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Reply Brief Clarifying Issues Raised in Applicant Brief. Requests That ASLB Adopt DOJ Proposed Findings of Fact & Conclusions of Law & Issue Relevant Order Re Parameters of Relief Appropriate to Remedy Existing Situation
	ML19329F240
Person / Time
Site:	Midland
Issue date:	11/25/1974
From:	Bannan C, Grossman M, Leckie D; JUSTICE, DEPT. OF
To:	;
References
	NUDOCS 8006230762
	Download: ML19329F240 (120)
	v • d • e

{{#Wiki_filter:' TABLE OF CONTENTS \ j . l , ; .:P_ age

Citations"' ---- ------------------------------------- iii Introduction --------------------------------------- 1-I.' Applicant. Misconstrues the Scope and - Character of Section 105c Proceedings --------- 3 A. Applicant Distorts the Legislative History of Section 105c ------------------ 5 j

                                ,1. Congress' Intent in Enacting-Section                                                              !

105c Was To Insure That. Access to i , Nuclear Facilities be Widespread ------- 5

2. The Department's Role in the Enactment of Section 105c is Consistent with Its Interpretation of the Scope of Section 105c ---------------------------

7: ,

3. Applicant Misinterprets the Aiken Dissent -------------------------- 13

4. Expeditious Licensing .of Nuclear Facilities and the Antitrust Review Process are Compatible Goals -----------

13

5. Congress' Decision Not to Enact Proposed Legislation Relating to the Electric Power Industry has No Bearing on the Interpretation of Section 105(c) -------

14 B. The Holding and Subsequent Interpretation i of the Waterford Memorandum Support the Department's Interpretation of the Scope s, oof-Section 105c ---------------------------- 15 . C. The Principles of Conity Between Adminis-trative Agencies are Consistent with the Department's Interpretation of the Scope of Section 105c ---- ----------------------- 18 II. Applicant Wrongly Interprets Section 105c When it Argues That a Full-Blown Violation of the Antitrust Laws Must be Shown ----------- 19

   .     .                                                            i i\                                                                                       THIS DOCUMENT CON 1AINS P00R QUAUTY PAGES 623 0                                                                                                 ,

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                                                         - CITATIONS CASES                                 -

P. age, Alabama Power Co. (Joseph M. Farley Nuclear Plant, Units 1 & 2), AEC Docket Nos. 50-348A and 50-364A, Memorandum and Order, .

February 9, 1973 --------------------------------- 6 Associated Press v. U.S., 326 U.S. 1 --------------- 63 California v. FPC, 369 U.S. 482 ------------------ 28, 46 Cities of Statesville, et al v. Atomic Energy Commission, 441 F.2d 962 (D.C. Cir.) ------------- 6 City of Lafayette v. SEC, 454 F.2d 941 (D.C. Cir.) ------------------------------------ 28, 29

              .         Diamond International Corp. v. Walterhoefer, 289 F. Supp. 577 (D. Md.) ------------------------                                                                        55       -

Elco v. Microdot, Inc., 360 F. Supp. 741 '(D. Del.) - 52 Federal Power. Commission v. Southern California L Edison Co., 376 U,S. 205 ------------------------- 45 FCC v. RCA Communications, Inc., 346 U.S. 88 ----- 30, 33 Gainesville Utilities Department v. Florida ~ Power Corporation, 402 U.S. 515 ------------ 39, 40, 41 i 1 Gamco, Inc. v. Providence Fruit & Produce Building, Inc., 194 F.2d 484 (1st Cir.) ---------- 63 Gas Light Co. of Columbus v. Georgia Power Co., 440 F.2d 1135 (5th Cir.), cert. den., 404 U.S. 1062, reh. den. 405 U.S. 969 -------------- 44, 45. _ Gulf States Utilities Co. v. FPC, 411 U.S. 747 --- 29, 30 Hawaiian Telephone Co. v. F.C.C., 498 F.2d 771 (D.C. Cir.) ---------------------------------- 33 Hecht v. Pro-Football, Inc. , 444 F.2d 931 (D.C. Cir.) -------------------------------------- 44 iii

 .....%_,       _ _ _ _     ,                                            _ . -      . . ~           , - .                      .. -.      - - - . .     --
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R Page International Boxing Club v. United States, s 258 U.S. 242 ------------------------------------ 5,5 laternational T & T Corp. v. General Telephone & Electronics Corp.,351 F. Supp.1153 (D. Hawaii) --- 52, 53 Louisiana Power & Light Company, Memorandum and ' Order of Board with Respect to Petitions to _ Intervene in an Antitrust Hearing, Do'cket No. 50-382A, April 24, 1973 ------------------------- 16 Lcuisiana Power & Light Company, Memorandum and Order of Board with Respect to Petitions to

Intervene of Cajun Electric Power Cooperative, Inc. ; Don Chemical Company; and Louisiana

                        ' Municipal Association Utilities Group; December 10, 1973 ------------------------------- 17, 18 Louisiana Power and Light Company (Waterford Steam Generating Station, Unit No. 3) AEC Docket No. 50-382A, Licensing Conditions                                                    -

Assuming a Situation Inconsistent with the Antitrust Laws. October 24, 1974 ----------- 65, 67, 69 Louisiana Power & Light Company, (Waterford Steam Electric Generating Station, Unit No. 3, AEC Docket No. 50-382A; Memorandum and Order of the Co::Inission, September 28, 1973) ---- 4, 6, 15, 16 Northern Natural Gas Co. v. FPC, 399 F.2d 953 (D.C. Cir. ) ------------------------------------- 29 Northville Coach Lines, Inc. v. City of Detroit, 379 Mich. 317, 150 N.W. 772 --------------------- 23 Parker v Brown, 317 U.S. 341 -_----------- 38, 43, 44,.46 Packaged Prograns, Inc. v. Westinghouse Feoadcaseting Co. , 255 F. 2d 708 ------------------ 63 ~ - Pub 2.ic Utilities Commission v. Attleboro Sam & Eiercric Co. , 273 U.S. 33 --------------- 45 Ricci v. Chicago Mercantile Exchcnge, 499 ;U S. 239 --------_-------------- _----------- 27 Silver v. IXew Tork Stock Exchange, 373 U.S. 341 --- 32 ,

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                                         .                                                                                                  Page Six Twenty-nine Productions, Inc. v. Rollings Telecasting, Inc., 365 F.2d 478 (5th Cir.)                                                         ------

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Standard Oil Co. v. F.T.C.,-340 U.S. 231 ---------- 32 Times-Picayane Publishing Co. v. United States, 345 U.S. 594 ---------------------------- 32 United States v. Aluminum Company of America, . 148 F.2d 416 (2d Cir.) --------------------- --- 5.8 , 5 9 United States v. Chas. Pfizer & Co., Inc., 246.F. Supp. 464 (E.D. N.Y.). ------------------- 56 United States v. E. I. du Pont de Nemours & Co.,

 .                     353 U.S. 586        ------------------ -----------------

5.5 United States v. Falstaff Brewing Corp.,

         .            410 U.S. 526         ------------------------------------

48 United States v. El Paso Natural Gas Co. , 376 U.S. 651- ------------------------------------ 46 United States v. Guerlain, Inc., ISS F. Supp. 77 (S.D. N.Y.) -------------------- 55 United States v. Griffith, 334 U.S.100 ----------- 58, 60 United States v. Pacific Southwest Airlines, 358 F. Supp.1224 ------------------------------- 44, 46

                 ' United States v. Philadelphia National Bank, 374 U.S. 321         ------------------------------------ 28, 46 thrited States v. Marine Bancorporation, 42 U.S.L.W. 5210                -------------------------------- 48, 49 United States v.-Otter Tail Power Co.,                                                                                         -

l 410 U.S. 366 -------------------------------- 25, 30, 31 , 38, 59, 60 l 1 United States v. ?aramount Pictures, i 334 - U. S. 131 ------------------------------------ .55 United States v. Southeastern Underwaters Association, 322 U.S. 533 ----------------------- 32 United States v. Terminal Railroad Assoc., 224 U.S. 383 ------------------------------------ 63 ( - V

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6 o...._.. . . I-gage United States v. United Shoe Machinery Corp., 110 F. Supp. 395 (D. Mass.) --------------------- 59 United States v. United States Gypsum Co., 340 U.S. 76 ------------------------------------- 67 United States v. International Telephone & Telegraph Corp., 324 F. Supp. 19 (D. Conn.) - 51 Utah Pie Co. v. Continental Baking Co., 386 ',. . U.S. 685 ---------------------------------------- 69 Village of Elbow Lake v. Otter Tail Power Co., 40 FPC 1262, Aff'd; Otter Tail Power Co. v. Federal Power Commission, 429 F.2d 232 (8th Cir.), cert. den., 401 U.S. 947 ------------------------ 43 Washington Gas Light Co. v. Virginia Electric and Power Co., 438 F.2d (4th Cir.) ------------------ 44 STATUTES 1

Michigan Stat. Ann. 22.13(6) --------------------- 23, 42 Section 105 c(6) , Atomic Energy Act of 1954, amended, 42 U.S.C. S 21335 (c)(6) ------------------------ 64, 69

                .Section 105 c(5), Atomic Energy Act of 1954, amended, 42 U.S.C. 5 2135(c)5            ----------------------------

64 . Section 2C2(b), Federal Power Act, 16 U.S.C. 824a(S) --------------------------------- 31, 40, 41, 42 Section 105c, Atomic Energy Act of 1954, . amended, 42 U.S.C. 2135(c) -------------------------- 3, 4, 5 - 6, 7, 25 Section 10(h), Federal Power Act, 16 U.S.C. 803(b) ------------------------------------------ 36' e . e

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                                                                                                                                      '4 i

e MISCELLANEOUS

                                                                            ,                                                       P_ age Amendment in the Nature of a Substitute, Cong.'

Rec., pp. 3229-3230, rej ected, Cong. Rec. ,

p. 3317 (March'5, 1936) -------------------------- 34 Ellis, A Giant Step (1966 -------------------------- 34

                 . Hearings Before the Senate Antitrust and Monopoly Subcommittee, May 6, 1970                                               ----------------                      9 Hearings on Frelicensing Antitrust Reveiw of Nuclear Power Plants Before the Joint Committee on Atomic Energy, (91st Cong.,

1st Sess.) ----------------------------------- 8, 10, 11 Hearings on Trust Legislation Before the House. Committee on the Judiciary (63rd Cong. , 2d Sess.) -------------------------------------------- 36 H.R. 12322, (90th Cong., 1st Sess.), S. 1071, H.R. 7016, H.R. 7052, H.R. 7186, H.R. 9557.

                     .(91st Cong., 1st Sess.) (Proposed Electric Reliability Act of 1967) --------------------------                                                                14 Report of the President's National Pcwcr Committee, H. Doc. 137, (74th Cong.

1st Sess.) ---------------------------------------- 36 S. 2564, H.R. 13828, (90th Cong., 1st Sess.) -------- 14

                 'S. Rep. No. 621, (74th.cong., 1st Sess.)                                                     ------------

35 Utility Corporations Report, Federal Trade Commission, S. Doc. No. 92 (70th Cong.

                 . 1st Sess.)            ----------------------------------------

36

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INTRODUCTION On October 8, 1974, the Department of Justice filed its Brief and Proposed Findings of Fac,t in this matter (Department's Brief) . At the-same time, the Atomic Energy , Commission Staff, the' Michigan Cities and Cooperatives,and Consumers Power Company filed briefs and proposed findings. These will hereinafter be referred to as AEC's Brief, Inter- , venors' Brief, and Applicant's Brief, respectively. Since the positions taken by the AEC Staff and the Intervenors in their briefs are consistent in most respects with that of the Department, this reply is confined to a 4 clarification of several matters raised in Applicant's Brief. We 'do not propose herein to address issue by issue the matters raised by Applicant in its Brief. Rather we have relied on'the~ fact 6al and legal discussion set out in our

                'Brief and we will merely highlight the maior inaccuracies we believe are present in Applicant's Brief.      Further, it should be noted that while there are substantial conflicts betueen the Department's and the Applicant's statements of relevant facts, we shall not undertche a point by point reply.

In light of the detailed analysis contained 11 our Brief, the contradictory factual asscrtions, as well as the validity s . 1 s

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                                                                                       - .h

of our contentions, are, we believe, apparent. */ Hence, such a factual presentation _would be both repetitive and unnecessary.

               */ For example,' Applicant asserts that "there is no evidence that any ter=s or conditions contained in the wholesale ser-vice contracts are anticompetitive in their effect or intent."

(Finding of Fact No. 4.03; emphasis added; see also Finding No . _ 4.11) . Yet Applicant in fact restricted systems with which it was interconnected from interconnecting with third parties, and this contractual provision in fact precluded Lansing from interconnecting with the M-C Pool (Department's Brief, 156-157). Also, Applicant's Finding No. 4.75 states: There is no credible evidence that the Company's management articulated or implen!ented a policy designed to acquire all of the smaller electric systeus in the Compcny's service area. (emphasia edded) This clnin is clearly refuted by the evidence (Departmant's Brief. 94) , natuithscand'.ng the conoidersble offor: Applicant unde: rock to disown Mr. R. L. Paul (Applienut's Erief. 210-2L2). t 2 t*

                        -        r                            ..,                   -

I - JPLICANT MISCONSTRUES THE SCOPE kND CHARACTER OF SECTION 105c PROCEEDINGS Throughout this proceeding the Department has contended, pursuant to Section 105c of the Atomic Energy'Act, that there

exists today in Michigan's lower peninsula a situation inconsis-tent with the antitrust laws and that the activities under the Midland licenses would affirmatively maintain, indeed exacerbate, that situation. In order to prove this contention, it has been necessary to show first that a situation inconsistent with the antitrust laws exists. This entailed the presentation of evi-dence concerning the system-wide structure and practices of the Consumers Power Company and other electric systems in Michigan's lower peninsula. Secondly, it was necessary to show the relationship of the activities under the license to that situation--i.e., the meaningful nexus as required by the Statute

           .and by the Commission.         We believe we have satisfied this requirement in all respects by demonstrating that the construc-tion and operation of the Midland Units and the marketing of low-cost, base-load nuclear power from these units , through integration into Applicant's system, and the re3 onal   i     power exchange, furthers Applicant's monopolization of the relcycat wholesale and retail po*er markets. 2/
             */   Contracy to Acclicant's crscrtic., thrt t'.e Prrart cmt by jarticipating, in 'this proceeding sccb "rc croid ene b c Qu of proving its antitruct cicir, in a conreau.cn  fc m ./' GP?li-cant's Brief. 6), the Atcornev General i'. Jee":.rca by ~~

K [ footnote continued on next pagej 3 s 7

          .Despite the clear language of Section 105c, Applicant maintains that the statute does not permit the prelicensing antitrust review process to be used in this manner.             Applicant contends that (1) the legislative history of the Atomic Energy Act, (2) the Commission's Waterford Memorandum, **/ and (3) vhat it calls " fundamental principles of administrative law" limit Section 105c inquiries to " antitrust issues inherent in the terms on which the licensed facility would be owned or its energy output allocated" (Applicant's Brief,18) .             While it is not entirely clear what antitrust issues this standard would encompass, we interpret it to. include only those situations where an applicant unreasonably excludes third parties from a joint venture project. ***/
   */    (continued from previous page]'

Ecction 105c(1) to " render such advice to the Commission as he determines to be appropriate in regard to the finding to be made by the Commission pursuant to paragraph (5) of this subsection" --i.e. , whether the activities under the license would create or maintain a situation inconsistent with the anti-trus t laws . Section 105c(5) further allows the Department to

   " participate as a party in the proceedings thereafter held by the Comaission on such licensing matter in connection with the subject matter of his advice." Rather than forum-shopping, as Applicant suggests , the Depcrtment is fulfilling itc statutory                  :

obligation mandatcd by Congress. I 1

   **/     1,ouisian t Fe"er fr Licht Cc tanr (Uaterford Stecm T.lectr:.c           1 Enerz:.ing Sccticn, Uni: 2o. ,, AEC Occhet Lo.         10- 36 ?. ; ::2ma-rander; and Order of the Commission, Septedc cr 2 : , 19 7 3 (herein-after "Waterford Mccorcndum").
   ***/ 'v7h11e Acolicant does not c:alicitly s ec te that it would E 3ie secciri 135c inquiries to jiint venture s-         .4       .0 , tha       l entire thrus t cf ' :s argument paints in this u ect.ca.

i In l fact, joint ve: urers are the c712 exr,:pi . App' c: nv citen c4 c ! subja:t ta Sectica 10]c. , 6 l 4

                 .        u                          ..

We-believe Applicant has misinterpreted the legislative history of Section 105c, the requirements outlined by the Commission in its Waterford Memorandum, and the principles of ,

   ' comity between administrative agencies.

A. Applicant Distorts the Legislative History of Section 105c

1. Congress' Intent in Enacting Section 105c Uas To Insure That Access to Nuclear Facilicies Be Widespread We believe the Atomic Safety and Licensing Board in the proceeding involving Alabama Power Company's Farley Nuclear Plant aptly summarized, in an Order addressed to the question of nexus, Congress' intent in enacting'Section 105c:

Our reading of the legislative history of-the antitrust provisions of the Act convinces us that the primary impetus for the injection of antitrust considerations into the nuclear licensing process was the deeply held concern of Congress that the huge public investment in the research and deveiop-ment of nuclear reactor technology should not be utilized by a few leading private firms to entrench themselves in an anticompetitive market position. Competition in the electric power industry, even more than the atomic power indactry, was so clearly a basic concern of Congress, and was referred to so often during the legislative history of the 1970 Amendrents, that no citations are needed. 14/ It can further be presu ed that Coagress was Emilicr with the laws of physics end the benefits ficwing from interconnectien, pooling, reserve sharing, and othar practices of electric utilitie: rd ch would necessarily involve the output of the propos'l nuclear generating _ facilities in quascion, and uoril thus be subject to any provisions or condi f ons made a part of the licen:,a by th2 Cormission. 14/ It is of interc-t to note, in this co necticn, E e dacision of the U.S. Court o f .h a ca ls f o r t'ue ( District of Columoia Circuit, sitting en bc.nc, in 5

l

Cities of Statesville, et al. v. Atomic Energy Commission, 441 F.2d 962 (D.C. Cir. 19691. That opinion, although dealing with the somesdat narrower, but similar, antitrust provisions of sec' tion 105c as they stood before the 1970 Amendments , said that even though it was holding 105c inapplicable to the section 104 licenses there sought, when section 105 became applicable ' the contentions here raised (under section 105c) will certainly be beth pertinent and reviewable.' (emphasis supplieu). Lese conten-tions, as summarized by Judge Leventhal's concurring opinion, were made by municipal electric utilities whose underlying complaint was 'against ruthority enabling private companies to operate these large facilities, and to take advantage of the Government's gigantic research and development expenditures in the field of nuclear energy, on terms alleged to be repugnant to the policies of the antitrust laws, permitting the private companies to dominate the power markets without any participation by the smaller municipal utilities.' 441 F.2d at 980. This is also a large part of what is being alleged . in the instant case, and if it would have been

             ' pertinent and reviewable ' under the old section 105c, it is also pertinent and revievable under the new and broader section 105c. */

The Commission emphasiced this same these in its Waterford Memorandum when it stated: The Commission's antitrust responsibilities repre-sent inter alia a Congressional recognition t'.at the nuclear industry originated as a Government monopoly and is in great measure the product cf public funds. It was the intent of Congress that the original public control should not be permitted to develop into a private monopoly via the AEC licensing precess, and that access to nuclear facilities be as widespread as possible (Uaterford Msmorandum, 4) . Congress' concern that a few large firms muld utiliza the ecst advantages avcilable from nuclecr teci.: ology--technolo y develc. ped fro a a hug'a publi.e invcstment--to said.*:nin cnd fuether

     */    A1 bem P o .r a r C c a m m r (Jose-Q II. Fari e

Mu:. lear Plent ,

Unito i snd 1), 3.2.0 7cW3 C ac . ' a J .N b.i c .U. 50- h 4A , L../.orandum

and Ordar, February 9, 1973; 14-16.

6

'T

           " entrench" themselves in an anticompetitive market position is applicable whether the nuclear facility is solely owned or jointly owned.      Whether a facility is jointly owned or solely owned is an economic-engineering question dependent on whether an electric system is large enough to absorb the entire output of a nuclear faclity without assistance from its neighboring electric systems.      It is implausible to argue, as Applicant has done, that Congress enacted antitrust legislation aimed only at small and medium-sized electric systems, who mu'st 4

enter joint ventures to take advantage of nuclear technology, and left larger firms immune from antitrust liability.

2. The Department's Role in the Enactment of Section 105c is Consistent with Its Interpretation of cne scope of Section 105c Applicant, through the selective and distorted use of quotations from the testimony of Department of Justice spokes-

men before various Congressional committees, contends that the Department gave assurances to the Congress that Section 105c was aimed only at joint-venture nuclear facilities (Applicant's Brief, S, 16). While it is true that joint venturec were a matter of considerable controversy at the time of the enactm ne of Section 105c, the Department's acti~on in proceedin,3 rgainst

           'n a   tpplicant who seeks to construct and operate a f acilit:. on' its own is entir-ely consistent with statements it cada Ecfore Con:mittees of Congress while Section 105c was uc.dar consic.eration.

t 9 7 s

Applicant cites the testimony of the Assistant Attorney General, Antitrust Division, Walker B. Comegys'before the Joint Committee on Atomic Energy on November 18, 1970, to support its contention (Applicant's Brief,17) . While Mr. Comegys did tell the committee of the concern of the Depart-ment about the unreasonable exclusion of small systems from joint venture facilities, he also expressed, in his testimony of'the same day, concern about the, exclusion of small systems from participation in solely owned facilities. In response to a question from Chairman Holifield, he said: Mr. Comegvs: Now that (sic] the doctrine of joint venture that we have discussed is a cegarate and distinct doctrine frca that which vould be a7 plied in the case of a [ sic] single ownership, absent any duality in pooling arrangements and interconnections and so forth. There you are dcal-ing uith a single owner. I would not say that under no circumstances could a single owner be required to, share but this vould require a showing, the traditional showing under Section 2, which is one of monopoly plus something else, deliberateness or intent or some-thing of that nature. Mr. Chairman, you have properly highlighted a most important point, I think. Chairman !Iolifield: So there would be a completely cif erent ractor involved in any antitrust advice or decision that might be made by the Anti-trust Division if they were dealing 'ith a singio owner of a nuclear plant or of joint ownership of a nuclear plant. Mr. Comeevs: That is correct, and thase are tradiEional.thcEries. Th:y cre not cor.ething new. This [is] traditicnal antitrust doctrine. Z/

         */   1hwrings en Pralicencing ^.ntitrust T.eview <? Seele 2: F or r*

Finnt r. 5 2 fore the .bint Centittta on ';cric En .r (h t . .: Lnai t.e t

         "llei.ri ngs") , 91st Cong., let Sess., ot. I at 1.3 (Nove.l.sr 20,
        .1969).

8

t 4 e Applicant alsox cites the testimony of Mr. Comegys before the Senate Antitrust and Monopoly Subcommittee on-May 6', 1970, to support its; position that Department "gave assurances" to

the Congress that it would not proceed against an electric system which solely owned a nuclear facility (Applicant's Brief, 16) . Once again Applicant has quoted selectively. The entire' paragraph from the testimony reads: The advice will, of course, be grounded on judicial interpretation and application to particular factual situations of the standards of Section 1 and 2 of the Sherman.Act and Section 7 of the Clayton Act. On this basis, antitrust review

                 .              would consider the contractual arrangements and other factors governing how the proposed plant would.

be owned and its output used. We would also consider

the arrangements under uhich it would be built and supplied. No broader scope of review is contemplated, cognizant as we.are of the need to avoid delays in F getting atomic electric plants into operation. We do not consider such a licensing proceeding as an appropriate forum for wide-ranging scrutiny of general industry affairs essentially unconnected with the plant under-review (Hearings, pt. 2 at 366).

We do;not understand how the Department's position in this _ _ _ . . . _ case is inconsistent with either of Mr. Comegys' statements. We have not engaged in a wide-ranging scrutiny-of general , industry. . affairs , rather we have scrutinized activitics which

                     ;are essentially connected with~ the plant under review.            Uc have inquired _into the specific contractual arrangements and other factors governing how the proposed plant would be owned and its output used.            We hava attempted to apply to particular fact situations the standard of Section 2, that of nonopely power plus the deliberate exercisa of that pcuer, preci.sely as cc .
 ~

10c. Comcgys explained. 9

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                        .            .                                                                      3                                             ..

f f Applicant also cites Mr. Comegys' comments on power pooling before the JCAE as evidence of a " disclaimer that the proposed provisions would be made the vehicle for inquiry into the general characteristics of a utility's* operations" (Applicant's Brief , 13) . When Mr. Comegys' testimony is read in its entirety, a significant-ly different picture of what he intended to con-vey emerges: u a . - . . . . Chairman Holifield. Mr. ' England has a questiott,.' Mr. England. You are apparently saying that even if X electric utility with its own funds, act-ing by itself builds and operates a nuclear power-plant, if it enters into a pooling arrangement with other utilities, a mere pooling arrangement, this then would put it in the categorj 'of joint venturer and the principle you say which would apply to the joint venturer situation would apply to a person who hooks up his powerplant with a pool? Mr. Comenvs. The last part of the question I did not unders tand. You were saying the mere fact that one ewned the nuclear generating plant, itself, then it entered in a pooling arrangement and the pooling arrangement was the thing that the small utility wanted to become a part of? Mr. England. No; I did not say the last phrase,

                'if he enters into a pooling arrangement. ' As I understood, you are saying that the princip1cs applicable to joint venturers mig;ht apply if a sraller utility wanted to get into the poolig arrangement.

Would you go further and say that those came principles would apply insofar as the s:naller utility wanting to get part cunership in a picnt, itself? Mr. Ce* -.2::;y1 As I undarctand the ques:ioa. CV E0 5w.2 r W ' '.; ..u :2 nO to C Oc *" . L *J .. h f. 0 '! ~ . {t~ i l, L ..~.; -l :, .:: A ~w n r :: ;_ ~ '

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rents the :.a ttar c.n rere: Laco, tca .,c-ac. . . criteria. that ic to sw. 66 ' taa w_nt .enturer Criteria , FOUL;; Ce ROfidd. 10

I think if you go to the next step down and say that if the smaller utility wanted to join the pooling arrangement then you would apply joint venturer criteria. That is why it is so important to try to avoid prognosticating what we will or will not do in this field until we examine a con-crete case and situation. The general principles are not new principles. They are.old principles. I think that there should be no uncertainty as to how these principles will be applied. Mr. England. One further brief question:

If the smaller ut-lity were only looking to share power from the pool but were not l'ooking for ounership participation in the nuclear powerplant, would the AEC have jurisdiction to entertain his petition? . Mr. Comegvs. I could not answer that question, sir, until I saw the entire arrangement. I think

   .         that you do not license the pool. The license would be the facility but maybe the pool would be an intri-               .

cate part of the facility or vice versa. I am sure you know that one type of peoling arrangement is where ene of the joint venturers builds a plant this year and it serves all for a time and as der.and grows , another aspect of the pooling provision would require another joint venturer to add to a pool a second plant that he did not have to build up to that time. So the various types of pooling arrangements or other arrangements are myriad. .

           ,        Mr. England. Thank you.

Chairman Hnlifiold. Now if we can find where

you were in your statement, we vill start fron there . I want to thank you for your responsiveness and the clarity of your answers to the comaittee (Hearings, pc. 1 at 133-134 (NovemS2r 20, 1969) ; -

emphasis addad). He agree with Chairman Holifield that the Dep.artucnt's position when read in its entirety is clear. No " disclaimers" were ever given that the Department would not . cceed under a

monopolization thcory gair.rt cn lpplicent'=

                                               .              n:; te ecastruct and operate a facility on its o' n.       In fact,   a   oppo,ite is true.

11 . s a

 ~                    .

Congress was explicitly told that the Department would proceed as we have in this case. The consistent tenor of the Depart-

ment's statements to the JCAE wa's' twofo1d; ~ (1) where a

fa.cility was :_a be jointly owned, the less rigorous standards applicable to joint ventures under trad'itional antitrust principles would apply, and (2) where a nuclear facility was to be solely owned by an applicant, the stricter standards of Section 2 of the Sherman Act would appiy. Applicant, through \ selective quotations and unsupported assertions, has seriously misrepresented the position the Department toold before the various Congressional committees which considered Section 105c. Applicant further argues that af ter the Hcuse had passed the bill in reliance on the Department's assurances , the Depart-ment " sought to lay the groundwork for a broader interpretation by providing expansively worded letters to some Senators in the course of 7 hat body's deliberations" (Applicant's Brief, 17). Applicant does not cite any such letters, so it is diffi-cult to respond to this charge. However, as we have previously stated, th'c Department's position was clear from the first. Applicant cds its set of quotations with the ec=earc of Senator Pascere and Congresscan Eosmer which it states nilitsta againr t our inta: pretation of Section 105c (Appi f. cant's Erief , 20) . We disagree. '.'.n essence, these two distinguis'c:.J. M2thers of Congress conc 1=End that the language of t'.,e sttr-te L d the acccupanying _ .-itt2e rer. ort are clear na ' spe. : ? ': t hat ' c I '. c 3 I

         -and that th0 eCC: Cents of DepartC2nt of JUGtice 3F sC: A G                 -

12

    ,         not be read as an authoritative interpretation of Section 105c.

We completely agree and we have not attempted to argue otherwise.

3. Applicant Misintercrets the Aiken Dissent The intricacies of the legislative history of Section 105c are exhaustively discussed in the Reply of the Department of Justice on Issues Other than Disqualification Rasied by Appli-cant's Answer of May 9,1972, filed June 9,1972, in rtis pro .

ceeding, which was incorporated by reference into the Depart-ment's Brief. However, an additional comment is necessitated by a serious nisstate: tent by Applicant. Applicent states :

              " Senator Aiken, a JCAE member uho advocated broad AEC review authority, conceded that the reported bill reflected the Co:nittee's effort 'to cut back on the scope of the AEC consideraticus of antitrust issues '" (Applicant's Brief, 19) .

As vas made clear in our earlier brief, Senator Aiken's dis-senting views were never made part of the JCAE report because of an agre'ement that changes in the comnittee report would be nade to obviate Senator Aiken's concern that tha bill did cut back on the scope of review.

4. Expedf.tict:_s I.icensing of Nuclear l'acilities and the Anti-tra s t Revi.m- Pre c a.a s are Comr,t:tib] : Carils Applicant . argues that it ic "inecac2ivabic' (.'.p p l i c an t ' s 3rief 22) ths_: Cengrecs intended to cdopt the rec:a of anti-

trust review proposed by the ;: apartment since it is " inherently 13

t inconsistent with the Congress onal i mandate for an expeditious licensing process" (Applicant's Brief, 21) . The Department agrees that the expeditious licensing of nuclear power plants was an important Congressional objective. However, we maintain that an expeditious licensing process is fully compatible with the scope of the antitrust review we have advocated in this case. This case, while excessively protracted, is cne of first impres-sion involving numerous complex is. sues of s :atutory interpreta-tion. Once meaningful precedents have been set, the time required to try proceedings of this nature will be substantially shortened. It should also be remembered that the Midland Units are grandfathered under Section 105(c), and therefore their construction has not been delayed by antitrust review. Mor~eover, of the 56 applications' on which the Department has rendered antitrust advice, in only one ' instance, the LP&L Waterford Unit, has antitrust review delayed construction.

5. Congress' Decision Not to Enact Proposed Legislation Relating to the Electric Power Industry has No Bearing on the Interoretation of Section 105(c)

Applicant argues that the failure of Congress to pass ~tha Aiken-Kennedy Bill */ or the various proposed electric pouer reliability acts 33/ is evidence of the intent cf Congress

      */   S. 2564, H.R.13S28, 90th Cong. ,1c t Sess.

M/ Propc.ac! "E1.2ctric ?c cr Reliabili . ? ct of ' '"G 7" UTR. 12322, aJth Co.crcra, 13t Scss. (1907.. S. ? l J . - . ~"l. H.L. 7052, H.h. 715 0 ,' H . R. 9 5 5 7, a ll E l s : C o . c . , '?. s t - as. .iCO. 4

                 ,                         14

                                                     ,a s e

that the scope of Section 105c be limit $d. This argument is fallacious in several respects. First, Applicant has not relied on legislative history, but has attempted to read tne minds ' of the Members of Congress. Second, the proposed pieces of legislaticn in question were significantly different from Section 105c: The Aiken-Kennedy Bill did not require a finding of a situation inconsistent with the antitrust laus and the various electric power reliability proposals were grants of authority to the Federal Power Commission to compel various power transactions and had nothing to do with the licensing of nuclear facilities. The legislative context is extensively discussed in the Reply of the Department, filed June 9, 1972, in this proceeding. B. The Holding and Subsequent Interpretation of the Waterford Memorandum Support the Department's Intercretation of the Scope of Section 105c In assessing the implications of the Waterford Memorandum, Applicant has concentrated on isolated dicta and ignored the holding of the Memorandum. We believe that nothing in the holding of the ?.stterford Menorandum, nor in the subsequent Waterford Licansing Scard decision interpreting that decision,

      . - - _ _ _  in inconsisten'.: vith the Departmant's theory of this ccan. */
                   */   E,ven accepbng Applicant's readine .cf the Wtarford                              :-s o-ran dun, the f a.ct.s supporting its nent's arg~ t.nen:                  ~; 2 . ~ ml f crroncous. For exs:pla, Appi n,: yen:                           f; n     ,
                                                                                                             ~
                                                                                                                ;,3 y;ge     ,

I nor ,tp e 2 mibility ef th e ur. c 3 is cqr a; .. _ .m . 3 cod}u

00 t ;.c. r c;r gng.;.-- n 3 (,, ; ! ;;tn _ 3 ; .- j g ,

                                                                                                             , , ,    . ,, g
                                                                                                                           , l 1s in direce cecfli. _ wich in; ar .crie : ec . _ :. ; .
                                                                                            .: Jm c : m. 2n c ..a . 19 i

.( to Applicau ' c .2 pplication fr Recctor Cc .atrumon Pemit and ! Operating _ Licase , - file d March 22, 1971, uith the AEC. In that I [ footnote conci.nued on next pagej j s 4 15 ' 1

.g- , In the Waterford Memorandum, the Commission accepted its Licensing Board's recommendations that the petitions to inter-vene in the proceeding be granted and that an antitrust hearing be ordered to determine the validity of the allegations. The Licensing Board's recommendations were' based on findings which included the following: (1) Petitioners and Intervenors have alleged with sufficient particularity situations that may be inconsistent with the antitrust laws or the

policies underlying those laws; (2) There are nexi between act1.vities under the pro-posed license and (a) said situation and (b) pro-posed relief. '*/ 3 The nexus and situation alleged in the petitions for inter-vention was that generation of power from the nuclear unit (an activity under the license) would strengthen the ability of , Louisiana Power and Light Co. to maintain an existing antitrust-inconsistent situation. This allegation is similar in content to .that alleged in the current proceeding.

            */           { fectnote centinued from previous p..;e ]

document Aonlicant states that the ccen:':.nc j us tific a:C on f.'r the Midh.nd fa'c'i lity is based upon "the annua.'.16cd r;ro>:ch for "'.2 Michigan Electric Power Pool (Applicant 'nri the .)otroit ici _:n Company) . . ." (p . 3) . Appl ~ccat furt:.ar state *; on n 32 4 c. that doctman tha t it plans cancracicn and tran.r '..u_ . a.:. <ior s to its systam in conjunction with the Detroit Et tacu Ce pcny. (St e alto DJ To. 133, p . 4. )

           **/ I cui si c.r a T:: r rd Lich C - scnv . :Mornnd                                                                           cd re i -
                                                                                                          ;.                   .
           .q;<n. .. , , . t. ., ~: :L; ..
                     . . ... _ .. 4         r_ =o u

t ,. . y. =. ..--

                                                                            . m':

z. w - 3 a. ..s

              . : .. a r in<    ; , D a e.c n    .o.                  , .sp r u. c . . .t . i . ;         _.

16

The Waterford Licensing Board further clarified the ele-ments necessary to make a showing of meaningful nexus in a subsequent Memorandum and Order. There the Board stated: In sum, the petitioners allege nexi between the situation alleged to be inconsistent with the

               . antitrust laws and the activities under dhe Water-ford 3 license. It is asserted that:

(1) Applicant has or is attempting to acquire

                                .a menopoly of large low cost electrical generating units in the relevant geographic market ;

(2) Control over the bulk power transmission system in the relevant geograp'nic market is fundamental to the creation or main-

           .              .. tenance of such a monopoly, and Appli-cant has a monopoly of facilities for                            ,

the transmission of bulk power and power for systen coordinction; (3) . Applicant has or is attempting to acquire a monppoly in coordination reserve power sales; (4) Applicant alone or in combination with others attempted to hinder or Frevent efforts by the petitioners to c onstruct their own transmission systems for bulk power and coordinating power. This ccnduct of Applicant, whether legal or illegal, was intended to maintain its

                           . monopoly positions; (5)    Construction of Waterford 3 un                5 maintain
                                ,or strengthen Apulicant's =n-                .: ,ecition by providing Appliccat with ch                 ,!.lity co serve the increasing detends c                 zesent custerers and the danands c:c c                cas ter.ars while forcelosing petitioners                  a the ability to serve these demanda (6)    ' Construction of Waterford 3             :        aterir.119
                                . assist Ap 71icant in provid! 1g
                                                                                 .' s own Coordinc. tic?. c C.d 20F2 0 t *'
                                                                          ~

Tir.cdS 'JirhoUt 0".tOring into 0' .' h1 vith in~.crve.: ors. I R - 17 s

4

 ;                                                                                      .

The Board finds that these allegations, if proved would establish the required nexus. These are, of course, matters to be proven; the Board has not determined whether these allegations are true. */

                                     .      s                         .

C. The Principles of Comity Between Administrative Agencies are Consistent with the Department's Interpretation of the Scope of Section 105c Applicant argues that well-established principles of administrative comity and deference confirm its analysis as to the proper scope of Section 105c proceedings (Applicant's . Brief, 24). The absence of jurisdictional conflict between various regulatory bodies with responsibilities in the electric power field is discussed in Section IV A of this brief in con-nection with the question of the applicability of the doctrine of primary jurisdiction to this proceeding. That discussion is equally applicable in this context.

                                                        ~
            */    Louisiana Power 5 Light Cor.pany (Waterford Steam Electric Uenerating Station, Unit 3), AIC Docket No. 50-33?A; Memore.ndum               i and Order of " card uith Respect to Petitions to In*2rvene of Cajun Electric Fouer Cooperativa. Inc.; Dow Cheni.c.i. Coc.pany;               I and Louisiana Municipal Associaticn Utilities Group, Lacamber 10,              ;

1973; 7-9. E

                .                                18

_ l

Congress clearly intended to relax the standard of certainty of contravention entailed in proving a violation of the antitrust laws. We believe, .given the clear language of Section 105c and the committee report authoritatively interpreting Section 105c, that there is no reason to ; analyze the inconsistency standard of F.P.A.S.A. However, Applicant seriously misstates the situa-tion when it says that in the administration of F.P. A.S. A. there is no support for the " inconsistency" test being less than a

           " violation" test.'                                                      -

The legislative history of the F.P. A.S.A.', from which the

           " inconsistency" standard of the Atomic Energy Act was taken, */

makes clear that there too Congress sought to impose a lesser standard of proof than violation. The 1949 version of the F.P.A.S. A. , which was in effect when the Atonic Energy Act of 1954 was passed, changed the F.P.A.S.A. test from "will violate" to " situation inconsistent." The House Conrittee Report states: Section 207. Applicability of antitrust laws This section requires any executive agency

               . in begi.nning negotiations for the disposal of any
                  , plant or other property costing $1,000,000 or more to seek advice of the Attorney General to advise the executive -agency whether the proposed disposition of the property nould tend to create or raintain a situation inconsistent uich the antitrust laws.

The executive agency must assist the Attcrney General by furnishing him any requisite information it may possess essential to the Attorney General's determination. This section also providu that nothing in the act shall codify or limit the appli-cability of the antitrust laws to persons who acquire property under the provisions of the act. - s */ Applicant. appears to concur in this proposition TApplicant 's ' Lri ef , 39) . . 20 ,

In one respec* the section is' broader than a similar provision In the Surplus Property Act of 1944. It requires a determination by the Attorney General as to whether the proposed disposal would

tend to create or maintain a situation inconsistent with the antitrust laws, while under existing law

                      -       the determination is whether the proposed disposi-tion will violate the antitrust laws.

(H. Rpt. No. 670, 81st Cong., 1st Sess. (1949),

p.19 ; emphasis added) .

'~

Ignoring this clear expression by Congress of its intention to relax the standard and the similar expression made in connec-tion with the 1970 amendments to the Atomic Energy Act, Applicant argues that the absence of a definitive statement by any judicial or administrative tribunal or by "one of the many agenc'ies active under the 1949 Act" that inconsistency is less than violation

 ,                   should be interpreted to mean that inconsistency is the same standard as violation.

An argument based entirely on what was nt . said or not done is, on its face, misconceived. While it is true (to the best of our knowledge) that no court or agency, in interpretating the F.P.A.S.A., has held that inconsistency is less than violation, it is equhlly true that no court or agency has held that incon-sistency is the same a's violation. __ However, it is cicar that the Department of Justice, in performing its statutory role of advising whether a disposal of ' Federal property would tend to create or maintain a situa-tion incensistent uith the antitrust laws, has not interpratad the standard as requiring a showing of violation. Fcr example, L a June 15, 1971, letter from Richard W. Matsren, Assistant Attorney General, Antitrust Division, to Willien E. Casselman, II,

                                                      ~                        '

21

General Counsel, General Services Administration, providing the Attorney General's advice, states :

The two contract provisions mentioned above appear to enhance the ability of Foote and Lithium

Corp. to stabilize the market price of lithium over a very substantial future period. In our view the oligopolistic positions of Foote and Lithium Corp. would be augmented by the proposed sale under the above-described conditions. For the foregoing reaso6s, we conclude that the proposed sale would tend to create or maintain a situation inconsistent with the antitrust laws. This letter was furnished to Applicant upon its request during the discovery phase of this proceeding. The Department in the above letter did not allege that either Foote or Lithium Corp. had violated the antitrust laws or that the sale of lithium would enable the buyers to violate the antitrust laus in the future. The letter stated only that the market position of these two firms should not be enhanced

            'by the property disposition.      The language of the letter clearly indicates,that the Department, in making this determination, proceeded on an cssumption that inconsistency has a different, distinct and significantly core expansive tecning than L            . violation .

l l ' t 22 - s

                                                       .- .~

s

                                               ;
                                      >                                       J.                .

III S MICHIGAN LAW REGARDING ELECTRIC UTILITIES Applicant throughout its Brief and its Proposed Findings

presents an incomplete and often inaccurate picture of the V extent to which Michigan state law prevents competition between ~ electric utilities and of the nature of Michigan Public Service Commission regulation. For example, Applicant consistently cites Mic). Stat. Ann. 22.13(6) to support its contention that the Michigan Public Service Commission has broad, pervasive

        . regulatory authority:

The authority and responsibilities of the Michigan Public Service Commission in the retail market are even broader [than the FPC's wholesale regulation]

                     . . . .         The    FTSC is granted broad authority to regulate all            ' matters pertaining to the formation, operation or            direction of .        .   . public utilities.'

(Mich. Stat. Ann. 22.13(6) ; Applicant's Brief, 32) */ In fact, Mich. Stat. Ann. 22.13(6) has been construed as granting the MPSC no specific power or authority and is there-

            ' fore not properly cited as a basis for alleged pervasive regula-tion.      According to the Michigan Supreme Court:

PA 1939, No. 3 [Mich. Stat. Ann. 22.13(6)] has been before cur Court several timac, and in each instance has been held to be a more outline of jurisdicrien vestina the Commission ett:. no specific crers -

                                                 . . . .        Northville Ccaca Linos, Inc. v. Cicv af Detroit, 379 Mich. 311, 333; ISO N.W. T -{l967).                     (emphasis added)

Since the repartment vieus Michigan law as of only marginal relevance to this proceeding, we will not respond in detail to i */ See also .pplicant's Brief, 114, 115, 163, and 167. 23 s

                                                   ~                          .
     ,                                                                                                    ~

Applicant's mischaracterizations of that law in this Brief. Rather, we have attached as. Appendix A hereto a memorandum outlining the relevant Michigan law. Where pertinent in the remainder of this Bricf, we will refer the Board to the appropriate sections of Appendix A. 9 e g e G ', 9 0 l S e

                                                                                  ' % =en s t

h i 24 s

            .g                                                       - - -

IV - THE IMPACT OF STATE AND FEDERAL REGULATION Applicant, while paying lip service to the clear holding of United St'ates v. Otter Tail Power Co. , 410 N.S. 366 (1973),

suggests that pervasive governmental regulatics severely limits application of the antitrust laws, and thus Section 105c of the Atomic Energy Act, to the electric, power industry. This per-vasive regulation theme, which prevades Applicant's Brief, finds expression in what are essentially four separate proposi-tions. First, Applicant suggests that the " nexus" requirement under Section 105(c) .is somehow analogous to the doctrine of-primary jurisdiction. It therefore would exclude consideration of factual issues which allegedly are within the regulatory authority of either the Federal Power Commission (FPC) or the Michigan Public Service Commission (MPSC). Second, it urges that " competition is not always desirable" is an established antitrust principle which should guide and restrain the AEC's application and enforcement of Section 105c. Third, Applicant charges state and Federal regulation with. resp:nsibility for 4 cxisting impediments to competition and concludes that pervasive regulation innunizes its conduct and market shcro from antitrust scrutiny. */. And fcurth, it proposes that pert:civa r. xiction .

        .=
        */   As a subpert cf this propoaition, .'.nclicent pastu ~:v3 i     '6rronecusiv -ht: rcruistion denies it d u. p=;er-te fi: :n ica or excluda' competitors and thus it cannet be found to hhvc monopoly power.

25 ,

limit the relief in t.his proceeding to . access to the Midland Units as "the outer boundary'.' (Applicant's Brief, 222) . */. We believe these proposit.4.ons are erroneous on their face

and were refuted by the Department o Brief. However, to insure that the Board entertains no doubt as to the Irepartment's posi-tion in this regard, we will discuss Applicant's propositions briefly herein. s A. The Doctrine of Primary Jur.'.sdiction is Inapplicable to This Procee' ling Applicant appears to contend that the " nexus" issue in this proceeding, i.e. , whether the activities under the Midland license vill raintain a situation inconsistent with the anti-trus t laws , mus t , at least in pcrt, be determined by the doctrine of primary jurisdiction. At ene point it seems to argue that " nexus" and primary jurisdiction are indistinguishable.

Reduced to essentials , however, Applicant's argument seems to be that the other parties' to this proceeding (apparently includ-ing the Department and the AEC Staff) should look for a more appropriate forum in which to litigate the antitrust issues raised in this case. ***/

             */    This issue has been caalvzed in detail at :n. 223-238 of
                                                ~                               ~

Ele Depar~ cent's Brief and will not be discussed herein.

             **/    "Whacher described in terns of ' nexus , ' 'primry juricdic-Hon , ' or .cdminis crztive cemity and ' deferenca,' these pri.m ples are applied .      . -

(Applicanr 's 3rief , ^4-23) .

             ***/  Ac.ti tru s t issues would necessarily be considct ed S such

,l- a procee<iing [be cre the Federal Ecwsr Cur.iasionj . p:.cnrable opportur_ities re file cc plaints and raire antitrust :.s a ues exist at the MPSC" (Applicant's 3rief, 34) . 26

                                    .                                                                         s
    $L                                                              ,   - . . - . - , _ ,      -n ..--, .-.

                 *     .              r Even assuming arguendo that the FPC and/or the MPSC pro-vide a forum to which a party could address complaints regard-ing Applicant's market power and anticompetitive conduct, Applicant's attempt to meld two distinct and unrelated legal concepts is' misconceived.                                                                                .

In the first place, there is no issue of primary juris-diction in this proceeding, for no agency except the Atomic Energy Commission has the specific statutory authority to determine whethe'r the activities under the Midland licenses would create or maintain a situation inconsistent with the antitrust laws and to remedy any'such situation by attaching appropriate conditions to Applicant's licenses if issued. Applicant's reliance on Ricci'v. Chicago Mercancile Exchange, 409 U.S. 289 (1973) , is factually and legally inapplicable.

Ricci involved, inter alia, a claim that plaintiff's membership in the Mercantile Exchange had been transferred to a third party in violation of both the rules of the Exchange and the Exchange Act itself. It was this factual issue which the court referred to the Commission, not the issue of whether the transfer was in violation of the Shercan Act nor whether the Exchange Act icmunized the conduct complained of from ancitrust sanction.

Thus Ricci stands merely for the proposition that courts idCll . stay their hand pending agency adjudicatien if: (1) the ccert determines that =aintenrnce of an antitrust action may bi2 incompatible with the regulatory schere; (2) sene facet of the dispute is within the agency's jurisdiction, 'and (3) agency

27 s

adjudication promises to materially assist judicial resolu-tion of the antitrust immunity question (409 U.S. at 302) . Conversely, if these three criteria are not present, a regula-tory agencp may be required to await judicial action. California

v. FPC, 369 U.S. 482 (1962). Moreover, the doctrine of primary jurisdiction does not come into play if the transaction has already been considered by the regulatory agency prior to the commencement of the antitrust action. United States v.

Philadelphia National Bank, 374 U.S. 321, 353-354. In the present case, there is no allegation that Applicant has acted in violation of the Federal Power Act, Michigan statutes or regulations of the MPSC. Thus, there is no issue . on which the AEC could defer to another regulatory agency. If Applicant's primary jurisdiction proposition is in reality an argument that, since the FPC or the FTSC has reviewed certain of Applicant's operating practices and contracts, the AEC is precluded from considering these practices and contracts as part of its Section 105c determination, Applicant is clearly in error. City of Lafayette v. S.E.C., 454 F.2d 941 (D.C. Cir.1971), cited extensively by Applicant, provides no support for its conclusion. In City of Lafayette, certain cities sought to require both the FPC and the Securities and Exchange Ccmmicsien to cons ider antitrust allegatiens in the course of appro / .r.q, :be# proposed' issuance of securities by Gulf States Utilities Co. (

                                   - 2C       28           -

             -        ~              .. . - , .     .     - . -               . .     -.    - .                            ..                     .   ,
                 ' The court held that the particular antitrust. allegations had a reasonable relationship to the FPC's. exercise of its regulatory authority but no such relationship to the SEC's exercise of its authority, which is primarily concerned with utilities' organizational structure rather than o'perating' practices.

(454 F.2d at 955-956). Contrary to the impression given by , Applicant, the court did not hold that the SEC would be fore-closed from considering such an issue m'erely because the FPC was required to ' exercise jurisdiction over it. , [W]e leave open the resolution appropriate if in a particular case the operations assailed are of such a nature as to be equivalent, in significance and consequence, to structural affiliation, or if

the purpose of the utility's sale. of securities is otherwise shown to have a. reasonable nexus to. matters within the SEC's jurisdiction under other s provisions. (454 F.2d at 956) The' court's test was affirmative: Is there sufficient nexus between the SEC's regulatory authority and the conduct

               . complained of? The court did not even suggest that FPC exercise
                  'of jurisdiction might preclude the SEC from also considering                                                              .
                 - antitrust, issues in an appropriate case.

t Moreover, the alleged jurisdictional conflict in the present case between the FPC and the AIC presents an -entirely different issue. The FPC, while required to consider antitrust issues as elements lof its public interest standard (Gulf Statea i Utilitics Co. v. FPC, 411 U.S. 747 (1973)), has no jurisdiction to-cnforc2 the antitrust laws. Northera Unturnl nas Co . r. FPC, i G 399 F.2d 953, :963 (D.C. Cir.1968) . The FPC interprets thc30 29 l k

_; _ . _ _ _ _ laws only in the. course of accommodating entitrust policy into its regulatory scheme _(Gulf States, supra); and a decision by it based solely on the application of antitrust principles would be of doubtful validity. FCC v. RCA Communications. Inc., 346 U.S. 88 (1953) ; see also otter Taii, supra, at 373. On the other hand, Section 105c, in requiring a finding I whether the activities under tha license would create or maintain a situation inconsistent with the antitrust laws, specifically adopts the antitrust standcrd. It does not require the AEC I and the Board to balance the antitrust policy of competition with some other regulatory goal the AEC is charged with attain- . ing under the Atomic Energy Act. */ The Board must review the s evidence in this proceeding under the standard 'of Section 105c, not that of the Fed'eral Power Act, nor that of the Michigan-

           . statutes.       It cannot escape this duty by defe'rring to the FPC                ,

or MPSC's evaluation of, or acquiscense in, Applicant's con-duct under their particular regulatory schemes. **/

            */    The only . balancing contemplated b; the Act comes into play only after the Cocmission has made adverse antitrust findings.

If a particular " situation inconsistent with the antitrust laws" were not remediable by license conditions, the Commission might find in a particular case that the need for pc: er cutucighs the competitive reasons for denying a license.

             **/   It is interesting to note Applicant's varying characterization of the standard Which regulatory agencies apply           In en effort to support its assertad "well-established" principle that competitien is not always desirable (Applicant's drief, 42- 30 ; see discussicn.

infrn) , e.pplicent arguas that tha antitrust pel_cy of conpetition is not in the public interest. Yet in tr ging that "chinis tr?.- tive law principles" require its cdversaries to cash a forum other than the AEC, Applicant a tta= pts to cic % the I'?C and the

    <        F2SC in'the mantle of an antitrust court.
                                        ~

30 s

                                          ,                 m
                                                                                   ~

I The Supreme Court's recent decision in Otter Tail Power Co., v. United States, 410 U.S. (1973) , makes this point crystal clear. After stating a general proposition that " activities which come under the jurisdiction of a regulatory agency nevertheless may be subject to scrutiny under the antitrust laws," 410 U.S. at 372, the Court goes on to consider Otter Tail's specific immunity claims. In rejecting Otter Tail's claim that its refusals to deal should be immunized from anti-trust prosecution becasue the FPC has authority to compel interconnections under Section 202(b) of the Federal Power Act, the Court'said: The standard which governs [ the FFC's] deci-sion (to order interconnection) is whether such action is 'necessary or appropriate in the public ( interest.' Although anticrust considerations may be relevant, they are not determinative. Thus, there is no basis for concluding that

             ,       the limited authority of the Federal Power Com-mission to order interconnections was intended to be a substit'ute for or immunize Octer Tail from antitrust regulation for refusing to deal with municipal corporations. 410 U.S. at 373-375.
                -    In other words, the mere fact that the FFC has authority to grant similar or identical relief to that rought in cn antitrust proceeding (or in this AEC procceF* g) neither precludes an antitrust court's (or this Board's) ensnination of relevant antitrust issues nor denics the ceurt (or the Board) the power to grant the appropricta relief.

e 31 s

4 B. There is No Antitrust Principle, Established or Otherwise, that Competition is Not Necessarily Desirable in Regulated Industries Applicant apparently contends that Congress, in enacting clEe antitrust review provisions of Sect. ion 105c, had in mind that the AEC should apply a "well-established antitrust pol. icy" th'at competition is not necessarily desirable (Applicant's Brief, 43-50). The argument distorts both . . antitrust policy and the clear Congressional mandate underly-ing Section 105c. Competition is the fundamental national econoinic policy and that which clearly underlies the anti-trust laws. */ The recognition that antitrust cust give way to regulation in some circumstances--i.e. , where a direct and (' irreconcilable conflict between the tuo schemes exists , Silver v. New York Stock Exchanze, 373 U.S. 341, 357 (1963) -- is not an antitrust principle; rather it is a sharply limited

            ' exception to the application of antitrust principles.
              */   The underlying policies of the antitrust laws have been variously defined by the Supreme Court.                    In United States v.

Southeastern'Underuriters Association, 322 U.S. 533, 439 (194A), the O:.== said: "Tha purpose nas . . . to make . . . a corpetitiva busi. ass economy ' Standv d C#.1 Co. v. J.T.C., 340 U..S. 231, :14S-249 (1951), noted: "ide heart of cur national eccocnic - elicy has been faith in the value of compc-titien. In the Sher:ca 2nd Clayton Acca , as well as in the Robinsen-Pat =an A::, Congress was dealin~, with competition, which it sought to protect, and menopoly, chich tt scuzht to prevent." Tinas-Ficr ane Publif. int Co. v. Unit.d Stne s, 345 U.S. 59A~ cc: m ff) , s tre n : 1:.ac to tne ; n t.: ;nat ! a fre2 econc=r tert tremetes the oublic m alth is th. - : 80cd5 r.uS t G Chnd C. .;Old Cast O f c G P.p a t i .~ 1 G n ; th5; ti 3 ) public, accig throu_h :ha marke t 's inpers onal j udgmar.:. l

  ,           shnli alle : ate the nation's resourect.; a                  thus direct the Cour3a its ccanonic davelop" ent vill On.;a."

32 s

A review of the cases Applicant citds as a basis for this alleged " national antitrust objective" */ reveals that the courts were merely directing the Federal Communications Commission, the regulatory agency involved, to reconcile fundamental regulatory purpose with the antitrust laws. The statute involved there -- the part of the Federal Communica-tions Act regulating communications common carriers -- imposes stric:t controls on entry and exit and requires ' __ _ new applicants to demonstrate that their proposed service is required by the "public convenience and necessity." The courts have held that in deciding whether to create new - competition by the issucnce of a certificate of public con-venience and necessity, the FCC cannot axiomatically equate more competition with the public interest. Rather, it is required to make a regulatory decision after balancing the

       . specific benefits of increased competition against the public benefit, in any, that would result from selection of another alternative providing for less competition.

No such balancing is required of this Board because the AEC, in its regulation of the develepnsnt and use of atonic energy by the electric power industry, has no fundamental regulatory goal which conflicts with the application of che basic - national economic policy of ec= petition. On the contrary,

         */    F. C. C. v. P.C A Co....  :niec tient . Inc., 345 U.S. 86 (1953);
 ,       IfnwcU..a " alephe.c Q v.          5  J.'T . , t.W F . .'. c. 771 (D.C. Cir.

BN) . . 33 s

the AEC's regulatory scheme specifically' directs the Board to make an ant.itrust finding -- nothing more, nothing less. The issue is whether the activities under the Midland licenses would create or maintain a situation inconsistent with the antitrust laws. Applicant has also contended that its alleged antitrust principle -- that " competition is not necessarily desirable -- has received Congressional recognition. This is supposedly reflected,first, by a quote from Representative Rayburn in the floor debates regarding the Rural Electrification Act (Applicant's Brief, 45-46), and second, by the elimination - of the " wheeling" provision from Part II of the Federal Power

   ,      Act.    */

With respect to its first allegation of Congressional recognition, Applicant apparently failed to notice that, subsequent to Mr. Rayburn's statement, a proposed amendment to the Rural Electrification Act, which would have in fact severely limited rural electric cooperat'ves' i ability to

          ' compete was rejected by an overwhelming record vote in the Senate. *2/ Thus, Rep. Rayburn'sstatementcfintenticanc[-

withstanding, the legislative his.t'ry o of the Rurcl Electrificacion

                                            ^
                                                           ~
          */    Additionally,1.pplicant citas the limientions placed c:. the Tennessee Vallay J.uthority in 1959 (Applicant's Erief, 40 E).
          **/    This ana..d ent, introduce:' hv Sennto        C.nx,'could h         t' Hmitcd REA 1:2:w - a nrve cniv thosa "fr. :nce              uc'.1   e   ""

may nc t be fr.:nist.13 cr irde M/2ilab] c '.~y co?.: en ; cr: ' . 2 ! caterp:.ise." 53eric..* cf "N..nicant i: rl.: d';.:un of _ l Subs tituce ." Cen; . P.cc. , pp. 3229,-3230 0:rech 1, 1936); rej ected, Cen?. Rec. , c. 3317 ('4 arch 5, 1936).

                                               .                     See also A                 l Giant Stoo, Clyde T. filis, Random House (1956), p. 50.

34 -

Act does not support Congressional recognition of Applicant's "well-established antitrust principle." Applicant's reference to the deletion of FPC authority to. compel wheeling from Part II of the , Federal Power Act as Congressional recognition of its asserted well-established antitrust principle" is also erroneous. Modification of the Act to exclude the common carrier provision */ reflects Congress' determination that pervasive regulation of the electric utility industry was not desirable. With respect to the common carrier provision, the Senate Report states: While imposition of these duties may ulti-mately be found to be desirable, the committee does not think they should be included in this

                      .first exercise of Federal power over electric i                 companies. It relies upon the provision for the voluntarv coordination of electric fccilities in the new section 202(a) (formerly section 203(a)),

for the first Federal effort in this direction. (S. Rep. No. 621, 74th Cong., 1st Sess.; emphasis added). 2 This Report indicates further that Section 203(b) of the initial bill (empowering the FPC on its own motion to direct a utility to extend its facilitie's, to interconnect with others, and to wheel power) had been climinated so that there matters also would be "left to the voluntary action of the utilities . " Id.; Otter Tail, 410 U.S. at 375.

              */    Section 2D2(r) of the initial bill vocid hava ende utilities cc=nen carriers by requiring t:cen to sr.1 cc vhael electric e.ncr;y re cny person on reascnabie requent.

i

35 s

Finally.in this regard, Congress' tlreatment of the electric power industry has evidenced a consistent view that the basic economic policy of competition rather than regulation should apply thereto to the extent possible. ,In 1914, for example, when Congress was considering the legislation which became the Clayton Act, representatives of major privately owned electric utilities urged that their companies be exempted from the new law. See Hearings on Trust Legislation before the House , Committee on the Judiciary, 63rd Cong. 2d Sess., p. 1825. No such exemption was adopted. Six years later, Congress pro-vided in Section 10(h) of the Water Power Act of 1920, 41 Stat. 1068 (now Section 10(h) of the Federal Pouer Act, 16 U.S.C. 803(h)), that 'all Federal licenses of hydroelectric plants must centain a condition prohibiting agreements and combinations to restrain trade. Congress' repeated concern for the-preservation of competition in the electric power industry is also manifested in the legislative history of the Public Utility Act of 1935, 49 Stat. 803 (Public Utility Holding Company .Act and Part II of the Federal Power Act) .

~~.

After reviewing two exhaustive studies of the structural and conpetitive ecnditions in the electric power industry, */ Congress', in the Holding Cc pany Act, declared that " restraint of free.cnd independent co potition" was one of the evils

             */ Report of the President' c Nations 1 Fewar Cc--ittee , H.Dec.
            'T37, 74th Co..t. 1sc 5ess- and ;tility                     Cerno:.:ri us M .r ,

Federal Irada'Cem ssion, S. Doc. No. v2, T0H E3hg. e ut m s. 36

s

affecting relationships among public utility companies. 15 U.s.C. 79a(b) (2) . The above discussion indicates that, even if Congress had not enacted Section 105c of the Atomic Energy Act, there would be no-basis for asserting any "well-established anti-trust principle" regarding the possible undesirability of competition. In light of Congress' clear procompetitive mandate in enacting Section 105c, Applicant's contention is even less tenable. Finally, it should be noted that the Department's case here does not rest upon any simplistic notion that there - should be un14-ited competition in the electric utility industry. We recognize that some kinds of retail competition would be wasteful. Our antitrust case examines the effects of applicant's conduct upon the competition which does exist or could reasonably be expected to exist within the framework of valid state' and Federal ~ regulation. The AEC cannot, and is not asked to, overturn any state or Federal regulation; the Department's relief seeks cerely to supplement regula-tion by preventing Applicant's private misuso cf monopoly power which regulation does not reach. Seu cc=?ctition and new competitors which may result from approprict: AEC licence conditions, vill, of course, be subject to state and Federal regulation. 1 i

i 37

l

                    --              -.     . .-                                      ~

9 c . C. State and Federal Regulation Neither Immunizes

                        ' Applicant's Conduct nor Prevents Its Exercise of Monopoly Power An important contention of Applicant is that FPC and MPSC regulation of its affairs prevents it f. rom controlling prices or excluding competitors; and, therefore, it cannot be held to have monopoly power (Applicant's Brief,125) .         Later in its Brief Applicant takes the somewhat inconsistent position that any of its practices which have had the effect of controlling prices or excluding competitors are immunized by the doctrine
        ,  of Parker v. Brown, 317 U.S. 341 .(1943) (Applicant's Brief, 160-171).       These two related contentions are merely an oblique attempt to revive the proposition, clearly laid to rest in Otter Tail, */ that p'e rvasive regulation operates to repeal i

a

*/

There is nothing in the legislative history [of the Federal Power Act] which reveals a purpose to insulate electric power companies from the opera-tion of the antitrust laws. To'the contrary, the history of Part II of the Federal Power Act indi-cates an overriding policy of maintaining competi-tion to the maximum extent possible with the public interest. It is clear, then, that Congress rej ected a pervasive regulatory scheme for controlling tha intersta:e distribution of power in favor of volan-tary cotriercial relationships. '4han 'ae;e relatian-ships are gov 2rned in the first instance by businasc judgcent and not ragulatcry coercien, courts n.unt i be hesitant.:: conclude that Contrags ntenden to ,

.                 overrida the fradamental untionai actieics ciboc ;d                  l in the nntirrust laws (410 U.S. c: 374-375).

9 38 s 1

                                                                 ,                     )
                                                     /

application of the antitrust laws to the electric power industry.

1. The Power to Control Price and Exclude Competitors Applicant's claim that state and Federal regulation of its activities negates any possibility of monopoly pouer is premised on the assumption that, between the jurisdiction of the FPC and MPSC, Applicant exercises no control over the -

prices at which it sells electricity and no control over the nature of'its relationships with the small systems in its area. While the terms and conditions of Applicant's retail and wholesale power transactions are subject to -regulatory scrutiny, and certain of its regional power exchange activi-ties are subject to the jurisdiction of the FPC, these facts do not mean that Applicant lacks monopoly power. First, by focusing on the terms and conditions of its own power sales, Applicant obscures the fact that its relation-

       . ships with the small systems in its area substantially control
       ' the cost of power to these systems.      For example, the inter-connection agreement batueen Applicant and the City of Ec11 nd requires the city to maintain generating reserves amounting to 45-487. of its peak load, uhile Applicant, as a member of the Michiga: Poc1, maintains enly 15-207 racerves.         If Ampli-cant's agr-:ctent with Holla.id .cre on an equal-percentage -

reserves, er Gainesville basis , Hollcud's required recurves m 39 ,

o .

inmuld be reduced 21 mw; and it could market 21 nu of addi-tional-firm power (Slemmer, cross, Tr. 8983-8984). Thus, J4pplicant's ability to dictate the terms of its interconnec-tions with small systems gives it signi,ficant power to control the cost of electricity to these small systems and, necessarily, the price at which these systems can sell electricity. The FPC, of course, has authority to order an electric utility to enter into a reserve sharing agreement with another.. Section 202(b) of the Federal Power Act, 16 U.S.C. 824a(b). It recently approved the policy of reserve sharing on equal-percentage principles by compelling the Florida Power Corpora-tion to interconnect and share reserves on that basis with the City of Gainesville (Gainesville Utilities Departmenc v. Florida Power Corporation, 40 F.P.C. 1227 (1968); and the Supreme Court upheld its jurisdiction to' do so. Gainesville

            . Utilities Department v. Florida Power Corporation, 402 U.S.

515 (1971). Notwithstanding the Gainesville precedent, Applicant adheres to its private decision to refuse to enter such arrangements with the small sy. ems in its area. For thenunicipalandcooperativeintervenorsinthisproceedinh, to obtain effective Gainesville reserve-shcring relief from the FPC, would recuire. them to undertake a protracted pro-ceeding before that agency. To requi.re this would be 5:ni-festly unjust in view cf the AEC's jurisdiccion to grcr.c this relief and the substantici time and effort they, as well as the Department, have already expended in this proceeding. 40 s

           ~           '       ^ ~ ~ ^       ~                 -                                '      -
                                       /.
                                                                                                      '\

The FPC, then, could mitigate Applicant's monopoly power somewhat by ordering it to share reserves on Gainesville principles with the small systems in its area. Its authority under Section 202(b) of the Federal Power Act, however, is limited in that it cannot order Applicant to enter into

       ' coordinating transactions with other utilities which could require Applicant to increase its generating capacity.                       This p'rovision precludes the FPC from ordering the type of coordi-nation known as " coordinated development" in which the parti-cipating utilities pool load growth to justify installation of larger generating units and enhance their ability to sell low-cost power.

Mr. Helfman's studies demonstrate the increased power supply costs to the " coordinated intervenor group" that result from Applicant's refusal to coordinate development

       .with these systems.            DJ No . 202 shows a sixteen-year total cost of $856,102,000 to the coordinated intervenors under their present arrangements with Applicant (Case IB) versus a total cost of $761,464,000 assuming their coordinated developcent with Applicant (Case IIIA Alternative).                     In other vords, if Applicant continues :o refuse to coordinate development                      en reasonable terns, these particular small syscens may expect to incur nearly.SS5 nillion of unnecessary expense over the

, next 15 years. 41 . s G . _ . _ .

t Second, there is little effective regulatory restraint on Applicant's power to exclude competitors. In addition to its ability to exclude competitors that flows from dictating tlie power supply costs of the small systems and thereby controlling the economics of entry or continued operation just discussed, Applicant may exclude competitors by cerely refus-ing to deal with them. Despite the claims Applicant mckes

 ,           for Section 202(b) of the Federal Power Act (Applicant 's Brief, 120-122) and the MPSC authority under Mich. Stat. Ann.

22.156 (Applicanti's Brief, 122-123), Applicant may not be required to supply power to a new retail distribution system in all instcnces. In the first place, the MPSC has never ordered delivery of power for retail distribution under Mich. Stat. Ann. 22.156; and would probably lack the constitutional authority to do so. (See Appendix A to this Brief, 25-27.) Second, the authority of the FPC to compel wholesale sen-tces to a new or existing utility is limited by the lan;guage of Section 202(b) discussed above. Where serving a.. neu -dholesale 1 cad would require Applicant to increase its genera. ting capzeity, Section 202(b) would not perait the F7C 4 to order such .scrvice. Further, nader Section 202(b) the entity desiring to interconnect ced purchase power at wholesale u.23: be a

            " person engagad in the trcasaitsion or sala of electric enern ." Vnetiher the FPC can trder Applicant to intercennect
                                         ~

42 s 4

O . [ with and supply wholesale power to a new' entrant not already

       .so engaged is a matter still in doubt. */   _

2.- The Doctrine of Parker v. Brown . . The concept of antitrust immunity for state action was enunciated in Parker v. Brown, 317 U.S. 341 (1943), in which the Supreme Court held that California's Agricultural Prorate Act, which contained restrictions on terms of sale and pro-vided for the setting of a minimum price at which producers could legally sell, did not contravene the antitrust laws. The basis for the Court's holding is-that the Sherman Act was directed at private action and was not intended to restrain "a state or its officers or agents from activities directed by its legislature" in the exercise of its police powers. i 317 U.S. at 350-351. The Court, however, was careful to find, after lengthy discussion, that the California statute harmonized with and furthered Federal policy on the same subj ect , as expressed in the Agricultural Adjustment Act. 317 U.S. at 352-368. Ab.sent this Federal statute derogating

~~

from antitrust policy, California's action would have been

         */   In Villate of Ilbow Lake v. Otter Teil Fouer Co., 40 FPC T262, nWd; Otter rni Ecvar Co. v. r ac=E Pouer haisaien, 429 F.2d 232 (3tc. Cir.1N b , cart. den., 40 i. C . S . '7D J E77vT, Otter Tail ect eniad before the Csnaission ; hat Zlbow La:ce lacked standing tader :his criterion. II.e issue ;acar.a coc t ,

however, since th' cillcge bec.re accize in generation. trans-mission and sale of ciectric pcwor during the pendency of tha proceedin;. - 43 .

m .

o constitutionally invalid; its validity depended upon Congress' antitrust immunity. The state action must also be valid, and it cannot be valid when in contravention of Federal law or when Congress has occupied a legislative field. Hecht v. Pro-Football, Inc., 444 F.2d 931, 935 (D.C. Cir. 1971). Moreover, the action ierunized must be directed, commanded, or imposed by the state legislature or regulatory agency. United States v. Pacific Southwest. Airlines, 358 F. Supp. 1224 (1973). Even Washington Gas & Light Co. v. Virginia Electric and Power Co., 438 F.2d 248 (4th Cir. 1971) , and Gas Light Co. of Columbus v. Georgia Power Co., 440 F.2d 1135 (5th Cir. 1971), cert. den., 404 U.S. 1062 (1972)', reh. den. 405 U.S. 969 (1972), both of which have been criticized as "an unwar-ranted hyperextension of Parker," */ involved conduct which the respective state commissions were authorized to compel on their own motion. Therefore,. the doctrine of Parker v. Brown, even in its most expansive interpretation, will immunize from antitrust sanction only action which is approved by the state and which the state has the power to compel. **/

   */   International T & T Cor7. v. General Talechone & riectric Corp.,.361 F. Supp. 11B , 1203 (D. Hawau., iff.1) .
   **/   The Department docs not concur in this expansiva r2eding of. Parker, as enclained in Anncndin A cf the Der-.:nent's Prehearfig 1:riai. iiwever, hictcn tS2 . nited na hra of r:lc-vant Michipn re;;uintien, the Pargq d: :rina im no; uudar-cut our ccsa, and .1 rcs tatenan t or eur psition c.. the acct ..ae in this brief is unnecessary.
          .                         44
             .                                                        s s

g. . . . .

In this proceeding, the very activities with which the Department is most concerned -- Applicant's refusals to coordinate with the neighboring small utilities with which it competes -- necessarily involve wholesale sales of electric energy in interstate commerce, and such sales have since 1927 been held a forbidden subject for state regulation because of the Commerce Clause of the Constitution. Public Utilities Commission v. Attleboro Steam & Electric Co., 273 U.S. 83 (1927). It was to fill the jurisdictional gap resulting from Attleboro that Congress passed the Federal Power Act in .1935. As the Supreme Court subsequently stated, "[w] hat Congress did was to adopt the test developed in the Attleboro line which denied state power to regulate a cale 'at wholesale to local distributing companies' and allowed state regulation of a sale at ' local retail rates to ultimate customers.'" Federal Power Commission v. Southern California Edison Co. , 376 U.S. 205, 214 (1964) . With no jurisdiction in the states to regulate wholesale interstate sales (and the Department is mot aware of any efforts by Michigan to regulate them) l

                                                                              ...         l there clearly can be no antitrust inmunity resulting from                       i l

sudh state regulation. Cf. Gas Light Co. of Columbus v. Geortia Power Company, 440 F.2d 1135(5th Cir. 1971); Washington Gas Liiht Co. v. Virainia Electric and Pouar Co. , 438 F.2d i (4th Cir. 1971) . l l 45

Applicant appears to argue that the' Parker v. Brown doctrine applies to immunize conduct subj ect to Federal regu-latory authority from the antitrust laws (Applicant's Brief, 169). A long line of cases dealing with the relationship between Federal regulation and antitrust casts doubt on this assumption. For example, the Supreme Court, in California v. FPC, 369 U.S. 482 (1962), held that FPC approval of the merger of El Paso Natural Gas and Northwest Pipeline Corp. conferred no antitrust immunity and subsequently, in United States v. El Paso Natural Caa Co., 376 U.S. 651 (1964), found the merger violative of Section 7 and ordered divestiture "without delay." - Id. at 662. */ Even assuming arguendo that the FPC's regulatory scheme gives it the mantle of _a state for Parker v. Brown purposes, only those activities of Applicant which have been directed by the FPC could . conceivably be immunized. **/ This, we submit, affords Applicant no greater immunity from antitrust scrutiny than the traditional rules governing the relation-ship between Federal regulation and antitrust discussed above.

                                                                        ~~
        */     See also, I?nited Stat.s.s v. Philadelphia Natianal Emk, 374 U.S. 321 (_963) .
        **/ United Stated v. PacMic Southwest t.irlines, ;;unra.

(i . i 46 s 6

e

s , t e APPLICANT'S ASSERTED RELEVANT MARKETS ARE CONTRARY C0 ESTABLISHED LEGAL PRINCT.PLES AND HAVE NO BASIS IN FACT Applicant's proposed definitions o'f the mdrkets relevant in this proceeding do not reflect legal or economic realities of Michigan's electric power industry, but rather obscure its clear dominance in the relevant markets. Thus, Applicant has sliced a relevant market into irrelevant submarkets ("open,"

               " closed," " perpetually closed" and "long-term") , and where an examination of separate markets would reflect realistically.

Applicant's monopoly, it has attempted to combine a final-product market (wholesale firm power) and a factor market [ (regional power exchange services) into a meaningless aggregate. However, rather than attempt to refute Applicant's market analysis assertions point by point, we rely on our position set forth at pages 61 through 87 of the Department's Brief and will limit ourselves here to a few observations. A. Retail Market - Applicant itself admits that a new municipal electric syste= could "theorecically" he formed to replace Applicant in its 'so-called " closed" markets, but centends, contrcry to the clear concern of its chief executive officer, Mr. Aymond, 3/

             */     Aymond, cross , Tr. 6050-6061. See Dep rtuent's 3ricf,
  !         50.
                       .                        47 s

       , ..  ~ . . .    - ..   .

b that such potential competition ripening' into actual competi-ti.on is unlikely (Applicant's Brief, 105-111). While the likelihood or unlikelihood of actual competition taking place requires a certain amount of forecasting, to deem Applicant's

             " closed" markets as not relevant to this proceeding would be to ipore the " edge" or " wings" effect enunciated in United States v. Penn Olin Chemical Co. , 375 U.S.         158, 174 (1964),

and approved subsequently in United States v. Falstaff Brewing Corp., 410 U.S. 526 (1973); (see Department's Brief, 207-212).

     .                 Moreover, Applicant's fracturing of the retail market dra.ws no support from United States v. Marine Bancorporation, 42 U.S.L.W. 5210 (Supreme Court; June 25, 1974).            In that
 ,          case, the Government's assertion that the acquisition of a Spokane banking company by National Bank of Corraerce. (head-quartered in Seattle) would reduce potential competition was rejected by the District Court for Western Washington, which held, inter alia, that Washington state law prevented competi-              4 l

tion between the acquiring and acquired bank. The Washington 1 statutory scheme . prohibits absolutely any bank from establish-ing a branch i: .any city or town -- other than its principal . place of businass -- in which another bank is already trans-actirig businass. Also, multi-bank holding ce=panies ara prohibited since under Washingten state lav no corporation may cwn core t'can 25~. of the capital stock of core than one 48 s e e su

4

e .

                                        /
     *s bank. */, The Supreme Court, although upholding the District Court's determinati.on that Washington state law precluded meaningful entry by National Bank of Commerce into the Spiokane, Washington, market, stated:, ".If regulatory restraints.

are not determinative, courts should cons ? der the factors that are pertinent to any potential competition case . . . . (42 U.S.L.'J. at 5222) Michigan law relating to entry by municipal corporations t into the electric utility business is clearly distinguishable

          ,    from the Washington statutory scheme and cannot, therefore, be viewed as " determinative."        The authority of the Michigan municipality to acquire an electric utility, while subj ect to certn+n procedural ~ prerequisites, ic essentially unlimited.

If the electors approve, a municipality may enter the electric utility business by refusing to renew the franchise of the

              . serving utility, by duplicating the facilities of the serving utility and entering into competition with it, or by condemning the franchise and facilities of the serving utility (see-Appendix A, ,S-16) .
                                                                                          ~.
                      *1hus , the ergunent that Michigen imi restricts entry by municipal'ities into the electric utility business is in reality an ar.pmt that it is unlikely that the voters of a particular city vill. approve entry; it is unlikely that a
               */    Also, there 'were s tatutes res tricting the ability of a

( yank to expand by acquiring a :nall exisci:; bank and branch-Ing fron it. .

                                                '49
                                     .                                                       s A          _ , , _ _      , -.

jury will find condemnation necessary, etc. Even were a nannicipality shown to be unlikely to accomplish the necessary legal steps - to e.r ter the electric business, the cause would udt be the legal requirements themselves but rather the economics of the proposed entry as perceived by the city counci_, the electors or the jurors. In this regard, it should

           ~ be noted that Applicant currently has -- and if its Midland
                        ~
                                                       ~

licenses. aEd'not ap'propriately conditioned, will continue to

~ ~

have -- the ability to dictate the economics of municipal

       ,      entry (see Department's Brief, 98-122) .        Accepting Applicant's market definitions and the conclusions it draus from them worald allow Applicant to interpose its own anticompetitive conduct as a defense for maintenance of its monopoly position.

B. Wholesale Market Related to Applicant's theory of " closed" and "open" I markets is its attempt to relegate its own wholesale generat- l ing requirements to the status of a nonmarket. (Applicant's Brief, 92-97) *] This, when taken together with its allegedly j

irrelevant " closed" retail markets , leads to rather interest-ing f.f anottaleus results. The net effect of Ap licant's analysis, if accepted, is that despite dominating both the

              *   '".[T]he market for Const:mers Power's bulk pover r aeds

_/ tmst be excluded frca the relevant bulk po:rer narhet in this proceeding." (Applicanc's Brief, 97) 50 5 9 e

                                      .                                                  s
                                                                       ,~nv.--

                                                                                          .L4 1

wholesale and retail markets, Applicant has no relevant market power. */ The cases. cited by Applicant as. precedent for excluding its "in house" requirements from the wholesale. market are neither on point nor supportive of Applicant's position. All analyze, for purposes of applying Section 7 of the Clayton Act, the impact of an acquisition or series of acquisitions 2*/ and involve a determination of sub' markets within a more broadly defined relevant market.

          .           It is therefore not surprising that, in determining ~the competit:ve impact of Microdot's acquis' tion of Elco, both of which firms manufactured and sold metal plate connectors en-
 .           clusively on the open market, "in house" production of other companies was excluded.       The in-house producers neither bought
             */ This reasoning, followed to its logical cenclusion, would
            - result in the anomalous situation that if Applicant perfected its monopoly by acquiring every electric utility system in Michigan -- including Detroit Edison, Indiana & Michigan Electric Co. , and Michigan Power Co. -- it could not be held to have monopolized because there would no .'onger be any relevant market in which it could have monopoly power.
             **/      See 'Apolicant's 3rief, 93-97.
                            ~

U. S. v. International - TElechone & Tale rach Cero. , 324 F.. Supp. 19 ID. ;;nn.- C. 'C ) , is somewhat unteue nna more on coint in that the Governtear sought to denonitrate Grinnell's " dominance" as a part of an I

             " aggregate concentratica" theory under S:ction 7. ':he ;naly-                   4 I

sis was therefore sencubat analogcus to that uncur Sectien 2. However, even accepting the dic:a cited by Applic tn: ) (Applicant's 3rief, 95-95 n. 42) as a holding ti c s ;. _-ir. Le: s i manufactured and ins talled by Grinnell ::re noc : :. s .-- narket as sales of ochar spr'inklare , thic did ::: ' is . _. .: Grinnell's sprir.klar nanufacturing cr.pseicy w - : ': mc a ' ; Rather, the C 'xr: 1xhad to tha impac . rt the J. .a i c. : . !

     ,       "the instalistien of autcmatic sprinhler sys t s . " 3;4 F. Supp. at 27.

t 51 s 4

nor sold conductors and there was no reliable information as to'their identity or the amount of their production. The principal impact of the acquisition would occur and could be measured in the submarkat consisting of the manufacturers which sold on the open market. Elco Coro. v. Microdot.'Inc.,

           '360 F. Supp. 741, 748 n. 3 (D. Del. 1973) (Applicant's Brief, 96 n. 42)..

International Tel. & Tel. Corp. v. General Tel. & Electronics Corp., 351 F. Supp. 1153 (D. Haw.- 1972) (Appli-cant's Brief, 95), involved a suit by IT&T under Section- 7 to determine the legality of various GT&E acquisitiens. The court found, inter alia, that, as a result of a 1956 consent

decree, Western Electric's (UE) vertical relationship with the AT&T (Bell) system was virtually " impregnable" and had the effect' of " sever [ing] Bell's telecommunications equipment business from the broad market and establish [ing] the inde-pendent operating companies as a remaining and realistically distinct submarket." 351 F. Supp. at 1177 (emphasis added) . The plaintiff, IT&T, the defendant, GT&E, and the acquired cc panies were all independent operating companies. The court was~not concerned with the market position of the Bell'systen but rather focused on non-3 ell or independent

           . companies. It was within this subcarket that the GT&E acquisitions would have an impact and the submarict wa, thuc an appropriate ene in which to reasure the competitive cor.r:.-
 't        'quences of-the icquisitions.
                  .                    .       52            .

s a a

                     -               .                                          . ;-

Applicant's reading of the IT&T-GT&E case would seem to dictate that if AT&T (the Bell system) were to merge with GTEE, the Bell market share must be ignored in evaluating the marger's impact on competition. Applied to market analysis in t'his proceeding, at mosti IT&T v. GT&E supports the ex-clusion of Derroit Ediscn's self-generation to meet its bu3t power reqmirements from the relevant market. It in no way supports Applicant's contention that its generation to meet its own power requirements should be excluded when measuring its wholesale monopoly power. Moreover, 'the -rationale for this market-splitting dis-appears when its factual underpinning is examined. The stated basis for excluding Applicant's self-generation from the rele-vant market i.s "that Consumers Power Company plans its system in contemplation of generating almost all of its needs." (Applicant's Brief, 93) This " contemplation," however, is not substantiated by the facts. Applicant does not generate "almnst all of its needs." In 1973, for example, of a total powe. cost of approximately $205 million, purchase power,

~.

incit:r'ing net in.rerchange, accounted for over $69 millien (DJ 22BA, p . E-lE) . Thus, approximately 347 of Appliccnt's power needs (in ter.s of cost) in 1973 came from other th:n its era generarier., , Finally, ir must be renecbered that Applicant's dole-sale pxer reqtrirements are the power supply for its retail 53 O

                              ,                                             N

, loads. As pointed out above, Applicant faces substantial potential' competition by way of municipal entry into its allegedly." closed" retail areas, and concomitant with this coinpetition is the possibility that Applicant will be replaced as both the wholesale and retail. supplier to its present loads. Thus, Applicant's attempted exclusion cf its cwn power requirements frem the wholesale market is legally unsound and unsupported by the facts.

         .               C. Regional Power Exchange Market Applicant, in attempting to combine the regional power exchange market and the wholesale firm power market into one maritet, sets forth a rather novel legal analysis.                       It first states the general proposition that a market should consist of all products which are reasonably interchangeable.                         It then cites (1) a series of cases that have held products to be                                  1 within one market despite differences in price, (2) another                                i series of cases combining products despite differing physical l

characteristics, and (3) yet another series of cases holding ~. ; l products to be a single carket even though some or all of them cay be unsuitable for the needs of a particular buyer, etc. . (Applicant's Erief, 82-86) . From this Applicant apparently concludes that differene products (iclesale firm power and regicsal po ter exchcnge service.r) car. cr.ly be analyred as pc.- of a single product narhet -- despite 54

                                         .                                                          s a

e

==

2P i

                                                                      'V                                              ..      .
                                                                                        ~

differences-in price and phy,sical characteristics, and despite the fact' that these products are not reasonably interchangeable over the long term for electric systems. A legal analysis citing cases where products have been placed in the same market despite a difference between them in price, physical character, oj; buyer- identity and concluding that products with all of. these differences comprise a single

product market turns the search for a relevant market on its head. Moreover, if it is germane to cite a series of cases holding products with certain diffefe~nc'es as being one rele- , vant market, it is equally germane to list a series of cases holding products with apparent similarities to b' e distinct markets. This the "Dcpartment is prepared to do, */ although we believe such an undertaking would serve no useful purpose. The delineation of relevant markets is a factual question

               . requiring a case by case determination. As the court said in Diamond International Corn. v. Walterhoefer, 289 F. Supp. 550,
               */    For exmacle, Internatienal Boxina Club v. United States .

Y58. U.S. 242 (1959), noicing thcc encap_casnip ocntn; 2.1tches were a relevnet rarhat distinct froa boxing at:ches in scueral; United : States v. Paramounn Pictures , .3'36 U.S. : ll, reccuding

               'to the distr;.ct cout          :or a aatc E ncrica uhe F:r thera :ns a
                                                ~

monopoly in "first run" covies as opposed to ce ries La gancral; Unite d -S tates v. Guerlain. Inc., 135 l'. Suop. ^7 (S . J . :; . Y .

IDT/) , ' acier.ng tnat perrute c a s tag: .c nanEf < nurar had 3uch

                " unique characteristics" as ta dis tinguisa i:               " atl orber
               - toilet goeds including nerfere of another r:- . x~.trer:          "
                                                                                            - u United States v. E . I. 'duPcnt da '.eneurs~          2. '    ; ;;    . 5.        566
                -(ba7) heldIi?q autem:ive tc3rics anJii.iC                    a liri        Irc           3 f abrics1 and . finishes in gencral.

55 -

y , - . . - - , , _ . . - ,

577 (D. Md. 1968): "[T]he decided cases give no real help for-an a priori determination of interchangeability." For products to be deemed interchangeable, two factual questions must be answered: first, whether the products c'an be usedf for the same purpose (functional interchangeability); and, if this is answered affirmatively, second, whether a purchaser is-willing to substitute one for the other (reactive interchangeability) : To determine whether acids are in competition - in a particular industry it is first necessary to decide whether they can be used for the same purpose

                      --whether they are functionally interchangeable
                       .    . ':    .   - Having found one or more products function-ally interchangeable with citric acid in a particular                      -

use; the next question to be resolved is ene of' purchaser _ reaction--the willingness er readiness to substitute one for the other. United States v. Chas. Pfizer & Co., Inc., 246 F. Supp. 464, 463 (E.D.N.Y. s 1965). -

                                 -While a finding of functional interchangeability must precede that of reasonable (reactive) inter-changeability, it is not determinative. For products to be classified in the same market they must be
                     'both ' functionally and reasonably interchangeable.
                  - 246 F. Supp. at 468 n.3.
            ~

While we concur in the proposition that wholesale firm power and economical self-generation are functionally and reactively interchangeable ard cc=pete with each other (Applicant's Brief, 88; Department's 3rief, 36-44), this certainly does not aske power exchange services, as factors of produci .: economical-

    .         _self-generation,- functionally and reactively in:crchtr.pochle with wholesale _ fir = power purchases.

56 ,

That some small utilities in Michigan meet their retail firm power obligations by a combination of self-generation and wholesale firm power purchases indicates neither functional nor reactive interchangeability between regional power exchange services and wholesale firm power purchases. By and large in all instances Where a system with generation has opted to meet part of its requirements with the long-term purchase of whole-sale firm power, Applicant had foreclosed it from the opportunity to obtain the regional power exchange services it desired in order to derive maximum economies from self-generation. */ For example, in 1972 Edison Sault Electric Company believed that it , could choose between a wholesale contract and an interchange agreement with Applicant (DJ No. 83) and prepared an economic evaluation which concluded that an interconnection agreement would be preferable (DJ No. 84) . At a November 14, 1972, meet-ing, Applicant's Mr. Paul advised Edison Sault that its belief was erroneous (DJ No. 85) ; and on November 17, 1972, Applicant's Mr. Hedgecock summarized the options open to Edison Sault:

      "[T]he onNy provision .    . . that has been Icft open is the initial ~ term of the contract" (DJ Uo. 35) . If one product ~is unavailable, thereby requiring acceptance of :. less desirable product, che two products can hardly be said -        compete.

Competition implies a choice between alterna s, and acceptance of wholesale fir = pcuer offered on a take-it. -leeve-it basi., does not reflect such a choice.

     .fi/  See Departnant's Brief, 144-167.

57

i t '

                                 .                    VI PREDATORY PRACTICES OR EXPLICIT MONOPOLISTIC MOTIVATION NEED NOT BE SHOWN TO ESTABLISH THE OFFENSE OF MONOPOLIZATION Applicant argues that in order to establish the " willful '

ness" requirement of the offense of monopolization, it is necessary for the Department to shes explicitly that Applicant has acted v'.th monopolistic motivation or that Applicant has engaged in predatory practices (Applicant's Brief,155) . While the Department has presented a substantial body of evidence to that effect, we believe it is important that the law of monopoli-zation be stated accurately and that Applicant's misstatements -

of case holdings be corrected. > Applicant has misstated the Department's position to be that market structure alone is sufficient to establish a viola-tion of Section 2 of the Sherman Act. As we argued in the Departaent's Brief (188-191) , specific intent co monopolize or.

predatory practices need not be shown to establish a Section 2 violation; willful motiopoly may be inferred from the effect of acti v ii t es which are " honestly industrial." We 5 ave not argued that market structure alene is sufficient. Applicant staces that we have cited "no case in support of the propositien that anticompetitive motivation need not be shown" (Applicant's 3rief, 155) . In fact, we h2ve cited both United Statcc v. air.inum C ,nrany of America, 143 F.2d 416 (2d Cir.1915) , and L~nited S cu tes v. Griffith. 334 U.S. 100 (1968), 58

m , a

         .m.n_.   .                               .                  . - - - - -

1 i l l l

                                        *                           .-                                I to support the propocition that intent may be inferred and ne+l not specifically be shown.        Applicant attempts to distinguisa the Alcoa case on rather unique grounds.        Despite the holding of Judge Hand that intent may be inferred and the fact that the
                                                                                        ~

trial judge found no predatory practicss , Applicant contends that the Alco2 case supports its theory of tonopolizacion since evidence as to predatory praccices was presented at trial (Applicant's Brief,155) . This logic is clearly specious. Applicant also cites United States v. United Shoe Machinerv Corp., 110 F. Supp. 395 (D. Mass. 1953), to support its proposi-tion that specific intent must be shown, even though the leasing arrangements under which U.S.M. machines .nere made available were found to be " honestly industrial." As Judge Wyzanski stated: So far, nbthing in this opinion has been said of defendant's intent in regard to its poner and practices in the shee machinery market. This point can be readily disposed of by rererence once more to Aluminum,148 F.2d at pages 431-432. Defendant

                  ,         intended to engage in the leasing practices and pricing policies which maintained its market power.

That is all the intent which the law requies when both the complaint and the judgment rest on a charge of ' monopolizing, ' not merely ' attempting

to monopolize.' Defendant having willed the means , has willed the end. (110 F. Supp. 295 at 346) Applicant cites several other Section 2 cases where preda-tory practices were found, including United Stc:2s v. Otter Tail Power Co. , 410 U.S. Jo6 (1973) . It then argues that since predatory practices were found in those cases, predatory practices nrast be found in all caras of menopoli.,ation. In the Otter Tail case,- the dis trict ccert had found predatory prcctices, such as 59-

   ~ ~ sov - mem-o ,

o . s refusalstowheelandrefusalstodeal;$/andthereforeitwas unnecessary for the Court to decide whether intent could be inferred. Moreover, the Griffith case, where the intent standard outlined above was first adopted, w'as cited with, approval by Justice Douglas. in his opinion for the Court in Otter Tail. Applicant ahso argues that "where, as here, an industry under scrutiny is marked by natural monopoly characteristics and extensive governmental regulation, the standard is clear: . the other parties to this proceeding must show that the company has acquired or maintained its position through unfair or pred-atory conduct" (Applicauc's Brief,157) . The Department does - not agree with Applicant that the electric power markets relevant to this proceeding are natural monopoly markets. The possibilities for competition in these markets were recognized by the U. S. Supre=e Court in Otter Tail and found worthy of the protection of the antitrust laws. 7 nile in most situations only one electric power company can economically serve at retail at one time, the court recognized that the ability of a town to switch franchises presented icportant ccupetitive possibilities. Consequently, es_ses involving natural monopcly fact situatiois-- such as tczns which can fi.nsncially support only one newspaper or one covie theat- e--are inapposite .

            */ We hertily eagree .ei.th     Applicant that 0 : . r Tail's " methods" were "clerly :precarory."             .

60

                                                                              - w       -pT

i 3 .%. . . . VII THE " BOTTLENECK THE0nV" 0F MONOPOLIZATION IS APPLICABLF TO THE FACTS OF THIS PROCEEDING Applicant argues that the'" bottleneck theory" of monopoliza-tion is inapplicable to this proceeding because: (1) Applicant has never denied and never would unreasonably deny access to its transmission network to any electric system; (2) Applicant's transmission system is not an " essential" or " unique" resource since the unavailability of this facility has not competitively handicapp&d its small neighboring electric systems , and (3) the Department's state =ent of the law is incorrect (Appliennt's Brief, 145-150). All three of Applicant's contentions are grounded on factual and legal misrepresentations. First, Applicant has refused to provide transmission services, and its past and present policies concerning such ' services are in fact unreasonable (Department's Brief, 135-142, 144-147, 199-200). */

           */ Applicant places great enphasis on its recent agreement to Bicel 20 tu of pc:cer from Datreit Edison to the M-C Pool (Applicant's pes"-racerd "e G ibit" 12,C23; Applicent's Finding of Fact 4.71) to <iaronstrate that its n: healing clicies are and always have been reasonable.               This contract o- concluded lcn3 af ter the tartincticn of the evidenticry hear:. :: in this natti--                      ,

and af ter the record was cloced. Eenca, the 'artcont ,acs nac no opportunity to cresent evidence or cross c ina witnesses regardin3 this 27,rrerent. Iievertheles s , we at believa che wheeling arrange::. ant rafisc:cd y tc.is c:6 i".. ipr = cuts a ,, significant di re.m:anca f rca _anlienn 's em 17 unrearencoq position regardin:. :&coling. Zirct. tv. a e 'ar;N aJacc:. Cec with the utilitati n of rhe rr mer.L:sian u . 3 1. Lne c 2 5.* 2.ve en its face. Second, na 'c tlie ce . .:nlic e.: .;17 _s defic..a:c in generating caa: cit? L3ae DJ ::o. 21. 6 t. her, _c. 1960-61) and uould have diffichi r s=ni'iin:: the 10 ,f power to the M-C Pool itself. It is not "cle2F whacholicy ' cant would fc11cw if it did have cacacity cnd enerrv 9 ' sell. . > f o r "- , i.pplicant ' s pc:,L-rcco-d " s 1.J. -f' dc a n d' r: r.. '

                                                              +>-   '

_2r uhich Aeolicant Cites it. , l t>l <

Second, the " bottleneck theory" cases do not require that access to a facility be " essential" or " unique," only that an excluded competitor be at a significant competitive disadvantage without access (Department's Erief, 204-205). Also, well-estab-lished principles of antitrust law do tiot allow Applicant to

         . argue successfully that the tax and financing advantages allegedly
         .available to public and cooperative systems justify its anti-competitive conduct (Department's Brief, 238-250; see also Prehearing Department's/ Brief, 86-88) . In any event, access to Applicant'.s transmission system is necessary for the competitive viability
       ~

of small electric systems (Department's Brief, 97-122) . Finally, the bottleneck theory, while first promulgated in cases involving " group boycotts ," has been extended to cover facilities voich are solely' owned. Otter Tail clearly stands for this proposition. In that case Chief Judge Devitt of the District of Minnesota applied the " bottleneck theory" to the sole owner of a transmission system who had denied access to that system to its competitors. There he stated:

                        ' Pertinent to an examin'ation of the law is a reference to cases excressive of the ' bottleneck theory ' cf .zntitrus t lcw.       This theory reflects in essence d_a_      it is an illegal restraint of trade for a par:v to foreclose others from the use of a scarce f aci.lity. ilere the theory finds applicatica in Otter Tril's ue,c of its subtransaission '.ines .

One authority believes:

                         'The Sheru:an Act requires that uhare f 9eilitics cannot przierically be duolicated by ould-12 compc titors . thos'e in poh 3 cs s ica c'l t.. .:a 'r. s e a 1.icw them to be dhared en fair terms. '

This, sectenant epiterizes the holding in federal cenes which hava, astabiisacd the principla: 62

                           .         .                            a.                       ..
                   United States v. Terminal Railroad Assoc., 224 U.S.

383, 32 S.Ct. 507, 56 L.Ed. 810 (1912); Gamco, Inc.

v. Providence Fruit & Produce Building, Inc., 194 F.2d 484 (1st Cir. 1952); Packaged Programs. Inc.

v. Westinghouse Broadcasting Co., 255 F.2d /06 (3rd cir. 1958); Six Twenty-Nine Productions, Inc.

v. Rollings Telecasting , Inc., 365 F.2d 4/6 (5th Cir. 1966). .

The bottleneck pr'inciple is applicable to Otter Tail. Its control over transmission facill:ies in much of its serv 1ca area gives it substantial effective control over potential competicien frca municipal cwnership. By !.ts refusal to sell or wheel power, defendant prevents that comnetition from , surfacing. 331 F. Suppl _54, 61,(D..~Minn. 1971), aff '.d 410. U. S . 366 (1973) . . Moreove'r, Justice Douglas, in affir5ing Judge Devitt's ~ ~ ~ ~

                                                 ~                     ~

District C'ourt opinion, cites with approval Associated Press

v. U. S. , 326 U.S.1 (1945) , a classic " bottleneck" theory case ,

to support the Court's decision (410 U.S. 377). 1 Thus, we submit that the " bottleneck theory" of monopoliza-tion enunciated in United States v. Terminal Railroad Ass 'n, 227 U.S. 683 (1912) , and expanded by Otter Tail is both factually and legally applicable to this proceeding. o

                                                                                   ~ ~ .
                                   -                                                          e 63
                     ~

k

m s VIII - ' THE BOARD'S OBLIGATION TO

             .                        IMPOSE APPROPRIATE RELIEF Applicant's position regarding appropriete relief in thi's proceeding is a maze of dropback positions, which run from hold-ing out its wholesale rate as appropriate access to the Midland Units (Applicant's Brief, 214) to allowing that access and coor-dinating transactions based on the policy statement presented in Mr. Aymond's testimony may be appropriate. */            In its tortured-path from its first position (no relief is necessary) to its final line of. defense, Applicant's arguments suffer from two glaring defects.       Applicant first assumes that the " nexus" required under Section 105c(5) is identical to the term "appro-priate" as used in Section 105c(6) . Second, Applicant contends that relief which does not leave it in an economic position equal to or better than it would be absent relief would be                -
               . contrary to the public interest. **/

A. S' cope of Relief

Applicant's contention as to the narrow scope of relief is in direct conflict with the unachiguous language of the statute,

               */     The allegedly reasonable conditions of Applicant's policy statement are, i.e submit , cerely a continuation of practices which have been demonstrated to be anticomoetitive. See for excmole Department's Erief, 199-200, for dis'cussion of the unreason'ble-    a ness of Applicanc's "new" wheeling policy.
               **/ See, for examole, Aonlicant's Brief, 218. where it seems to Insist that even AIC-ord'ered unit power transactions should pro-vide it with " incentive."

64 o s

F as well as the legislative history of the Act. */ Moreover, the recent memorandum of the Board in the Louisiana Power and Light Co., Waterford Unit No. 3, proceeding **/ makes clear that _ once a situation inconsistent with the antitrust laws has been found to exist, the AEC has broad auth6rity to impose conditions in order to eliminate such situation. Z . _ _ _ _ . In.that proceeding the Department, the AEC Staff and the Applicant Louisiana Power and Light Co.' agreed on a formulation . of license conditions and the Applicant agreed to accept those conditions regaraless of whatever further action the Board might deem necessary in the matter. ***/ Intervenor municipaI systems were dissatisfied with this agreed-upon relief, ****/ and the j Board ordered them to show cause by presenting evidence why said. relief woul'd not be adequate, assuming arguendo that the activities under the Waterford licenses would create or maintain a situation inconsistent with the antitrust laws. At the conclusion of~tb- .

                             */    See Department's Brief,. 253-256.
                             **/     In the Matter of Louisiana Power and Light Company (Waterford             ~      ~
                           ,5 team Generating Station Unit No. 3) AEC Docket No. 50-382A, Memorandum of Board with Respect to Appropriate License Condi-tion Which Should be Attached to a Constructica Permic Assuming Arguendo a Situation Inconsistent wich the Antitrust Laws ,

October 24, 1974 (" Board's Memorandun").

                             ***/ Essentially the agreed-upon conditiens obligated the Appli-cantito:          (1)- interconnect and share reserves with small systems on an equal-percentage basis; (2) engage in uni: power trans-actions; (3) grant access to future nuclear facilities ; (4) uheel power smd plan and construct transmission facilities for sach
                            ' wheeling; and (5) sell power and energy at wholesale.
                              ****/ The cities alleged.nine deficiencies of the propoced conditions (Id. , 12) .

65 O

                                                   . . , . ~ r - ~ - -        - - - - . - - .    ,, ,       ,,          , , ----.-,g     . v

show-cause hearing, the Waterford Board issued a memorandum in

which it found the agreed-upon relief inadequate and set forth its views with respect to an adequate set of license conditions, which, if accepted by the Applicant, would lead the Board to advise the Commission that' antitrust matters no longer precluded issuance of the applied-for construction permit. The Board, after noting that it "has the responsibility and inherent power to determine what license conditions are appre-priate" (Board's Memorandum, 9) , found the agreed-upon license conditions " basically adequate except in three respects: (1) access to nuclear facilities; (2) transmission "between" and "among"; (3) reserve sharing" (Id. , 12) . The Board then formulated license conditions which expanded and clarified the relief available fr.om the Applicant under the license conditions. *, The Board clearly viewed all the relief provided for by its condi-tions as necessary to provide appropriate relief in the proceed-ing (assuming that activities under the Waterford licenses would create or maintain a situation inconsistent with the antitrust

                         ,    l'aws). It refused to grant the Applicant's motion for summary

disposition of the . proceeding with relief limited to the agreed-upon conditions. jff By expanding the raserve sharing cnd

                                                                     ~
                              */ Except in one regard, which led subscauently to the Depart-ment's filing of an exception to the Board's Initial Decision (Docket No. 50-382A), November 14, 1974.
                             - **/    Order Denviac Acolicant's Motion for Surnary Denocitica of KIl Issues and' Al2erhhtive I:: tion for Sunnary Cih:osition of Certain Issues (AZC Decker 50-382A), October'...., 1974.

l

66

               + * =#4=*   e       %,

wheeling relief in its conditions beyond that originally consented to by the Applicant, the Waterford Board has effectively demolished any argument that the granting of some form of access to the nuclear unit applied for represents the extent of the AEC's jurisdiction to impose license conditions under Section 105c (see Applicant's Brief, 213-214). The Board's Memorandum represents the first precedent under Section 105c on the appropriateness of license conditions extending beyond' mere access to the nuclear un,it applied for. The fact that the parties had stipulated to the existence of a hituation inconsistent with the antitrust laws and maintenance of that situation by the license activitics--and that the Appli-cant had consented to. accept certain relief--in no way vitiates the Memorandum's precedential impact. . B. The Irrelevance of ilarm to Applicant

         .                       in Determining Appropriate Relief While the purpose of a proceeding under Section 105c is not punishment of past misconduct, the relief provided must be sufficient to ret dy the situation inconsistent with the antitrust laws (Section 105c(6); Ccemittee Repert, 31).                As the Supreme Court held in United States v. United States Gvesum Co. , 340 U.S. 76, a district court is obligated upon finding monopoli:ation:           ,
                           . .     . to compel action by the conspiratorr that will, so far as practicable, cure the ill affec:s of che g er,al cenduct, and assurethe    une pu7 uc conspi      1:eecca 2 tors  snculu,_rca its continuance     . . . .

f so far as practicable, be denied future benefits i from their forbidden conduct (emphasis added) . l

67 . s i i

f i That this may place the defendant in a worse position that he would be absent the decree is neither surprising nor relevan t. Yet Applicant contends initially that if this Board finds that the license activities would create or maintain a situa- . tion inconsistent with the antitrust la'ws, appropriate relief should be limited to insuring access to the FEdland facility through wholesale purchases from Applicant. While such a license condition would further Applicant's demand to be left whole by AEC-ordered relief, and indeed Applicant would benefit thbrefrom, it certainly would not be adequate to correct the situation. The Board ln the Waterford proceeding considered this form of . nuclear access and dismissed its adequacy except possibly in some hypothetical situation "in which all or substantially all of seller's power is generated by nuclear units" (Board's Memorandum, 32) . */ The Waterford Board's determination of this issue was clearly based upon a recognitima that wholesale firm power and direct access to nuclear generation are not sub-l stitutable: In both of these forms of access, the buyer (unit purchaser or joint ouner) only gets power when the nuclear facilicy is in operation. During schedulad shut-down for maintenance and unccheduled chut-do:m , for other reasons, the buyer cets no power because f of access to the nuclear facili:y. Accordingly , the buyer must make arrangements to ob: air back-up

         -         .e            power generated by other facilities 'then the nuclear       ,
                               ' facility is shut down. Moreover, the cost of trans-

~~ ' ' ' ' mitting the power from the nuclear facility to the buyer is for the account of the buyer in 'coth types of access.

                           */   The Department would disacrce with the prorosition that access limited solely to wholesale fir = pur7 haies is appropriate even in such a- case (see Department's Brief, 173-182).

68 s O

s :+ ~ ~ In the sale of firm bulk power, the seller must supply the power regardless of shut-downs, scheduled or unscheduled. In other words, the cost of backup power and the obligation to supply it is factored into the price. Transmission cost over seller's system is also factored into the price of firm bulk power (Id. , 31-32) . Perhaps suspecting that its offer to provide access to Midland through wholesale firm power sales will be found inade-quate, Applicant attempts to convince this Board that ordering appropriate relief would cause it economic hang and therefore. the Board should ignore its statutory obligation under Section 105c(6). Initially, Applicant urges that there is no evidence that the joint intervenors need nuclear power from Applicant to remain competitive and thus no relief is necessary. Not only is this an erroneous statement, */ it is irrelevant. The Waterford Board's Memorandum makes this point crystal clear: Finally, Applicant relies on testimony of Mr. Burroughs that the City of Lafayette does not need power, nuclear or otherwise, from Applicant in order for the City of Lafayette to compete with Applicant. The City of Lafayette has survived by operating without power from Applicant. The fact that in Mr. Surroughs' opinion Lafayatte can continue to so survive, dces not ancrer th: qucetion as to whether refusal of access to Ua:erfcrl would create. a situation inconsistent with the entitrust laws by unduly limiting competitien. Ill: gal activities do not become legal merely becsuse they are directed against a successful compaciter: Utah Pie Co. v! Continental.:.d.16BakimL C o., 38E 2.S. 633; W D:d 2d 606; $7 5. Ct., Uh rc Q Merc randum, 29-30; transcript citations emitted) .

              */   See, e.c.        Decartment's Brief, 218-225; Bruch , Tr . 2354:
              "In my j ud3E,en, t the future of the entire electric utility industry is dependent upon nucicar power."

69 k e

                      -      ~                          ...                        ,

Principally, however, Applicant claims that because requests for access were " untimely" (Applicant's Findin'g of Fact 4.58; Applicant's Brief, 210-219), and, because the entire electrical output of Midland is required for its own use (Applicant's Finding of Fact 1.06), AEC-ordered relief would be costly to it. To quantify its contention, Applicant presented a study purporting to show that if it were ordered to grant ownership . interests in the Midland Units, it.would incur substantial increased power costs (Stafford and Lapinski, direct, 9161-9165; Exhibit 12,018). Several problems with Applicant's claims are apparent. First, the study is of questionable validity as to the amount of' increased power costs which may be involved. */ Second, until the amendment of the Atomic Energy Act in December of 1970,

           */    Among other defects, the study shows that while claiming increased costs due to the requirement to purchase power if required to sell Midland capacity, Applicant voluntarily delayed construction of the Quanicassee and Campbell facilities due to decreased load projections (Stafford and Lapinski, Tr. 9189-9190). Thus, Applicant continues to plan future      generation installations with its head in the sand: it refuses to recog-nize that it may be required to divest a share of Midland power and to act affirmatively to mitigate any " harm" it anticipate from so doing.      To the extent the study's figures are correct, they show only that Applicant's cun conduct in failing tirely to plan and install sufficient generation vill exacerbate che
           " harm" caused by appropriate relief. A further defect with the study is that in all years , except one, Applicant had surplus generating capacity in excess of 220 =e. In aggregat-ing the " harm" to Applicant from Midland sales, it does not considar possible retenue from the sale of this capacity (Stafford and Lcpinski, Tr. 9244).

70 0 1

                           -       .                             3,                      .
                                            ~

the small utilities had no realistic expectation that Appli-cant would grant them access to the Midland Units, by AEC compulsion or otherwise (Department's Brief, 164-167). */

                  ,   Moreover, acceptance of Applicant's claim would conflict directly with the holding of the Waterford Board on this point.

In the sihow-cause hearing on relief, Louisiana Power and Light contended that denial of access to Waterford Unic No. 3 was .

               . justified since requests for access were " untimely," the facility a

was sized to meet the requirements of the Middle South system (Applicant's parent company) and all of the unit's capacity l was needed by Middle South. These arguments, substantially identica.1 to those put forward. by Applicant in this proceeding, were summarily rejected by the Board:

               */   . Applicant notes that in 1967 it indicated the possibility of r.aking unit power available to the small utilities from its Ludington facility and received no response (Applicant's Find-img of Fact 4.56) . From this Applicant seems to draw the con-clusion that it was receptive to the concept of unit power sales and the small systems should have felt free to ask for Midland power on a similar basis, before such requests become " untimely."

This logic is totally misleading for the simple reason

             . that Ludington is a pumped storage facility and thus valuable principally for peaking power. The small sys: ems were not short              1 perhing powrc; they neaded base-load pouer, with its 1 - energy cos.: ~(I:tsh, Tr. 2302; S:einbrecher, Tr. 1933-1.037).      im.ving          ,

aside the fac: that Ludington pcwer would have isen unacoc.caic for syste=s in need of base-icad power, there i; some doubt i whethe.r igplican: acruallij offared Ludingtoa p:ver to the sna11 I systems. Mr. S:einbrecher, who attendec the creting at which ) Applicant's Ludington offer allegedly was made, testified 1 regarding the ree:ing: I I hcve to recollection that at any time vere ne siven cy indication that the ec pr.ny was cc.ady

                      -to dis ts:, vich uc any possible interest we mi ght have in Ludington (Steinbrecher, Tr.1930) .

71 l

o - - 0

  /
    ,                            The position of Applicant is inconsistent with the. purpose of Section 105c of the ict which authorizes these proceedings. In all cases wh re conditions are imposed by courts or administrative bodies to correct antitrust situations, such conditions require behavior contrary to the plans, desires and determina-tion of the party upon whom they are imposed. If accets to Waterford is a proper condition to impose in the present proceedings , the facts that Waterford was designed solely for the needs of Middle South and that Applicant and Middle South are unwilling in negotiations with others to relinquish any part thereof should not prevent or deter the imposing of a condition requiring a right of access to Water-ford (Board's Memorandum, 25-26).

Finally, Applicant seems to be saying that the Intervenors should wait until Applicant applies to build its next nuclear

              *                ~.

units and at that point submit timely requests (see particularly, Applicant's Brief, 221) . .This contention clearly is miscon-ceived. In the first place Applicant currently has no applica-i ' tion on file with the AEC to construct additional nuclear facilities (Applicant's Finding of Fact 1.13)', and thus the J11dland proceeding represents the only " day in court" in the

                 ' foreseeable future _for the small systems in Michigan.         Second, prior to Applicant's withdrawal of its application for the Quanicassee nuclear facility, *_/ its next nuclear facility, it had never offered tha snall utilities direct access to that plant (see AEC 3rief, 90-91) .                                         ~

When analyzed in their ent'rety, Applicant's cla.rs regard-4 ing relief must be rejected. Rather, we submit, this Ecard must be guided by the clear 1snguage of Section 103c(6) and order the relief apprcpriate to cure a situation dcconstraced to be r inconcistent with the antitrust laus..

                    */   It shoulc he noted that Applicant's withdrawal of Quanicassee Hoes not nasate the fact that nuclear .renerar!.an is both unique and valuabia (sea Departrent 's 3rief , 10-3-173 nd 213-223).

72 .

                          .              CONCLUSION         ,

In light of the evidence and applicable law set forth above and in the Department's Brief of October 8, 1974, the Department of Justice requests the Board to adopt the Depart-ment's proposed findirgsof fact and conclusions of law (Department's Brief, 258-267) and to issue an order setting forth the parameters of the relief appropriate to remedy the existing situation inconsistent with the antitrust laws , or . in the alternative, issue an order conditioning the Midland licenses as we request (Department's Brief, 251-252). Respectfully subnitted, . fk Wh*. .($-we.*w MILTON J . GROSSMAN kY DAVID A. LECKIE o ig;

                                                                      .- )
                                                                     .t)

( lW ' /?).] 'J LC., D. FORREST BANNAN

                                                 }.&:......L s'h /. . A. a ffXRK H. L7.T/IN Attorneys, Ancitrust Division Department of Justice November 25, 1974 Washington, D. C.

t, . l t 1

UNITED STATES OF AMERICA . BEFORE THE ATOMIC ENERGY CO> MISSION

CONSUMER POWER COMPANY

                                        )'         Docket Nos. 50-329A Midland Nuclear Units 1 and 2     )                      50-330A
                                        )

APPENDIX A TO REPLY BRIEF OF THE UNITED STATES DEPARTMENT OF JUSTICE MICHIGAN STATE LAU AFFECTING C0'IPETITIO'.4 EETWEEN ELECTRIC UTILITIES l l [ Noveraber 25, 1974 I

                                     -INDEX Page              ,
                                                            ~ ~ ~

Legal Citations i11 . I. INTRODUCTION 1 II. CREATION, OPERATION AND REGULATION OF MUNICIPALLY OWNED ELECTRIC UTILITIES 2 A. Michigan Constitution and Statutes C1early Authorize Municipalities to Acquire, own or Operate an Electric Utility 2

1. Constitutional Provisions 2

2. Statutes Relating to Fourth Class Cities 4

3. Statutes Relating to Villages 5

4. Statutes Relating to Home Rule Cities 6

5. Summary and Conclusion 7 -

B. The Effect of Existing Service by Another

  '         Utility on the Ability of a Municipality to Acquire, Own or Operate an Electric Utility             8

1. A Municipality may Enter the Electric Utility Ensiness by Refusing to Renew the Franchise of the Serving Utility 8

2. A Hunicipality may Enter the Electric Utility Business in Competition with an Existing Utility Providing Service Under a Valid Franchise 11

3. A Municipality may Enter the Electric Utility Business by Condemning the Property and Franchise of the Serving Utility 15 C. Regulation of and Restrictions on the Operation ~

of a Municipal Electric System 16

1. The "25% Rule" and Amendments Thereof 16

2. A Xunicipality' r.ny Eliminate the Imnact of the "25% Rule by E::panding its Corporate Boundaries 20 L ('

(i)

l III. MICHIGAN LAW AND REGULATION REGARDING 7RIVATE CORPORATION UTILITIES AND RURAL TILECTRIC COOPERATIVES 21 A. Municipal Jurisdiction and Power Over Private Corporation Utilities and Cooperative Electric Utilities 21 B. Michigan Public Service Co: mission Jurisdiction and Power Over Private Corporation Utilities and Cooperative Electric Utilities 23

1. Michigan Public Service Comission Jurisdiction Generally 23

2. Michigan Public Service Comission Jurisdictica Over Rates, Charges, and Conditions of Service 25

3. Michigan Public Service Comission Jurisdiction to Restrict Service Territories 25 G

e l l l l l l (ii)

LEGAL CITATIONS CASES: Bay City Plumbing & S Heating ~Co. v. Lind, 235 Mich, 455,. 209 N.W. 5 7 9 - (19 2 6 ) . - - - - - - - - _ - - - - - - - - - _ - - - _ 8 City of Allegan v. Iosco Land Co., 254 Mich. 560, 236 N.W. 8 6 3 ( 19 31) . - - - - - - - - - - - - - - - - - - - - - - - 4 City"of Detroit v. Detroit . United Railway,172 Mich. 136, 137 N.W. 645, Af f ' d 2 2 9 U . S . 3 9 (19 3 6) . - _ - _ - - _ _ _ --- _ _ ------_ -- _ _ _ _ 9, 22 City of Jackson v. Consumers Power Co. , 312 Mich. 437, 2 0 J . W . 2 d 2 6 5 (19 5 4 ) . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 22

              '5ity of Kalamazoo v. Kalamazoo Circuit Judge, 280 Mich. 146,                                                              .
       ,        16 6 N . W . 9 9 8 ( 1918 ) . - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - -            22 City of Lansing v. Michigan Power Co., 183 Mich. 400, 150 U.W. 250, (1914). ------------------------------------                                                      12 City of Niles v. Michigan Gas
                & Electric Co., 273                     h. 7.55, 7 6 2 N . W . 9 0 0 ( 19 3 5 ) . - - - - - - - - _ _ _ _ _ _ _ - - - - - - - _ _ _ _ _ - - _ _ - . - - _ _      22 City of Saginaw v. Consumers Power Co., 213 Mich. 460, 182 N.W. 14 6 ( 19 21 ) . - - - - - - - - _ _ _ - _ _ - _ _ _ _ _ _ _ _ _ - - _ _ _ _ _ - - - -            16,27 Detroit v. Michigan Public Utilities Commission 288 Mich. 267, 286 N.W.

368 (1938). _----_---_--____----___--____---_-_--_-_-_____ 22 Detroit v. Michigan R.R.

                .Conaission,209 Mich.

395, 177 N.U. 306 (1920). -----------------_---_---------- 25 Detroit United Railway v. City of Detroit, 225 , 10 U . S . 171 ( 19 2 0 ) . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - FPC v. Southern California Edisco Co. , 376 U.S. 2 0 5 ( 19 6 4 ) - - - - - - - - - - - - - - - - - - - - - - - - - _ - 24 Gencyc Township v. City of South ' Haven, 261 Mich. 492, 246 N. W. r 196 (1933). ------------------ --------------------------- 18 i

Huron Portland Cement Co. v. Public Service Commission, .- 351 Mich. 255, 88 N.W. 2d ( 4 9 2 ( 19 5 8 ) . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,23,26,29 Michigan Bell Telephone Co. v. Public Service Commission, 315 Mich. 533, 24 N.W. 2d 200 (1955) ----------------------------------------------- 29 Dfichigan Gas &. Electric Co. v.

City of Dowagiac, 273 Mich. 159, 262 H.U. 762 (1935). _-___-_-__-__--___-------------------------- 4,7,12,13 Ilichigen Public Service Co. v.

City cf Cheboygan, 324 FEch. 309, 37 N.W. 2d 116 . (1949). _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - - _ _ - - - - - - - - - - - - - - - - - ,3,12,15

ithmn. v. Probate Court, . 309 U.S. 270 (1939) -------------------------------------- ,12 Muskegon Traction & Lighting Co. v.: City of Muskegon, 167 Xich. 331, 132 N.U. 1060 (1911). ___________________________________________--- 7,12,14 I6orthville Coach Lines, Inc.

v. City of Detroit, 379 Mich. 317, 150 N.H. 2d 7 22 ( 19 6 7 ) . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 23 Public Utilities Commission

v. Attleboro Steam & Electric Co., 273 U.S. 8 3 ( 19 2 6 ) . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 24 Sault Ste. Marie City '

Commission v. Sau1* Ste. Marie City Attorney, 313

           ?iich. 644, 21 N . U . 2 d 9 0 6 (19 4 6 ) . - - - - - - - - - - - - - - - --- --- - -                           6,16 SeLevain; Industries v. City of Sebcuains, 337 Mich.

530 , C 0 H . U . 2 d 4 4 3 (19 5 3 ) - - - - -- - -- - - -- - - - -- - -- - - - - -- - - - - - - 3 Teenship cf Bangor . . En 7 City Trc.crien & Lighting Co. . E7 Mich. 155. 110 5 .E. 4 0 ( 19 C 7 ) - - - - - - - - - - - - - - - - - .. - - - - . - - - - - - - - - .. - - - .. - - 2? Trtver c C' ty 7 Ccesurers Pcuer Cc.. 3!0 Mich. 03, ( 44 22.1. 2d 694 (1934). ------- --_---------------------. .-- 27 ii s n.

7 Pow r C 416US 366 1973). --------------------------- 11 - Village of Constantinev. Michigan Gas & Electric Co., 296 Mich. 719, 296 N.W. 8 4 7 ( 19 41) . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12 , . 14 STATUTES: Federal Rural Electrification Act, 7 U.S.C. 901 --------------------- 1 State - Constitution: */ . . Mich. Const. 1909, Art. VII I S 2 3 - - - - - - - - - - - - - - - - ,- - - - - - - - 5, 17 Mich. Const. 1909, Art. V II I S 2 8 - - - - - - - - - - - - - - - - - - - - - - - - - - - _ 11 Mich. Const. 1963, Art. VII S 19 -----------------------_-_-- 9 Mich. Const. 1963, Art. VII S 21 -------------------------- 2, 3 i Mich. Const. 1963, Art. VII 5 23 ------------------------ 17 ,19 Mich. Const. 1963, Art. VII S 24 -------------------------- 2, 5 Mich. Const. 1963, Art. VII S 25 -------------------------- 9 Mich. Const. 1963, Art. VII S 28 -------------------------- 1 Mich. Const. 1963, Art. VII S 29 ------------------------ 11, 21 Mich. Const. 1963, Art. VII $ 30 ------------------------ 9 Michig .n Statutes Annatated

MSA 5.1 ------------------------------------------------- 3 MSA 5.1201 ---------------------------------------------- 3 MSA 5.1420 ---------------------------------------------- 3, 5 MSA 5.1421 ---------------------------------------------- 6

        .MSA 5.1422 ----------------------------------------------                                                           6
  . i MSA 5.1425 ----------------------------------------------                                                            5 v

S

        */     D.J. Ex. 223 iii s

f" MSA 5.1428 ---------------------------------------------- 3 MSA 5.1512 ------------------------------------------'--- 20 MSA 5.1534 ---------------------------------------------- 17 MS A 5 . 16 0 9 - - - - - - - - - - - - - - - - - - - - - - - - - - - - '- - - - - - - - - - - - - - - - - 20 MSA 5.1895-5.1903 ----------------------------------- 3,4,5 i MSA 5.1951 ---------------------------------------------- 3 MSA 5 . 2 012 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3 MSA 5.2071 ---------------------------------------------- 3, 6 MSA 5.2076 ---------------------------------------------- 19 MSA 5.2079 ------------------------------------- 3, 6, 15, 18 MSA 5.2085 ---------------------------------------------- 20 MSA 5.2086 ---------------------------------------------- 3 . MS A 5 . 2 4 71- 5 . 2 4 7 3 - - - - - - - - - - - - - - - - - - - - - - - - ~ ~ - - - - - - - - - - - 3

   ,            MSA 5.4083_----------------------------------------------                                                            ~18 M S A 5 . 4 0 8 4 ' - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - .. - - - - - - - - - - - - - - -      19 MS A 8 . 7 1 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -          15 MSA 22.13(6) ----------------------------------                                                         1, 21, 23, 29 MSA 22.131 ----------------------------------------------                                                              2 MSA 22.141 ----------------------------------------------                                                             28 MSA 22.145 ----------------------------------------------                                                             30 M S A 2 2 . 15 6 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -              26 MS A 2 2 .171 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - . - -                 ----------

11 h

                  ,O,t.u.: 7"- cM~.
                                 . :.  =,-.e - - rxu-PuM i c Acts Michi.;;m , 1905, Aer no. ?64---------------                                                              11 Publi.c / sets M

cM p-. , 197t, Act na. 1 ; 7 -. . . . - 17, 18, 20 Pehlic Act.a ~it.hQ.--. , 1974, Act L'c . 3 7 4 - -. - - - - - - - - 17, 20 g

e . , - -

MISCELLANEOUS: Opinions - Attorney General of Michigan Op. Atty. Gen. Mich., 1915 , 3 9 7 - - - - - - - - - - - - - - - -- - - - - - - - - - - 16 Op. Atty. Gen. Mich., 1919, 67 ---------------------------- 27 , Op. Atty. Gen. Mich., 1928, 62 ---------------------------- 15' Op. Atty. Gen. Mich., 1937, 66 ---------------------------- 24 9 E

                                   +
                                                                                                   =

9 0

we 6

O r( V e e - . . , _ . . .

MICHIGAN STATE LAW AFFECTING COMPETITION BETWEEN ELECTRIC UTILITIES I. INTRODUCTION Essentially there a're three types of entities which market retail electric energy in Michigan's lower peninsula: private corporation utilities, utilities formed pursuant to the Rural E1cetrification Act of 1936 (7 U.S.C. 901.) and municipal electric systems. 1/ To one degree or another, Michigegn State lau regu-lates the retail operation of each type system, though as will be discussed below, this regulation is not to such a degree to elimi-nate substantial actual and potential competition for Michigan retail customers. - The Michigan legislature has vested the Michigan Public Service Commission with jurisdiction and pouer to regulate the rates, fees, charges, service, rules, conditions of service of public utilities located within the State of Michigan (Mich. Stat. Ann 22.13(6) . 2_/ The Commission, however, has no common law power but, as an administrative body created by statute, has only such powers as are conferred upon it by statute. Huron Portland Cement Co. v. Public Service Commission, 351 Mich. 255, 88 N.W. 2d 492 (1958). The legislature is establishing the authority of the 1/ Additionally, Const. 1963, Article VII, Sectica 28 authorizes countics, townships, cities and villeg.cs to enter into r3recacnts j with cne another, the ctate or any ccabination thereof ici the ! joint administratica, transfer of, cooperation regarding ac y I respcasibility or function. This provision and statutes espears l to allow an ad hoc formaticn of "Metropolitcn Districts" (see l Const., 1903, Article VIII, Section 31). 2/ This Section merely outlines the general powers of tbc Mich~ gan , Public Service Comaission with the detniled grants, inherited l from the Michigan Railroad Commission or Public Utility Ccuaissica, i located elsewhere in the statutes. l l l

MPSC, expressly denied it the power to regulate any. municipally owned utility, 3/ but rather codified the procedures and require-ments for the acquisition and operation of a municipal public utility elsewhere in the statutes. Thus, for analysis of Michigan state regulation, there are two classes of public util,ity - private corporation and rural electric cooperative and municipally owned--- and these classes will be discussed separately. II. CREATICN, OPERATION AND REGULATION OF MUNICIPALLY OWNED ELECTRIC UTILITIES. A. Michigan Constitution and Statutes Clearly Authorize Municipalities to Acouire, Own or Onerate an Electric Utility:

1. Constitutional Provisions:

The authority of a municipal corporation to engage in the distrubution and/or generation'of electricity is founded in the Michigan Constitution, Const. 1963, Art. VII, S,ection 24, which provides:

               ,    Subject to this constitution, any city or village may acquire, own or operate, within or without its corporate limits, public service facilities for supplying water, light, heat, power sewage disposal, and transportation to the municipality and the in-habitants thereof.
          ~ To exercise this right a municipality must comply with the con-stitutional requirement that:
                                                                              .~

No city or villcge shall acquire any public utility furnishing light, heat or power . .. unless the propcsal shall first have been approved by three-fifths of the electors voting thereon. [Const.1963, Art. VII,

                   -Section 21]

4 These constitutional provisions must be read together and have been incorporated by the Michigan legislature in statutes

   ;                          .

3/ The sold apparent 1OSC power over municipalities is to prescribe Ehe form of the annual report municipal utilities are required to publish pursuant to Mich. Stat. Ann. 322.131. 2

cuthcrizing the various forms of municipal corporation 4/ to acquire, own or operate electric facilities within or without their corporate ihnits. 5/ Since the constitutional provisions are not self-executing, Sebewaing Industries v. Village of Sebewaing, 337 Mich. 530, 60 N.U. 2d 440 (1953); Michigan Public Service Co. v. City of Chebovnan, 324 Mich. 309, 37 N.W. 2d 116 (194I9), the icgislative enactments rather' than the constitutional provision, govern a municipal corporation's acquisition and operation of an cicctric utility. A statute enacted in 1891 authorizes cities and incorporated

 .           villages to acquire by purchase or to construct, operate and maintain facilities for the purpose of supplying such munici-palitics or its inhabitants with electric light (Mich. Stat.

Ann. 5.2471), or in the alternative to contract for such electricity 4/ The Michigan Constitution (Const.1963, Art. VII, Section 21) provides that cities and villages shall be incorporated under general 1cus enacted by the 1cgislature. Pursuant to this constitutional directive, the Michigan 1cgislature has arovided b- the general law for the incorporction of villages (Mich. Stat. Ann. 5.1201), cities of the fifth class (Mich. Stat. Ann. 5.2086), cities of the fourth c1 css (Mich. Stat. Ann. 5.2036, 5.1951), cities of the third class (Mich. Stat. Ann. 5.2012), Home Rule Cities (Mich. Stct. Ann. 55.2071 )., and Townships (Mich. Stat. Ann. 55.1). The statutes do not appear to provide for first or second class citics. Provision for incorporation of cities of the fifth class (Mich. Stat. Ann. S5.2006) is contained in the Home Rule Citics

           . Act (Public Act 1909, Act. No. 279, Mich. Stat. Ann. 5.2071-5.2118)
       -.      hile provisien for incor y(Mich. Sect. Ann. 5.2012)poration      of within is contained  citico cf thethe cetthird class for fourch class citics (Public Acts 1895, Act. Ho , 215, Mich. Stat . Ann .
            - 5.1591-5.2013). Thereferc, with ninor exceptiens, the poucrc of fifth class citics are gcvorned by the Ecma Eulc Citics Act, while the poucrs of the third c1 css citics cre governed by the Fourth Class Cities Act, and thus, for purposes of discuncing the 1cus relcting to municipal electric cystems in Michigen, there are essenticily only three relevant statutcry cche=cs.

5/ Villages (Mich. Stet. Ann. 5.1420-5.1425, 5.1423, 5.2471-5.5'/i3; Fourth Clcss Cities (Mich. stat. Ann. 5.1095 -3.1903); and ncme Rule Cities (Mich. Stat. Ann. 5.2079) . 3 4

4 on such terms and conditions as the governing body of the s village or city direct. This general authorization has been . supplemented with various legislation pertaining to the different forms of municipal corporations.

2. Statutes Relating to Fourth Class Cities Cities of the fourth class have the ' power to purchase,

      . construct, operate and maintain, either uithin or without the corporate limits, facilitics to supply cicctric light to the citics and its inhabitants. (Mich. Stat. Ann. 5.1895-5.1903).

While the statutory language is limited to acquisition by purchasing or construction, a separate code section authorizes the condemna' t ion of private property, within or without the , city, for the construction and maintenance or due operation 'of such electric facilities. (Mich . Stat . Ann . 5.1901) 6f The power to acquire, own or operate works for supplying electric lights includes the right to sell and furnish electricity to private individuals, to install and maintain a distribution system and to extend the municipal lighting system to furnish electricity to private individuals. Michigan Gas & Electric Co.

v. City of Dowaniac, 273 Mich.159, 262 N.W. 752 (1935) .

6/ Despite defest by the Constitutionni Convention of 1907 of r. proposal to i;rcat municipclities the power to condc=1 land ourride their corpora:e limits, the state retained this power and coild dolci;cte it to the :auaicipalities. Thus, where authoriced by statute -- as all are -- a urnicipality ray conde=n property located outcide the city limite ?cr the use in a craicipal electric system. City of Allent.n v. Iosco I_and

            .C_q. , 154 Mich . 560 (1931) .

4

In pursuance of the power vested in it, the City of Dowagiac owns and operates a municipal elec-tric light plant and has the constitutional and statutory authority to sell and furnish electricity to private individuals in connection with the operation of its plant, to install and maintain a distribution system so to do. This power and authority vested in it by its constitution and charter may not be abdicated by any franchise. (273 Mich. at 155) While a fourth class city clearly has the constitutional and statutory authority to acquire a municipal alcetric utility, certain procedural requirements -- e.g., resolution of the city council that it is " expedient" to acquire such facilitics (Mich. . Stat. Ann. 5.1896), approval of two-thirds (2/3) of the electors voting -- must be undertaken before a city can exercise this right.

3. Statutes Relating to Villages:

Villages likewise are c:npowered to acquire 7/, own, and operate, within or without the villcge, a municipal cicctric light plant for the purpose of supplying electricity to the village and its inhabitants and the village council has the power to fix terms and conditions of such service (Mich. Stat. Ann. 5.1420). 8/ . Although it has been held that this section does not authorize a village to sell heat, light, power or water outside its corporate 7/ Includes condemnation since Mich l: tat. Ann. 5.1426 authorices villages to condeca private property "for the constructica and maintenance, or for the due cperation of electrical facilities." 8/ 13111e the statute litits this right to villages with a ponu-Tation in excess of 250 inhebitante, the Conctitution of J.90s, Art. VIII, Sec. 23 granted such right to "any" village n .6 thus populaticn is irreicvant. Ou, Atty. Gen. Mich. 1913, p. 70. Note

the 1963 Constitution, Const'. 1953, Art. VII, Sec. 24. likcuica reads "any~ city or village." , 5

limits, Op. Atty. Gen. Mich. 1928-30, p. 380, Mich. Stat. Ann. s. 5.1534 confers such power on a village if it amends its charter

          'to so provide. The procedural prercquisites for a village exercising its right to acquire a municipal electric system are substantially identical to those required for cities of the fourth class. The village council must adopt a resciution that i

such action is "c::pedient" (Mich. Stat. Ann. 5.1421), and the proposal must be approved at a general or special election by two-thirds (2/3) of the electors voting on' the proposal. (Mich. Stat. Ann. 5.1422) .- .

4. Statutes Relating to Home Rule Cities:

A home rule city may provide in its charter 9_/. for the-construction, ownership and operation of public utilities, in-cluding electric power plants, and to purchase or condemn existing franchises, plants, and equipment or other private property for l such purpose-(Mich. Stat. Ann. 5.2079). However, even in cases ~t where the city charter authorizes acquisition of a public utility, a proposal to do so must receive an affirmative vote of three-fifths

(3/5) of the electors voting at a general or special election. 9/ Rather than enumerate powers, the Home Rule Cities Act (Mich. Iitat. Ann. 5.2071) is ecsontially n series of nandatory and permissible city charter previsione.- The statutes dealing with electric operaticns are all pcrmincibic cnd may be adopted or

            ' not by the individual municipality. This requires appropriate amendment of the city ch::.rter before the city attempts tc enorcisc its powers. Sault Ste. Mar!.d City Cmisrion v. Sault St.o.         ~                         ~

I.' Marie City Attor. tar, si da.ca. 64:~E1Wo7 6

                                ,b1-e     ,<      n    v- rw,.   , - , - - -      e- - ,y v.g -e      ~ ~ - - +    e    * -s----g w

                                                                -     --         .   - ~.

5. Summarv and

Conclusion:

To summarize, all municipal corporations in Michigan may acquire by purchase, construction or condemnation facilities, located within or outside their corporate limits, for the generation and/or distribution of electricity. The sole legal ibnitation on this pouer is that the statutory requirements f ar such action be met and the charter of the particular city or village provide authorization. If the statutes cre complied with, the courts are without jurisdiction to interfere. Michigan Gas & Electric v. City of Dowagiac. supra; Muskenon Traction &

             & Lighting Co. v. City of Muskegon,167 Mich. 331,132 N.W.1060
           . (1911). In Muskegon Traction, the plaintiff claimed, inter alia, that crection by the city of a municipal electrical     7lant should be enjoined since such action van economically unuice and would 1 cad to financial loss to both the city and plaintiff.

The court noted that the record contained no evidence to cupport this claim and went on to hold: [E]ven if it were conclusively proven that this undertaking would result in loss to the city as well as to the complainant, the courts would be powerless to restrain this city from its proposed course. Its power is complete and undoubted, its electors are dealing with their own money, and, if they choose to invest it in losing cnterprisen, so long ac they ecmply uith the law, it is their cwn concern. (167 Mich. at 340) . . While it may be argued that the pro:cdural requirceanta for entry de novo by a municipality into the c1cetric distribution and/or generation market is time consuming and technically exacting, Michigan Ernte lav c1carly does not erreat such icgc1 4 7 - s

                                   +                                         %

barriers that entry by a municipality is precluded or even substantially restricted." In fact, the statutes evidence, ' by their very existence, legislative intent and expectation that Michigan municipal corporations will enter the electric generation and distribution markets. Moreover, the procedural requirc tents, particularly the necessity of obtaining voter o-approval, appear to be ucrcly safeguards given the local popu-lation to check a local government's ability to expend moneys or incur debts for specified purposes J.0/ _0 and no way meant to limit a municipality's right to operate an elcetric system. B. The.Effect of Existing Service by Another Utility on the Ability of a Municipality to Acquire, Own, or Ooerate an Elcetric Utility - 4

1. A Municipclity may Enter the Electri~c Utility Business by Refusing to Renew the Franchise of the Serving Utility:

The Michigan Constitution provides that no person or entity

has the right to use the streets, highways, or other public places of any city, village or tounship for uires er poles without consent of such city, village, or township nor to trans-act local business without first obtaining a franchise from the i township or municipality. (Const. 1963, Art. VII, Section 29). This requireccat applies to c11 cntitics, including public utilities of another neighborin;; nunicipclity, Pav City P h bin? 10/ Sc e other nublic utility undertching airo rcquire c vr: oval lif threc-fif the '(3/5) of the voter.m For cxampic, Mich. Si:_t. Ann. 5.2079 requires a urepocal to acquire trcasportctica facilities be approved by.three-fifths (2/5) of the electorr . Voting. t. 8

       & Heating Co. v. Lind, 235 Mich. 455 (1926) . And a municipality 7

may maintain an action to compel removal of non-franchised - facilities. City of Petroit v. Detroit United Railway,'172 Mich.136,137 N.W. 645, aff'd 229 U.S. 39 (1936) . Also, no t municipality may grant a franchise for a period exceeding . thirty years (Const.1963, Art. VII, Section 30); and the grant of any frcnchise not revocabic at will requires, in the case of villages and citics, approval of three-fifths (3/5) of the electers voting on such proposal (Const. 1963, Art. VII, Section

25) and, in the case of townships, approval by a majority (Const.1963, Art. VII, Section 19) . Renewal of a franchise likewise requires approval by the electors. If not renewed, the franchise expires and continued operation by the former franchise '

holder may be an actionabic trespass. City of Detroit v. Detroil United Railway, suora. City of Detroit, involved an action brought.by the city to compel United to remove its facilities located within the corporate Ibnits, since the franchise granting use of the streets has expired. United defended against the city's suit claiming inter clia, the franchises were extended by city ordinance; the city induced United to expend large sums of money to better rather than repair the railuny syctem and uns therefore catopped from insisting en the terminctica of the frcnchiccs; cnd the public convenience required the continusd operation of the systen by either United, or, after pnyuent to the prcperty's fair value to United, by the city. Ihe Court rej ceted United's cententicus. ( 9

                        "The conclusion to be drawn from our de-termination of the different propositions dis-cussed is that the contractual relations between those parties ended upon the expiration of the franchises, and all rights in the defen-dant company to occupy the city streets, and main-tain and operate a street railway thereon, then terminated, and defendant thereafter became a trespasser; the complainant [the city] has the
               . absolute and unquestioned right at any time to compel the defendant company to vacate the ctreets upon ubich these franchises have en-pired and to require it to remove its prop,erty therefrom within a reasonabic time, and      ir nccessary, for that purpose, to cnforce,its right by a urit of assistance from this court."

172 Mich. 136, 137 N.W. 645, 654. . Subsequently, in Detroit United Railway v. City of Detroit, 255 U.S.171 (1920) the Supreme Court had occasion to consider the constitutionality of the city ucing the expired franchise as a icver in bargaining for the purchase of United's facilition. United filed suit in District Court scehing to enjoin the city from acquiring or constructing a street railway system alleging, inter alia, the city was attempting to violate the company's rights under the fourteenth amendment by engaging in a schtmo designed to force the company to part with its property at less than its fair value or to cease operations in the streets and remove its property. The Supreme Court sustained the District Court's dismissal of United's complaint holding that since: _

                                                                               ~
      ~~
                . .   . the city was undar no obligation to purchase the procerty, it uns frca to nere its ora terms, 161ica United uns free to accept er reject. But if the city hac the right to z.cc, hire the property on the best terms it cce make vith the ecmanny in vicw of the expiration of the franchise; an cttempt to carry cut c.uch purpoce by cn cffer to buy tha property at much less than ite value vauld not have the effect to deprive the comt;nny of puceerty ul2hout due proccca of lau. 255 U.S. at 177.

10'

f Thus, if a municipality determines it is economically

 ;         feasible to do so and if its voters concur, it may enter the electric utility business by the simple expedient. of refusing to renew the existing utility's franchise. This " periodic competition" is virtually identical to that found by the Supreme Court to exist in U'n ited States v, Otter Tail Power Comnanv, 410 U.S. 366 (1973), and while the maximun franchise period allowed by the Michigan Constitution, thirty years, is slightly longer than the ten to twenty year franchise periods          )

4 involved in Otter Tail, this in no way negates the existence of such potential competition. 2 A Municipality may Enter the Electric Utility Business in Competition with an Enisting Utility Providing Service Under a Vclid Franchise t An exception to the general rule that a utility must ob- l 1 tain a franchisc from a municipality to ccaduct local business may occur where a utility or its predecessor was serving with-in a municipality prior to the adoption of the Constitution of 1908. In 1905, the Michigan legislature enacted a statute . I granting companies engaged in the production and supplying of electricity the right to construct and maintain poles and wires across public streets, highrays, etc. , and to distribute and deliver nuch electricity to custeners. (Public Acts Michigan, 1905, Act Eo. 254--The "Foote Act"), it'c t.tatute was nbrogated by adoption of Section 28, Art. V'I ' ne Constitution of 190911/ cad varicus statutes. (Mich. Stat. tan. S522.171, Public t 11/ Tais previsien was essentially idcaticci to the prec< ant Art. l

           \'11, Secticn 29 of the 1963 Constitutien, discussed above.

11

                 .                      ..                                    ~

Act Michigan 1909, Act No. 266) . It has b:en held that the rights conferred by the Foote Act were in the nature of a vested property right and subsequent statutory or Constitu-tional enactments could not, consistent with th~e contract clause of the Federal Constitution (Art. I, S10), revoke these righ,ts. City of Lansing v. Michigan Power Comnanv,183 Mich. 4 00 (1914). M / Morcover, while these rights of unspecified duration have been held to be not perpetual, they continue for the possibic existence of the corporate grantec. Michigan Public Service Co. v. City of Cheboyran, 324 Mich. 309, 37 N.W. 2d 117 (1949). 13_/ Notwithstanding existing service under a valid franchise, a municipality may begin generating and/or distributing electrical energy or expand its existing distribution system so as to directly compete with the franchised utilitf, Muskegon i Traction & Lighting v. City of Mushenon, suora; j:ichigan Gas & , Electric v. City of Dancine; supra. 12/ Tnis seminal case regarding the irrevocability of "Foote Act" franchises was decided by the Michf.gan Suprede Court in 1914, and s.casequent Michigan cases appear to accept this premine without question. ITnile Federal courts are cound by the inter-pretation of state law given by the highest court of the State, Minn. v. Probate Court, 309 U.S. 270 (1940), city of Lansing was decided on an interpretation of the Federal Constitution nad was not brought before a Federal Court. Michigcn Gas, though maintaining its Focte Act rights, went into recM.>crship in 1918 an the recult of compcting with the city. i: rush, dircet, Tr. 7995-95) 13/ The poccible cornorcte cristence of a For- /.ct frcuchisa li thirty yearc plus cn cpucrent infinite cer; cf thir. year extensions. The Michinen suarcae Ccure has n: addrcen.d the time limit en these ri[ hts hht rnther cecas c - . .t uith ..ulin;;; such es : "iU)e cre not eclled noon t o dun ' nou fer into the future the frcnchise ncy cent:inua. R 1.c _?cient to scy ^ tbat it will continue until'1953 ct ler :t." : of " w stantiz,2, v. ;&chincn car a :2cetric Cc;,, 2% n 't. m , .. . ; N.W. 047, 052 (GD~) . ( 12 s

Michigan Gas & Electric Co. involved a suit by the company i to enjoin the City of Dowagiac from enlarging or extending its electric lines for the sale and distribution of electrical encri;y and from generating and distributing electrical energy for sale to the public. The trial court apparently entered such a. decree and when the city sought to'entend their system to f.raich electricity to scveral individuals, the trici court found the defendents guilty of centempt. On appeal the Supreme Court reversed the conviction of contempt, holding that since the city had Constiitutional and sta utory authority to extend its electricci distribution system,

      'which authorfty could not be abdicated by any franchise, only                      ,

an i= proper enercise of such power could be .cnjoined. M/ t

                   'The [t-lial): court was uholly without juris-diction to make any dccrce in violation of the constitution and the Inws of the State cove-ing
         ,   the cunership and operatica of works for the sale end distribution of c1cetrical energy, and be cannot find it assumed to do so. Assuming, cs seems to be conceded, this decree was val.id, defendcats sought to extend their lines or distribution system so as to furnish electricity to some private indi-viduals. This they clearly" had the general power and authority to do. . The thing of which plaintiff had a right to complain was the irregular or im-proper exercise of that power.        (273 Mich. ct 155, 156).

14 IJnfortunctc1:', the court does net set- farth, in any detail, Fu/e Sce t e invo .n d . Neverthelec a, a reacraa.ble rc.2 ding of the opinian indiccten thct Michigen kr, which held a franchire withi . the city cf Oc.:cgine, souftt a preliuintry injuncticn again At the city enten6.' .g its dic ;r.Sut.. n facilitics into ca. arca in diich :iichiccn Gcs held a fr.nnchice. ihe trici ecurt issued 5 ach an inju?.cticn v:.ndin:; 'h":ther ,roceedings an<1 unen the cMy nonethclass enten::ed its fce'liti ns, !!ichigen G:..s pethicnad the court to fird tha cun.riatt.ident of the no .rd of Public id.nrhs guilty of contcmpt. ( 13 s

In Muskegon Traction, sunra, the plaintiff, holder of a s franchise to serve within the city, sought to enjoin the es-tablishment of a municipal lighting plant. The court, in rejecting the contention that the city's entry into competition with plaintiff was unconstitutional interference with its vested franchise rights, stated: , It would, we think, scarcely be contended , that the city night not license another co peting company to use its streets, etc. , for the pur-pose of furnishing a necessity to the inhabitcuts thereof. (Cites emitted). If it may do this, why may it not itself engage in such competition? Sections 23 and 24 of Article 8 of the Constitution of 1909 15/ clearly clothe cities and villages with necessary" authority to engage in such enter-prises . . .. (167 Mich. 340)

It should be noted that although apparently not claimed, , Mushecen Trnetig did in fact hold a Foote Act franchise. The ordinance grcnting it a license to operate within'the city was enacted in 1900 and tiis company put in operation "a cogletely equipped and extensiva plant which [provided] service to the individual- consumers as well as to the city" (167 Mich. 339) . The company began operation under a city franchise, but the Foote Act, passed in 1905, granted it a state franchise and the company was not required to elect between or disclaim the city fran-chice. Vills :q cf Conctantine v. ;[ichigen Gas & Electric Co. , 296 Mich. 719, 205 H.U. 847 (1941) . The rationale of Mnchecc.. '/: nction and M .phiern G c & Electrin, allow'r; a =tuicipal corporr.tica ecquire 3 own, or en,ecnd cn 15 The Cear':itution uns enant 1 in 190^ nnd took eff ect Januarv l~/ 1009 and : c reforren to as e ; 2: Constitutica of 1908 or

Conctitution of 1909. f 14 l l

el'ectric system in direct competition with a utility holding a f

  <   valid franchise, is clearly applicable to all franchises, since neither municipally granted franchises 16/ nor Foote Act fran-chises H / are exclusive.

3. A Municipality may Enter the Electric Utility Business by Condemning the Property and Franchise of the-Servinz Utility Finally, a municipal corporation is authorized by Michigan law to enter the electric ucility market by ccndemning not only land and property necessary to construct, cperate or maintain an electric system,'but can obtain, by eminent domain, the franchises and property used in the operation of companies o:6 i individuals engaged in the electric utility business. (Mich. Stat.

Ann. 5.2079 -- Home Rule Cities) Additionally, any city with a population in excess of 25,000 inhabitante is authorized "to take for public use the absoluta title in fee to any public utility for~ supplying water, light, heat, pouer or transportation to the municipality and the inhabitants thereof within or vith-out its corporate limits, the same being then and there the private property of any person or of any corporation. . . ." 16/ See Oo. Atty. Gen. , Mich.1928, pp. 62-64, holding that a municipality'is withcut the pcwer to grant an enclusive franchise. H/ Although the exclusivity of Focte Act franchinen ha.t "ar cprarc at y ocen litigated, tharc secas to bc no dic yuta rc. u din"e this icsue. In Michican ?'iolic Earvice 07 ". Cit .' of C1--> men ' 324 Mich. 300, - - - - -

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                   -  /T' T. . . ~. . .   -i c.  ..

a . . m cought to ' enjoin the city from ccquiring d6 cparatin;; bideic generating p.: ant er cistribution c zaten. ihe court. -fails - holding plaintiff's roote Act riSUc. af fiir.:sd the icuer r-~.4 - '< c:.sm.asal ot t.n2 cc ole. int, relyirg in per>; en the nwenf 3iya a nature or suca tranchises. "Althcu,h the c orrorate riai .t- 'd has the right to use the city st.rcets anc r ll'y/s fo- its r"d. '

 /    and Uires, b} virtue of Act No. 204, pub, Acti, 1903, nnph3_c.nte conccde'that this is not an erclusive right." (37 U.U. Sd ct 122) 15 e                                                                                                                  l

(Mich. Stat. Ann. 8.71) While the statutes generally require a jury finding that both the public improvement and property taken are "necessary," this, similar to the other prerequisites to acquiring an electric system, (supra) merely established pro-

     .cedural requirements and the standard for compliance. It in no way prohibits enercise of the pover.                                      '

C. Regulaticn of and P.est *.ction on the Operation _of a Municinal Electric Syste -

1. The "257. Rule" and A,. endments Thereof:

Municipal utilities, not being subject at the regulatory power of the MPSC 18_/ have few externally imposed limitations 19] on their retail operations. Beyond technicalities relating to acquisition and financing, the major restriction on a municipal ' c1cetric utility relates to the territory in which. it rany oper _ ate. ?0/ Until recently', a municipality could sall outside its 18,/ In fcet, a proposed public utility bill uhich uoult' have recuired nrmicipalities to obtain a certificate of convenience and necessity from the MPSC prior to entry into electric utility operations was held to be repugnant to the Michigan Constitution. Op. Atty. Gen., Michigan 1915, p. 397, at 402-403. 19/ The power of a municipality to engage in the generation and ilIstribution of electricity is founded in the Constitution and authorized by the statutes but ultimately is governed by the charter of the mirlicioality involved.

                                    ~      ~                              Saul.t Ste. 'crie C?tr                                l Coatnission v. Scult - Ste. Mviie C it 7 .'*- O r.n- . aum ' .   -

hed.65:

      .uena:Ln3~ a c ity c ._.- . m. _      3. 3. . _. ~_ '.,,. r. , .
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20f Also, though cf minar import:nac. utun'.cipalitics are re-stricted as to the period for uhica they cen ccatr- ct. 5tr.cutory provisicns relating to lighting c. carra :s c dunn ei.cctr'r com-panica and-citics and villag,er, limit cuen cr usc cet- to niods i i not more thr.n' ten yaars. (Mich. Stat. imn . , ' 5. L427, 5.lW 'L 5.2472) ty sault see. r .--in ci :v cer

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! applicable to contracts for lir,hting. public [ continued on ner.t pagej , ! 16

city limits no more than 25% of the electrical energy waich it sold within its boundaries. The restriction, first incorporated in the Michigan Const?.tution of 1908 (Const. 1908, Art. VIII,

   . Sec. 23), was retained          4 the Constitution of 1963 but amended to add the language,        d en.ept as greater amounts may be per-mitted by law." (Const. 1963, Art. VII, Sec. 23).            Since 1963 several bills were introduced before Michigan legislature which would have amended this "25% Rule" and allowed greater cales by municipals outside their corporetc limits.            Houever, no such legislation was enacted until June of 1974.

On June 20 and June 23 of this year, two bills relating to the 25% rule were signed into law by the Governor of Michigan.

     ~ (Pub. Acts Mich.1974; Act No.157; June 20,1974; and Pub.

Acts Mich. 1974, Act. No. 174, June 23, 1974). Act No. 174 amended Mich. Stat. Ann. 5.1534, "Permiscible Village Charter

 ,    Provisions," by deleting the clauce, "(g) For selling and delivering heat, power and light without its corporate limits to an amount not to exceed 25% of that furniched by it within the corporate limits," and adding a subparagraph (n) .          This new subparagraph authorizes a village to provide in its charter for sales of electric power outsidc its corporate limits in such amounts as ray be detentined by tha legislative bedy of the village.               Sales "ct other than 16clecale" 21/           crc linited to tha arer. cf any 20/ [contivcedl p~cacen but dcen not restrict 09.a pcxcr c#           a isinicipality t:> contract for the benecita of the inhabitantc.

However, the e tat.;te in quascien, n quoted by the ec .rt. appcers different GI.nCa, *L".like the 5 0CCUT.G r cbOVc it did not evlitain 3 the claus : or clae ?.nhabi: ants thereof. " 21/ ";iholesale" in defined as "the enie or erhtnge of b '.t, po'.m, cr li;;ht Lci :c e t public ui-i3 ity c,vct:m, whether et:nicip; ily, cooperatively er privately mined." 17

city, village or township which is either contiguous to or pre-sently served by the village. Also, to serve a customer presently receiving electrical service, the village must obtain permission from the serving utility. 22] Thus, under the new law, a village, at its on discretion, can compete for and serve new retail loads within a substantial area surrounding the villasc. And cince the feet that a customer is outside the city limits does not affect the public or r.unicipal characteristics of the utility, Geneva Townshin v. City of South Enven, 251 Mich. 492, 246 N.W.196 (1933), these sales are not subject to the jurisdiction and power of the Michigan Public Service Commission (see infra). The second recent Michigan enactment, Act 157, amends Michigcn. Stat. Ann. 5.4083, [Secticn 3 of Act 35 of 1951, (" Int.cr-Goverr. mental Contrccts betwaen Municipal Corporations")] . As cr.eaded, Act 35 of 1951 grcnta citics anc. villages the right to contract or join with cny other municipality or person ("any p_erson, firm corporation, the United States Government or the state or any of its subdivisions," Mich. Stat. Ann. 5.4083) to furnish outside its city limits any lawful municipal service which it' furnishes within its corporate limits, including the . 22/ 'ihis restriction, "a villaze c' call not rendar hect. rs'2r iir light to 'cuctecers . . . alric & receiv r.~ xch ccrr.w frca i another utility . .

                              ." &c-h cis .didaen mc ri co~ E!T'T.on the question vhether pcsmiheien is recaf.. 2h .cd c. cuct.r.m bre .n .'.'

a different class cf scrvice drca Utili y i. cculd argre.h v cdv2 three-pha sa cervic e frcm a villaga ulNeuc ':.' penninic:. 3: Utility A r.ince the custc.ncr had not b2:n rc:aiving ~rmen tc.: .c phase service. ~~ 18

sale and delivery of heat, power, and light in such amounts a s as may be determined by the governing body of the municipal utility. Similar to Act 174, discussed suora, sales other than wholesale are limited to contiguous villages, cities and town-ships and to any other city presently served; and if a customer outside the city limits is receiving service, permission from the supplying utility to sell to that customer is required. Despite these amendmento, there is serious question as to whether or not the 25% rule has been abrogated entirely. Clearly villages are no longer restrained by the rule. How-ever, Mich. Stat. Ann. 5.4084, which establishes the construction to

      . be given Act 35 of 1951, (Inter-governmental Contracts) states:
        "Nothing contained in this act shall be construed to grant the
 ,      right    . . . to contract to furnish municips.1 services outside the corporate limits c:: cept in accordance with the ccnstitutional limitations on such sales. The conctitutional limit is the "25% nule" "except as greater amounts may be permitted by law."

(Const. 1963, Art. VII, Section 23) . Since the legislature has seen fit to grant Home Rule and fourth class cities the right to exceed the 25% rule solely in Act 35 of 1951 and has not amended the statutes E3/ cpecifienlly relating to the electric utility operctions of these cities, th _:e exist a direct suctu-tory cccflict faich will appercntly hace to be reconciled . - . further legiciation. 23/ Ya1 Fourth lirdt. Cla.es Cir.ico ' crctutes .do nct omrecdv cont: Earever,' to the buct of ou: .:nc e sq;2,' :iich .

                                                                               ':1
                                                                               ..      s Ann. 5.2076 (Ecme Rule Citi2n) preccacly concc;ns the 25"           1;.:..i.c." ~.ca .

t 19

Act No. 157,. amending the Inter-government contract

3 a statutes was approved on~ June 20, 1974 and Act 174, amending the authority of villages, on June 23, 1974. The chronology of these enactments seem to indicate that the Villages Act was amended to conform with the Inter-government Act. It there-fore appears likely that the Michigan legislature.uill subsequently cnact an amendment to the Ilome Rule Cities Act to confom its provisions with the Inter-government Contrcet Act, or at least enact legis1ction eliminating the statutory conflict.

2. A Municipality may Eliminate the Impact of the "25%

Rule" by Expanding its Corporate Bounda. ries Assuming that the 25% Rule currently applies to cities and assuming further that the Michigan Icgisinture does not resolve the statutory conflict by chrogating the rule, competition between municipal electric systems and other public utilities, specifically Applicant, while inhibited to a degree, is cbvicusly not climincted. Ecsides being able to compete for loads until the 25% limit is reached, a municipality may extend its corporate limits with the result that the loads served within the annexed territory are no longer included in the 25% outside the munici- l pality but rcther cre added to the inter-city sales thereby l increasing the bace on uhich t' a 257. . s cciculated. Tnc mothed or precedure by which municipalities c6.1 r nnen l territory is delinect.cd by vericus r,tetut2.. sbj uhich ;:cride generally that the untter Lc stGmitted to the qual!. fica c1;2to.ra 29./ Hich. Stat. 1.nn . 65.1522 (vi:1r.ce::) : 1.teh , s t at . / n . g :3.' c ni 7 (Fcurth C1nt s Citics) ; Mich. fjtat. Ann. C j5..Gb (Lx:a !.t.a Cit..:.e j . ( 20

of the areas affected. A majority vote of such electors will accomplish the annexation. It should be noted that a proposal to annex territory may be initiated by either a resolution of the city council or a petition of the electors directed to the governing body of the municipality or county. If a petition meets the statutory requirements as to number of electors, etc., the city council cust call for an election en the question of anner. tion . III. IIICHIGAN LAW AND REGULATIO'.! REG!aDIliG PRIVATE CCRPOR.WIC1! UTILITIES /diD RURAL ELECTRIO COOPERATIVES , -A. Municipal Jurisdiction and Power Over Private Corporation Utilities and Cooperative Electric Utilities Private Corporation utilities and, since 1965, rural electric cooperatives which operate an elcetric utility in Michigan are subjcet to the jurisdiction of the Michigan Fublic ScrJice Can-missica (Mich. Stat. Ann. 22.13(6)) . Additicnally, these utilitics are subject to regulaticn by any twaship er utnicipality thrcugh which they run transmission lines or in which they conduct c local husiness. The power of the municipality over the utilities arises from its reserved right to control its highways, streets and public places and the constitutional 2_5) 5 and statutory ,2ft/ requirement that to transmit electrie:ity through a municipality or to transact a local business rc:ui: s c franchisa frcu 1:e govern!ng body of the teuaship or n:uniciynlity. Ncnt par micn of n valid une::pired S.anchise, a utility mintai..lnt;; elcetria

          ,25/

5 II'.ch. Con st. 1963, Art. VII, Scc tica !!', . . M'.ch. Ctr.t. Ann. .;22.171. L'6 / ) r , 1 l 21 l 1

facilities within a municipality or totmship is engaged in a continuing' trespass and the municipality may maintain an action to require the utility to remove its facilities. City of Detroit

v. Detroit United Railuav, sunra; Totmshin of Bangor v. Bay City

, Traction & L4.nhting Co. ,147 Mich.165,110 N.W. 490 (1907) . Beyond the right to enforce reasonable restrictions as to the sc.fety of facilities, etc. , a municipali~ty may e stablish, by franchise contract the rc';e and term and conditionc of service governing franchico-grantee's operntiens. uithin the community. Detroit v. Michigan Public Utilities Cor.:ission, 288111ch. 267, 286 N.W. 368 (1939) . This power is contractual in nature M/ since the Constitution provision reserving to municipalities reasonable control of their streets, alleys and , public places, does not delegate to them the governmental pcuer to fin rates. City of Hiles v. Nichi?cn Gv & , Electric Co., 273 Mich. 255, 262 N.U. 900 (1935) . The cuthority to establich rates by franchise ordinnnce is cubject to the general prchibiticn cgainst a municipality centracting for electricity for a period in excess of ten years even where the franchise is granted for a thirty-year period. City of Niles v. Michinan Gas & Electric

      <Co.,             supra.               See also City of Jackson v. Censumers Power Co.,                               312 2'// C' & cf !!iles v. W ' .4 :- n C.n & Electr'^ %..                                                   mnre. Sec
      .s.17.o .C i. '. .. e r .s .. ! . -.n z e ,_
                       ~

a i m .ca t,irce._r- . . . .- m.> nar.r2in the cour- ; .stanco:

                                   '"The city h d t M u quest! n L ic right to grant to cny person, firz. c.. corper.:tlon a .Jrunche u          .

occrecy its strcott . . d .11c;s for conve . e- ::a of r,J s te cr.r.tc=ers. Eut : n.c under no ac me.sica a, ceu-vev nuch rit.ht ta er cy . 1

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f

 . -   Mich. 437, 20 N.W. 2d 265 .(1954) .

B. Michigan Public Service Constission Jurisdiction and Power Over Private Corporation Utilities and Cooperative Electric Utilities

                 ' 1.       Michigan Public Service Commission Jurisdicticn_G2nerally Except for-the limited juricdiction of nunicipal corpora-tions             the cperations of corporately owned ca? ccaperative electric utilities in Michigan are regulated by the Michigan Public Service Com:nission (MPSC), which is vested with the power and jurisdiction to regulate rates, fees, charges, service, rules, conditions of service and other matters pertaining to the formation, operation or direction of such utilitias.

(Mich. Stat. Ann. f 22.13(6)) Nothwithstanding the entremely brocd lenguage of this ccde section, th EXC, being solely an admincerative body created by statute, has no ccracn lcw ponerc but rather wr.rrant for en arcisc of its pouer and authority must be found in other statutory enactmentc. Huron Portland Cccent Compang v. Public Service Comnission, 351 Mich. 255, 88 N.W. 492, (1958). 28/ It should be noted that nany of the statutes relaMng to the regulctica of Michigrn public utilities vect the .:c3nlatcry pcwcr in either the T. chip:n anilroad Ccr. .s:ica 28/ r~ ci. . , - -'o,r.-t9-; lle C.:rch Lir a . N.c .. ;. C3_.tv of M. - '".

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i FA 1939 *?o. 3 [Mich. Ett . 1:n . . '"'. 13 U. '> .1 , L ' ' bc .n before c, ur Courc c as.'erc.'. ...'nes , r n. in erc' 1- l t.t. n=e hns bean ha.i.d to be t .. - .e o c 0.l a of .i Ji: - ' ('Iction Vesting P.ht Cc;;;iG E .I.0". * .'ith sc. S p 20 f.~.C p OMT ~S . . .- ." 3'/9 Mich. at 333. 23

or the Michigan Public Utilities Cor=ntssion, both of whiah ,

  .,    have been disbanded with all of their relevant powers now held                                                    .

by the MPSC. In addition to the requirement that MPSC juris-diction be founded explicitly in the statutes, the Colton decision, FPC v. Southern California Edison Co., 376 U.S. 205 (1964), 29/ 9 restricts, in most circumstances, any MPSC assertion of juris-diction over the wholasale-for ca: ale activities of cny Michigan cicatric utility. A finc1 major restriction un tM authority of the MPSC is the express statutcry denial of jurisdiction over municipally-owned electric systems. Subject to these limitations, the power and jurisdiction of the MPSC may be broken down into essentially tuo relevant areas: (1) regulation of rates, charges, cnd conditions of ' service; and p.) regulntien, under certain canditions of service territory cnd custemarc. Additionally, the MPSC bcs been empoucred to vndertal:e a:ary activities and co require certain acticns by public utilitics subject to its jurisdicticn, 'fhese requirements relate primarily to administrativa and informationcl activitics and are not truly relevant to the present contro-versy since they neither authorize nor restrict any competitive activity by a public utility. 3,0 / 2.9../ S ee also .F. .e. li c 7 " i' _'._t_i c_.n C r.-c. f_.r : -E_rm v . ? t.tich_co ...t_ . _& [d.C^j'*ic C O*2 I/' d*va..N+ . 10/ For e::splc, of m1y te,ccur relecan,a is the requir-: ut enat any cerparatim ..r cc:cc....Ca r w i m 2 stoche , br- m notes, er other ev5 a n el id.n 2dness c. - if c-ic:or:. - by Qe Michi:,ta Eth : ...a .iarvice ;<. i c'Jon n lah. 5'ci. ccm 522.J01). 'Jaile the m.aist.c . ,

d. ./ c c.:1. tie- co i. .

securities or I:.w ce :.;tica it; : Ti:. a c .:cr . .. n f - .s ' ' -

                                                                                                                '"tes to the patcutic1' for emotic..cca ;.a ti.a ci.:                              n d c J.ra r il . L :n

-( c.# olectric po':cr, amen.r at . r to a pc v :iurel. espor .11y since d.c statuce c::%icitly er.21wl. s rninicipal co : crc.i:..c cnd is not applicable to -a non proilt corocratica form:u to 1c.raish electricity to -its Incmbers only. Op . Atty. G en. Hich. 193'i. p . 66. - o 44

J: 4 MM- m A

2. Michigan Public Service Commission Jurisdiction Over Rates, Charees and Conditions of Service

( Michigan' law requires that prior to putting into force any rate or charge for supplying electricity, a Michigan public utility must first petition the 1 ESC for authority to initiate such rate or charge and secure affirmative action from the MPSC cpproving cuch rate or charbc. (Mich. Stat. linn. 22.152) tha statutes and the cases decided thereunder establich the concidaraticns to be made in determining a just and cquitable rate, and between the bounds uhere a public utility rate may be said to be so low as to be confiscatory and a point where it may be said to be so high as to be a burden upon the public, there is a "twiligh: zone" within which the judgement of the MPSC .

r.y opsrate without judicial interfercnce. Datroit v. Michicq Railrond Crissica, 7.09 Mich. 395. In other vords, the 13)3C is vested vith broad d5.scretion and nothority in establiding a just and reaconable rate for the crpply of c1cetricity.

3. Michigan Public Service Cor.ission Jurisdiction to Restrict Service Territories The MPSC power to, in certain instances, establish service, territories or allocate custcmers is, in most cases, negative.

The Cc=aicsien doan at direct a utility to ceeve a partice.lcr customer or territer:< . ~ 1ut rather prc;. it: c cs.ccad util:i::~ frca cacc':ing in ret..il operaticus uitb re ptet to a par:)m.d r : custcmer or in a specified territory. lin cpp trent eme .:ica to this gemc e'. ru..e is SectJ : C c. '. Act 106 of 1909, "'f ..mcri::uiou e ' F,le:.; leit; ' hrcq,h Hid yc. " 25

(Mich. Stat. Ann. 22.156), uhich provides that "[t]he Com-

   , s mission shall have power in its discretion to order electric t

current for distribution to be delivered at suitable i.rimary. voltage, to any city, village or township through which a transmission line or lines cay pass; to order service to be rendered by any such electric utility in any case in which it vill be reasonnble for cuch service to b2 crdered. . . ." liurenprelagd C=ent Cc yg; v. Mi c'y,pn Nblic Sarvic1 em- C taission. suors, involved a suit by the Huron Portland C aent Company to compel the Michigan Public Service Commission to order the Consumers Power Company, rather than the Alpena Power Company, to serve it. The court held that since Con-sumers Pouer Company had no transmission line which passed through the city, did not profess to serve Cnc aren and had re-

  .       quested no certificate of public convenience and necessity to e

the area, the MPSC had no authcrity under the ste.tute (22,156) to crder Consumers to furnich Huron Port 1cnd Ccnant di. rect electric service. The court did not discuss the phrase in Section 6, "through which a transmission line or lines may oass," (emphasis added) but rather appears to have concluded that ordering such service uodid net be "renscanble." J.lse, the ccurt opp.rtntly Sf. led to find the rar,cisita 1sgicletive mund:..tu, "in the clearcr possib a terms," nmpo7cring the M?3C to ord.:- C acu.wrs t, ssrve 'C_cen Port 1:uid. d0rcover, the Court no':cd t'c-t r/m i c sti legis-e -et %p ' . *, .., , g . . ) L + . .' , . k b 8 . 4A coMS tituti 'Zi'.1 (juCLtiO.i . 'Che cc Jh. di[.:n

                                            .                                  .^3CCh this "..00 26

since ths matter could be resolved without considering the constitutionality of MPSC jurisdiction, but did quote, in a r, - footnote, a California decision stating:

          "Neither the railroad con: mission nor any other governmental agency possesses the power to com-pel a street railway company to extend its streetcar line at its oun expense into a terri-tory which it does not and has never undertaken to serve." Hollmmod Cbcmber of Comrce v.

Railrond Cerm.enica, l.iz. Ca.L, 'iO / , T. 9 17 903. Thus it appenrc, at lecct in part. the cocrt construcd the Michigan stutute, particularly its reasonchleness provision, to avoid reaching the constitutional question and thereby narrowing the statute substantially. While such a reading may effectively eliminate the impact of the provision "through which a transmission line or lines may pass," it would bc , censistent with an earlier opinien of t'.ie Attorney General holding that the Michigcn Public Service Ccuirsion enunct ordcr n utility to cerve into an cre; in ulich it h _s not previously sarved. Op . At ty . G en. IIich. , 1919. p . 6 7. The statc=ent in City of Saqinau v. Courr.uers-Pcwor Ccenc.ny, 213 Mich. 460,182 N.W.146, (1921) that "A public service cor-poration is bound from the very nature of its business to fur-nish such public service in such quantities ac the public cay rcqu're. . ." is clearly distinguir'~.bir % th . _ the c -- er c..mp:ry bcd I'cen serving in the arom L i' . . 2, aan 0. 'i e e Trav ar r e Cit, v. Oc : ac r s ? n-- x C.: x r w > J'K ~Ac . SS

                                                     ..                  i f/    ; .U.

2d 694 (1954) holdiu,, th :t to restrie Cc _. rc .M r t' ..e y frco re dcria3 alcatrf cai. servf.ca to en t.r ..

                                                                       .t o - .

lishtd. "Foote Act'! fre :ch.'.sc nit'..in the co .m. Limit'. . t '. , -. e 27 -

muncipality "would thwart tha very nature and object of a public utility," provide no basis for the MPSC ordering an \ extension of facilities since the impetus or decision to ex-tend facilities and service came from the regulated utility rather than the regulatory agency. Thus it seems doubtful that the Michigan Public Service Commission has the power to order cervice to a particulnr territory or cuctor.cr if additienal facilitics would be incidcat er i quired fc r the c:.tencion of such carvice. On the other hand, Pub. Acts Mich. 1929, Act No. 69,

    " Certificate of Convenience and Necessity for New Gas or Electric Projects, " (Mich. Stat. Ann. 22.141), requires
  ' utilities to obtain a certificate of public convenience and                                               ,

necessity frca the Michigan Public Service Cocaission prior ta providing service in ar.y municipclity in thich another utility is alrecdy cer;ing. ihin requirmant doec not apply, howcycr. to a r.n:nicipal c1cetric systen seeking to sarva in new creas or to a utility proposing to serve in en area being served by a municipal system. E/ A second restriction on the territory and customers which a utility may serve is found in the Michigan Public Service Coir;nic:J.cn's wiec gc;v:c. 'r tiO a::ncasion o.' s *npc rhar ad c l e O t r'e u c 0 r V!.0 0 U h i.:a 'e .2 Qs M 1Z2 (In 'ha rat':cs phansd ulcet..'.c c ecl.cz, ..

                                                          - b ~ T. .    (ar i ,
                                                                                  : :ch %?, IC 3.3) ? .

Under the "s' 7,la p c: .:c.: 'n -

                                                                 -i rci m , c: t m s. ncy n'2 31/ : s c c: - " c 611. .

1:, ' i ?-* : ~ cia " an Ec3 7 N the chen a nzeiy a . :_ r ' . ' ' il.1c; . J c :.t . . .n . [2:,14 3 1 28

transfer from one utility to another and a utility with

 ,,         facilities nearest to perspective customer has the right to i

serve that customer unless its distribution facilities and the facilities of one or more other utilities are located within 3000 feet of the customer or there are no distribution facil-ities of any utility located within 2,640 feet. Currently, the MPSC 10 considering adoption of a similar territorial allocation rule dealing uith loads . c^.rved with t:1 ce phased distribution line. It should b2 noted that neither the single phased rule nor the three phased rule, if in fact adopted by the MPSC, restrict the activities of municipal electric systems since, as pointed out above, the MPSC has been expressly denied jurisdiction over municipally owned electric systems. Also, the rule and proposed rule governs only entensions by ruo or uore utilities subject to its jurisdiction. Therefore, e :tannienn by cooperative, or privs.te corporation utilities in compe' c ition uith t=nicipal utilitics uculd not be liaited by the cingic phase or three phase rule. Despite the fact that the "singic phase rule" has governed the activities of cooperative and private corporation utilities sinec 1966, its validity is open to serious questien. As pointed out cbre, the MPSC rmr.t find speciRc logicle.tiva n endre fm: the c~r.:ica of - its rep;;' acry po::cr, "c on i n t'.rd ",aq, .,M' .

             , g y q.          .9 c r c h n an dn t .4 is ner to be femd .:.n che b cod in.3r;. -

s. a .,%. . m.: r. - .. " . ' ~ ;F *1 . ' g- .. . . r, ~ ,

v~ .c

                . . .W. .d.1, %,a g . .l. Un . , '..-- . 1. c (1J
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                                                                     -~ S '"~a'"- -       A>          S'                                          "1--
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                                              'N'*

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                                                                                                              "          - iJ 2 0 ^w" '~ s -

29 s r e- -- , eh-= y- r --

statutes nowhere contain specific authorization for the adoption s of service area regulation by the MPSC and in adopting such rules, the Commission cited no authrotiy. While an argument could be presented that authority for the single phase rule is found in the pernumbra of Act 69 of 1929, .(Certificate of Con-venience and Liecessity), this conflicts wl.th both the gencrcl rule as to the neccasity for cpec'.fic statccry authority for IE5' regulatica and the terms of Act 69. Zirst, the Act refera solely to existing service "in any municinality" and the single phase rule does not govern exclusively within municipalities. Secondly, the Act sets forth matters which the MPSC "shall take into consideration," (Mich. Stat. Ann. 22.145) thereby implying the necessity for a cace-by-caso deterrc.ine.tien. Finally. the singic phase rule, trilil;c Act 09, does net primarily relate to existing service. Since it is a well catablished rule thc'c jurisdiction of a court or agency cannot be conferred by univer or by longstanding adherence, 32 / the fact that the rule has remained unchallenged since 1966 is irrelevant. If the rules are beyond the authority of the Commission, as appears likely, they may subsequently be over-turne-l thereby climinating uhat.eccr i~.pnct they have ca electr?.c uti:' J.Ly coc. petition in I:ichigc;.. 1 yhu c , Uhile the 'M3 c._.c. _ c':ti.at c rR.tc a 3 0ctablish con- ! d it .". ',. / !!cr scrvi;c, 20piira nuni.ccrininntogc scrvica to all cir.? " ..:-i," uituated cun tvX cs , ni. Oc r. ccrt.._n crtcnt, l'ait (b3 tci: t r ian in Tsich pl.i?.c r.till. -icc : ..;r o : atc, it app.: arn ca 11/ Sea Departetent'c Sricf, 51 52 30 l l

ba without authority to compel a public utility to extend its

    , v facility so as to serve a particular customer or any particular i

area. Moreover, neither the single phase rule 'nor the require-ment for a certificate of convenience and necessity is an absolute prohibition against expanding into a particular territory. For example, paragraph 8 of the " single phase rule" states "a utility ncy waive its right to serve a custoner or group of cuc: cmers porvided that another utility ic villing and cdale to prov0Jo the rc-quired service and the Cc=ission is notified and has no objections." (D.J. Exhibit No. 9, p. 6) Likewise the Act regarding certificates of convenience and necessity estab-lishes procedures for obtaining the issuance of such a certificate.

          'It does not prohibit certification if another utility is serving    .

Admittedly waiver by utility of its " single phace rule" right 3 , ( to serve and obtaining a certificate despite reasonable reliable service by an existing utility are unlikely cvcr.tc. Nevertheless, they are not necessarily procluded as a natter of law. 1 i I y' v 31

5 .

UNITED STATES OF AMERICA'

(. BEFORE Tile ATOMIC ENERGY COMMISSION

In the flatter of )

                                                                    )
                .CONSU! ICES POWE2 COMPANY                          )    Docket Noc. 50-329A Midland nuclear Plant, Units 1 and 2 )                                      50-330A
                                                                    )

CERTIFICATE OF SERVICE , I hereby certify that copies of REPLY BRIEF OF THE UNITED

              . STATES DEPARTMENT OF JUSTICE, dated November 25, 1974, in the above-captioned matter have been served on'the following by deposit in the United Sectes mail, first class or air mail, this 25th day of November, 1974:

i Honorable Hugh K. Clark Chairman, Atomic Safety and Mr. Abraham Braitman, Chief Licensing Board Office o.f Antitrust and Indemnity U. S. Atomic Energy Commission U. S. Ato:aic Energy Commission Post Office Box 127A Washington, D. C. 20545 g Kennedyville, Maryland 21645

Mr. Frank W. Karas, Chief i Honorable J. Venn Leeds, Jr. Public Proceedings Branch i Atomic Safety and Licensing Board Office of the Secretary of ' Atomic Energy Commission the Commission Post Office Box 941 U. S. Atomic Energy Commission Houston, Texas 77001 Washington, D. C. 20545 _ Atomic Safety cnd Licensing Willian W. Ross, Escrire Board Panel Keith S . ',?x cn, Ecouir a l U. S, Atomic Energy Conraiscion Wald, Enrkrcdcr 1 R53:: ! -Washingten, D. C. 20515 3 320 Minateenth Stn.et, M.W. [ Chairman, Atomic Scfety and ' ' l Licensinc Appeals Board I.arold P . Graves, ECT.'_re i . U. S. Atenic Energy Coi"r.ission Washing:.ca, D. C. 20545 Vica Prx i c'enr rmu O ' w-^1 Cru 1.: n Consun:r: J m er cor..pc.y 212 Was : ' ^h igan i vmr.:e Jackson , !!! a't.igan ei92Cl ( 4

    /'   .

l

Robert A. Jablon, Esquire Honorable Frank Kelly James C. Pollock, Esquire Attorney Genera.1 Spiegel and McDiarmid State of Michigan

                - 2600 Virginia Avenue, N.W.                Lansing, Michigan                   48913 Washington, D. C. 20037 Joseph Rutberg, Esquire                                    -

Benjamin II. Vogler, Esquire Antitrust Counsel for AEC Regulatory Staff U. S. Atomic Energy Cornicsion Washington, D. C. 20545

A ';l', I. ..

                                                                      " ll57. j:s
                                                                                . s- s.         Lu.o_, _

C. FORREST BANNAN . Attorney, Antitrust Division Departr.;ent of Justice Washington, D. C. 20530 t e f f 9

                                                                                                               *==.

I i r l l e i l N_ u}}

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