| -277-credence to such a " conspiracy" theory (see pp. 112-13 , supra).
| |
| There was a good business reason to reject Pitcairn's request for CAPCO pool participation because of incongruity in size (see pp.
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| 106-09, supra). No evidence was offered below that even remotely suggested that the responses to Pitcairn were motivated by any other reason. The evil significance which the Licensing Board attached to the " similarity" of the several companies' responses on this matter hardly formed a sound basis for inferring an unlaw-ful combination. What was said in those letters was true, and no one, including the Licensing Board, suggested otherwise. Reitera-
| |
| ~
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| tion of truth in similar words surely does not establish an illegal combination in restraint of trade (see n. 129, supra).
| |
| 3 Duquesne's dealings with the City of Cleveland. The Board'a view of Duquesne's response to Cleveland's request for CAPCO " membership" also seemed to be more concerned with form than substance. No one really controverted that Duquesne had sound reasons for writing to Cleveland on December 10, 1973 (D-187) as it did, suggesting many possible problems and no benefit to Duquesne from Cleveland's participation in the pool (and see Arthur 8378-79, 8382-83). Once again, as in the case of Pitcairn, the Board's 296/ The Board apparently placed great emphasis on the co-called
| |
| " consensus" footnote contained in S-12 as evidence of a combination
| |
| (! or conspiracy (see I.D. at 197-98).- The letter in question was an offer by Duquesne to meet with Pitcairn and discuss pool participa-tion. The other companies made similar offers (see A-53; A-57; A-60).
| |
| A consensus on that point was hardly evidence of a collective denial of membership.
| |
| 299/ Although the Licensing Board asserted that John Arthur, Chairman of the Board of Duquesne, could not support the conten-tions in the letter and conceded that he lacked relevant information (I.D. at 203 n.*), examination of the referenced testimony discloses that Mr. Arthur amply supported the " contentions", and made no such concession in any.important respect.
| |
| | |
| -278-discussion in the Initial Decision was concerned with the manner of Duquesne's actions vis-a-vis Cleveland, not the substance.
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| Cleveland was not at any level, in 'any product market, a competitor of Duquesne. There was no finding by the Board, nor even any allegation by the opposition parties, that Duquesne ever competed with Cleveland in any market anywhere. Indeed, Cleveland is physically separated from Duquesne by 160 miles, a state border, and the electrical systems of at least two utility companies.
| |
| Cleveland never asked Duquesne to sell power to it, or to wheel power for it. Duquesne had no competitive interest or " situation" that would be furthered by hindering Cleveland's competitive capa-d bility.
| |
| To reach the conclusion that Duquesne's actions were part of an anticompetitive combination is particularly offensive to the facts, and this shines through the Board's rather patent jumbling of the surrounding circumstances in its unfair and illogical attempt to create a contrary impression (see also pp. 145-51, supra). There was a meeting of the CAPCO company executives on December 7,1973, to discuss the common problem raised by Cleveland's request, and the minutes of that meeting show there was no agreement as te collec-tive action (D-104). To the contrary, each company was to reach 300/ The Licensing Board based a finding to the contrary on
| |
| ~
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| deposition testimony of Karl Rudolph of CEI. Mr. Rudolph's personal perception.over a year and a half later of the circumstances sur-rounding the Cleveland requests for membership are simply wrong, as the evidence below conclusively demonstrates. Nor does his indi-vidual view of the matter have any relevance to Duquesne, which undeniably took separate and independent action as reflected in its December 10, 1973 letter. This is further reflected in the testi-mony below of John Arthur, which is wholly consistent with the minutes of the December 7,1973 meeting ( Arthur 8346(20-23), 8351 (12-18)), and his testimony was'not challenged on cross-examination, nor rebutted thereafter.
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| -279-its own decision independently regarding what response should be made to Cleveland by that company (id.). Duquesne sent a letter from Pittsburgh on December 10, 1973 to Cleveland; that, clearly,
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| - was the only action it took, and the letter spoke only for Duquesne (D-187). It was not in fact a refusal of the Cleveland request; it was not the product of any combination, conspiracy or joint agreement; and no fair reading of the record will support any such conclusion.
| |
| The Board quite obviously applied an erroneous legal standard in finding an unlawful combination or conspiracy with refer-ence to Cleveland's request. For example, it stated (I.D. at 202):
| |
| Nor does the fact that each Applicant individually may have wished to reject Cleveland for its own reasons overcome a finding that Applicants combined to resist the entry of any municipal, including Cleveland, to CAPCO.
| |
| However, under the law, such a finding is " overcome" by evidence of
| |
| ; independent conduct grounded on a sound business justification.
| |
| Duquesne had perfectly valid engineering and economic reasons, not L really contested by any evidence below, for not wishing to include Cleveland in the CAPCO centractual relations (see pp. 109-11, sudra).
| |
| Tnese reasons were sufficient unto themselves and not dependent upon 301/ The Licensing Board's contrary conclusion rests largely on the fact that Lee Howley of CEI purportedly indicated at a later
| |
| , meeting with Cleveland that the Duquesne letter accurately reflected
| |
| 'l the views of the other CAPCO companies (I.D. at 208-09). Tne per-sonal perceptien of that individual (D-291, p. 18), however, in no way contradicts the evidence of record that there was no prior de-cision reached jointly by the CAPCO companies on Cleveland's "mem-bership" requests. To the contrary, Mr. Howley's statement more reclistically represented his understandable opinion that the senti-ments ab^out C'.eveland's negative contribution to the pool expressed by Duquesne ought to be, or perhaps were, shared by the other pool participants. This but underscores the accepted principle that
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| "[rjeasonable businessmen will act similarly when presented with the same problem" (Independent Iron Works v. United States Steel Coro., supra, 177 F. Supp. at 747).
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| | |
| - 280 -
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| tha actions of the other companiee. Under such circumstances, the existence of a "whole variety of non-conspiratorial motives involv-ing "the exercise of business judgment as to the unattractiveness" of making Cleveland (or Pitcairn) participants in the CAPCO pool, precluded a finding of the requisite purpose, or effect, for a Sec-tion 1 violation. First National Bank v. Cities Service, supra, 391 U.S.'at 277; Dahl, Inc. v. Roy Cooper Co., supra, 448 F.2d at 19; Modern Home Institute, Inc. v. Hartford Accident & Indemnity Co.,
| |
| supra, 513 F.2d at 111.
| |
| : 4. Nuclear Access. The Licensing Board's only other finding against Duquesne is that the company refused a request by Pitcairn for nuclear access (I.D. at 103-04, 225-26). This, too, exemplifies the Gilbert and Sullivan-like quality of the Board's findings against Duquesne, each a " thing of shreds and patches."
| |
| Here, the underpinning was nothing more than a few lines in the notes of the February 21, 1968 meeting between Duquesne and Pitcairn con-vened to discuss preliminarily possible Borough participation in CAPCO (S-17, pp. 5-6). The Licensing Board erroneously concludec that a casual cocment during that meeting by McCabe, Pitcairn's Solicitor, that Fitcairn's needs for power would be satisfied if it took a part of the " Beaver Valley unit", constituted a request
| |
| ; for access to a nuclear facility which was thereafter supposedly L!
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| refused by Duquesne.302/
| |
| In point of fact, this alleged " request" was but an aspect of Pitcairn's discussions about CAPCO (S-17). As Mr. Dempler's 302/ The reference could only have been, considering the date of the remark, to Beaver Valley 1, since the time was years ' fore application was made for Beaver Valley 2.
| |
| l l
| |
| t
| |
| | |
| r
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| -281-recorded remarks showsd (id. at 5-6), Duquesne did not understand McCabe's passing comment to be a specific request for access to a particular unit. Its response was patently reasonable given the nature-of the meeting and the brevity of the discussion about f
| |
| Beaver Valley. Indeed, far from intending to raise a separate question of nuclear access, McCabe testified that he did not even kn,ow (either then or at the time of his appearance below) that Beaver Valley was a nuclear unit (McCabe 1638(9-11), 1840(2-5)).
| |
| Th2 Licensing Board's mischaracterization of this brief
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| ,I i colloquy as a refusal for nuclear access is both unfair and un-warranted. Duquesne is, of course, affirmatively committed to a i
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| policy of granting nuclear access to the subject facilities upon the request by Pitcairn, either on an ownership or a unit power purchase basis (see A-44; and see pp. 129-34, supra). Furthermore, as a full requirements wholesale customer of the company since 1 1971, Pitcairn will necessarily be accorded access to these plants once they come on line, irrespective of whether the Borough exer-cises either of the two aforesaid options (see pp. 127-28, supra).
| |
| -i, Regrettably, the Licensing Board' engaged in injudicious speculation l
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| ! in inferring that this passing colloquy in 1968 created any con-tinuing situation which could possibly be maintained by activities under the subject-licenses. Certainly that passing reference to i
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| ff Beaver Valley 1 is an insufficient predicate on which to tie any of the other " suspect" conduct of the company to the Perry and Davis-Besse facilities.
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| 101/. Although the Licensing Board referred to Duquesne's December 10, 1973 letter to Cleveland as another refusal of nuclear
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| , access by Duquesne, the text of that letter makes it abundantly l l clear that the Licensing Board was in error. Cleveland did not make i a request for nuclear access to Duquesne except in the context of becoming a full participant in the CAPCO pooling arrangement (see D-185; A-61), and it is in that context that Duquesne made its response on December 10, 1973 CD-187), i
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| | |
| -282-Nor was there any other legitimate basis on which to find a nexus between Duquesne's conduct some ten years ago and activities under the licenses for the nuclear units involved here.
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| r Clearly, there is no justification to condition Duquesne's separ-ate ownership share in these facilities because of some " situation" for which other Applicants alone may have been responsible (if, indeed, such a finding can survive this appeal) and over which Duquesne had no control.
| |
| 5 Conclusion. It is clear from the above discussion that the Licensing Boarc erroneously imposed conditions on the licenses for Duquesne's ownership share of the units in this proceedf.ng, since there is no situation inconsistent with the antitrust laws involving Duquesne. The conditions also create problems which should be of substantial concern to this Appeal Board. The condi-tions will burden Duquesne and its rate payers and will jeopardize the continued operation and desirability of pooling arrangements, all for the sake of furthering and protecting a concept of "com-petition" in a context to which it is foreign. Indeed, as framed
| |
| 't et below, license conditions 5, 6, & 7 could arguably lead to the absurd result that Duquesne could be held responsible for the fail-ure of another Applicant, unbeknownst to Duquesne, to sell mainten-ance power, emergency power, or ecohomy energy to an entity no-where near Duquesne's service area (see Part V, infra). It seems
| |
| : l. extraordinary that Duquesne should incur the risk of suspension or revocation of its license because of the refusal by another com-i pany, over whom Duquesne has no control, to sell power to an entity far removed from Duquesne's service area. -
| |
| l l
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| -283-
| |
| [ Equally distressing is that the license conditions
| |
| ,_ threaten seriously to disrupt the regulatory framework established in Pennsylvania. For example, because of the imprecision of the Board's definition of " entity", it is conceivable that retail cus-tomers of an Applicant could demand that other companies sell power to them and further demand that Applicant wheel the power to them.
| |
| Thus, the Licensing Board's conditions would artificially create competition at the retail level among investor-owned electric utilities in Pennsylvania where none had been permitted or contem-plated under state law; this clearly interferes with the valid and long-accepted public policy of Pennsylvania. No sound reason exists for this Appeal Board to adopt such relief.
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| V. Relief It should now be apparent that the Licensing Board erred 4
| |
| both in law and in fact in concluding that " issuance of licenses for the [ Davis-Besse and Perry] nuclear units * *
| |
| * without appropriate license conditions will lead to the creation and maintenance of the t
| |
| proscribed situation inconsistent with the antitrust laws" (I.D. at t 264). Since the record below is insufficient to sustain an affirma-tive finding under Section 105c(5), no license conditions are needed.
| |
| -Certainly, none so sweeping and generalized as the conditions framed by the Board to have uniform application to all Applicants indis-criminately, irrespective of the separate findings made against each of them,is warranted (see I.D. at 255-64). Moreover, even if the Initial Decision had not been so flawed analytically:, and the record below not treated with such abuse, the relief formulated by the Licensing Board would, in any event, be inappropriate in this case.
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| | |
| 7
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| - 284-It suffers three major defects: (i) the conditions are not in the
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| ~ )
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| public interest; (ii) no effort has been made to tailor relief to the separate situation (s) found to exist as to each individual !
| |
| c
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| ; Applicant; and (iii) the remedy in many respects goes well beyond the jurisdictional authority of this Commission. In a word, the Licensing Board performed as irresponsibly under Section ,105c(6) f as it did under Section 105c(5).
| |
| 1 A. FAILURE TO EVALUATE THE PUBLIC INTEREST
| |
| 'l We have heretofore discussed tie error arising from the failure of the Licensing Board to consider as part of its antitrust evaluation the " broad policy issu'e" of what sort of market structure and behavior best serves the public interest in the particular context priesented (see pp. 29-40, supra). Quite apart from that "public interest" assessment, however, Section
| |
| ;j 105c directs this Commission to undertake yet another "public interest" evaluation at the relief stage. This second evaluation (unlike the earlier one), is not normally within the province cf an antitrust forum to undertake.
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| However, Section 105c(6) of the Atomic Energy Act explicitly directs that, following an adverse t
| |
| finding under Section 105c(5), "the Commission shall also censider
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| * *
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| * such other, factors, including the need for power in the affected areas, as the Commission in its judgment deems necessary to protect the public interest". The language and structure of lL L
| |
| Section 105c make it clear that the public interest determination l
| |
| under (6) concern 3 factors not bearing on antitrust policy or competition -- which are to be weighed in the balance under (5) --
| |
| but, rather, "such other factors" as might reasonably influence u ..
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| y + y w - ,-- -- y. e -y, y.
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| r-
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| -285- l I
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| the Commission's ultimate obligation to protect the best interests of the public at large. Cf. United States v Radio Corporation of America, supra, 358 U.S. at 350-352.
| |
| i Whatever the parties' differences may be as to the need to conduct a public interest analysis in connection with the findings under Section 105c(5), there appears to be no dispute as to the extra dimension involved in fashionin*g an appropriate remedy under Section 105c(6). See Toledo Edison Co. (Davis-Besse Nuclea*. Power Station, Units 1, 2, & 3) and Cleveland Electric Illurinating Co. (Perry Nuclear Plant, Units 1 & 2), ALAB-385, slip. op. at 22 (March 23, 1977). While it would not normally be expected that this additional consideration would override an adverse antitrust finding (see H.R. Rep. No. 1470, 91st Cong., 2d .
| |
| Sess. 31, reprinted in [1970] U.S. Code Cong. & Ad. News 4981, 5012), it seems equally clear that "harmoniz[ation of] both anti-trust and * *
| |
| * other public interest considerations" (id.) could well require the modification in appropriate circumstances of relief that might otherwise be considered necessary. If this were not the case, the two-step procedure established by Congress would serve little purpose and be nothing more than an idle gesttre.
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| The decision below provides no indication that the Licensing Board recognized the standard under which relief was to be formulated, let alone applied that standard in a meaningful manner (compare I.D. at 254). Certainly, no findings were made to reflect whether "other factors" influenc d, or failed to influence, the relief eventually framed by the Board. The application of a wrong legal standard -- cc at least the failure to indicate that
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| -286-the proper legal standard was used -- and the omission of material findings explicitly required by the statutory language of Section 304/
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| 105c(6), constitute error (see pp. 137-39, supra). Had the Li-censing Board followed the prescribed course, there are at least three extrinsic considerations which would have militated against l certain aspects of the relief ordered in the license conditions below. See also pp. 282-83, supra.
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| First, the Board would not have been able to take so cavalier an approach to the matter of nuclear access (license condition 9) if it had framed the antitrust relief in the careful manner contemplated by Congress in Section 105c(6). As formulated below, a requesting entity, irrespective of its size or need, can obtain up to 10% of the capacity of the Davis-Besse and Perry units and up to 20% from any future unit. These arbitrary percentages bear no conceivable relationship to the load of such an entity.
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| They are manifestly discriminatory in that they allow the first requesting entity to " capture" the full percentage entitlement of any particular unit, even though such an amount would obviously be 1
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| in excess of that entity's actual and projected needs (see L.B.
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| Stay Order at 20-21). Hoarding of this sort effectively deprives other non-Applicant CCCT entities from obtaining access to the plant except by dealing with the first requesting entity as an 304/ Both at the close of the hearing (see Tr. 12689-700) and in our post-hearing submission (see Applicants' Supporting Brief at 692-93), we urged that Applicants be given the opportunity to address separately the question of remedy if it should be determined that there exis,ts one or more inconsistent situations. It made most sense to Applicants that detailed comments on the propriety or impropriety of suggested relief could only be'made after the situation was defined. The Licensing Board denied this request.
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| Not having afforded Applicants a meaningful opportunity to comaent i on relief, it is little wonder that essential parts of the relief l question were omitted by the Licensing Board.
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| r -
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| -287-artificial and unnecessary " middleman" for dispensing nuclear generation (sse pp. 66-67, supra). This possibility not only undermines the desired objective of accomplishing an efficient allocation of resources, it also suggests the very real possibil-ity that this percentage entitlement of nuclear power, which was planned to serve customers in the CCCT, may be distributed to
| |
| : remote areas without ever reaching other CCCT entities. Such a prospect is not presented, of course, if each non-Applicant entity has equal opportunity, as afforded in A-44, to deal directly with the planning, constructing and operating companies of the nuclear facility, i.e,., the Applicants, rather than operating on a "first come, first served" basis.
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| Moreover, the Board's arbitrary percentage formula is likely to hav iverso impact on reliability even if none of L the power is uxported out of the CCCT. Though an inexact science, h
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| Applicants have planned these nuclear facilities to meet the load
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| } of each company plus provide an adequate amount for reserves; hope-fully, the units will provide no more nor no less than the optimum L amount of capacity. Included within that load are projections provided by each company's wholesale customers which cover all t
| |
| municipal systems in the CCCT but the Orrville system (see n.21,
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| 'i '
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| i supra). Thus, if a municipal entity were to request more than its baseload needs, there would, by definition, be a capacity shortage somewhere else in the CCCT. Even if the requesting entity obligated L itself to sell any excess back to the Applicant (i.e., a right of first refusal), or to dispatch the capacity itself to meet loads elsewhere, replacing a single entity by two entities to undertake x
| |
| | |
| r
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| -288-such responsibilities, will necessarily degrade, reliability (see n.135, supra).
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| Applicants could either allow this degradation to occur, or they could compensate by committing additional generation in
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| (
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| order to bring the area-wide reliability up to an acceptable level. In the latter case, of course, the area as a whole will have lost the full benefits of Applicants' scale economies in
| |
| [
| |
| order to accommodate the needs ofiless than optimally-sized non-Applicant entities (see p. 116, supra) -- and solely because of a misperceived possibility for increased competition that is not likely to occur (see pp. 56-71, supra). This hardly suggests relief that has as one of its touchstones the protection of the public interest.
| |
| The Licensing Board compounds these prob'dm 5y failing to include any limitation on the exportation of nuclear power outside of the CCCT, notwithstandi?.g its recognition of the desirability of restricting participation in the subject units to
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| [
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| entities within the CCCT. As nuclear power is e:: ported, the reliability of electric service in the area is osviously degraded even further. The Board's off-hand response to this concern is the unexplained comment that it " anticipate [s]" that most of the j requested nuclear power will be used in the CCCS" (L.B. Stay Order 305/
| |
| at 23). However, in view of the fact that a equesting entity 305/ If the Licensing' Board expects that most of the power will not be exported, we are at a loss to understand why a condition was not drafted to ensure that result. In this connection, it should be noted that Applicants are not attempting to frustrate the ability of non-Applicant entities to coordinate with systems other than Applicants, if that is what they really desire. Where (Continued next page)
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| -289-need not, under the cedered license conditions, be held to reason-able amounts of nuclear ~ power w1ich bear scme relation to its baseload requirements, a more realistic expectation would seem to be that CCCT entities will endeavor to export power from the subject plants to remote areas where the recipients' current wholesale power rates exceed the cost of the subject nuclear power, and then require Applicants to provide to the exporting entity its full load by way of a wholesale power sale, since each Applicant's wholesale rate is below the cost of nuclear power (see pp. 127-28, supra). Once again, encouraging this sort of result is contrary to the public interest.
| |
| A further infirmity exists in the two-year period which the Board arbitrarily selected as the time within which entities can request access to the nuclear facilities. This condition further increases the uncertainties associated with capacity plan-ning, and needlessly enhances the likalihood that carefully formulated plans will be thrown askew by late requests. There is nothing in the record which indicates that non-Applicant entities need two years after the date a license application is filed to make a firm commitment for nuclear power (see n.180, supra). On the contrary, the existence of new nuclear projects is generally known well in advance of the date on which an application ie officially submitted. We can think of no legitimate interest to be served by adding as an additional complication to the difficult 305/ (Cont'd) a truly reciprocal transaction is contemplated, so that the exportation of power would not represent a permanent loss of capacity and energy to the CCCT, Applicants have no objection.
| |
| But, at a minimum, the license conditions should have limited i
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| exports of nuclear power to situations where a return of like
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| ( power is assured.
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| l l
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| -290- ,
| |
| task already confronting Applicants in planning their systems on a one-system basis, the open invitation to CCCT entities to defer committing to nuclear access for the extended period contemplated in the Licensing Board's conditions.
| |
| Second, if the public interest had been properly evaluated below at the relief stage, the wheeling concept included in the conditions (license condition 3) would necessarily have been treated in a different manner, assuming arguendo, that is, that general wheeling was a proper element of relief in this context (see pp. 295-96, infra). While the Licensing Board's " wheeling" condition includes the customary savings clause that transmission use "will not jeopardize Applicants' system", this protection is then taken away by the novel requirement that the transmission capacity among Applicants must be reduced by up to 5% in order to accommodate wheeling requests of non-Applicant entities. We do not know what misunderstanding of electric utility operations served to suggest this condition, but it clearly undermines what-ever objective's the Licensing Board thought it was furthering. A percentage reduction of this sort cannot help but degrade the reliability of Applica.2ts' systems, and in so doing, it will similarly degrade the entire interconnected transmission network.
| |
| As a result, the reliability of the'non-Applicant systems will also be adversely affected, and in all likelihood Applicants will not be able to provide the very wheeling services that precipi-306/
| |
| tated the situation in the first place. In addition, the 5%
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| 306/ It is simply impossible to trace the flow of electricity.
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| Thus, as a practical matter, Applicants cannot direct a flow of energy to a particular load center. By way of example, assume 50 (Continued next page)
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| -291-reduction requirement imposes substantial planning problems on the Applicants. For example, transmission to DL of DL power from a DL-owned, coal-fired station in Ohio, such as Sammis 7, may have to be reduced because another Applicant is required to reduce transmission services to DL pursuant to the license conditions.
| |
| This new contingency, never before evaluated by DL, will now have to be part of the DL planning process. As a result, the Licensing Board has greatly increased the disadvantages associated with any pooling or coordination arrangement and made such arrangements, however desirable in the public interest, much less likely.
| |
| The Board's " wheeling" condition also obligates Appli-cants to undertake transmission construction that may ultimately net be used, resulting in a waste of Applicants' resources and an impairment of the environment. Inis is because the Licensing Board has required Applicants to make reasonable provision for
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| " disclosed" trar,smission requirements upon receiving from a requesting entity " reasonable advance notification of future 306/ (Cont'd) mw of power was to be wheeled from Richmond, Indiana, to Cleveland on a day when CEI was scheduled to deliver 325 mw to OE (i.e.,
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| OE's entitlement in Eastlake 5). If transmission was insufficient to effect these transactions, the license conditions would require a 5% reduction in transmission from CEI to OE (i.e., 16.25 mw) .
| |
| However, of the 50 mw of power scheduled to be incoming from Richmond, some of that would inevitsbly flow to OE load centers to make up for the 16.25 mw reduction in power from Eastlake 5. The capacity of the transmission grid on any single day is a constant.
| |
| All entities connected to that grid must function within that capacity limitation. It is just not possible to pick one system out and " allocate" to it a part of the transmission caoacity. The testimony of William Bingham, although not specifically addressed j to this particular set of circumstances, confirms such a resulv i (see e.g., Bingham 8203-05, 8209-10, 8211, 8214-22, 8225-26, )
| |
| 8240-56, 8260-65). Yet the Licensing Board has proceeded to frame ;
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| l- relief under the misguided notion that such " allocations" are possible.
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| F
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| -292-requirements". But that entity apparently need not make any firm commitment in advance to use or pay for the transmission once it is constructed. To require Applicants to undertake to plan and build new lines on the basis of such a tenuous notification requirement actually contradicts the very public interest consider-ation against needless and wasteful duplication of facilities that is one of the sustaining forces underlying government regulation in both Ohio and Pennsylvania (see pp. 50-53, succa).
| |
| Third, had the Licensing Board framed its relief with due regard for other public interest factors, it could not have settled on the reserve sharing formula set forth in the conditions 307/
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| (license conditions 4c & 8). We have previously noted why sharing reserves on an equal percent basis does not guarantee mutuality and, therefore, is likely to be discriminatory in effect (see pp. 118-19, suora). By requiring equal percent reserves, the Licensing Board has forced Applicants' customers to underwrite part of the total cost of electric service to the customers of non-Applicant systems. No legitimate public interest is served by imposing by fiat a requirement that 95% of the retail customers in the CCCT (see F/F No. 5(c)) subsidize the remaining 5% who fortui-tously take service from a municipal electric system.
| |
| 307/ One of the more startling aspects of the Board's license conditions is the " adjustment period" for non-Applicant CCCT entities of 12 years with respect to a changeover from an equal percent reserve calculation to the P/N technique (license condi-tion 4c). There is no record support for this requirement.
| |
| Certainly, Applicants' " adjustment period" (but see pp. 119-20, supra), was not 12 years or anything approaching that figure.
| |
| Yet, the Board arbitrarily works its magic to pull from thin air the dozen years as being a necessar'y " adjustment period". Here, again, sound logic seem? to have given way to unthinking con-jecture.
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| | |
| r
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| -293-B. FAILURE TO TAILOR THE LICENSE CONDITIONS TO THE SEPARATE SITUATIONS FOUND TO EXIST FOR EACH APPLICANT One of the Applicants' consistent themes throughout this Appeal Brief has been the Licensing Board's inexcusable failure to recognize the individuality and separateness of each Applicant (see pp. ?4-25, suora). This error is particularly obvious in terms of the relief formulated below. Thus , while the Board found distinct and separate " inconsistent situations" to be present in each Applicant's service areas, it framed e. single set of conditions to be applied uniformally to all Applicants. No attempt was made to tailor the license conditions to fit the particular inconsistencies that were found to be in need of cure.
| |
| In fact, Applicants thought it appropriate, and so advised the Licensing Board (see Applicants' Supporting Brief at 696-97), that license conditions, if necessary, should be drafted separately for each Applicant. As now formulated, however, a number of the conditions apparently create joint and several liability among the Applicants (see license conditions 2, 5, 6 &
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| 308/
| |
| 7). This is in many respects an absurd result. For example, contrary to the inference one might draw from the language of the conditions, Applicants do not make sales of electric energy as a group (see n. 116, supra). Rather, sales are made only by 308/ For example, if one of the Applicants should fail to sell emergency power to a requesting municipality in its service area, as required by the conditions, it is arguable that any or all of the other Applicants might somehow be found responsible. Although we do not know what the sanction would be, it seems extraordinary any of the Applicants should incur the risk of suspension or revocation of its license because of the refusal by one of them, l without knowledge of the others and over whom the others have no control, to sell power to an entity located in its service area and never served by the others.
| |
| | |
| . ~ . . _ . _ _ _ _
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| -294-individual companies, and the price for the energy sold is estab-lished by that company's costs. A requirement that " Applicants" sell power is therefore indeterminate both as to the seller and as to the rate to be charged for the sale. Such practical infirmities in the license conditions could have been avoided if the Licensing Board had taken the' time and made the effort to tailor its relief with particularity to the separate inconsistencies it found to exist.
| |
| C. FAILURE TO DESIGN RELIEF THAT DOES NOT EXCEED THE JURISDICTIO!!AL AUTHORITY OF THE COMMISSION The relief ordered by the Licensing Board suffers from one further defect: it is not confined to participation in, and operating arrangments of, the Davis-Besse and Perry nuclear facili-ties. It therefore exceeds the jurisdictional authority of the Commission. As earlier noted (see pp. 134-37, supra), the scope of antitrust review delegated to this Commission "has in-herent boundaries" (Waterford II, supra, 6 A.E.C. at 620). "It does not authorize an unlimited inquiry into all alleged anticompe-titive practices in the utility industry" (id.). If Congress did not confer on this agency broad review responsibilities, perforce, it did not intend the Commission to overreach the legitimate bounds of its jurisdiction at the remedy stage either.
| |
| _ However, a number of the license conditions ordered below [
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| l bear not the slightest relationship to the subject nuclear facili-ties. This is particularly surprising since the Licensing Board itself recognized that relief "must focus upon providing access to power from the nuclear units # #
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| * without restraint [on :se] and
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| _ with the ava.ilability of necessary bulk power service alternatives" r
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| | |
| -295-309/
| |
| (I.D. at 255). One wbuld have thus assumed that the services Applicants are required to offer would be tied to the announced entitlement to nuclear access. That is not what the Licensing Board chose to do. Instead, entities are entitled to new and additional interconnections and may request wheeling services, maintenance power, emergency power, economy energy, and reserve .
| |
| t sharing without ever committing to, or participating in, the Davis-Besse and Perry facilities. Such relief is unquestionably i
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| 310/
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| beyond the jurisdiction of this Commission to order.
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| Moreover, even if all these other services had been made available just to entities seeking to participate in nuclear generation, there should.also have been an explicit limitation on the use of those services only to the extent necessary to make the 4
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| 309/ The language of the Licensing Board is characteristically ambiguous. The reference to "necessary bulk power service alterna-tives" could mean either those services necessary for meaningful access to the nuclear plants or those services which would provide alternatives to nuclear participation, i.e., other large-scale baseload generation, general third-party wheeling, etc. If the Licensing Board had this-latter interpretation in mind, the remedial authority of the Commission is essentially unlimited.
| |
| Under such an approach, the Board could have, as well, required i-access to Applicants' coal-fired generating units. This, we believe, would have been an obvious overreaching of jurisdictional f authority. Nor do we perceive any conceptual difference between 4 ordering access to coal-fired facilities and requiring Applicante to wheel baseload, hyarcelectric power, for example. Yet, the Licensing Board apparently saw fit to require the later as an element of its license conditions.
| |
| !i j
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| 310/ In. comparison, Applicants' policy commitments (A-44) are carefully drawn so that most of the same services are fully availabit$ to requesting entities if they also are participating in the nuclear facilities. Thus, a "pt rticipating entity" (see A-44,
| |
| : p. 2) may request an interconnection (id., commitments 2(a) &
| |
| (b)), and receive over that interconneition maintenance power (id. -
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| commitment 2(a)(ii)) and emergency power (id.), or at its option have such power wheeled from a non-Applicant source (id., commit- >
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| ment 2(a)(iii)). In sddition, Applicants are committed to sharing reserves with a participating entity (id., commitment 3).
| |
| | |
| i e
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| -296-nuclear access meaningful. In this regard, we can perceive no rationale for imposing a general third-party wheeling requirement, or unlimited obligations to provide maintenance power and emergency power, or any requirement that economy interchange be provided.
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| Such services, over and above what is necessary for nuclear access, are simply beyond the remedial reach of Section 105c.
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| This is especially true with respect to the Licensing Board's order that " membership in CAPC0" be afferded to an entity or group of entities with a system capability of 10 mw or greater (license conditions 4(a) & (b)), and that access be offered to all future nuclear units constructed within the next 25 years (license condition 9). The condition with respect to CAPCO ignores cll the evidence of record that the full benefits of coordination c. and are passed through to smaller entities it; a more efficient manner 312/
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| by means other than power pooling (see pp. 104-05, supra).
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| ]
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| 311/ Again, A-44 provides that services in addition to nuclear access will be those necessary "to carry load up to an amount equal to the participating entity's share of participation power" (see A-44, commitment 2(a)(ii)), i.e. , those services necessary
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| !, to " firm up" the nuclear power.
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| i (12/ In addition, the notion that an entity can effectively participate in the CAPCO contractual arrangements m2 rely because
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| ~
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| it possesses 10 mw of generating capability is contrary to the ;
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| record in this proceeding (see pp. 102-11, supra). Without knowing what the entity's or getup of entities' load is, the 10 n
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| ,, mw figure is meaningless. For example, the Licensing Eccrd '.irte WCOE as the type of group suitable for collective membership.
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| Yet, of the. nineteen member systems,. seventeen are full require- ,
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| ments wholesaid customers of OE, and an additional member (Newton !
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| ,_ Falls) is soon scheduled to become a full requirements customer.
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| Thus, with a 1975 projected peak load of 198 mw (S-44, table !
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| III-2)~, the WCOE members have less than 19 mw of net capability (id., table IV-1). How such a group could participste in the CAPCO multiparty contracts,which assume that all parties not only j have enough self-generation to meet their own load but also have ,
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| L oxcess generation to contribute to the pool's common reserves, is '
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| l- beyond comprehension. -
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| l
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| | |
| -297-Moreover, as the facts surrounding Cleveland's request for nuclear access make clear (see pp. 145-50, suora), participation in nuclear generation can usually be accommodated more efficiently through bilateral arrangements tailored specifically to the individual circumstances presented by each case, rather than by use of the. preexisting, complex CAPCO multiparty contracts.
| |
| As to future nuclear units, by imposing a condition on as yet unapplied-for nuclear facilities, the Licensing Board has denied to Applicants their statutory right to an antitrust hearing on future applications before license conditions are ordered. In i
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| effect, the Licensing Board has ruled that it is now in a position to predetermine, without knowing what the circumstances might be
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| ~
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| during the next 25 years, that unless access is offered in future units, the licensing of those future units would either create or maintain a situation inconsistent with the antitrust laws. Certainly, there is nothing in the record compiled below which indicates that such relief is necessary to ensure against the creation or mainten-ance of a situation inconsistent with the antitrust laws as a result of the licensing of the Davis-Besse and Perry facilities (particularly in light of Applicants' affirmative policy of nuclear accesc set forth in A-44) . To leap to any other conclusion and prejudge the need for antitrust relief as to futura nuclear plaats defeats the very purpose for which Congre'ss enactedsSection 105c
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| - of the Atomic Energy Act. This Appeal Board should not allow the authority delegated to the Commission in this area to be so flagrantly abused.
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| | |
| -298-VI. Conclusion For all of the foregoing reasons, Applicants submit that the antitrust inquiry below should have been resolved in Applicants' favor and that the Licensing Board's Initial Decision to the contrary must be reversed in its entirety, including , -
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| 313/ i a removal of the license conditions set forth therein.
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| We urge this result having carefully reviewed Professor Turner's law journal article discussed during oral argument before
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| ~
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| 314/
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| this Appeal Board on Applicants' stay motion. A reading of that article but confirms Applicants' frustrations with the decision rendered below. Professor Turner clearly recognizes that "[s]ome departures from competitive policy have been plainly justifiable if not inveitable" in " markets where economies of size will produce monopoly or extremely high concentration" (82 Harv. L. Rev. at 1208).
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| His conclusion in very straightforward: "The forced imposition af a competitive structure in such situations would be a costly and idle gesture" (id.). In this context, he perceives the crucial question to be: "when, as a matter of economic fact, these considera-tions really apply, and to what extent they really require 311/ Applicants also respectfully request that the reprimand issued by the Licensing Beard (I.D. at 245) be vacated; it was, we believe, wholly unwarranted and, in the circumstances, not a proper exercise of authority by the Board.
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| 314/ See Turner, The Scone of Antitrust and Other Economic Regulatory Policies, 82 Harv. L. Rev. 1207 (1969).
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| i' V
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| 299-substantial interference with a policy of relying on and promoting 315/
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| competition" (id.). Applicants do not quarrel with that thesis.
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| Our frustration arises because it seems clear to us that, as a
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| , matter of legal analysis and fact finding, the Licensing Board failed to approach antitrust review in this proceeding on any such basis. The error is manifest.
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| In closing, we would alert the Appeal Board, just as we alerted the Licensing Board (see App 7icants' Supporting Brief at 698), that, in passing on our appeal, this panel could, if it I
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| so desired and without any adverse finding under Section 105c, order that the Davis-Besse and Perry licenses be conditioned in the manner set forth in Applicants' Proposed License Conditions (see Tr. 8335-36). Applicants have so stipulated on this record
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| ;l
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| !L 315/ Within this context one of the issues discussed by Professor Turner was "whether a firm may be held to have unlawfully monopo-lized a market simply by obtaining and retaining monopoly power over a sustained * *
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| * period of time * * #" (82 Harv. L. Rev.
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| 1217). Without reaching the merits of that question in a market
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| , structure wholly different than that presented here, and assuming i arguendo that Applicants have long possessed " monopoly power" (but see pp. 85-97, supra), we are in full accord with Professor
| |
| ; Turner's position that, even if such conduct were to be viewed as l monopolization generally, no such conclusion could be reached in
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| " cases where the firm's size is attributable solely to economies of -
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| scale ee e" (id.; see also 80 Harv. L. Rev. at 1220, 1221, 1235). -
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| The record here clearly shows that it is the economies of scale and the technology of this natural monopoly industry that require and sustain large, vertically and horizontally integrated utilities like Applicants (see pp. 44-50, supra). Indeed, individually Applicants have not yet exhausted all scale economies; it was for that reason that they joined together to form the CAPCO pool.
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| --wa--- - - - y .wyg -w y- y ---
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| mm
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| -300-and tully intend in any event to operate these units in accordance with their stated policy commitments in A-44.
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| Respectfully submitted, SHAW, PITTMAN, POTTS & TROWBRIDGE k _ a 4 __ .- A Ym. BradTord Reynolds
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| - _ _ . , la .
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| Robert E. Zahler Counsel for Applicants Of Counsel:
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| SQUIRE, SANDERS & DEMPSEY FULLER, HENRY, H0DGE
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| & SNYDER
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| , REED SMITH SHAW & McCLAY WINTHROP, STIMSON, PUTNAM
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| & ROBERTS Dated: April 14, 1977 4
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| - - + _ - -
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| w , ,-,w- ,
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| | |
| k EXHIBIT A
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| 'I l
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| 1 FILED ,
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| THE UNITED STATES DISTifICT COURhg 'd J 2i Ill''l'l 4 THE NORTHERN DISTRICT OF OHIO g g.t[.s. g gtfog ,
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| EASTERN DIVISION ,
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| - I t
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| CITY OF CLEVELAND, ) CIVIL ACTION NO. C75-560
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| )
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| Plaintiff ) i
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| )
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| : v. )
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| l
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| * )
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| 4 CLEVELAND ELECTRIC ILLUMINATING )
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| COMPANY, et al., )
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| )
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| Defendants ) MEMORANDUM AND ORDER _
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| KRUPANSKY, J.
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| On August 4, 1976, the Court granted judgment to defendant Cleveland Electric .iluminating Company (CEI) on f g
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| I
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| * I Counts 2 and 3 of its Second Counterclaim. The entry of judgment in the amount of $9,525,067.50 plus' interest, was filed on September 21, 1976. Thereafter, on October 21, 1976, plaintiff filed its Notice of Appeal of the Order granting judgment.
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| Presently before the Court is the Motion of CEI for Mandatory Order to Pay Judgment, and two Applications for Orders in Aid of Execution on the judgment heretofore ordered. Plaintiff has filed a Motion for Stay of Execution without supersedeas b'ond. Defendant CEI opposes this latter Motion.
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| A hearing was conducted on February 1, 1977 to entertain oral argument on the foregoing motions and to ,
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| devise a schedule of orderly proceedings directed toward the ,
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| i I s.
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| e s I i
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| .i .
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| - f .
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| l
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| 1 i I
| |
| I
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| )ultimateresolutionoftheissuespresentEdbythecurreat
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| .i f pleadings. The schedule was formalized by an Order dat. l i
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| 1 Pursuant thereto, plaintiff was to pre.
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| j February 2, 1977
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| ', pare and present to the Cours, in writing, by not later than I k
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| * February 16, 1977, a definitive attainable proposal to i :
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| u immediately liquidate its accrued indebtedness to defendant CEI, and insure its future payments for electric energy ,
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| I l supplied by CEI via the 138 KV interconnection. Production j
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| ! of financial statements and the proposal was ordered to I
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| assist the Court in the resolution of pending motions i
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| ' presently befo,re it. I l
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| The submitted proposal is little more than a l restatement of the City's arguments presented at the ,
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| I February 1 hearing, incorporating the reports developed by i'
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| Crestp, McCqrmick & Pagent, Inc., and R. W. Beck and Asso- l ciates, the management and engineering censulting firms i f
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| d inder!..aently retair.sd by the legislative and executive ;
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| branches of the municipality respectively, to evaluate the-physical assets of the City's Municipal Electric Light Plant (MELP) and its past, present and future operation. It embodies no affirmative action. The proposal is a calculated l t ;
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| % effort in ambiguity that evades decisive action and is
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| }
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| designed to avoid a commitment by the City and MELP to a l j definitive statement or a plan to satisfy the outstanding I I
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| : Judgment -- in complete disregard of the Ccurt's Order dated i
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| l February 2, 1977. Orderly and effective judicial process toleratss, and this Court expects, ncthing lers than absolute ccapliance with the Court's orders. Accordinglys the sub-mitted proposal is rejected.
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| ~
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| .i
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| * i e
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| i l
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| f i l
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| l
| |
| | |
| 5 l .
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| I
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| {
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| 1 i
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| w i The parties to this action are reminded that a
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| ?
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| tribunal is not a forum for political debate -- consequently, the Court will not take cognizance of, nor entertain, in the i I I present posture of this case, the voluntary sale of MELP by i t
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| 5the City. That political debate is reserved to the decision b i
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| $ j jof the appropriate ~anches of city government. It should i not, however, be c luded that the involuntary disposition of MELP assets thrcadh orderly court process incidental to I legal and equitable relief traditionally available to R judgment creditors against financially distressed proprietary ,
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| t l interests is inconceivable as an ultimate result of this i l action.
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| : Implicit to these proceedings are more critical !'
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| I l issues,namely: the financial integrity of the City and its [
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| i immediate and futtre ability to respond to a judnient l . { i lmandatingthepaymentof 89.525,067.50, plus interest, and , j I l g
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| l the continuing confiscation of privste property without due process of law and without just compensation therefor, in contravention of the Constitution of the United States.
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| It is suggested that the City's representatives at i all levels of the executive and legislative branches of its f I
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| i government, knowledgeably, with a full and complete under-i I standing of the City's financial resources and other opera- l tive facts unique to this proceeding, responsibly and !
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| I i i im=ediately address themselves to the formulation of an i economically attainable pronosal, as previously ordered by I this Court; ever mindful that their action or inaction may bear significantly upon the future financial course of the.
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| City government. The Court cannot overly emphasize the , j
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| .t ,
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| i I
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| e 9
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| l
| |
| | |
| . l b
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| sense of urgency attending the implementation of its Order 8
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| , mandating a fiscally responsible response anchored not in f futu*e, unrealistic, and improbable contingencies, but
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| !ratherinpresentlyattainableresdits.
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| The proposal ordered herein shall be all-inclusive, ,
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| l E incorporating, but not limited to, the following:
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| : 1. Identification of the funds to be committed; i
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| : 2. Amount of the funds to be committed; :
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| 3 Present and future availability of func' to be cos:mitted;
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| : 4. The term of liquidation; 5 The sequence, frequency and amount of ,
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| projected payments; {
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| i
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| : 6. The manner of payment, 7 The legislative or executive action required to !
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| implement the proposal, together with the assurances, ;
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| I dates and certainty thereof;
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| * 8. The immediately effective date of the proposal; ;
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| 9 The impact of the proposal upon the City's financial ,
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| capabilities, together with all other information !
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| that may assist the Court in evaluating the City's fiscal integrity necessary for the determination .
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| of the issues defined below.
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| t In short, the proposal shall be an exposition of the City's i i
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| I present and future ability to satisfy the outstanding judg.
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| . i
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| ' ment and a demonstration of a responsible plan of payment. i It is accordingly ordered that the City be granted
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| 'lanadditionalperiodwithinwhichtodrafttheorderedplan,
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| ' consistent with the directives of this Order and the Order 1
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| I l
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| i
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| | |
| 2 -I e
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| )ofFebruary2,1977. Said proposal chall bo submitted in
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| ~ writing to the Court by not later than March 7,1977.
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| Simultaneous to the submission of the proposal to the Court, .
| |
| i i
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| ',the City shall submit a copy thereof to defendant CEI for its consideration and comments. Defendant CEI shall evaluace fthatproposalandfilewiththeCourtbynotlaterthan March lli, 1977, its comments and conclusions concerning said f -
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| proposal. The hearing originally scheduled for March 8, 1977 is accordingly continued to March 18, 1977, at 1:30 p.m.,
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| at which time the Court shall entertain the presentation of evidence and arguments directed to: 1) plaintiff's ,
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| Motion for Stay of Execution without supersedeas bond, 2) defendant CEI's two Applications for Aid in Execution, and
| |
| : 3) defendant CEI's Motion for Mandatory Order to Fay Judgrant, including the extraordinary writ of mandamus, the possible appointment of a receiver of the revenues of MELP, and other traditional legal and equitable relief that may be dis-positive of the pressing issues before the Court.
| |
| * I The Court has heretofore witnessed the City's cavalier approach to the prospect o'f ultimate payment of its I
| |
| obligations to defendant CEI. Whether that seemingly recalcitrant and intransigent attitude is founded upon a
| |
| -[
| |
| present financial inability to settle its debt,'or a genuine i desire to frustrate the jadicial process, is not apparent to <
| |
| ! the Court. Nonetheless, it is certain beyond peradventure i
| |
| I that for an extended period, MELP and the City have ignored n
| |
| l repeated demands for full compensation to CEI for electric energy supplied to the City for direct sale by plaintiff to its own customers. To illuminate more fully the salient .
| |
| 1 ,
| |
| i l I
| |
| l ,
| |
| i l
| |
| b k.
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| * i
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| {
| |
| l I
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| ffactorsunderlyingthecationspendingbeforethisCourt,a hbriefchronologyofthelegalexerciseaprecipitatingthese i
| |
| !proceedingsishereinorder.
| |
| * I The controversy between the City ar.d CEI was g
| |
| $initiatedonMay 13, 1971 when the City filed a complaint , ;
| |
| " with the Federal Power Commission (FPC) seeking a permanent electric interconnection with CEI pursuant to See .on 202(b) .
| |
| i of the Federal Power Act, 16 d.S,0. $824 (a). In its pitedings the City ?.hartred CEI with' anti-competit ye prac-tices and restraint of trade, in violation of the ".hernian and Clayton Artitrust Acts.
| |
| I Those proceedings culminated on January 11, 1973 {
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| with FPC Opinion and Order No. 644 which was later affirmed .
| |
| I
| |
| 'on rehearing, (Order No, 6h4-A). Order NO. 644 generally ;
| |
| f adopted, with minor modification, the July 12, 1972 d* cision of the administrative law judge, wherein it was determined and cedered that: ,
| |
| 6
| |
| : 1. " Finally, the City's allegations that its difficulties in maintaining service-to its '
| |
| customers are due in whole or in part to CEI's anticompetitive practices are not supported by ,
| |
| the record in this consolidated proceeding.
| |
| This reccrd indicates that the City's past inability to furnish reliable,. dependable service l' j
| |
| on the MELP system to its own customers has
| |
| ' been due primarily to incompetent manageme7t i and inefficient operations."
| |
| : 2. "A permanent 138 KV synchronous intercon-nection, with a capacity of 100 MVA, connecting the City's Lake Road Light Plant and CEI's Lake Shore Plant shall be established to supply emergency service to the City . . . ."
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| 3 The City shall, at specified intervals, ccupensate CEI for energy consumed, at specified rates with ,
| |
| specified interest and penalties for late-payment. 1.
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| ! . 6
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| * e b
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| _ ~ . ,
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| | |
| T =~ a i ,
| |
| i I.
| |
| t j On April 8, 1974 the FPC issued & supplemental jorderdirectingtaeCitytosatisfy,infull,it; delinquent j haccounttoCEIforelectricenergyreceivedbytheCityvia i
| |
| !anexisting69KVinterconnectionandsubsequentlysoldto I N the City's customers. On April 17, 1975, in compliance with i,
| |
| ~ g
| |
| 'g Orders Nos. 644 and 644-A, CEI executed a contract with the l 1
| |
| ; City incorporating the terms and conditions of the aforesaid orders. Thereafter, on May 4,1975, the 138 KV ir}terconnectiori f
| |
| I l was energized and r service to the City initiated..
| |
| The City 3 in the interim, appealed Orders Nos. 644 and 644-A to the Court of Appeels for the District of I
| |
| Columbia. On January 9, 1976 the Court of Appeals affirmed FPC Order Nos. 644 and 64t-A. City of Cleveland v. Federal 3 l Power Commission. 525 F.2d 84$ (D.C. Cit. 1976).
| |
| Disregardiar,the FPC orders and the subsequent affirmance thereof by the District of Galumbia Court of i
| |
| 1
| |
| - Appeals, the City continued to meter electric energy from CEI without payment therefor, precipitating CEI's counter- i claims in these proceedings. i The Counterclaim which was the subject of this Court's Order of August 4, 1976, presented an action on ;
| |
| i accJunt, one tr.at was founded in contract or quantum reruit,* i
| |
| ' and was presented ir. the context of a civil action filed l by the City on July 1, 1975, therein charging CEI and others l i with identical Sherman and Clayton Act anti-competitive i:
| |
| practices which were the subjecs of the FPC Orders of
| |
| -(
| |
| j 1972 and 1973 Pleading in response to the Counterclaim, the City conceded its ultimate liability for the elect 2-ic energy suppl 3-?d by defendant CE1. In its December 22, 1975
| |
| .L .
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| -I n g
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| . a
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| ' O 1
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| 4
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| ! u
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| | |
| 7 e i
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| 1,
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| }ReplytoCount2ofCEI'sSecondCounterclaimintheamount
| |
| ! of $5,823,834.11 plus interest, the City admitted:
| |
| : 1. That "the Federal Powar Commission ordere- ;he [
| |
| e establishment of a permanent 138 KV synchronous interconnection (between CEI and MEI.PJ to be used, I however, only to provide emergency service . . . !
| |
| : l. to the City.
| |
| : 2. That "the rates for such service were prescribed 8 by the Commission in Opinion No. 644."
| |
| 3 That "a contract dated April 17, 1975, for emer- ,
| |
| gency service over the interconnection was entered into between Plaintiff and CEI; . . . ."
| |
| 4 That a "138 KV synchronous intercennection was energi:ed on May 4, 1975; . . . ."
| |
| 5 That the City "has not paid all the costs of the t interconnection and M3 of the bills submitted by l CEI for 138 KV service and avers that the pro-priety of some of the billings are ir controversy t'
| |
| bvfore the United States Court of Appeals for the District of Columbia . . . ." (As previously :
| |
| observed, the Court of Appeals for the District of Columbia subseouently, on January 9, 1976, affirmed the Orders of the FPC. '
| |
| : 6. That "a small amount of the total cost of the .,3!.
| |
| l KY interconnection has not been paid by Plaintiff."
| |
| The City did not Reply to or otherwise deny the silegations of Count 3 of CEI's Second Counterclaim which demanded judgment in the amount of $3,701,233 39 plus interest. Nor did plaintiff respond in any fashion to CEI's Motion for l
| |
| * l e
| |
| l i
| |
| l ,
| |
| | |
| l, i
| |
| TSummary Judgment to this latter Counterclaim. In summary, I
| |
| jplaintiff's payments to CEI for electric energy consumed by ,
| |
| the City have been erratic, at best, and insufficient in the i I ..
| |
| 3 amount of $9,525,067.50 plus interest.
| |
| As determined by this Court in its Order granting judgment, defendant CEI has fully complied with tre Orders t of the FPC and has fulfilled its contractual oblirations to the City by implementing the 138 KV interconnecti<1, and in i
| |
| supplying to the City electric energy over that it terconnec- i tion and the previously existing 69 KV interconner -ion at ,
| |
| rates and under conditions mandated by the FPC. 1se City, on the other hand, has ignored and evaded ite cont >act t
| |
| obligations as well as several FPC Orders, including the !
| |
| April 8, 1974 Crder directing the City to make full payment to CEI in egepliance with previous FPC Orders.
| |
| The absurdity confronting CEI is mirrored by the l~
| |
| dilemma of 1) deactivating the 138 KV interconnection ;
| |
| i ordered by the FPC and denying the City its electric energy
| |
| , demand, thereby risking imposition of sanctions by the FFC, or 2) standing silent while the City continues to take its .
| |
| property without compensation, in the face of what appears to be concessions by the City of its rapidly erroding fiscal ,
| |
| responsibility. The foregoing alternatives, in light of the ;
| |
| i' due process clauses of the Constitution of the United l
| |
| i States, give rise to critical implications of constitutional magnitude.
| |
| The Fifth Amendment to the Ccastitution of the .
| |
| United States provides that private property shall not be taken for public use, "without just compensation." Not-m b
| |
| i d .
| |
| -w- e we v
| |
| | |
| *. 2 1
| |
| 4 withstanding the romantic symbols of justice evoked by this time-honored phrase, the Court recognizes that this clause
| |
| ,I
| |
| ~
| |
| factsexclusivelyinrestrictingthepoweroftheUnited i i.
| |
| States government and affords no ground for relief againtt a !
| |
| l
| |
| ,(stateoritspoliticalsubdivisions. Fallbrook Irriaatiod ;
| |
| e 2 District v. Bradley, 164 U.S. 112 (1896); Thoringt h City Council of Montgomery, 147 U.S. 490 (1893); Gulf & S.I.R ,
| |
| 8 gCo. v. Lucksworth, 286 F 645 (5th Cir. 1923). E never,
| |
| ' l
| |
| ! withcut pausing to consider the role of the feders1 govern- i i
| |
| I l ment, through the exe',41ses of the Federal Power t ommission, I
| |
| in mandating the sale of energy here in issue, the Court
| |
| ?
| |
| advances to more viable theories invoking princip) is of due
| |
| [ process directly from the Fourteenth Amendment. ;
| |
| I Tna Fourteenth Amendment dictates, that no State shall " deprive any person of life, liberty, or property, g ;
| |
| without due process of law." Implicit in the "due process" -
| |
| 1 clauce of the Fourteenth Amendment is the principle of "just l compensation" found also in the Fifth Amendment. This essentially equitable requirement is not simply dratin from the Fifth Amendment and imposed upon the States through the Fourteenth, but eminates directly from the meaning of the i a
| |
| i words "due process" in the Fourteenth Amendment. Or_1 Ras v.
| |
| i County of Allegheny. Pennsylvania, 369 U.S. 34 (1962); l Appleby v. City of Buffalo, 221 U.S. 324 (1911); Village l' e
| |
| '_ of Norwood v. Baker, 172 U.S. 269 (1898); Chicago B&O R.
| |
| Co. v. Cit; of Chicago, 166 U.S. 226 (1897); Ballard Fish l' & Oyster Company v. Glaser Construction Company, 424 F.2d 473 (4th Cir.1970); Scott v. City of Toledo, 36 F. 385 l (C.C. N.D. Chio 1888). The distinction was thoroughly i
| |
| * I
| |
| < 5 i
| |
| ~
| |
| l b
| |
| F
| |
| * 8 9
| |
| *w
| |
| - . - ~ < ,-n
| |
| | |
| i-i 4
| |
| ; explored by Judge Howell E. Jacksory Circuit Judge of the jSixthCircuit, in Scott v. City of Toledo, supra. Therein, -
| |
| I l Judge Jackson explained:
| |
| I f The fifth amendment, providing that private propertf sheule not be taken for public use without ,
| |
| just compensation, was accordingly required ,
| |
| for the better security of private property against the power of government. This ,mendment to the constitution, which recogniaed and ,
| |
| I sceured to the citizen, as a fundamental principle, the right to compensation for private p: perty -
| |
| taken for public use, was intended as a Limitation upon the federal power. The first 10 a2 andments to the constitution recognized and secu: 3d to l
| |
| all citizens certain rigbts, privileges, and immunities essential !? their securit.7. The fifth amendment, operating only as a lin.tation upon. the powers of the general goverr.mer ,, fell short of giving to the citizen the full irotection to which he was entitled in respect to t.s life, l liberty, and property, so far as state t: tion !
| |
| vas concerned. It imposed no prohibition or l -
| |
| limitation upon the power and authority of the j states in dealing with the life, liberty, and property of the citizen. They were left to the !
| |
| j restraints of their several constitutions and respective laws on these subjects. So far as !
| |
| 4 the states were ecncerned, citizens of the United !
| |
| States were thus left withsut adequate protection and security in their persons and property. The l" fourteenth amendment was adopted to remedy and corrtet this defect in the supreme organic law l
| |
| . of the land. It involves no forced or unreason- '
| |
| able construction to hold that this fourteenth l amendment, as applied to the appropriation of 4 private property for pubile uses, was clearly !
| |
| intanded to place the same limitation upon the i power of the states which the fifth amendment l had placed upon the authority of the. federal j government. ,
| |
| i i
| |
| e e e .i I
| |
| Whatever may have been the power of the statec on this subject prior to the adoption of the .
| |
| I fourteenth amendment to the cc~stitution, it seems clear that, since that amendment went into effect, such limitations and restraints have been placed i upon their power in dealing with individual rights that the states cannot now lawfully appro-priato private prepcrty for the public benefit or to public uses without compensation to the owner; and that any attempt so to do, whether done in pursuance of a constitutional provision or legis-lative enactment, whether done by the legislature .
| |
| l 1
| |
| l i
| |
| t -
| |
| | |
| + v j.
| |
| 1-itself or under delegated authority by one of j the subordinate agencies of the state, and whether donc directly, by taking the property of one person and vesting it in another or the public or indi-l rectly through the forms of law, by appropriating
| |
| ( the property and requiring the cwner therec* to I' ccmpensate himself, or to refund to another the I
| |
| - ccmpencation to which he is entitled, would be t' wanting in that "due process of law" required by f l,; said amendmant. The conclusion of the court on 1 this question is that since the adoption of the l fourteenth amendment compensation for private i l j j property taken for public uses constitutes in g essential element in "due process of law," and g that without such compensation the appropriation .
| |
| . of private T operty to public uses, no matter !
| |
| la under what form of procedure it is taken, would i violate the provisions of the federal constitution.
| |
| i Ld.. at 395-396. .
| |
| These profound,cor.siderations of due process plumb the very ,
| |
| I depths of the constitutional foundations of our form of <
| |
| 8 l
| |
| i government &nd remain ever-present in thc mind of the Court !
| |
| l
| |
| * Ias a prospect of the law inherent to the pending motions.
| |
| l Confronting, in the first instance, the City's !
| |
| requested stay of execution, the Court directs its attention i' I
| |
| to Rule 62(d), Fed. R. Civ. P., which provides:
| |
| When an appeal is taken the appellant !
| |
| by giving a supersedeas bond msy obtain a j-stay subject to the exceptions contained in subdivision (a) cf this rule. The bond may be given at or after the time of filing the notice of appeal or of procuring the order allowing the appeal, as the case may ,
| |
| e be. The stay is effective when the super- '
| |
| sedeas bond is approved by the Cot;rt.
| |
| A stay of enforcement of a noney judgment on appeal is a matter of right, but only upon posting a supersedens bond I approved by the Court. American Manufacturers Mutual ;
| |
| Insurance Co. v. American-Paramount Theatres. Inc., 87 S.Ct.
| |
| I 1 (Harlan, Circuit Judge 1966); Goddard v. Ordway, 94 U.S.
| |
| 572 (1876); In Re Federal Paeilities Realty Trust, 227 F.2d i
| |
| ~
| |
| 651 (7th Cir. 1955).
| |
| The obvious requirement for the security is to . i l
| |
| l !
| |
| f i
| |
| S
| |
| | |
| y .
| |
| - 13 <= ,
| |
| 3
| |
| ~
| |
| preserve the status quo and to pre =rv3 all rights cnd property pending appeal; to guarantee payment of the judgment '
| |
| 9 I Ascher v. Gutierrez, 66 lintheeventtheappealisdenied. i.
| |
| *F.R.D. 548 (D.D.C. 1975). "With respect to judgments
| |
| ' awarding money or property, it was early held that a supersedeas bond should be in a sum sufficient to indemnify i the appellee not only Tor costs, damages and interest, but {'
| |
| for the value of the judgment ittalf." 9 Moore's Federal .
| |
| i Practice 1208.06[2), at 1416; see, Jerome v. McCarter, 88 Catlett v. Brodie, 22 U.S. (9 JU.S.(21 Wall.)17(1874);
| |
| Wheat.) 553 (1824).
| |
| This accepted prattice was codified in former Rule
| |
| ' 73(d)', Fed. R. Civ. P. The Rule was subsequently abrogated, I
| |
| however the principles set forth therein survive in the I
| |
| discretionary provision of Rule 62(d), Fed. R. Civ. P., a investing the Court with authority to determine the amount }
| |
| of the supersedeas bond to be posted. The continuing effect .
| |
| of former Rule 73(d) is concisely summarized at 9 Moore's ;
| |
| Federal Practice 1208.06[1], at 1416: ;
| |
| The result is that the amount and conditions of I the bond are now subject to the determination ;
| |
| of the district court in the first instance in ,?
| |
| all cases. This does not represent a significant departure from prior practice. Under former l
| |
| Civil Rule 73(d) an appellant could request the district court to fix a bor.d other than that de-scribed by the rule or to order the giving of security other than a bond. The result of the abrogation of former Civil Rule 73(d) is that the posting of a bond "at such sum as will cover the whole amount of the judgment remaining unsatisfied, costs on the appeal, interest and damages for delay" is no longer " ordinary ,
| |
| and necessary" as a matter of routine. Such a '
| |
| - bond is always adequate, and its offer should continue to entitle a party to a stay as of ,
| |
| right. And in appropriate cases, its offer .
| |
| should be required as a condition for grant of a stay. But the cart may fix a different ,
| |
| I i
| |
| :- l l
| |
| 1 4
| |
| . e - ,
| |
| | |
| f 0
| |
| t i amount. .Tndeed, it would seem that the court may stay execution of a judgment without re-quiring a bond.
| |
| c Accordingly, the requirements of Rule 62(d), mandate the '
| |
| l Court, within the exercise of its discretion, to provide for
| |
| < the form and amount of security, premised upon the facts and I i circumstances presented to the Court. Trans World Airlines, .
| |
| f Inc. v. Hughes, 515 F.2d 173 (2d Cir. 1975), cert. denied.
| |
| l424U.S.934(1976);see,9 Moore'sFederalPractice j l
| |
| 1208.06[1].
| |
| I In considering the necessity for and amount of a l l '
| |
| supersedeas bond, the Court seeks guidance from tt.e criteria I generally dispositive of analogous issues incident to l
| |
| motions for prelimintry injunction and motions for stay of further proceedings pending appeal, which are summarized as I
| |
| follows:
| |
| (1) the moving party must make a strong l showing that success on the merits of 8 the appeal is '.ikely; (2) the party must establish that unless a stay is granted irreparable harm will result; (3) no substantial harm will come to other ,
| |
| interested parties; and (4) the granting of a sta" would do no harm to the public l interest. North Central Truck Lines. Inc. t.
| |
| : v. United States, 3b4 F. Supp. 1155, 1190- l-1191 (W.D. Mo. 1974), aff'd, 420 U.S. 901 ;
| |
| (1975). ,
| |
| Accord, Adams v. Walk >r, 488 F.2d 1064 (7th Cir. 1973);
| |
| Beverly v. United States, 468 F.2d 732 (5th Cir. 1972); ,
| |
| ! 'Long v. Robinson, 432 F.2d 977 (4th cir. 1970); Belchgr
| |
| { v. Birminghgm Trust National Bank, 395 7.2d 685 (5th cir.
| |
| 1 I
| |
| 1968).
| |
| A Rule 62(d) motion for a stay of enforcement of judgment pending appeal it of the same genre as a mation for i a preliminary injunction or a motion for a stay of pro-I ! i t f
| |
| - i l
| |
| 1 w
| |
| 4
| |
| -w . , -
| |
| | |
| i E
| |
| 1 ceedings. Consequently, abs:nt eth r d:finitiva guid311nts,
| |
| ' the four criteria enunciated above become relevant indicators of the form and necessity of a supersedeas bond in the f
| |
| ratter now before the Court. Indeed, the Court of' Appeals i g
| |
| g for the Tenth Circuit has deemed the likelihood of harm resulting from a prelininary injunction a relevant factor to the determination of the requisite bond upon a Rule 62(c) ,
| |
| t
| |
| ; motion for an injunction pending appeal. Continental Oil ;
| |
| i Company v. Prontier Refining Compan1, 338 F.2d 780 (10th 1
| |
| Cir. 1964).
| |
| Por the reasons heretofore presented in the dis-
| |
| , cussion of the" chronology of these proceedings, including the admissions of the City, the Court views with serious t
| |
| i i
| |
| I doubt the likelihood of plaintiff's success on the merits of .
| |
| i the appeal of this Court's Order granting judgment on ,
| |
| defendant's Counterclaims. This first of the four relevant '
| |
| , criteria does not merit further recitation of the unusual I I facts and circumstances of this case or the law applied to l l l l judgments on account. 4 I
| |
| l Secondly, with regard to the irreparable harm that l l
| |
| l i 1 may be cast upon plaintiff should this Court require a ,
| |
| I
| |
| ! proper and sufficient supersedeas bond, the Court determines l t
| |
| l I
| |
| that it is not inequitable to require the City to pay for I
| |
| i electric energy furnished to MELP by CEI,,especially in l
| |
| l light of the subsequent resale of that energy by MELP to its I industrial, commer;:ial and residential consumers. Moreover, I the potential harm to plaintiff arising from the supersedeas
| |
| ' I bond requirement, is overshadowed by the potential harm to defendant CEI and the interests of the public in general. ;
| |
| l g l
| |
| l I
| |
| {
| |
| | |
| f
| |
| +
| |
| f
| |
| * t
| |
| ) Plaintiff's ability to render full payment on the i, judgmert entered against the City, is the gravamen of the l issue at hand. This factor touches not only the rights of l t
| |
| . defendent CEI and the subutantial harm that may result from .I 4 plaintiff's insbility to make full payment, but also involves .
| |
| the greater public interest in preserving the fisesl integrity l t
| |
| loftheCityofCleveland. t i In its brief supporting the Motion for . cay of i Execution, the City asserts that pursuant to Rule 62(C), ;
| |
| . l I Chio R. Civ. P., a municipality is excepted from l osting a bond on appeal. Plaintiff further asserts that t2 : Ohio :
| |
| rule is analogous to Rule 62(e), Fed. R. Civ. P., thich [
| |
| - o
| |
| )
| |
| exempts the United States from posting security on appeal.
| |
| '' Plaintiff urges that Rule 62(f), Fed. R. Civ. P. , and the r ,
| |
| principles announced in Erie v. Tompkins, 304 U.S. 64 (1938), .
| |
| l<
| |
| j mandate this Court to adopt the Ohio rule and permit a Rule
| |
| [
| |
| 62(d) sta) to issue without a supersedeas bond. While ths thrust of this argument 1.1 not offensive to the Court, the I
| |
| l
| |
| * ' facts and circumstances herein presenteu cast serious doubt {
| |
| l i upon the City's fiscal responsibility and ultimate ab,ility
| |
| {totenderfullpaymentontheoutstandingjudgment. i r In principle, a sovereign such as the United I i States government or perhaps even a municipal corporation !
| |
| j such as the City of Cleveland, is excepted from furnishing j g.
| |
| 3 bond on appeal, primarily because its financial integrity is !'
| |
| i l
| |
| ; presumed and the sovereign is presumed capable of satisfying its obligations and commitments. Moreover, the sovereign, as parens patriae, is characteristically possessed of an element of fiscal responsibility not generally attributed to ,
| |
| i
| |
| ~*
| |
| i ';
| |
| i e-= . m r -- p
| |
| | |
| $ l.
| |
| the common judgment debtor. The presumption in favor of the
| |
| ,( sovereign is, however, rebuttable. Accordingly, when, as here, the financial integrity of the sovereign has, by i
| |
| t
| |
| ' admission, pleading, or otherwise been properly joined as an l
| |
| ? issue of fact, its resolution rests upon a preponderance of 8 l l ithe evidence.
| |
| A successful challenge of the sovereign's fiscal I 8 respor:sibility strips it of the exemption to furnish bond
| |
| ,and the Court thereupon must maintain the status quo by protecting the rights and property of the judgment creditor and to guarantee satisfaction of the judgment. Solvency of the judgment debtor therefore becomes the key for determining rthe necessity for and the amount of a supersedeas appeal s y '
| |
| 1 bond. See, e.g., Joseph Skillken and Co. v. City of Toledo, f -
| |
| 528 P.2d 867, 870, n.1 (6th Cir. 1975)*, cert. denied, 96 S.Ct. 3162 (1976); Blankenship v. Boyle, 337 P. Supp. 296, ,
| |
| 303 (D.D.C. 1972), i
| |
| - In the case at bar, the solvency of MELP and the .
| |
| fiscal integrity of the City has been properly placed in t issue, not only by defendant CEI, but also by the City 3 itself. The solvency or insolvency of MELP, as the case may be, may have a definite impact upon the financial perspective l of the City and in particular, its general operating fund. f
| |
| ! Thus, the facts inherent to the resolution of this issue ;
| |
| await development by the evidence to be presented at the scheduled hearing. }
| |
| l I
| |
| {
| |
| Finally, the Court confronts defendant's Motion I
| |
| fer Mandatory Order to Pay Judgment. Therein, defendant CEI demands an extraordinary writ of mandamus ordering the City 5 9 s
| |
| l i
| |
| 4 l
| |
| l l
| |
| L l l
| |
| l l
| |
| 1
| |
| | |
| 3 E
| |
| : 1) appropriate l
| |
| ,to perform one or more of the following:
| |
| [ money from funds in the City Treasury, 2) appointment of a ; .
| |
| F !
| |
| lreceivertoapplyalloperatingincomeofMELPtothepay-
| |
| ' ment of the outstanding judgment. 3) increase the rates
| |
| .1 6 charged for electricity sold by MELP, 4) levy an ad, valorem
| |
| * l, tax on all property within the City. !
| |
| l Whatever form such an order may assume, it is 4 settled that a federal district couet is vested with juris- .
| |
| l l
| |
| diction and authority'to issue an extraordinary writ of I
| |
| mandamus directing a municipality to perform non-disc.etionary l
| |
| acts in satisfaction of a judgment, y S , e.g., Huddleston v.
| |
| Dwyer, 322 U.S. 232 (1944); Arkansas v. St. Louis-$an gi
| |
| . Co., 269 U.S. 172 (1925); Board of County ' l
| |
| .lFranciscoRy.
| |
| yCommissioners v. New Mexico, 215 U.S. 296 (1909); city of I
| |
| Chanute v. Trader, 132 U.S. 210 (1889); United States v. [ ;.
| |
| County Court of Knox County, 122 U.S. 306 (1887); Fosenbaum ; l
| |
| : v. Bauer, 120 U.S. 450 (1887); Defoe v. Town of Rutherfordton, 122 F.2d 342 (4th Cir. 1941); Couch v. City of Villa Rica-203 F. Supp. 897 (N.D. Ga. 1962). !
| |
| i Mandamus, when thus invoked, is not an innovative ;
| |
| i remedy, nor need it be a separate independant action, but is in the nature of an execution and attaches to the Court's n I
| |
| j jurisdiction pursuant to its order granting judgment. SE, .
| |
| Board of County Commissioners v. New Mexico, supra; City of Chanute v. Trader, supra; United States v. County Court of Knox County, suora; Defoe v. Town of Rutherfordton, i
| |
| j suprg. Altt.ough the old writ of mandamus provided by Rule i-I
| |
| ' Bl(b), Fed. R. Civ. P. , has been abolished by the abrogation cf that Rule, this Court retains jurisdiction in aid of ,
| |
| -- i
| |
| . f i i ! j l !. !
| |
| l 4
| |
| r m.
| |
| I
| |
| , , a a
| |
| | |
| sP executica to enforce its judgments pursuant to Rule 69(a),
| |
| Defoe v. Town of Rutherfordto_n, g2pra;
| |
| . Fed. R. Civ. P. >
| |
| City of Villa Rita, supra. To that end, a district gCouchv.
| |
| ' court must icok to the law of the state in which it r s. des, I
| |
| hand,pursuanttoRule69(a), Fed.R.Civ.P.,mustproceed ,
| |
| r 7
| |
| in aid of execution according full faith and credit to the i practice and procedure of the state in which the court jresides-inthiscasetheStateofOhio. Sy , Huddleston v.
| |
| fDwyer, supra,Defoev.TownofRutherfordton, supra. .
| |
| A review of the relevant statutory law of Ohio '
| |
| i discloses that, indeed, provision is hade for the issuance ,
| |
| of the extraordinary writ of mandamus. 0.R.C. $$2731.01 et (
| |
| 1.
| |
| e seq. However, the extraordinary writ may only issu* upon i exhaustion of all remedies at law. 0.R.C. $2731.05 That the Court ray direct the City, by mandamus, l to levy a tax sufficient to satisfy the outstanding judgment !
| |
| cannot be seriously challenged. Village of Kent v. United States, 113 F. 232 (6th Cir. 1902); City of Cleveland v.
| |
| United States, 111 F. 341 (6th Cir. 1901); State, er rel.
| |
| Baxter v. Village cf Manchester, 143 Chio St. 48, 53 N.E.2d ;
| |
| 1 913 (1944); State, ex rel. Huntington National Br.nk v. Putnam, I g' 121 Chio 109,
| |
| * St. 167 N.E. 360 (1929); State. ex rel. Turner i l !
| |
| 186, 158 N.E.6 (1927).
| |
| ' v. Vi11 age of Bremen, 117 Ohio St.
| |
| I l l.
| |
| State, ex rel. Turner v. Village of Bremen, 116 Ohio St. .j l
| |
| 294, 156 N.L. 134 (1927); The Court re:ognises, however, j that it may, by writ of mandamus, compel a governmental body through its duly elected or appointed officials to perform f ,
| |
| ! only those acts specially enjoined as a duty resulting from an office, trust, or station. 0.R.C. $2731.01; m , State. l i
| |
| i ,
| |
| i i
| |
| l l
| |
| I f'
| |
| i; w- - , - ~-, . _.
| |
| | |
| a .
| |
| g j
| |
| . I 20 1
| |
| ex rel. Perkiny v. Ross, 109 onio St. 461, 143 N.E. 34
| |
| -(1924); State, ex rel. Robertson v'. Board of Education, 27
| |
| !OhioSt. 96 (1875). !
| |
| 3-Plaintiff asserts that because ;he fiscal officer ,
| |
| j
| |
| ;of the City has not certified to City Council the Court's 4
| |
| l hjudgment entered en September 21, 1976, the City, through i litsCouncil,isundernodutytopaytheoutstandingamount
| |
| - a
| |
| $'toCEIandtheCourtmaynot,therefere,directtheCityby mandamus to levy a tax in satisfaction of that judgment.
| |
| ~
| |
| {However,contrarytoplaintiff'sassertion,thecertification kofjudgmenttothetaxingauthorityisanon. discretionary Section c fdutyimposeduponthefiscalofficeroftheCity.
| |
| 5705.C8, o.R.C. provides: l On or before the first Monday in May of each year the fiscal officer of each
| |
| ~
| |
| I subdivision shall certify to its taxing t authority the amount necessary to provide ,
| |
| for the payment of final judgments against !
| |
| the subdivision, except in condemnation I l of property cases. The taxing authority ;
| |
| j shall place such certified amount in each !
| |
| r budget and in the annual appropriation
| |
| * measure for the full amount certified.
| |
| (emphasis added).
| |
| (
| |
| The Court may, therefore, compel the fiscal officer cf the I i
| |
| ! City of ClevelaM. to certify to the Cleveland City Council b the enount necessary to provide for payment of the judgment i
| |
| ; of this Court. State, ex rel. Turner v. Village of Bremen, supra.
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| i once the fiscal officer has certified the judgment to the ttring authority, the Court, through mandamus, may ,
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| l compel the City of Cleveland Council to j'
| |
| [ ,
| |
| dppropriate the money to pay such judgment, ,
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| if any there be in the. treasury of tne said l (city] available under the statutes for such purpose, or, if there is no such fund in the i treasury that can be so appropriated and I ; ,
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| l
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| - I i
| |
| l I
| |
| h
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| | |
| o-k k
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| j employed, to levy a proper and sufficient tax according to law upon all the taxable :
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| i
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| ; property of the said (city] to pay the said !
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| judgment with the interest thereon, or to '
| |
| enact the necessary legislation to issue bonds of the said [ city] according to law 1
| |
| in an amount not eAceeding the amount of the judgment, and carrying interest not to exceed 6 per cent., and to issue such bonds acccrd-5 ing to law . ... State. ex rel. Turner v. l Village of Eremen, 117 Onio 5%. at 159
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| { I j
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| l- See also, State. ex rel. Baxter v. Village of Mane'' ester, 1 I
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| Sutnam, supra; State. ex rel. Huntington National Bank v.
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| t sucra.
| |
| The Court is not unmindful of the 10 mil' limitation !-
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| imposed upon the aggregate amount of taxes that ma ' be levied by the City, 0.R.C. $5705.02, and concedes hat the
| |
| ' Court may not compel the City to levy taxes in excess of j l
| |
| that limitation. See, village of Kent v. United Statee, supra; City of Cleveland v. United States, supra. That the l f City has already reached its tax ceiling remains, however, ?-
| |
| ia question of fact to be established at the hearing scheduled i.
| |
| I l for March 18, 1977. In any event, a statutory inability to levy taxes in excess of 10 mills, does not preclude imposition of the above-described alternate remedies pursuant to the l!
| |
| )
| |
| i extraordinary writ cf mandamus, or at least a general re- I allocation of the City's current oudget to accommodate the ,
| |
| [ -
| |
| amount of the outstanding judgment. As previously observed, these extraordinary remedies augment a panoply of other i legal and equitable remedies available to defendant CEI. i Indeed, the Court is not aware of any legal duty i.
| |
| l .
| |
| of forebearance imposed upon defendant CEI to levy execution against any known properties or assets of the City without 8
| |
| further application to the Court for aid in executiony
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| -I
| |
| , l.
| |
| - L. l
| |
| . c.
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| ,b N
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| , e+
| |
| | |
| r ' , -
| |
| I'
| |
| * except the resolution of the City's Motion,for Stay of I
| |
| $ Execution, which nas been deferred to March 18, 1977. Rule l'
| |
| $n 69(a), Fed. R. Civ. F., and prevailing case authority '
| |
| I jcharacterizealevyinexecutionagainstthepropertyand
| |
| ,j
| |
| $ assets of a judgment debtor as a perfunctory ministerial
| |
| * lt proceeding, which does not require the interventi'n of the Court. O.R.C. $$2101 35, 2303 11, and 2329.01 et s,gg.;
| |
| Yaroo v. M.V.R. Co. v. City of Clarksdale, 257 U.
| |
| . 10 l(1921);Weirv.UnitedStates,339F.2d82(8thCr.1965);
| |
| 22 Ohio Jur.2d Executions, $$25, 27 (1956).
| |
| In conclusion, the Court reasserts its 'cder that
| |
| ! the City shall submit by riot later than March 7, ' 977, a '
| |
| viable proposal designed to tamediately amortire the existing '
| |
| indebtedness to defendant CEI in the form and detail pre-scribed her,ein; that simultaneou? to the filing thereof, the f
| |
| ' f:
| |
| gCity shall submit that proposal to defendant CEI; that
| |
| ! defendant CEI shall file by not later than March 14, 1977,
| |
| } ;
| |
| jitsresponsetheretoincludingitscommentsandconclusions; that the March 8,1977 hearing on the Motion for Stay of l Execution without supersedeas bond and the remaining Motions ,
| |
| is hereby continued to March 18, 1977, at 1:30 p.m. l l IT IS SO ORDERED.
| |
| i I
| |
| ~ l s
| |
| a Aff Wf ,
| |
| br.ited Statek.f& strict J ge
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| ! 1
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| . I, a
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| I, l
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| i..
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| | |
| s EXHIBIT B Before TIE PUBLIC UTILITIES CCI4IISSION OF OHIO In the matter of the Application and )
| |
| Petition (e.) of OHIO PCHER CCIGAIrf and CARDINAL Or:x4TIIiG CCIEAITI for approval of the Station Agreement pursuant to Snction 4905 31 of the Revised Code of Ohio, (b) of OHIO PGIER CCIGAITf, TIE CINCINNATI GAS & ELECTRIC CCIGNE, Formal Case No. 34,573 COLUIEUS AUD SOUTEIRU OHIO ELECTRIC CCIGAIrf, THE DAYTCII FGER AliD LIGHT CCIGAIE, MONOHGAt=% PGER COMPAIE and THE TOLEDO EDISON-COIGAIE for approval ) -
| |
| of the Pouer Delivery Agree =ent pursuant) to Sections 4905 31 and 4905.48 of the )
| |
| Revised Code of Ohio, and (c) of BUCICYE PGER, II:C. for the granting of the approvals specified above.
| |
| NUNC PRO TURC FIIiDIDG.AIID SUPPLE 1210.L ORDER .
| |
| The Com4ssion ec=ing now to consider the Supplemental Application and Petition herein, filed by Chio Pcwer Cc=pany (hereinafter referred to as OL o Power) and Cardinal Operating Cc=pany (hereinafter referred to as Operating Ccmpany), and The Cincinnati Gas & Electric Cc=pany, Columbus and Southern Ohio Electric Cc=pany, The Dayton Pcuer and Light Co=pany, Monongchela Power Cc=pany.
| |
| and The Toledo Edison Cc=pany (hereinafter referred to as the other Cc=panies),
| |
| and Buckeye Pcwer, Inc. (hereinafter referred to as Buckeye) finds:
| |
| That en June 13, 1967 this C W scion in its Order in this proceeding (1)authorinedChioPcuerandOperatingCc=p.inytoenterintoaproposedagree-ment described and designated in the original Application and Petition as the Station Agreement; (2) approved said Station Agree =ent and eacn and all of the arrangements, variable rates and charges, mini =us charges and financial devices provided for therein; (3) authorized Ohio Pcuer and the other Cc=panies to enter into an a6reement described and designated in'the original Application and
| |
| !' Petition as the Power Delivery Agree =ent; and (4) approved said Power Delive 7 Agreement and each and all of the arrange =ents, variable rates and charges, 3
| |
| minimm char 2es and the transactions between public utilities provided for therein.
| |
| That on February 26, 1ScS, Chio Pcuer, Operating Cc=pany, the other
| |
| : l. Companies and Buckeye filed a Supple =' ental Application and Petition in this pro -
| |
| cseding asking this C
| |
| * ssion to issue a" Supplemental Order herein, (a)speci-fically approving the arrangements, ' variable rater nnd charges, minf =un charges and financial devices provided for in a proposed Station f.greement, a rLvisedsin the form attached to the Supplemental Application and Petition, k .
| |
| | |
| FEDEU AND SUPPLEEITIAL ORDIR FORMAL CASE HO. 34,573 Page 2. .
| |
| (b) specifically approving the variable rates and charges and minimum charges provided for 'in a proposed Feuer Delivery Agreement, as revised, in the form attached to the Supplemental Application and Petition, and (c) specifien1'y approving said proposed Pcuer blivery Agreement, as revised, in the form attached to the Supplemental Application and Petition, as a contract among Ohio Power and the other Companies enabling them to operate their lines and plants in connection with each other as therein provided and specifically authoricing Ohio Power and the other Ccepanies to operate their lines and plants in connection with each other in accordance with the provisions -thereof.
| |
| It appearing to the C-4ssion from the verified Supplemental Appli- ;
| |
| cation and Petition and the other documentary evidence attached thereto and the Coz=cission's independent investigation as evidenced by the report submitted by its chief accountant, that the taking of oral testimony herein is unnecessary, the Cc= mis tion being fully advised in the premises, finds that:
| |
| 'l. Except as to the' changer reflected in the reviced Station Agreement and the revised Power Delivery Agreement, the find'.ngs nade by this Co-4 ssion in its Order datci June 13,.1967 have not been affected; and
| |
| : 2. Chio Power, Buckeye and Operating Company propose to enter into the proposed Station Agreement, as revised, to evidence their respective rights and interests in a generating station constructed by Ohio Pouer near Bril'4 ant, Ohio, consisting initially of tuo 615,000 br generating units, and known as the Cardinal Station, upon accuisition by Buckeye from Ohio Pcwer of one of said generating
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| :L units and certain related property, property interests and facilities; ,
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| 3 Ohio Power and the other Ccepanies propose to enter into the proposed Power Delivery Agreement, as revised, with Buckeye pursuant to which Ohio Power ;
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| will provide bulk transmisrion facilities frem the Cardinal Station, and the other Ccmpanies will -J :e available or provide power delivery facilities l adequate to deliver the requirements of,the Buckeye Menicers for electric pcver and anergy frem the hulk transmission fac4'4 ties of Ohio Power to points of cennection with the distribution systems of the
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| . Buckeye Members;
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| : 4. .The' arrangements, variable rates and charges, i'
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| minimum charges, and financial devices provided for L -
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| ! l
| |
| | |
| FIEDur, AND SUFFLDENTAL ORDER FORMAL CASE HO. 34,573 Page 3 in the proposed Station Agreement, as revised, are reasonable, practicable and advantageous to the parties, intere:,ted and to the public; 5
| |
| The variable rates and charges and minimum charges and other arrangaments provided for in the proposed pouer Delivery Agreement,'as revised, are reasonable, practicable and advantageous to and the parties interested and to the public; Each and aH cf the prayers of the Supplemental i
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| Application should be granted.
| |
| It is, therefore, CRDERED, that the proposed agreement to be entered into between Ohio Power, Buckeye and Operating Ccepany described and designated in the appli-cation herein as the Statien A5reement, as revised, is hereby approved and filed with this Co d ssicn. It is further CRDERED, that the arrangements, varicble rates and cherg'es, minimum charges and financial devices provided for in the proposed agreement described and designated in the application herein as the Station A6reement, as amended, ara, and each cf them is, hereby approved. It is further ORDERED, that the applicants, Obit Power and Operating Company, are t as revised, her ty authorized to enter into the proposed Station Agreemen It is further and to carry out the ter=s and provisions thereof.
| |
| ORDERED, that the proposed agreement to be entered into among Buckeye, Ohio Power and the other Ccmpanies described and designated in.the application herein as the Power Delivery Agreement, as revised, is hereby approved and filed with this Cc. mission. It is further CRDERED, that the arrangements, variable. rates and charges, minimu=
| |
| charges and the trcnsactions between public utilities provided for in the proposed agree =ent d6 scribed and designated in:the application herein as the Power Delivery Agreement,'as revised, are, and each of them is, hereby It is further l ; approved.
| |
| t..
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| CRDERED, that the applicants Chio Power and the other Cc=panies as- are
| |
| : l. hereby authori:cd to enter into the preposed fouer Delivery Agreement,It is further
| |
| - revised, and to carry out the terms and provisions thereof.
| |
| CRDERED, that when the Ohio ?crer-Buckeye Agreements, as amended,
| |
| ' are. signed, that conformed executed copies of said agreements will be filed i
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| ( ,
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| _ _ -, - . ._._ .-..__....,,,,.._.~,..~,._..,._,m,w....
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| | |
| FINDING AND SU??LEMENTAL CRDER.
| |
| FCRMAL CASE NO. 34,573 Page 4.
| |
| with this Cet=ission. It is further CEDERED, that the applicants, in'accordance with Section 4905 31, Revised Ohio Code, will upon execution of~the proposed agreccents, file with this Cc= mission all schedules er arran5ements pertaining to the operation of the agreements, as revised, together. with any' authorized changes, alterations, or modifications theieof, and cancel any prior special arrangements new filed which are superseded by said agreement. It is further CRDERED, that jurisdiction be and hereby is retained for all lawful purposes. It is further ORDERED, that, except as set forth in this Supple = ental Order, the terms and provisions of this Cemission's Order in this proceeding dated June 13, 1967 remain in f"'1 effect. It is further CRDERED, that this Order shall beccme effective frc= and after this date.
| |
| THE FUBLIC UTILITIES CCGIISSION CF CHIO C/"LF. CO*:20N Chair an 10.:"i;M C. ,'OMNCTON EU/.ER A. KELLER C - issioners.
| |
| Entered in the Journal:
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| MAR I - 1958 .
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| A true copy:
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| h Sam Nicole., Secretary. .
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| l l .
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| | |
| EXHIBIT C 42 Pa. PUC Rep. 730 (1966) 730 DECISIONS OF THE PUBLIC UTILITY COM31ISSION f
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| KOPPERS COMPANY, INC.
| |
| V.
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| NORTH PENN GAS COMPANY CourL.uxT Docxr. No.17814 l
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| l'
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| , Public Utilities--Service Ana-Noncamer Utiktses-Monopoly and Competi- l l tion-Public Intenst Canadered. l l
| |
| The Com=>=rion and its predecessor, the Public Service Commission, has con-sistently pursued a policy opposed to unnecessary competition within the same territory by noncarrier public utilities, not only for the protection and beneht of
| |
| _ the public, but also of the utilities involved on the grounds that such competition is deleterious and not in the public interest save in rare instnnees.
| |
| L i
| |
| | |
| I l
| |
| l l
| |
| DECISIONS OF THE PUBLIC UTILITY COMMISSION 7::1 Public Utiktnee-Sermen alrea-Noncarrier Utilities-Monopoly and Competi-tion Sermee to Customer of Competing Utility.
| |
| Noncarrier utilities pa====mg authority to furmsh wrvice within the same territory by charters antadating the inception of regulation by the Commi==an of publie utilities in Pennsylvania should of their own accord conduet their publie
| |
| , service operations so as to avoid competitive situations of any nature because the undesirable competition which would occur between such utilities if an ex.
| |
| tension of service were permitted by one utility to an established customer of the other utility would place an unreasonable burden on the customers of both utilities and would not be in the public interest.
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| Templeton Smith for Koppers Company, Inc.
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| David Dunlap for United Natural Gas Company.
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| Hull, Leiby and Metzger by Charles E. Thomas and Jack Aschinger for North Penn Gas Company.
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| :i .
| |
| Br Taz Coaturssrox, May 9,1966:
| |
| By this service complaint, filed on January 14,1963, Koppers Com-pany, Inc., Pittsburgh, seeks to compel North Penn Gas Company, respondent, to furnish natural gas service to Koppers' chemical plant located near the Borough of Rouseville in Cornplanter Township,
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| ; Venango County.
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| L
| |
| , Respondent's answer to the complaint states,in part, as follows:
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| f t
| |
| (1) that respondent is ready, able and willing to sup-!y natural gas service to Koppers' chemical plant, and that r ;pondent pos-sesses the necessary charter and operating authority to furnish such service.
| |
| (2) that, however, by complaint Sled against respondent on March
| |
| _ 13,1962 at C.17725, United Natural Gas Company (United)
| |
| , questioned the authority of respondent to serve certain industrial customers in the Borough of Rouseville and in Cornplanter Township, Venango County, including Koppers Company, Inc.
| |
| (3) that respondent, in its answer to the complaint of. United, averred that it had informed Koppers that no action to supply its chemical plant would be taken by respondent pending dis-position by the Commissien of United's complaint at C.17725.
| |
| z-b
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| --,,-..n-, ---,. ~,-,
| |
| | |
| d 732 DECISIONS OF THE PUBLIC UTILITY COMMISSION Pursuant to a motion of respondent, the Commission, on February 11, 1963, directed that this complaint, proceeding be consolidated with the aforesaid proceeding at C.17725 for the purpose of hearing and disposi-tion, without prejudice to the rights of the parties to be heard on, an,d to have determined, all proper, relevant and material issues raised in either complaint proceedmg.
| |
| At the hearing of the consolidated proceedings on April 4,1963, testimony was presented by witnesses on behalf of Eoppers and United.
| |
| Counsel for United entered a statement for the record agreeing that respondent has corporate rights in Cornplanter Township, Venango County, derived through a predecessor company. Hearing was con-tinued upon the request of counsel for respondent.
| |
| By stipulation filed with the Commission on September 19, 1964, ,
| |
| respondent and United agreed to maintain the status quo as to the furnishing of gas service to existing industrial and commercial cus-tomers of both utilities in Cornplanter Township, Venango County, with the exception of Koppers, concerning which respondent and United agreed that this matter be deterniined by the Commission on the existing record in this complaint proceeding. The stipulation further provides, inter alia, that United withdram all grounds of its complaint against respondent at C.17725, but that United shall be deemed an
| |
| ' ' intervenor in the instant proceeding.
| |
| By executive action on hiay 3,1965, the Commission directed that the stipulation be placed in the record folders at C.17725 and in this proceeding; that United be permitted to withdraw its complaint against respondent at C.17725 and the proceeding be marked closed; and that tinited be designated an intervenor in this complaint action.
| |
| ii By letter dated 31ay 20,1965, counsel for Koppers informed the Commission that complainant does not desire further hearing, stating
| |
| : that complainant has entered its full case and is content to stand on the record. -
| |
| 0 FMnation of this record discloses that United has been furnishing gas service to Koppers' chemical plant in Cornplanter Township since 1947, when Koppers acquired the plant from the federal government, and further that Dempseytown Gas Company, a predecessor of j
| |
| a respondent, had also furnished gas service to a portion of Koppers'
| |
| ; plant (office and laboratory) prior to 1950, 7 hen such service was dis- i continued by Eoppers. The record shows that both United and respon- l I
| |
| dent operate gas distribution facilities along the highway (Pa. Route 8) which separates the main portion of the ehemical plant from Koppers' l q
| |
| H t
| |
| L.
| |
| | |
| 7 ..
| |
| l l
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| 7 ..
| |
| I 4
| |
| 733 I' DECISIONS OF THE PUBLIC UTILITY COMMISSION office and laboratory, and that the cost of installing service-supply r facilities from respondent's existing gas line to Koppers' plant is es-timated at less than $1000.
| |
| Complainant's plant mmger testified tha?, early in 1962 Koppers learned that respondent's gas rates were lower than United's rates, and, after being advised by United that its rates for service would not ,
| |
| be reduced, Koppers applied to respondent for service. This witness *
| |
| ' further testihed that Keppers' desire to obtain gas service from re-spondent is based solely upon cost considerations, stating that, on the basis of Koppers' actual gas consumption and costs during 1962 (119,085 mcf -- 869,539), such service, if supplied at respondent's rates, would rod iverage annual savings to Koppers of approxi-mately $6,00t 9ns it's witness stated that Koppers would purchase all c,: . s m ' requirements from North Penn, in the i[ ' _
| |
| event that responc ... pr mitted to furnish service, r United's vice president testined concuning the adequacy and reli-ability of United's sertice to complaina'it's chemical plant, stating that United's files show no record of service inadequacies, interruptions, o
| |
| curtailments, or lack of gas pressure. This witness stated that United is willing and able to continue to supply Koppers' present and future gas requirements.
| |
| I According M the record, the controlling factor in Koppers' decision to request gas service from North Penn is the cost advantage which it might obtain from respondent's lower rates for service due to the favorable position enjoyed by North Penn at its present rate levels as compared to United. There is no evidence of record that United is not furnishing adequate and reasonable service to Eoppers' plant, or that United will not be able to continue to supply adequate and reasonable service in the future. .
| |
| Accordingly, the sole issue to be detennined herein is whether, under the circumstances shown by the record, respondent should be directed to supply gas to a Injor industrial customer of United which has been furnishing the entire gas requirements of such customer for more than 17 years.
| |
| This Commission and its predecessor, The Public Service Commis-sion, has consistently pursued a policy opposed to unnecessary competi-tion within the same tenitory by noncarrier public utilitics, not only for the benefit and protection of the public, but also of the utilities involved. The Superior Court, at Painter et al. v. Pennsylvania Public Utility Commission,194 Pa. Superior Court, 548 (1961), stated that
| |
| | |
| 9
| |
| (
| |
| 9 734 DECISIONS OF THE PUBLIC UTILITY COMMISSION .
| |
| competition within the same territory by noncarrier public utilities is I deletcrious and not in the public interest, save in rarc instances.
| |
| Where, as in this instance, two gas utilitics possess authority to
| |
| , furnish service within the same territory by charters antedating the in-ception of regulation by the Commission of public utilities in Penn-sylvania, such utilities of their own accord should conduct their public service operations so as to avoid competitive situations of any nature. The undesirable competition between two utilitics, as would i occur in this instance if an extension of service were permitted by one utility to an established customer of the other utility, would place an unreasonable burden on the customers of both utilitics and would not be in the public interest.
| |
| Upon full consideration of all matters of record, the Commission is of the opinion and finds that the instant complaint should be dismissed; THEREFORE,
| |
| ! IT IS ORDERED: That the complaint decketed at C.17814, filed by Koppers Company, Inc. against North Pent Gas Company, respon-dent, be and is hereby dismissed.
| |
| 'l i.
| |
| 1 e-a s --- , - - - - - - , , - , -- -- , - ,
| |
| y- , g
| |
| | |
| r 39 Pa. PUC Rep. 440 (1962) e i
| |
| 440 DECISIONS OF TIIE PUllLIC UTILITY CO5 IISSION ,
| |
| SIANUFACTURERS LIGIIT AND HEAT CO3IPANY and COLU31BIA GAS 'OF PENNSYLVANIA, INC.
| |
| v.
| |
| PEOPLES NATURAL GAS CO3IP.GY CourwxT Docncr Nos.17G15 A.vo 17G24 Public Convenience and Neceuity-Atonoputy and Competition-P '~lic Utilities-Public Interest-Regulated alonopolico-Public Policy.
| |
| The Commission, and la predecessor, the Puidic Service Commission, have h
| |
| repeatedly been upheld by the appellate courts of Pennrf ania in the view
| |
| ( that competition within the same territory by non-carrier pul"e utilities is inimical to the public interest save in rnre instances.
| |
| Public Utilities-alonopoly and Competition-Pegulated alonopolies-Public Policy-Public Utility Law.
| |
| The appellate coorts of Pennsylvania Imvc repeatedly considered in broad I
| |
| ' terms the public policy underlying the concept of irgulated monotmly which forms the heart of the present public utility law.
| |
| Public Convenience and Necenity-Gas Comprmies-3[onopoly and Campeti-tion-Public interest-Scruice Adctpsacy.
| |
| A gas company was enjoined from furnishing competing gas service to two industrial plants in the territory of and already served by .uother gas com-
| |
| | |
| i DECISIONS OF THE 1-UBLIC UTILITY COMMISSION 441 pany, where it appeared that the latter company stood ready, willing. and able to supply present and anticipated future gas requirements of all its customers in accordance with provisions of its filed tariff, and the necessary construction of additional facilities by the former rompany would duplicate the other company's existing facilities and create undesirable competitive conditions of service adverse to the public interest.
| |
| William Anderson and Rhoads, Sinon and Reader by W. Russell Hoerner and Frank A. Sinon for LIanufacturers Light and Heat Company.
| |
| James B. Saycrs, William H. Eckert and Milton W. Lampropios for
| |
| , Peoples Natural Gas Company.
| |
| Br inn Constissios, January 22,1962:
| |
| We have before us two complaints filed by The Alanufacturers Light and Heat Company at C.17615 and C.17624 on AIay 10 and June 5,1961, respectively, raising in an important economic context the question of the right of a utility to furnish competing service in a territory and to customers already served by another such utility.
| |
| f In its complaint at C.17615, The Alanufacturers Light and Heat Company (hianufacturers) averred in substance that it furnishes gas i to customers in Aliquippa, Beaver County, Pennsylvania, west of the Ohio River and has don so since the early 1900's; that one of its customers .in this locality is the Jones & Laughlin Steel Corporation (J & L); that respondent, The Peoples Natural Gas Company (Peo-ples), has never rendered service in this locality to J & L or to any other customers and maintains no facilitics there; that respondent has proposed the construction of facilities leading from terri:ory to the west of this locality now served by respondent, for the purpose of fur-nishing gas service to J & L in Aliquippa; that respondent's proposed service would duplicate that now being furnished by the complainant and would compete with it; and that such service would increase costs to the consumer in a manner detrimental to the public interest.
| |
| hianufacturcrs' later complaint reiterates in substance the aver-ments of that at C.17615 and goes on to allege that the respondent ;
| |
| additionally has proposed to cross the J & L plant in Aliquippa with l its new facilitics after they arc in place to extend a transmission linc
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| )
| |
| to the cast across the Ohio River and then to construct the line to '
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| I
| |
| | |
| i i
| |
| 442 DECISIONS OF THE PUBLIC UTILITY COhfMISSION
| |
| , serve a new plant of National Supply Company (National) under construction in Ambridge Borough and Harmony Township. Alanu- ,
| |
| facturers avers that it has furnished gas service to an existing plant of National in this area since the late 1800's, that Peoples does not and has never furnished service here to this or any other customer, and that such service if permitted would again be duplicative and not in the public interest.
| |
| Columbia Gas of Pennsylvania, Inc., has joined in each pt :cding as a co-complainant, citing an agreement dated August 16,1960 under which, subject to our approval, it was to acquire all of the property and rights of 3Ianufacturers. We have since approved this acquisition.
| |
| Respondent moved to dismiss the complaint at C.17024 on the ground that its proposal to construct or extend its facilities to Na-tional's plant east of the Ohio River was conditioned on execution of a contract between it and National "or some other eno amer," and on
| |
| " approval of [this] Comminion to furnish such service." We denied this motion believing that the existence or nonexistence of such a con-tract was not sufficiently substantial basis on which to hinge the excr-cise of our jurisdiction, and being further of the view that the respond-ent should be required fairly to meet the allegations of the complaint by way of answer.
| |
| In each of its complaints hianufacturers made no specific statement describing the relief which it sought us to grant but prayed only for "such order . . . as may seem mec. ' to be entered after answer and hearing.
| |
| Respondent's answer at C.17615 admitted that it had been rc-quested by J & L to furnish service to that corporation's AIquippa
| |
| ' plant, and that it proposed to install facilities to that plant for 6he
| |
| ; purpose of furniahing gas service. It made substantially the same admissions with respect to National's plant east of the Ohio River, although averring, as it had done in its motion to dismiss, that pro-posed service to National Supply Cotapany at this location was con-ditional on a contract betwc m it and that prospective customer, and this Comminion's approval In its answer to this complaint respond-ent additionally averred that it had been serving National at another plant in Etna, Pennsylvania, the operations of which plant are being I'
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| transferred to National's plant.
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| Since the answers each also averred the right of the respondent to render service to the two customers and in the localities under dispute, ,
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| l
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| ! l
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| d I
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| 1 443 DECISIONS OF THE PUBLIC UTILITY COMMISSION and denied that any adverse efieets would flow from the duplication of facilities which respondent's proposals would necessarily involve, the answers are in the nature of a reply of confession and avoidance, raising broadly the question of whether, under the instant circum-stances, it is in the public interest to permit two industrial customers, long served exclusively by the complainant, now additionally to be served by respondent.
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| The record shows that Manufacturers and Peoples cach possess charter rights in Beaver County, and that each uti!i:y is presently furnishing gas service to the public in separate portions of Aliquippa l
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| Borough. Manufacturers also furnishes gas service in Ambridge Bor-ough and Harmony Township. Peoples does not furnish service any-where in those boroughs.
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| ' As of March 31,1961, Manufacturers furnished gas service to 692 customers in Aliquippa Borough. Manufacturers began furnishing gas service to J & L's Aliquippa plant prior to 1913. The growth of
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| ~
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| natural gas requirements of J & L's Aliquippa plant has been the major factor in the expansion of Manufacturers' gas sales daring re-cent years in th. strvice territory involved. Gas deliveries to the J & L plant increased from 875,472 Mcf in 1954 to 3,540,827 Mcf in 1960, with a corresponding increase in revenues from S340,439 to $1,817,720.
| |
| To meet the constantly rising demand for natural gas at J & L's Aliquippa plant, it has been necessary for Manufacturers to mstall appropriate additional service facilities. Prior to 1956, a single gas line to the northern end of the J & L plant was the sole supply facility.
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| In 1956, in order to furnish the additions. gas req drements of J & L, Manufacturers constructed 2.46 miles of 16-inch pipsEne into the southern end of the plant at a capital cost of approxima:.dy S145,000.
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| In conjunction therewith, a measuring station was constructed at a cost of $116,392, increasing the total cost of such additbnal facilitics to $261,392. In 1960, J & L requested Manufacturers to make addi-tional gas supplies available at the northern end of its Aliquippa plant, and in April,1961 Manufacturers started construction of a 16-inch pipeline to furnish the z.2ditional service.
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| During 1960, Manufacturers' gas sales to National's Ambridge l; plant were 1,723,516 Mef with resulting revenue of S897,735. In June, 1961, Manufacturers was advised by National th t additional quanti-ties of natural gas would be required at such plant beginning about I;
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| October 1,1961. According to the record, Manufacturers can furnish
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| !' this additional load frorr. Its existing facilities with certain changes in regulating equipment estimated to cost approximately $8,000.
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| l .
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| l
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| +M DECISIONS OF T"E PUBLIC UTILITY COMMISSION In its evidence, the respondent frankly conceded that it proposed to render service to furnish part of J & L's gas requirements, pur- -
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| suant to a contract executed March 24, 1961. Respondent's gen-eral sales manager admitted that it also had been asiced by Na-tional to furnish service to its Ambridge Plant under the se:ne type l of contract as had controlled gas service at Etna. Negotiations to implement this request for service began but could not be consum-mated because responder,t was unable to furnish the customer with assurance that it could begin furnishing gas service by October 1, 1961. Although the witness testified that at the present time respond-
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| '' ent has "no intention" of contracting with National for service to the Ambridge plant, we are not convinced that National would not renew its request to Peoples for service if we should sanction the rendering of sc vice by respondent to J & L's plant immediately across the Ohio River to the west.
| |
| Current consumption of gas at.J & L's Aliquippa plant is approxi-mat.lye 400 million cubic feet a month, and it is anticipated that, within a year, consumption will increase to about 500 million cubic feet a month. Within the next four years, J & L's plans for enrichment of blast furnace gas with natural gas, if carried forth, will further increase consumption of natural gas to 1 billion or 1 billion,500 mil-lion cubic feet per month, depending upon the percentage of enrich-ment eventually employed. The record shows that J & L proposes to purchase one-third of its presen'; gas requirements from Peoples, and as consumption of gas increues above present levels, one-half of the increased requirements will be purchased from Peoples and one-hat!
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| ~ from Manufacturers.
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| ' In regard to the reliability of Manufacturers' service to J & L's Ali- '
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| quippa plant, Manufacturers' vice president testified that since 1944 no interruption of service to this customer has occurred as a result of i
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| a strike or a line break, and that service to the Aliquippa plant can ll be supplied in several alternative ways should a line break occur. As
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| '[ to Manufacturers' capability to furnish all of J & L's gas require- '
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| l ments, the witness stated that Manufacturers will take whatever steps l;
| |
| are required in order to serve this customer's future needs.
| |
| Supplementing this testimony, Manufacturer.,' chief engineer stated that Manufacturers' present facilities are capable of delivering the I additional gas requirement of 34 million cubic feet pa day which J & L anticipates it will require in the near future at its Aliquippa plant, and further that Manufacturers' transmission line serving the
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| " routhern end of the plant can deliver 90 million cubic feet of gas per
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| | |
| I t
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| I DECISIONS OF TII2 PUBLIC UTII.ITY CO31311SSION 44 *>
| |
| day to this customer at 50 pounds pressure, in addition to approxi-mately 30 million cubic feet of gas per day which can be delivered by the transmission facilities serving the northern end of the plaut.
| |
| According to this witness. Manufacturers' facilities are capable of de-livering gas to this customer at 200 pounds pressurc,if the customer sliould desire such service.
| |
| ?
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| I In regard to curtailment of service, Manufacturers' vice president stated that in order to racet the full gas requirements of all classes of customers on infrequent peak demand days occurring in winter, it i
| |
| would be necessary for Manufoturers to provide additional plant capacity and to contract for additional quantities of gas as required to meet such peak conditions. Manufacturers' effective Tariff Gas-i Pa. P. U. C. No. 44 includes rules pertaining specifically to curtail-ment of deliveries of gas to industrial customers, which tariff rules are a component part of the service agreements executed by Manu-facturers with its industrial customers.
| |
| Under its curtailment policy, Manufacturers undertakes to supply the full gas requirements of all its customers, other than industrial customers, on Manufacturers' design peak day, which is a day when the mean temperature for the 24-hour period is minus three degrees Fahrenheit. The probability of occurrence of such mean temperature in western Pennsylvania, according to weather records, is once in 10 years.
| |
| If Manufacturcrs' chief engineer testi6ed that facilitics necessary for design peak day deliveries, under Manufacturers' curtailment policy, involve less capital investment than would be necessary if Manufac-turers planned to supply the full requirements of its industrial cus-
| |
| [! tomers on the design peak day, and that such curtailment policy results in lower over-all costs of service to all of its customers. Manufacturers'
| |
| { witness estimated that to sup1,17 the full gas requirements of all cus-L tomers, including industrial customers, on the design peak day would require additional investment in storage plant and transmission facili-
| |
| ; ties aggregating $23,775,000, and that annual fixed charges on this jlt principal amount would be 33,269,000.
| |
| t According to the record, Manufacturcrs curtailed gas deliveries to
| |
| [ its industrial customers a total of 169 hours during the last 10 years.
| |
| During periods of curtailment, Manufacturers requested its industrial
| |
| ,)
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| ' customers to take gas in amounts ranging inm 40 per cent to 75 per
| |
| ' cent of normal requirements. The largest single curtaihnent during the past 10 years occurred in 1961 when normal-deliveries were re-o
| |
| =
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| ,, y_ , . .- -,. - , -- y y e_. ,- - . - -* v .-, m
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| r I
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| I 44G DECISIONS OF THE PUBLIC UTILITY C05131ISSION duced to 60 per cent for a period of 2S hours. It is obvious that the I curtailments of SIanufacturers' gas service to J & L's Aliquippa plant, which that customer finds objectionable, were not peculiar to J & L only but were also applicable to other industrial customers of
| |
| ! Manufacturers, r The record shows that Peoples furnishes gas service to approxi-
| |
| ! mately 6,115 customers in Aliquippa Ecrough, and proposes to con-struct approximately four miles of 12-inch gas pipeline and associated facilities, estimated to cost 3280,000, for the purpose of furnishing i service to J & L's Aliquippa plant, pursuant to the service contract referred to herein.
| |
| Peoples contends that it does not propose to ceratmet any facilitics to furmsh service to National's Ambridge plant, until a contract is entered into with National and approval of the Commission to furnish such service is obtained, and further that no controversv exists between Manufacturers and Peoples. However,it appears from this record that Peoples has not abandoned completely all plans to extend its facilities and service into Manufacturers' aforesaid service territory for the purpose of begmning such service in the future.
| |
| In support of Peoples' averment that it is not uncommon in western
| |
| ! Pennsylvania for an industnal plant to receive natural gas service from more than one source, Peoples' treasurcr testified that of its 209 industrial customers,14 receive service from another gas utility, l
| |
| L and 10 have additional private sources of supply. According to this witness, Peoples began such dual gas service because the utility
| |
| ! originally furnishing service to such customers was unable to provide
| |
| .[ adequate supplies of gas.
| |
| There is no evidence of record that Manufacturers is not maintain-ing adequate and reasonable service and facilities in furnishing gas service to its customers in the service territory involved herein; or that Manufacturers does not stand ready, willing, and able to supply present and anticipated future gas requirements of all its customers in accordance with provisions of its filed tariff. Futhermore, there is no proper showing of record as to the necessity for construction of
| |
| 'I additional facilities by Peoples to supply additional gas to J & L's Aliquippa plant and National's Ambridge plant. The record clearly demonstrates, however, that such construction of additional facilities by Peoples would duplicate Manufacturers' existing facilities and i' create undesirable competitive conditions' of service adverse to the public interest.
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| t L
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| | |
| c DECISIONS OF THE PUBLIC UTILITY COMMISSION 4C This Commmion, and its predecessor, the Public Ser v .:e Commis-sion, have repeatedly been upheld by the appellate courts of Penn-sylvania in the view that competition within the same territory by
| |
| { noncarrier public utilities is inimical to the public interest save in rare instances. e early expression of this view is found in PERRY COUNTY TELEPHONE AND TELEGRAPH COSIPANY v.
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| i PENNSYLVANIA PUBLIC SERVICE CO3DIISSION,265 Pa. 274,
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| ' 108A. 659,1919, affirmmg the same case at 69 Pa. Superior Ct. 529.
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| There, following the refusal of the Commission to grant a certificate
| |
| ; in such form as would have authorized competing and duplicative telephone lines, the Supreme Court considered in broad terms the public policy underlying the concept of regulated monopoly which forms the heart of the present Public Utility Law and its statutory precursor. The Court said:
| |
| " Competition may be and is very desirable in many lines of business; there are however, a number of quasi-public enter-prises which may ,be classified as natural monopolies where the duplication of facilities merely results in the placing of an additional burden upon the public by forcing patrons to
| |
| , maintain two systems where one would serve the purpose as effectually and at less cost. In this class may be placed the furnishing of gas, water electricity and telephone service
| |
| ; to the public. The argumen,t that competition between rival facilities serves to reduce the price to tbs consumer is not j
| |
| sustainable logically. The duplication of water systems, for instance, means the expenditures of a large amount of money
| |
| 'l in the construction of resezvoirs laying of pipes, etc., in turn
| |
| ; involving duplication of inconven,ience to the public in tearing up strcets and making excavations without prcportionate
| |
| , benefits. The duplication of telephone systems in a given
| |
| _; locality without connection between their lines requires sub-L scribers to install both systems and pay for double service to reach subscribers on but one of the two systems. Or, as frequently happens, subscribers maintain both systems when j
| |
| .I they can reach other users with equal facility on either sys- 1 tem. It is useless to argue that the cost of construction of such duplicate system is paid by investors, and the risk of ,
| |
| the carrying charges, and income to the investors is impo i
| |
| .k i
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| i-upon the public with the result that a higher charge on the part of each competing company becomes necessary, due to
| |
| !! the division of the patronage of the public." i
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| '; i
| |
| ; The same principle was reore recently expressed by our Superior I 3Court FISSION,194in PAINTER Pa. Superior v.
| |
| Ct. PENNSYLVANIA PUBLIC UTILITY CO3I-548,169 A. 2d 113,1961, where our l' refusal to allow a new water company to furnish service in an area already chartered to an existing company ready, willing, and abic to i
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| )
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| 1
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| :i
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| .m,
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| I j
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| i 443 DECISIONS OF THE PUBLIC UTILITY COMMISSION f render service in the new territory, was sustained. The Superior Court there said at Page 551:
| |
| "As will be gleaned from the above, this is a territerial dispute between an existing water company, on the one hand, and two proposed companics on the other, over which diould l be permitted to serve a common area. Competition within the sama territory by non-carrier public utilities, such as water companics, is deleterious and not in the public interest i
| |
| sava in rare instances. In Perry Co. T. & T. Co. v. Public i Scrvice Commission,69 Pa Superior Ct. 529, we affirmed order of the Public Service Commission in which was con-l tained the following language: 'In the matter of the publie l
| |
| supply of water, electricity and other public utilitics this corrmission, under the powcrs and authority vested in it by the provisions of the Public Service Company Law, has from its beginning adopted and pursued a policy whereby unneces-sary and useless competition should be prevented. This policy was adopted after careful consideration and is being carried out for the benefit and protection of the consumer but also of the Public Service Companies.'"
| |
| ,1 See also GENERAL TELEPHONE CO3IPANY v. PENNSYL-l VANIA PUBLIC UTILITY CO3ISIISSION,192 Pa. Superior Ct. '
| |
| 563,161 A. 2d 906,1960.
| |
| ; In view ci the foregoing, we find that such service as the respondent now proposes to render to the Aliquippa plant of J & L, and such
| |
| , service as it at one, time contemplated rendcring to National at that
| |
| . company's new plant in the Borough of Ambridge and in Harmony Township, would not be in the public interest, and we shall therefore enjoin respondent from rendering such service; THEREFORE,
| |
| . IT IS ORDERED:
| |
| ?'
| |
| l! 1. That the complaints filed by The AIanufacturers Light and Heat Company at C.17615 and C.17624 be and are hereby sustained to the extent indicated.
| |
| tt
| |
| : 2. That respondent shall not, until further order of this Com-mission for cause shown, furnish gas service to the plant of J & L in l-the Borough of Aliquippa, Beaver County, Pennsylvania, or to the j plant of National Supply Company in Harmony Township and Am-bridge Borough, Beaver County, Pennsylvania.
| |
| iL i
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| a !
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| r l
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| UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION ,
| |
| Before the Atomic Safety and Licensing Appeal Board i
| |
| In the Matter of )
| |
| )
| |
| r THE TOLEDO EDISON COMPANY and )
| |
| l THE CLEVELAND ELECTRIC ILLUMINATING ) Docket No. 50-346A COMPANY )
| |
| (Davis-Besse Nuclear Power Station, )
| |
| Unit 1) )
| |
| [
| |
| . )
| |
| THE CLEVELAND ELECTRIC ILLUMINATING )
| |
| COMPANY, ET AL. ) Docket Mos. 50-440A (Perry Nuclear Power Plant, ) 50-441A Units 1 and 2) )
| |
| r )
| |
| :: THE TOLEDO EDISON COMPANY, ET AL. )
| |
| (Davis-Besse Nuclear Power Station, ) Docket Nos. 50-500A Units 2 and 3) ) 50-501A f
| |
| CERTIFICATE OF SERVICE I hereby certify that copies of the foregoing
| |
| ! " Applicants' Appeal Brief In Support Of Their Individual i
| |
| And Common Exceptions To The Initial Decision" were served f
| |
| 'l upon each of the persons listed on the attached Service List, by hand delivering copies to those persons in the Washington, D. C. area, and by mailing copies, postage prepaid, to all others, all on this 14th day of April, 1977.
| |
| SHAW, PITTMAN, POTTS & TROWBRIDGE
| |
| 'l t
| |
| By:
| |
| A Robert J. Zahler Counsel for Applicants L
| |
| h
| |
| - , , - - - _ . . , - ~w-- , , . . r
| |
| | |
| *$D*
| |
| . __ 'dk/.
| |
| TEST TARGET (MT-3) 1.0 l# EE BM W M gn m zu ll 1.1 i.m RM ll .8 1.25 1.4 1.6 u .
| |
| 4 6" n MICROCOPY RESOLUTION TEST CHART
| |
| #4 +%
| |
| +%f>,,if '4 )4,4 .
| |
| | |
| 9
| |
| %*b<$ ,/g A
| |
| /// $ $+t y// // ,N, $$4t?
| |
| 9/)+f ,,/ ,.AeE Ev <e 1,em '4'+4 TEST TARGET (MT-3) 1.0 !! a Bla y @ DE I.i L's WOM M
| |
| l1.25 u 3
| |
| - e. =
| |
| MICROCOPY RESOLUTION TEST CHART
| |
| # * '' 4
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| *%f&/
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| y,,,
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| ''N
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| ,A,4,+ A
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| I l
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| [
| |
| I ,
| |
| UNITED STA ES OT M4ER*.a i NUCLEAR REGULATORY CONCSSION '
| |
| \
| |
| ( 3efere the Ate =ic Safat" and Licensin A =eal Beard 1
| |
| s r
| |
| l In the Matter of )
| |
| )
| |
| TEE TC*E O Z:: SON COMPANY and )
| |
| r THE F* 'VELAND ELECTP.:C ** *-CMINATING . ) Cccket Nc. 50-3t6A COMPANT )
| |
| (Davis-Besse Nuclear Power Statics, )
| |
| Unit 1) ) -
| |
| r )
| |
| THE CLEVELAND **'FTR*C *.LLUMINAT.*NG
| |
| )
| |
| COMPANY, ET AL, ) Cccket Nos. 50-440A (Perrf Nuclear Power Plan., ) 50-441A Units 1 and 2) )
| |
| )
| |
| "*EE TCLEDO EDISCN COMPANY, IT AL. )
| |
| (Cavis-3 esse Nuclear Power Station, ) Cccket Ncs. 50-500A
| |
| - Units 2 and 3) -
| |
| ) 50-SCLA 1
| |
| SERVICE LIST r
| |
| Alan 5, R:senthal, Esq. Ivan.U. Smith, Esq. .
| |
| Chai:=an, Ate =ic Safsty and Atemic Sadety and Licensing 3:ard Licensing Appeal 3:ard U.S. Nuclear Regulat rf C 'ssion U.S. Nuclear Regulat: y C - issien Washingt:n, C. C. 20555
| |
| :; Washingt==, C. C. 20555 I John M. Frfsiak, Esq.
| |
| Jereme E. Sharf an, Esq.
| |
| . At:mic Safety and Li=ensing Scard
| |
| . A.;;:s?: Safsty and Licensing U.S. Nuclear Regulate y C:==issi:n r
| |
| * Appeal scard Washingt:n, D. C. 20555 U.S. Nuclear Regulat: 'I Ccm=issics .
| |
| Was*dagt:n, D. C. 20555 A---d e Saic.(y and Licensing 3 card Pa J.1 *
| |
| - P.ichard S. Sal ==an, Esq. U.S. Nuclear P.agulat 7 C =nissi:n At:mi Safatf and Licensing Washingt=n, D. C. 20535 Appeal 3 card U.S. Nuclear Reg.:lat= / C=.=:issi n .C=cketing & Service 5e0.10.
| |
| ;[ Washingt n, D. C. 20555 office ef the Secretary 1 U.'S. Niiclear Regulate:v C:==issi:n A At:mic Safsty and Licensing Washingt:n, D. C. 20006 Appeal ".ca-d Panel i, U.S. Nuclear Regulat=ry r" 'ssien .
| |
| weseph R .. . __
| |
| e.3, _ s_.
| |
| Wash, gten, D. C. 2055 a_
| |
| 3,33,=g3 g, yegt,;, Esq.
| |
| Rey P. Lessy, Jr., Esq.
| |
| Cffice of the Enscu ive Legal Direct:
| |
| ]
| |
| I U.S. Nuclear Regulate y C 'ssi:n 1 Was'' Sten, 3. C. 20555 1
| |
| L e I
| |
| li t
| |
| i l
| |
| k l'
| |
| t I
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| lI i
| |
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| e i
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| i l
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| i l
| |
| Joseph J. Saunders, Esq. Terence E. Eenhow, Esq.
| |
| Antit:.:st Divisic: A. Edward Grashef, Isq.
| |
| ,[~
| |
| Depa. -e: cf Justice 5teven A. Berger, Esq.
| |
| ! Washing : , D. C. 20530 Steve: 3. Peri, Isq. l Winth =p, 'Sti= son, Putnam & Pc:m :s Melvis G. Berger, Isq. 40 Wall Street i Janet R. Urban, Esq. New Yc k, New Y::k 10005 Antit=ust Divisic: '
| |
| P. O. Box 7513 Thc=as J. Mussch, Esq.
| |
| Was'* gt==, D. C. 200* General Att==ey
| |
| -[ Duques:e Light C:=pany Rauhe Gcidherg, Esq. 435 Sixth Avenue l Pittsburgh, PA 15219 David C. Ejel= felt, Esq.
| |
| Michael D. Cidak, Isq.
| |
| .Geldherg, Field =an & Ejelsfelt David McNeil Olds, Esq.
| |
| l
| |
| .l' Suits 550 Reed * '-' Shaw & McClay 1700 Pe==sylva=ia Ave., N.W. Unica N Suil'' T Wasi8 sten, D. C. 20006 -
| |
| 3ex 2009 r
| |
| Pittsburgh, Pi 15230 l Vincent C. Ca=panella, Izq. .
| |
| Direct == cf Law Lee A. Rau, Iaq.
| |
| Rchart D. East, Esq. Joseph A. Rieser, Jr., Izq.
| |
| i
| |
| . 1st Ass't Direct ed Law Reed S=ith Shaw & McClay city cf Cleveland Suite 900 213 City Hall 1150 Cennec.icut Avenue, N.W.
| |
| Cleveland, Chic 44114 Washi:gten, D. C. 20036
| |
| . I,
| |
| '.'' i Frank R. C1 key, Isq. James R. Idgerly, Esq.
| |
| Special Ass' t Att==ey General Secretary and General C:unsel Rec = 219 Pennsylvania Pcwer C =pany i Tcw=a Ecuse Apa. Lents . C:s East Washi=gt: Street 6
| |
| *Earrisburg, PA 17105 .* New castle, PA 16103 a .
| |
| Oc:ald E. Eauser, Isq. Jch: Lansdale, Isq.
| |
| L! vict F. Greenslade, Jr., Isq. Ccx, Iangd:-d & 3 :wn Willia = J. Kerner, Isq. 21 Oc;c=t Circle, N.W.,
| |
| The Cleveland Iloctri: Washingt n, D. C. 20036 Illumisatise C ==anr
| |
| ' ~
| |
| 55 Public Square Alan P. Bu= Mm m , Izq.
| |
| Clevela=d, Chi: 44101 Squire, Sanders & Des;sey 4 1800.Unic: C ee '' ' "' ;
| |
| Michael M. 3riley, Esq. Cleveland, Chic 44115 Paul M. Snart, Isq. --- - - -
| |
| 7:11er, Eas:y, Ecdge & Snyde -d ,,"*
| |
| e ' ,,^
| |
| * N* *' 2 7* **' ~ s 4 * '*E' P. C. Ecx 2052 I"#** *:* . *;*** ***'
| |
| .'cleda -e c'8o 4260'
| |
| . An* _** ns* Sec _'-.'85* ..
| |
| ! Russell J. Spe: i==, Izq. 30 E. 22:ad Street, 15th 71 ::
| |
| T,::c=as A. I4;rcha, Isq. C=1 d us, Chi: 43215
| |
| ; Chi Idisc c==pa:Y Christ ;her R. Schraff, Iz .
| |
| e 5 sc :th Main 5::est Assista:t A:::=ev Gene _al" Ak:: , Chic 44305 . Invir=== ental Law' See::.:n 361 E. E :ad 2::reet, 3:n T'.:::
| |
| C 1::::hus, Chic 42215,
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| ._ ._. , . . _ - _}}
| |
