ML19274D546

Central Electric Power Cooperative Amended Petition for Finding of Significant Change & Opposition to Motions to Dismiss or for Summary Disposition.Certificate of Svc, Affidavit & Two Exhibits Encl

ML19274D546
Person / Time
Site:	Summer
Issue date:	01/31/1979
From:	Brand W, Hall E PEARCE & BRAND
To:
References
NUDOCS 7902130042
Download: ML19274D546 (72)

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UNITED STATES OF AMERICA IlUCLEAR REGULATORY COMMISSION h .

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In the Matter of -4

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SOUTH CAROLINA ELECTRIC & )

GAS Company, et al. ) Docket Ilo. 50-395A

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(Virgil C. Summer Nuclear )

Station) )

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AMENDED PETITION OF CENTRAL ELECTRIC POWER COOPERATIVE, INC. FOR A FINDING OF SIGNIFICANT CHANGE AND

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OPPOSITION OF CENTRAL ELECTRIC POWER COOPERATIVE TO MOTIONS OF SOUTH CAROLINA ELECTRIC & GAS AND SANTEE-COOPER TO-DISMISS OR FOR

SUMMARY

DISPOSITION THIS DOCUMENT CONTAINS ,

POOR QUAUTY PAGES hallace E. Brand Edward E. Hall PEARCE & BRAND 1000 Connecticut Ave. , N.W.

%ashington, D.C. 20036 Attorneys for Central Electric Power Cooperative, Inc.

DATED: January 31, 1979 790213 CO91

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UNITED STATES OF AMERICA NUCLEAR REGULA*ORY COMMISSION In the Matter of )

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SOUTH CAROLINA ELECTPIC & )

GAS Company, et al. ) Docket No. 50-395A

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(Virgil C. Summer Nuclear }

Station) )

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AMENDED PETITION OF CENTRAL ELECTRIC POWER COOPERT.TIVE, INC. FOR A FINDING OF SIGNIFICANT CHANGE and OPPOSITION OF CENTRAL ELECTRIC POWER COOPERATIVE TO MOTIONS OF SOUTH CAROLINA ELECTRIC & GAS AND SANTEE-COOPER TO DISMISS OR FOR SUMNARY DISPOSITION Introduction An operating license is presently scheduled to be issued for the above-captioned unit on April 30, 1980. As soon as it learned that it might have rights it could assert in this proceeding, Petitioner Central Electric Power Cooperative,

. Inc. (Central), retained an antitrust attorney to determine specifically whether it could obtain an antitrust review and following a factual and legal study, immediately filed the instant petition for a finding of significant change. 1/

In its original petition, which is verified under the Com-mission's rules, Central alleged that SCE&G conditioned Santee 1/ Tne petition inttally also requested hearing, but by ,

letter of December 22 to the Secretary of the Commission that request was " withdrawn this time" or in ef fect requested to be deferred until af ter Commission decision on the question of significant change.

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Cooper's participation in the Summer Unit in exchange for Santee-Cooper's agreement not to compete with SCE&G in the retail and wholesale markets. The original petition alleged that these agreements constituted a significant change in Santee-Cooper's previous role as a vigorous competitor of the private utilities. Central also alleged that Santee-Cooper had initiated a new policy of charging dual rates in connection with large loads in areas where Santee-Cooper was permitted by state law to compete for such customers with Central's retail distribution cooper-ative members.

Applicant SCE&G and Santee-Cooper have moved to dismiss the petition responding (1) that there was no agreement between the parties to divide territories, - ...

(2) that the territorial and customer allocation was imposed by state law and was therefore immune from the antitrust laws, (3) that any effort to influence govern-mental action is also immune, (4) that Central had slept ,

on its rights and was too late in seeking review after the 30-day period for intervention had expired, and (5) th't Central's Petition for a Finding of Significant Change does not meet the Pleading requirements established by the NRC for a Petition to Intervene.

SCE&G and Santee-Cooper have also moved for summary disposition undes Section 2.749 of the Commission's rules, se ...

without however, attaching a statement of material facts as to which there is no genuine issue.

On January 3, 1979, Central filed a consent motion with the Commission extending its time to respond to the respective Motions until January 31, 1979.

On January 26, 1979, the Commission ordered that Central "should amend its petition to state more clearly the changes it believes have occurred that should cause the Commission to refer the matter to the Attorney general for his advice."

This submission is Central's response to the Commis-sion's January 26, 1979 Order. In amending its petition, Central has endeavored to answer the questions raised by the Commission as well as to respond to the relevant arguments made by SCE&G and Santee-Cooper in their respective Motions.

Statement of Facts ,

Central is a large generation and transmission coopera-tive in South Carolina which for many years has purchased its firm power in bulk for resale to its member distribution cooperatives from Santee-Cooper. Santee-Cooper from its inception until 1973 had vigorously competed with SCE&G and other private utilities in wholesale and retail markets.

According to the affidavit of Mr. Patrick T. Allen, prior to July 9, 1973, Santee-Cooper entered into an agreement with w ,

SCE&G and other private utilitic'. to allocate retail and wholesale territory and customers, nd attempted to obtain immunity by getting the state legislature to enact it as a state law. 14r. Allen also stated it was his belief, based on advice of the former manager, E.V. (Brick) Lewis, that the territorial and customer allocation was entered into by Santee-Cooper to obtain a participation in SCE&G's Summer Nuclear Unit. Affidavits of Virgil Summer and Arthur Williams, submitted on behalf of SCE&G, state there is no such agreement, but both carefully list several formal contracts which do not relate to the territorial allocations. Their affidavits do not address the question of whether partici-pation in the Summer Unit was granted in return for any action on customers and territory. Ilowever, the parties do not dispute such territorial and customer allocation law was enacted by the state on July 9, 1973, nor that it was adhered to thereafter.

On July 9, 1973, the Governor of South Carolina a signed the territorial bill. Section 59-19(1) of the Act gave Santee-Cooper the right to provide electric service to Central and its members. Section 59-19(1) and (2) gave Santee-Cooper the right to serve all premises, customers, and electric cooperatives served by it or the ef f ective date of the Act, as well as its "present service area as defined in Section 59-20". Santee-Cooper's "present service area" is defined by section 59-20 as including the counties of Berkeley, Georgetown and Horry, excluding the areas served in these three counties by SCE&G and Carolina Power & Light. Section 59-26 of the Act provides that Santee-Cooper may serve any load of 750 KW or larger outside of this three county area as long as such load is within the territory of a cooper-ative.

On May 15, 1973, the South Carolina legislature passed a " Joint Ownership" bill which gave Santee-Cooper the power to participate in SCE&G's Summer Unit.

Central has since the early 1950's linked its destiny to that of Santee-Cooper in a pattern of contracting in which it financed and built thermal generation and high voltage transmission and integrated then with Santee-Cooper's bulk power facilities. These arrangements, however, give control and eventual ownership to Santee-Cooper.

Since Santee-Cooper's competitive role in South Carolina ,

has changed, Central no longer has certainty of the price or stability of its major power supply source and seeks itself to enter into bulk power supply ownership and operaticn as the best alternative.

It can do so only by obtaining power exchange ser-vices from either Santee-Cooper or SCE&G who control the high voltage transmission and bulk generation in Central's Service Area or by regaining control over its own facilities.

Its efforts in this regard, to date, have been unsuccessful.

In October of 1978, Santee-Cooper made a merger proposal to Central. In Santee-cooper's proposal, Central would lose control over its bulk power function.

The legal ~ity and importance of these significant changes is discussed at length in the following sections.

Cesstral has attached an affidavit by Mr. Patrick T.

Allen, General Manager of Central Electric Power Coopera-tive, Inc. in support of this Petition.

d u, ...

I. SOUTH CAROLINA ELECTRIC & GAS ABUSED ITS MONOPOLY POWER IN THE POWER EXCHANGE MARKET BY CONDITIONING THE SALE OF PART OF THE SUMMER NUCLEAR PLANT TO SANTEE-COOPER IN EXCHANGE FOR SANTEE-COOPER'S AGREEMENT TO RESTRICT ITS ABILITY TO COMPETE WITH SCE&G AT RETAIL AND WHOLESALE.

A. SCE&G Has Violated Section 2 of the Sherman Act.

On information and belief, Santee-Cooper's agreement to allocate territories was obtained by SCE&G in exchange for Santee-Cooper's participation in SCE&G's Summer Nuclear Unit (See, Affidavit of Mr. Patrick Allen, SS, Central Petition, at p. 2).

Central's belief on this issue is supported by several facts. The negotiations on Santee-Cooper's participation in the Summer Unit and the introduction of the territorial bill in the South Carolina legislature occurred during the same time frame.

On May 22, 1972, the Board of Directors of Santee-Cooper adopted a resolution authorizing negotiations with South Carolina Electric and Gas Company with respect to service territories and participation in the Summer Nuclear Plant (See, Affidavit of Robert S. Davis, at 14).

On February 16, 1973, the Joint Ownership bill was introduced into the Senate. Within three weeks, the Joint Ownership bill was ratified by the South Carolina legislature. On May 15, 1973, the territorial bill was introduced and was signed by the Governor on July 9, 1973. Within three u.mths after the territorial law went into effect, SCE&G and Santee-Cooper executed a complex, forty-six page document entitled " Joint Ownership Agreement for Virgil C. Summer Nuclear St' a tion Unit fl". 2/

These events strongly suggest the existence of an unlawful conspiracy to restra'n trade. It would be illogical to assume that Santee-Cooper voluntarily relin-quished its right to compete for retail and wholesale customers outside of a three county area unless, of course, it received something of equal or greater value in exchange for its territorial concessions.

An agreement of this nature is rarely published in newspapers or reduced to writing. Evidence of such agreements are largely in the hands of the alleged conspirators. In such cases, courts are extremely reluc-tant to summarily dismiss a petition prior to allowing the plaintiff ample opportunity for discovery. See, e.g.,

Poller v. Columbia Broadcasting System, Inc., 368 U.S.

464 (1962); 11ospital Building Co. v. Trustees of Rex flosoital, 425 U.S. 738, 746-747 (1976} ; Ballard v. Blue Shield of Southern West Virginia, Inc., 543 F.2d 1075 (4th Cir. 1976) 3/.

2/ A copy of this agreement has been furnished to the Commission by SCE&G.

3/ The NRC Rules of Procedure recognize that discovery may be necessary before a decision is reached on a Motion for Summary Disposition. 10 C.F.R. 52.749(b).

There r.re several cases where a charge of monopoliza-tion was predicated upon a showing that a firm used its -

monopoly power in one market to gain a competitive advantaga in a second market. 4/

In Consumers Power Company (Midland Units 1 and 2), ,___ N.R.C. (1977), the Appeal Board .of the N.R.C.

held that Consumers had abused its monopoly power in the power exchange product market by refusing to coordinate with the smaller utilities within its service territory.

The Board held that Consumers' refusals to coordinate .

were both unreasonable and anticompetitive and had the effect of enhancing Consumers' monopoly position in the wholesale and retail product markets.

In reaching its decision, the Appeals Board in Con-sumer. relied on a number of federal court decisions where a firt was found liable under Section 2 of the Sherman Act lir using its leverage in one market t i gain a competi-tive advantage in a second market.

• One such case is United States v. Aluminum Co. of America, 148 F.2d 416 (2nd Cir. 1945). Prior to World War II, Alcoa had a monopoly over the production of aluminum ingots. These ingots were used as an imput 4/ At the present time, Santee-Cooper has interconnections with both SCE&G and CP&L, but in 1973 and prior years it had interconnections useful for two-way interchange only with SCE&G. Therefore, if Santee-Cooper wanted to obtain nuclear participation power, it would have to deal with SCE&G or with some other utility through SCE&G's transmission network.

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to the fabrication of aluminum sheets. Alcoa sold some aluminum ingots to independent fabricators of aluminum sheet. Alcoa did retain some aluminum ingots for its own use in the production of aluminum sheet. Although Alcoa had monopoly power in the production o# aluminum ingots, it faced considerable competition from the independent fabricators of aluminum sheet. Judge Hand held that Alcoa had unlawfully exercised its monopoly power over aluminum ingot production by squeezing the independent f abricators between the high price that Alcoa charged for the aluminum ingots and the relatively low price it charged for its ot7 aluminum sheet. Alcoa, therefore, used it monopoly power in one market to gain a competitive advantage in a second market.

Another case relied on by the Appeals Board is Packaged Programs, Inc. v. Westinghouse Broadcasting, 255 F.2d 708 (3rd Cir. 1958). The defendant, Westinghouse, 4

owned the only television station within the relevant geographic market and also operated a related business that produced T.V. commercials. Westinghouse refused to schedule T.V. commercials produced by the plaintiff on its T.V. station. The Appeals Court held that Westing-house had unlawfully v:cd its monopoly power in the tele-vision station product market to gain a competitive advan-tage in the T.V. commercial product market. See, United I .. .

States v. Otter Tail Power Co., 410 U.S. 366 (1973) (use of monopoly power in power exchange services and wholesale power markets to foreclose competition at retail); Berkey Photo, Inc. v. Eastman Kodak Co., 457 F. Supp. 404 (S.D.N.Y.

1978) (" carefully orchestrated program by defendant to use its film monopoly so as to obstruct and frustrate competition on the merits in the camera market," Id. at 413); and Sargent-Welch Scientific Co. v. Ventron Coro.,

567 F.2d 701 (7 th Cir. 1977) (" possessor of lawfully acquired monopoly power may not use that power as leverage to deprive competitors of access to customers," Id. at 712). 5/

In this case, SCE&G used'its monopoly position in the power exchange market to gain a competitive advantage .

at wholesale and at retail. Prior to the adoption of the territorial law in 1973, Santee-Cooper was a vigorous competitor of SCE&G. As a result of the adoption of the 1973 Act, SCE&G and Santee-Cooper do not compete ,

at who.lcsale o. etail. It is apparent, therefore, that SCE&G has used its monopoly position in the power exchange market to gain or retain customers in the wholesale and retail markct and to improve its overall competitive position at wholesale and retail.

5/ See, also, Six Twenty-Nine Productions v. Rollins Telecasting, Inc., 305 F.2d 4/6 (5tn Ctr. 1966); United States v. Kleartlax Linen Looms, 63 F. Supp. 32 (D. Minn.

1945);and Eastman Kodak Co. v. Southern Photo Materials, 273 U.S. 359.

B. SCE&G's Conduct Is Not Protected Under Noerr-Pennington or Parker v. Brown.

In the memoranda in support of their respective motions, both SCE&G and Santec-Cooper are noticeably silent about Central's allegation that SCE&G condi-tioned Santee-Cooper's participation in the Summer Unit in exchange for the territorial law. Both SCE&G and Santee-Cooper discuss, instead, how Noerr-Pennington and Parker v. Brown shield

• heir agreement on allocation of retail territories from scrutiny under the antitrust laws.

1. Noerr-Pennington In Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) (hereinafter Noctr), an intensive campaign was waged by the railroad industry against the trucking industry to gain supremacy in long distance freight handling. The railroad's campaign was aimed .t influencing governmental action favorable to their interest and harmful to the business interests of the truckers.

The Court in Noerr relied on several factors in creating an antitrust exemption for " mere attempts to influence the passage or entarcement of laws". Id. at 135. First, an attempt to induce governmental action is essentially dissimilar from conduct normally held

violative of the antitrust laws, such as "pric .-fixing ag r eer.:e n t s , boycotts, market-division agreements, and other similar arrangements." Id. at 136.

Second, a representative democracy needs the input of the people. Congress did not intend to apply the Sherman Act to " political activity". Id. at 136, 137.

Third, the Court in Noerr looked to First Amendment con-siderations in interpreting Congress' intent in passing the Sherman Act. The Court refused to interpret the Sherman Act as a congressional mandate to interfere with the people's right to petition the government. Id. at 137-138.

The Noerr doctrine does not provide an antitrust shelter for conduct traditionally condemned by the anti-trust laws. Noerr drew a distinction between agreements to influence the passage or enforcement of laws and con- -

duct normally held violative of the antitrust laws, such as market-division agreements. ,

In this case, neither SCE&G nor Santee-Cooper peti-tioned the government of South Carolina to approve SCE&G's conditioning of the sale in exchange for Santee-Cooper's agreements on terri tories. SCE&G's unlawful exercise of its monopoly power is, therefore, not even arguably protected by the Noerr doctrine.

In a number of cases, courts have held that conduct traditionally condemned by the Sherman Act will not be protected under the Noerr doctrine, even if the unlawf ul conduct is interwoven with political activity. In United States v. Northern California Pharmaceutical Association, 235 F. Supp. 378 (N.D. Cal. 1964), a member of the Northern California Pharmaceutical Association petitioned the Court to modify a Consent Decree prohibiting the member of the Association f rom entering into or adhering to any agreement or understanding to "fix, determine, maintain or suggest prices...of prescription drugs." The petitioner argued that the Department of Social Welf are, State of California, had adopted a schedule of maximum fees which it will pay to pharmacists for prescription drugs furnished to welf are recipients, and the Consent Decree prohibited the petitioner and other members of the Association f rom discussing the price schedule with representatives of the Department of Social Welfare.

The Court held that the members of the Association had the right to petition the government under Noerr. ,

The Court refused, however, to amend the Consent Decree because price fixing was conduct essentially dissimilar from political activity:

"However, if the preparaP#on of such petition or its presentation, or tne basis thereof, involves consultation by petitioner with the pharmacist members of the Association or con-sultation among the members thereof concerning

'nd price schedules, i.e., any conduct of the .

clearly prohibited by the existing decree,

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such conduct of petitioner, or such Association members as are also members of Northern, could not be justified merely upon the ground of the right to petition the State or its agencies....

This kind of activity, i.e., price-fixing, was specifically held to be unprotected conduct in the Noort case." Id. at 381.

A similar result was reached by the Tenth Circuit in Webb v. Utah Brokers Association, 568 F.2d 670 (10th Cir. 1977). The plaintiffs in Webb acted as an agent for the defendants who were tour brokers licensed by the Interstate Commerce Commission. The plaintiffs alleged that the defendants entered into a group hoycott to prevent the entry of the plaintiffs into the tour broker business.

Several members of the Utah Tour Brokers Association filed suit against plaintiffs seeking to enjoin them from operating illegally as a tour broker. The defendants also filed protests with the I.C.C. opposing the issuance of certificates to the plaintiffs.

The Tenth Circuit noted that the defendants' activities before the Court and the I.C.C. were activities generally considered to be exempt from the antitrust laws, albeit such activities may be introduced in evidence to show defendants' objects and motives. Id. at 672.

The Court held, however, that the defendants' activi-ties went beyond the mere use of legal procedures:

"The activities here were designed to and suc-ceeded in bringing about a boycott of the plain-tif f s, which reduced their competitive signifi-cance and caused a substantial loss. Accordingly, we must conclude that the governing law is set forth in the boycott cases rather than the exemption decision in Noerr Motor Freight, Inc. and its progeny."

The Tenth Circuit affirmed the jury's judgment in favor of the plaintiffs on liability and adjusted the jury's damage award against the defendants.

Lastly, in United States v. Southern Motor Carriers Rate Conference, 439 P. Supp. 29 (N.D. Ga. 1977), the government attacked the defendants' collective activity in fixing rates and presenting their collectively set rates to the state public service commission for the commission's approval. The Government moved to strike the defendants' Noerr-Pennington defense.

Although the government conceded that the submission of the tariff proposals to the agency was arguably exempted activity under Noorr, it asserted that Noerr did not grant a blanket immunity for the defendant's non-exempt conduct, i.e., the collusive rate fixing. 6/ The Court 4

agreed with the government's logic:

"In this connection, we further note that irrespective of the exemption afforded defendants from antitrust liability for mere activity of seeking approval of such collectively set rates, defendants may nevertheless be liable for non-exempt 6/ See also United States v. Sinal Sales Corp., 274 U.S.

268 (1927) (where part of combination and conspiracy included attempts to influence governmental action and Continental Orc Company v. Union Carbide, 370 U.S. 690 (1962) (unlawful exercise of monopoly power is conduct

" wholly dissimilar" from mere efforts to influence governmental action).

activities. Thus, this court may consider all of defendants' arguably exempt activi-ties associated with the petitioning process which are relevant and admissable as purpose and character evidence to prove the anticompetitive intent of defendants' non-exempt conduct as well as the overall anticompetitive scheme." Id. at 47. 7/

SCE&G's unlawful exercise of its monopoly power is therefore not even arguably protected by the Noerr doctrine. First, SCE&G's conduct is essentially dissimilar from a mere attempt to influence governmental action and constitutes conduct traditionally condemned by the Sherman Act. Second, there was no lobbying effort made before the legislature which would result in a bill com-pelling (or even approving) SCE&G's conditioning of the sale in exchange for a restriction on retail and wholesale competition. SCE&G's conduct clearly falls under the "non-exempt" category. Lastly, even if it is assumed that the efforts by SCELC and Santee-Cooper to influence the legislature to pass a territorial law and the Joint 4

Ownership bill are exempt under Noerr, the conduct of SCE&G and Santee-Cooper in this endeavor is most relevant

,7f In United Minh' Workers of America v. Pennington, 381 U.S. 657 (1965), the Supreme Court stated that although the Walsh-Healy episode could not form the basis of antitrust liability, it would be within the province of the trial judge to admit this evidence to show the purpose and character of the non-exempt transactions still under scrutiny. Id. at n.3. The Appeals Board of the NRC in Consumers considered evidence concerning Consumers' attempts to influence RCA for this purpose.

See, Consumers, suora at 352-357 (slip decision).

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to show the purpose and character of other non-exempt activity, such as SCE&G's unlawful exercise of monopoly power.

2. Anticompetitive conduct by private citizens may be immunized from the federal antitrust laws when the State, in the exercise of its lawful powers, directly compels such conduct, but private conduct cannot be immunized under any circumstances when the State merely authorizes such conduct.

On March 8, 1973, the South Carolina legislature passed a bill which would enable Santee-Cooper to become a joint owner of the Summer Plant (559-17) . This bill states that Santee-Cooper "shall have the power to become a joint owner" in the Summer Unit. It does not state that Santee-Cooper shall purchase a part of this unit.

Moreover the Act does not intimate that the South Carolina legislature approved SCE&G's conditioning of the sale in exchange for Santee-Cooper's agreements on terr i-torial allocation. The language of this Act is permissive a

in scope and it merely provides a legal framework for Santee-Cooper's purchase of the Summer Unit. As shown below, SCE&G's unlawful exercise of monopoly power is not even arguably protected by Parker v. Brown.

1. State action under Parker v. Brown.

Tae problem of reconciling state statutes which directly or indirectly limit competition with the federal antitrust laws, which are designed to preserve competition, has generated a number of Supreme Court decisions, from Parker v. Brown, 317 U.S. 341 (1942) to a recent decision by the Court in City of Lafayette, Louisiana and City of Plaquemine, Louisiana v. Louisiana Power &

Light Co., 1978-1 CCH TRADE CASES, 161,936 (Sup. Ct.

1978). The Supreme Court has developed a general rule over the years in applying the Parker v. Brown exemption to anticompetitive conduct by private citizens. As shown in the following discussion of the relevant case law, the Supreme Court makes an important distinction between private conduct compelled by the State acting as sovereign and private conduct that is merely authorized or permitted under state law. Under the Supreme Court's general rule, the lower court must make a threshold determination whether ur not the anticompetitive activity is compelled by the state. If the lower court finds that private conduct is merely authorized rather than compelled by a state statute, then the lower court may not immunize under any circumstances a private party's anticompetitive activity under the Parker v. Brown doctrine.

In applying the Supreme Court's rule to the facts in this case, it will be shown that the " state action" defense does not apply in this case, since South Carolina has not compelled SCE&G to sell, or Santee-Cooper to purchase, part et the Summer Unit, and further because the South Carolina legislature has not compelled or even approved SCE&G's exercise of monopoly power.

Parker v. Brown is a convenient starting point for legal analysis. Parker v. Brown, 317 U.S. 341 (1942).

In Parker, a raisin producer brought suit against California public officials attacking California's program for prorating the state's raisin crop so as to reduce excess supply and stabilize prices. The defendants were the State Director of agriculture and members of a program committee composed primarily of persons nominated by producers.

The Committee drafted a marketing plan, admittedly restric-tive of competition, which became effective upon approval of the required majority of raisin producers in a referendum.

The Supreme Court assumed for the sake of argument that the California prorate program would violate the Sherman Act if it was implemented by private persons.

Nevertheless, the Court held that the Sherman Act was not intended to prohibit a state program which " derived 4

its authority and its ef ficacy f rom the legislative command of the state and was not intended to operate or become effective without that command." Id. at 350.

The Court added that the Sherman Act was not intended to restrain " state action or of ficial action directed by a state." Id. at 351. The Court cautioned, however, that "a state does not given immunity to those who violate the Sherman Act by authorizing them to violate it, or by declaring that their action is lawful." 317 U.S. at 351. 8/

The " state action" exemption was discussed in the Court's unanimous decision in Goldf arb v. Virginia, 421

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U.S. 773 (1975). Goldf arb presented the question "whether a minimum fee schedule for lawyers published by the Fairfax County [ Virginia] Bar Association and enforced by the Virginia State Bar," violated section one of the Sherman Act. 421 U.S. at 775. The State Bar argued that the Sherman Act did not apply to its price-fixing activities because the Virginia State Bar was " a state agency by law,"

421 U.S. at 790. The Virginia legislature had empowered the Virginia Supreme Court to regalate the practice of law and had. authorized'a role for the State Bar in this regulation as an administrative agency of the State Supreme Court. The Supreme Court had developed an ethical code for e

lawyers, and the State Bar was empowered to issue ethical opinions on the application of these rules. Two ethical opinions by the State Bar were used to enforce a minimum fee schedule.

8/ See also, Schwegmann Brothers v. Calvert Coro., 341 U.S.

384 (1951). ("The tact that a state authortzes [ conduct in violation of the Sherman Act] does not, of course give immunity to the scheme absent approval by Congress"); and Alabama Power Company, 5 NRC 804, 864-867 (1977).

Since the Virginia legislature had taken no action requiring the use of a minimum fee schedule, the anticom-petitive ef fects of the minimum fees were not in any sense " compelled by direction of the State acting as a sovereign". 421 U.S. a t 791. The State Bar had voluntarily joined an anticompetitive activity. Importantly, the Court stated the existence of sovereign compulsion was "[t] he threshold inquiry in determining if an anticom-petitive activity is state action of the type the Sherman Act was not meant to proscribe." 421 U.S. a t 790.

The requirement of state compulsion as opposed to mere authorization was therefore firmly established by the Supreme Court in the unanimous Goldf arb decision. 9/

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The next Supreme Court cac5~ applying the " state-action" doctrine was Cantor v. Detroit Edison Company, 428 U.S. 579

( l ') 7 6 ) . Mr. Cantor, a retati druggist who sold l igh t bulbs, filed an action claiming that Detroit Edison used 4

its monopoly power in the distribution of electricity to restrain competition in the sale of light bulbs in violation of the Sherman Act. Detroit Edison began providing l igh t bulbs to its customers without an additional charge in 1886. In 1916, the Michigan Public Service Company approved a tariff filed by Detroit Edison which set forth its lamp supply program. Thereafter, the Commission's 9/ Prior to Goldfarb, a number of lower courts had reached a similar concluston. See, e.g., Marnell v. United Parcel Service of America, 260 F. Supp. 391 (N.D. Cal. 1966).

approval of Detroit Edison's Tariffs included at least

" implicit approval of the lamp exchange program". 428 U.S. at 583. The cost of the light bulbs to Detroit Edison was included as a portion of its cost of service.

Until Detroit Edison could file a new tarif f, it could "not abandon the program without violating a Commission order, and therefore without violating state law." 428 U.S. at 585. The issue before the court, therefore, was whether " private conduct required by state law is exempt from the Sherman Act." 428 U.S. at.592. The court noted that it had "already decided that state authorization, 10/ approval, 11/ encouragement, 12/ or participation 13/ in restrictive private conduct conf ers no antitrust immunity." 428 U.S. at 592. The Court had already disposed of these cases, but Cantor presented a new problem. The tariff was accepted by the state, and, the utility was thereafter required to continue ex-changing light bulbs' or violate state law.

The relationship between Goldfarb and Cantor is a best explained by Judge Widener's concurring opinion in City of Fairfax Hospital v. Fairfax Hosoital Association, 562 F.2d 280 (4th Cir. 1977); remanded, U.S. (1978):

10/ northern Securtties Co. v. United States, 193 U.S.

197, 346 (1904).

11/ Parker v. Brown, supra at 351.

12/ Goldfarb v. Virginia State Bar, supra, a t 7 91.

13/ Continental Ore Co. v. Union Carbide, 370 U.S. 690 (1962).

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"The threshold defined in Goldfarb was not crossed in that case, thus ending the tmmunity analysis (he need not inquire further into the state-action questions because it cannot fairly be'said that the State of Virginia required the anticoc-petitive activities of either respondent. 421 U.S. 790); it was crossed in Cantor, where tariffs carrying the force of State law required the continuation of the challenged light bulb exchange program until further action of the State.

Further inquiries were therefore necessary."

Id. at 286.

The Supreme Court reiterated its distinction between conduct compelled by the state and conduct that is merely authorized by the state in Bates v. State Bar of Arizona, 433 U.S. 350, 53 L.Ed.2d 810 (1977). In Bates, the court first distinguished Goldfarb, noting that the challenged restrain _t in Dates was compelled by direction of the state. Id. at 821. The Court then began its Cantor analysis after crossing the Goldfarb threshold.

Although the f acts in Cantor produced a divided court, the dissenting opinion of Justice Stewart, joined by Justices Powell and Rehnquist, made it clear that a the dissenters did not disagree with the Goldf arb threshold requirement of state compulsion:

"Goldfarb clarified Parker by holding that private conduct, it it is to come within the state-action exemption, must be not merely " prompted" but " compelled" by state action. Thus refined, the doctrine performs the salutory function of isolating those areas of state regulation where the State's sovereign interest is, by the State's own judgment, at its strongest, and limits the exemption to those areas.

Beyond this the Court cannot go without disregarding the purpose of the Sherman Act..." 428 U.S. at 637-638.

The three dissenters did not object, therefore, to the Goldfarb requirement of state compulsion. The dissanters objected to the majority's willingness to ic. quire further after it had already been determined that the Detroit Edison was acting at the command of the State. See 428 U.S. at 615, 624.

Chief Justice Burger wrote a concurring opinion in Cantor. The Chief Justice concurred in the court's opinion (Parts I and III) that discussed the compulsion requirement.

In his concurring opinion in Louisiana Power & Light Co., the Chici Justice emphasized the necessity of state compulsion as follows: "I would insist, as the Court did in Goldfarb, supra, a t 7 91, that the state comoel the anticompetitive conduct." Id. at p. 73, 980 N. 6 (emphasis supplied by Chief Justice) .

In a recent decision by the Appeal Board of the Nuclear Regulatory Commission, moreover, the NRC held that Con-sumers' Power Company, the nation's eighth largest private utility, had violated the antitrust laws by its bulk power relations with cooperative and municipal power systems in its service area. In the Matter of Consumers Power Company (Midland Plants, Units 1 and 2), Docket Nos. 50-329A, 50-330A (December 30, 1977). These anticompetitive activities of Consume rs involved pr imar ily its refusal to cheel power over its transmission lines, refusal to enter reserve sharing arrangements on reasonable terms, and refusal to enter coor-dination arrangements with the smaller systems. The NRC's discussion on the interaction of the antitrust laws in a regulated environment reflects the current judicial attitude:

"The extent of the protection afforded by government regulation is not self-evident, neither is it coinci-dent with the scope of the regulatory agency's authority.

To avail itself of this defense, a company charged with monopolization must demonstrate that the anticom-petitive conduct which is sought to be laid out at its doorstep was dictated in the first instance by " regulatory coercion" and not by private business judgments in which the regulators later acquiesced."

Id. at 49.

The NRC also made the following observation about the applicability of the antitrust laws to the electric power industry:

"[A]nalysis of a utility's conduct must (among other things) be sensitive to judicial and FTC antitrust rulings that the actions of a dominant business enterprise have to be tested against a nore stringent standard than applies to actions of smaller concerns in highly competitive markets, and must also take account of the general rule that electric utilities '

are not exempt from the federal antitrust laws, particularly where they voluntarily enter into com-mercial relationships governed in the first instance by business judgment and not regulatory coercion."

Id. at 38. 14/

14/ NRC board cited the following cases in support of its analysis: Otter Tail Power Co. v. United States, supra, 410 U.S. at 373-375; Cantor v. Detroit Edison Co., suora, 428 U.S. at 594-598; International Tel. & Tel. Corp. v.

General Telephone and Electronic Corp., 518 F.2d 913, 935-936 (9th Cir. 1975) (Clayton Act) .

The Supreme Court in Otter Tail made the following obser-vation:

"It is clear, then, that Congress rejected a pervasive regulatory scheme for controlling the interstate distribution of power in favor of voluntary commercial relationships. When these relationships are governed in the first instance by business judgment and not regulatory coercion, courts must be hesitant to conclude that Congress intended to overrule the fur.damental national policies, embodied in the anti-trust laws." Otter Tail Power Co. v. United States, 410'U.S. 366, 374 (1973).

The State of South Carolina has not compelled SCELG's exercise of monopoly power. SCE&G's conduct, like the conduct by Otter Tail and Consumers, is not the result of regulatory coercioq but of private business judgment.

Further, there is absolutely no indication that the State of South Carolina would have even approved of this monopo-listic practice by SCE&G. See, Continental Ore Company

v. Union Carbide & Carbon Corp., 370 U.S. 690, 706 (1962; (no proof offered that Canadian government would have approval of the joint efforts to monopolize the sale of vanadium).

The threshold inquiry in a Parker v. Brown analysis is whether the state has compelled private conduct incon-sistent with the antitrust laws. There is no evidence in this record which would remotely suggest that South Carolina compelled SCE&G to condition Santee-Cooper's participation in the Summer Unit in exchange for retail and wholesale territorial concessions. In fact, South Carolina did not even compel SCE&G to sell or Santee-Cooper to purchase a part of this unit. There is, therefore, no state action which would shield SCE&G conduct from scrutiny under the antitrust laws.

Lastly, the State of South Carolina does not have the constitutional power to require anticompetitive conduct either in the wholesale market or in the power exchange market. Arkansas Power & Light v. P.PC., 368 F.2d 376 (8th Cir. 1966); Public Utilities Commission of Rhode Island et al. v. Attleboro Steam & Electric Co., 273 U.S. 83 (1927) (state regulation of electric power rates imposed a direct burden on interstate commerce and was therefore invalid under the Commerce Clause). The require-ment in Parker that the state action must be consistent with federal law and policy is more thoroughly addressed in the next sec t io n . (See, Central Amended Petition at pp. 30-32).

II. SCE&G AND SANTEE-COOPER HAVE ALLOCATED TERRITORIES IN Tile RETAIL AND Wi!OLESALE MARKETS.

A. The Existence of an Agreement to Restrain Trade in the Wholesale and Retail Markets.

SCE&G, through the affidavits of Virgil Summer and Arthur Williams, claims that there is no agreement to divide territory or customers, careful.ly listing several

, formal agreements with Santee-Cooper which do not contain such provisions. These f ormal agreements were also supplied as attachments to SCE&G's pleading. The only possible explanation for SCE&G's submission of these voluminous documents, which are otherws .c irrelevant, is to invoke tae rule of eiusdem generis and thereby ensure that their affidavits are interpreted to refer only to agreements of the same kind, class or r.ature, that is, express con-tracts and t.hus to protect the affiants from making incorrect statements under oath.

Mr. Robert S. Davis submitted an affidavit in support of Santee-Cooper's Motion to Dismiss. Mr. Davis states that on May 22, 1972 the Board of Directors adopted a resolution authorizing negotiations with SCE&G with respect to service territories and the Summer Nuclear Unit.

Mr. Davis does not discuss whether any negotiations actually occurred between Santee-Cooper and SCE&G. He also fails to address Central's statement in its Petition that SCE&G conditioned Santee-Cooper's participation in the Summer Unit in exchange for Santee-Cooper's sponsorship of a

• legislative bill on retail territories. Further, Mr.

Davis states that he did not enter into any ag reement to restrict competition until authorized and directed to do so by the Legislature. Central interprets this statement to mean simply that SCE&G and Santee-Cooper did not actually divide territory and customers until atter the passage of Act No. 412 of 1973. Mr. Davis' testimony on this point is silent, or at least ambiguous, on the conduct of Santee-Cooper and SCE&G prior to the introduction of the bill. That is, Mr. Davis does not address any of the following points: (1) did SCE&G and Santee-Cooper decide to jointly sponsor a bill restricting Santee-Cooper's right to compete at retail; (2) did Santee-Cooper agree to sponsor the territorial legislation in exchange for participation in the Summer Unit (a matter which is not discussed in either the af fidavits or memo-randa submitted by Santee-Cooper and SCE&G); (3) did Santee-Cooper and SCE&G agree on a draft of the bill with the exact territorial boundaries and customers names prior to submitting it to the legislature; (4) if SCE&G and Santee-Cooper did meet and negotiate on territories and the Summer Unit, did they discuss the competitive role of Central and how their actions would affect Central; (5) why did the State Leg islature restr ict Santee-Cooper 's right to sell at wholesale; (6) did SCE&G request that this provision be placed in the territorial bill to enhance ,

its competitive position at wholesale; (7) does any state have the constitutional right to restrict the sale of wholesale power; and (8) why was the provision inserted in the bill which allows Santee-Cooper to compete for large loads outside of the three count 2 area, but only in territory assigned to cooperatiaves, thus enabling Santec-Cooper to compete with Central but not with SCLsG (See Section 59-26).

Central does not believe that any of the above agree-monts or understandings would be reduced to writing and copies forwarded to the Justice Department. Mr. Allen of Central states in his affidavit that he believes the agreement is one manifested by meetings to agree in princi-ple on such questions, and subsequent reduction in writing in the form of legislative bills for later submission to the legislature for enactment. Some of the under-standings, as mentioned earlier, were not submitted to the legislature.

Section 1 of the Sherman Act covers combinations, conspiracies and constraints--express or implied. Albrecht

v. The Herald Co., 390 U.S. 145 (1968). "Jud ic ial inquiry is not to stop with a search ot the record for purely contractual arrangements. The Sherman Act forbids combinations of traders to suppress competition." United States v. Parke, Davis & Co., 362 U.S. 29 (1960). In Frey & Son v. Cudchy Packing Co., 256 U.S. 208 (1921), a the Supreme Court reversed the Court of Appeals which had concluded "There was no formal written or oral agree-ment," and therefore could be no violation. The Supreme Court held that the essential agreement, ccmbination or conspiracy might be implied f rom a course of dealing or other circumstance." The Supreme Court in Parke, Davis summed up the law in footnote 6 of its opinion by stating that an agreement violating the Sherman Act may be " express, tacit, or implied". Accordingly, any agreement or joint action whether or not rising to the dignity of a contract, whether formal or informal, and unlawful in purpose, intent or ef fect can give rise to liability. See, U.S. v. A. Schrader's Son, Inc., 252 U.S. 85, 99 (1920) (an agreement "may be implied from a course of dealing or other circumstance.")

The affidavits submitted by SCE&G and Santee-Cooper do not address the important issues. No mention is made concerning their course of conduct prior to the adoption of the territorial bill. Further, the affidavits assume that a written agreement is a necessary predicate for an antitrust violation. At the very least, a factual issue is crented between the testimony of Mr. Allen and these witnesses concerning the existence of an unlawful agreement--express or implied, as well as the scope of the understandings agreed to between Santee-Cooper and SCE&G. Under these circumstances, the dismissal of 4 Central's petition on a motion would be improper.

B. The Scope of the Section 1 Violation.

The scope of the conspiracy is dif ficul t to determine at tnis time, since the evidence is in the possession ci the conspirators. However, Central believes that, at the very least, the conspiracy encompasses an under-standing to restrict wholesale and retail competition.

The express manifestation of a restriction on the sale of wholesale power appears in the territorial Act.

In the Act, Santee-Cooper was prohibited from making any wholesale sales except to Central. This obviously forecloses Santee-Cooper as a competitior of SCE&G for the supply of wholesale customers other than Central.

Assuming for the moment that Parker v. Brown does not provide a shelter for a territorial allocation scheme in the wholesale market, it is blackletter law that an agreement between SCE&G and Santee-Cooper to divide up the wholesale power market would constitute a per se violation of section one of the Sherman Act. United States v. Topco Associates, 405 U.S. 596 (1972); Gaines-ville Utilities Department et al. v. Florida Power &

Light Co., 573 F.2d 292 (5th Cir. 1978); United States

v. Florida Power Corp., et al., 1971 CCl! TRADE CASES 173,637, ,

(M.D. Flo. 1971).

1. Apolicability of Parker v. Brown to a Private Agreement Allocating Territory in the Wholesale Power Market Where the Prtvate Agreement is Enacted into State Law.

With the passage of the territorial law, the State of South Carolina hos restricted competition at wholesale.

This action by the state Icgislature is directly contrary to the national policy of competitic.) embodied in the Sherman Act and the Commerce Clause of the Unit'ed States Constitution. When the action of a state conflicts with national policy in this manner, the Supremacy Clause of the United States Constitution requires that the state law be invalidated and any anticompetitive action taken pursuant.to an invalid state law is subject to scrutiny under the antitrust laws. The Supreme Court has so held in its decision of Schwegmann Dros. v. Calvert Corp.,

341 U.S. 384 (1951).

In Schwegmann, a Louisiana statute permitted a distri-butor and retailer to make a contract fixing the retail prices. Once a distributor had such a contract with any retailer in the state, the statute provided that a sale at less than the price stipulated in the contract by a retailer, who was not a party to the contract, would be unfair competition. The Louisiana statute, therefore, enforced price fixing not only against parties to the contract but also against non-signers.

The respondents Calvert Distillers and Seagram Distillers were distributors who had succeeded in forcing over one hundred Louisiana retailers to sign price fixing agreements. The petitionce, Schwegnann Brothers, refused to sign the price fixing contract. Seagram and Calvert filed suit against Shwegmann Brothers to enjoin the peti-tioner trom selling products at less than the contract price.

The Court noted that the mere fact that "a state authorizes the price fixing does not, of course, give immunity to the scheme, absent approval by Congress".

Id. at 386.

Calvert and Seagram argued that the Miller-Tydings Act immunized their conduct. Although the Miller-Tydings Act permitted the setting of minimum prices by contract, so in.9 as such conduct was authorized by state law, the Court held that the Miller-Tydings Act did not authorize or sanction the imposition of a price-fixing arrangement on non-signers. The Louisia,P catute, therefore, went beyond the federal statute in enforcing the price fixing contract on non-signers. The Court concluded that "when a state compels retailers to follow a parallel price policy, it demands private conduct which the Sherman 4 Act forbids." Id. at 389.

The " state action" in Schwegmann was illegal. The state authorized and compelled non-signer retailers to follow a parallel price policy --conduct which is clearly illegal under the Sherman Act. Further, the statute was not consistent with federal law and policy embodied in the Miller-Tyd ings Act. Any action taken pursuant to this invalid state statute by private parties would be subject to scrutiny under the Sherman Act.

There is no federal law or policy which supports or sanctions a state restriction on competition in the wholesale power market. On the contrary, there is a national policy favoring competition in the electric utility industry. See Otter Tail Power Co. v. United States, 410 U.S. 366 (1973). The Appeals Board in Consumers has recognized the importance of competition in the wholesale power market. Thus, South Carlina's approval of a restriction in the wholesale power market is not supported by any federal law or policy, and, like the Louisiana statute in Schwegmann, the South Carolina statute sanctions private conduct that is in direct con-travention of the antitrust laws.

In addition to sanctioning en anticompeti tive restraint which is not supported by federal law or policy, the South Carolina statute also imposes an "ar tificial 4 rigidity on the economic patterns of the industry" in violation of the Commerce Clause. Toomer v. Witsell, 334 U.S. 385, 404 (1948).

It can hardly be disputed that a restriction on the sale of wholesale power or power exchange services atlects the flow ot commerce among the states. See, Arkansas Power & Light Co. v. P.P.C., 36S P.2d 376 (8th Cir. 1966). Moreover, since SCE&G and Santee-Cooper rely on trancactions within the regional power exchange market to produce an economical supply of wholesale power, the production of wholesale power is inextricably linked to factors of production obtained in the inter-state power exchange market.

Several anticompetitive state statutes which af fect the flow of commerce among the states have been held to be unconstitutional under the Commerce Clause. Such state laws include the follo ing: (1) limitations on the number of competitors in a market 15/; (2) compelling a local distributor to accept his total supply from designated producers 16/; (3) setting minimum prices to be paid by dealers to producers 17/; and (4) establishing local territorial restrictions on plant sites ljif.

The Court in Parker was faced with a Commerce Clause challenge to California's prorate program. However, unlike South Carolina's 'ction in this case, the California 4 15/ H. P. Hood & Sons v. DuMond, 336 U.S. 525 (1949).

The South Carolina law dces limit the number of competitors in the wholesale market.

16/ Polar Ice Cream & Creamery Co. v. Andrews, 375 U.S.

361 (1964).

17/ Baldwin v. GAF Seelig, 294 U.S. 511 (1935).

18/ Dean Milk Co. v. City of Madison, 340 U.S. 349 (1951).

prorate program was consistent with federal law and policy.

The federal government itself, through its agriculturel legislation, had authorized marketing procedures substan-tially similar to the California prorate program. Parker

v. Brown, supra, 317 U.S. at 367-368. The Court, therefore, held that "whatever effect the operation of the California program may have had on interstate commerce, it is one which it has been the policy of Congress to aid and encourage. .."

Id.

In this case, on the other hand, there is no federal statute which encourages or authorizes a state restriction on the wholesale and power exchange markets.

B. Agreement on Retail Territories:

As stated previously, SCELG conditioned Santee-Cooper's participation in the Summer Unit in exchange for Santee Cooper's agreement to seek legislative action restricting ,

its right to compete at retail.

Central will sock to introduce this agreement and the subsequent lobbying effort as evidence of a general anticompetitive intent associated with non-exempt trans-actions. One such non-exempt transaction is SCE&G's conduct in conditioning Santee-Cooper's participation in the Summer Plant.

As part of the retail allocation scheme, Santee-Cooper and SCE&G agreed that Santee-Cooper could serve any load of 750 KW or larger outside the three county area, as long as such load was within the territory of a cooperative.

This agreement is manifested in Section 59-26 of the territorial Act:

"The Public Service Authority shall also have the. righ t, if chosen by the customer, to serve any load of 750 KW or targer, within any territory which now, or in the future, is assigned by the South Carolina Public Service Commission to any of the cooperatives that are members of Central Electric Power Cooperative."

(emphasis added).

This provision gives Santee-Cooper the " r igh t" to compete with Central for such loads but prohibits Santee-Cooper from competing with SCE&G for these loads. This provision is the obviou_ result of an anticompetitive conspiracy directed at Central.

Section 59-26 does not compel Santec-Cooper to serve loads over 750 KW in Central's territories. The State of South Carolina has merely provided that, notwith-standing the territorial limitations in other sections of the Act, Santee-Cooper may serve such loads if it so chooses. If a customer with a load in excess of 750 Kh or greater requested service from Santee-Coper, the Act contemplates that Santee-Cooper'could refuse because of expense or some other reason. In the absence of state compulsion, the anticompetitive agreement b; SCE&G and Santec-Cooper to eliminate competitior. among themselves and to direct all competitive efforts against Central is not protected by Parker v. Brown.

Even if it is assumed that South Carolina has compelled Santee-Cooper to serve loads in excess of 750 KW in a cooperative's territory, the state t .s absolutely no legitimate interest in restricting competition between SCE&G and Santee-Cooper but permitting Santee-Cooper to prey on the cooperative members of Central.

As in Schwegmann, there is no federal law or policy which would suppc t such a policy.

Moreover, the state has no interest in promoting destructive competition. Destructive competition is the conduct of a firm intended to eliminate or seriously weaken the competitive ability of rivals in actual or potential competition with it (or them]. There are various degreen of destructive competit.on ranging from actions which force the failure of a target firm to actions not necessar ily designed to eliminate the competing ,

firm, but rather to eliminate or seriously weaken its competitive ability to increase its market share. By approving the private agremcent reached between SCE&G and Santee-Cooper, the legislature has rubber stamped an agreement to engage in destructive retail competition in South Carolina. The only interest advanced by this section is the interest of Santee-Cooper to capture large and profitable retail loads in the coeperatives' territory and the interest of SCE&G in prohibiting Santee-Cooper from capturing such loads in its territory.

Chief Justice Burger stated in his concurring opinion in Cantor that there are situations where private conduct compelled by the sovereign would be subject to scrutiny under the antitrust laws. The Chief Justice stated that " state-sanctioned an* mpetitive activity must fall like any other if .; potential harms outweigh its benefits." Cantor v. Detroit Edison Co., 473 U.S.

579, 610 (1976) (concur ring Opinion of Chief Justice) .

This rule of reason approach is applied only after the cour t passes the " threshold inquiry" of sovereign com-pulsion.

The Court's holding in Schwegmann supports the analysis by the Chief Justice in Cantor. Justice Burger argued in his concurring opinion in Cantor that the " issue in Schwegmann was whether the state could require obedience ,

to a fixed resale pr ice ar rangement." Id. at 609. In Schwegmann, the " threshold inquiry" was satisfied by a finding that Louisiana had in f act compelled private conduct inconsistent with the antitrust laws and had not articulated any justification for compelling anti-competitive private conduct. Likewise, the plurality opinion and concurring opinion in Cantor found that the Michigan Public Service Commission had not articulated any reason for requiring the light-bulb tie-in.

No justification for section 59-26 can be found in the Act or in the legislative history. Further, no legitimate state interest could possibly be mustered in support of this blatant anticompetitive conduct.

Therefore, SCE&G and Santee-Cooper's agreement to eliminate their competition for loads in excess of 750 KW and to direct their competitive ef forts solely at Central and its members is not even arguably protected by Parker

v. Brown.

In order to implement this anticompetitive agreement, Santee-Cooper adopted a dual rate policy for supplying power to Central for ultimate resale to large power loads.

Since Central is almost entirely dependent on Santee-Cooper for bulk power supply, the dual rate policy restrains Central's members from competing effectively'for such loads. Under the territorial law, Central's member-cus-tomers compete for these loads with Santee-Cooper and SCE&G. The dual rate policy was implemented by Santee-Cooper i

after the enactment of section 59-26 and subsequent to the Advice Letter by the Attorney General.

Thus, the exercise of iaonopoly power by SCE&G, the unlawful division of wholesale markets, and the unlawful division of retail markets with respect to loads in excess of 750 KW is not shielded fromm antitrust scrutiny under Parker v. Brown; these acts, therefore, do not constitute a change in the competitive structure " flowing from state legislation". These acts would be considered by the courts to be the product of voluntary decision and business judgment rather than of lawful state action.

III. COMMENCING WITH THE CONSPIRACY TO ALLOCATE TERRI-TORIES AND CULMINATING WITH SANTEE-COOPER'S PROPOSAL TO GAIN CONTROL OVER CENTRAL, THE CONDUCT OF SCE&G AND SANTEE-COOPER AFTER THE ATTORNEY GENERAL'S ADVICE LETTER HAS BEEN DESIGNED TO PREVENT CENTRAL'S ENTRY INTO BULK POWER SUPPLY BUSINESS AND TO WEAKEN CENTRAL'S ABILITY TO SUPPLY THE POWER REQUIREMENTS OF ITS MEMBER COOPERATIVES.

The realignment in the competitive structure began with SCE&G's exercise of monopoly power in exchange for the agreements on territorial competition.

Prior to the formation of this combination between SCE&G and Santec-Cooper in 1973, Santee-Cooper was an actual and pote itial competitor of SCE&G. In its Original Petition, Ce.itral summar ized the competi tive role of Santee-Cooper from 1935 to 1973 and the efforts undertaken by SCE&G and other private utilities to prevent, impede and obstruct the competitive vitality of Santee-Cooper.

Once Santee-Cooper succeeded in entering the wholesale power market, Central linked its destiny to Santee-Cooper by financing and constructing a large transmission system in central South Carolina and leasing said systems to Santee-Cooper for integration with its power facilities.

Santec-Cooper's operation of these facilit,ies was under a plan in which Santee-Cooper would meet the interest and principal obligation on facilities over the period required to amortize the outstanding indebtedness and therafter it would succeed Central as the owner of these facilities.

At the very heart of this agreement was the premise that Santee-Cooper would retain its competitiveness.

Beginning in 1973, Santee-Cooper has changed its role from a competitor of SCE&G into a competitor of Central and its members. Santee-Cooper has now aligned itself with SCE&G and the emergence of a duopoly began in earnest in 1973.

The new marketing policy of Santee-Cooper, and the realignment of competitive interests in South Carolina in 1973 gave Central great concern over the stability and cost of. its future power supply (See Affidavit of Pat Allen, at 18 ) . Following the realignment of interest in South Carolina, Central embarked on efforts to secure opportunities for bulk power supply alternatives apart from the continued purchases from Santee-Cooper.

4 The most practical and economical alternative would be for Central to engage in the construction and operation of bulk power facilities. As pointed out by the Appeals Board in Consumers, entry into the bulk power business is contingent on securing access to power exchange services and facilitics. Since SCC &G and Santee-Cooper control all ot the high voltage transmission in the area in which Central markets power, obtaining power exchange services from these utilities is necessarily crucial to Central's entry into the bulk power business.

In the Spring of 1974, Central commenced negotiations with Santee-Cooper to obtain power exchange services or facilities'. Central sought ownership interest in thermal generation and transmission in proportion to the respec-tive loads of Central and Santee-Cooper. If Central was able to secure ownership interest in transmission, or obtain in some other way power exchange services, Central would no longer be at the mercy of Santee-Cooper, who has the discretion to fix Central's wholesale power costs without governmental supervision.

Santee-Cooper flatly turned down Central's request for an ownership interest in backbone transmission located in Central's service area and built by Central with REA loans. A significant port. ion of these high voltage trans-mission lines are not needed by Santee-Cooper to integrate its own load or to engage in power transactions with interconnected utilties.

Although Santec-Cooper did of fer Central participation in its part of the Summer Unit, no definitive proposal has been forthcoming, and there has been the implication that Central would have to assume certain heavy financial burdens that could destroy any benefits flowing from Central's ownership interest.

Central's efforts to secure power exchange services from SCE&G have also been unsuccessful. In the Saluda hydroelectric relicensing proceeding before the Federal Power Commission, Central sought license conditions which would require SCE&G to engage in power exchange transactions.

These license conditions were patterned after those used in NRC proceedings. In March 1977, SCE&G refused to engage in the power exchange services requested by Central, except that it did agree to wheel discrete amounts of power between discrete points on a case by case basis.

Such a wheeling policy is hardly sufficient and would obviously frustrate Central's attempt to enter the bulk power business.

Central did direct further inquiries to SCE&G on wheeling, but SCE&G has yet to make a response.

To date, therefore, Central's efforts to secure power exchange services and facilities from SCE&G and Santee-Cooper have been unsuccessful. Central remains ,

totally dependent on Santee-Cooper in a market structure which has drastically changed since the agreements on territory.

In late September 1978, Santee-Cooper forwarded a merger proposal to Central's management. A copy of Santee-Cooper's proposal is attached as an exhibit to Mr. Pat Allen's af[idavit In this offer, Santee-Cooper proposed that Central would become a subsidiary of Santee-Cooper but would lose its " identity and function by becoming a Cooperative Relations Division of Santee-Cooper".

Central's employees would be on Santee-Cooper's payroll.

Central's Board would become an " Advisory Board". In short, Central would fall under the complete control of Santee-Cooper.

It is noteworthy that SCE&G tried to acquire Central in 1963. SCE&G's offer is also attached as an exhibit to tir. Allen's af fidavit.

Central has an all requirements contract with Santee-Cooper but this contract expires in 1987. In 1987, Santee-Cooper is obligated to furnish less than 10% of Central's anticipated power requirements for that year. Given the re-alignment in the competitive structure since 1973, plus the fact that Santee-Cooper's rates are unreviewable by govern-mental agency, the very future of Central is now in jeopardy.

If Central cannot perfect adequate power supply arrec.; r ats before 1987, the bulk power supply function of Centi al a would be assumed by either SCE&G or Santee-Cooper. Both SCE&G and Santee-Cooper have taken actions since the Attorney-General's Advice Letter which would have the effect of preventing Central's entry into the bulk power supply business. SCE&G and Santee-Cooper have taken actions since the Attorney General's Advice to eliminate retail and wholesale competition between them. Santee-Cooper and SCE&G have' agreed to permit retail competition for loads in excess of 750 KW, as long as the loads are in the territory of Central's members. These acts demon-strate a thorough and complete change in Santee-Cooper's role in the market structure in South Carolina--c significant change given Central's almost total dependence on Santee-Cooper for power supply.

The realignment in the competitive structure does not flow from state legislation. The change in the com-petitive market structure results from private agreements between SCE&G and Santee-Cooper to restrain competition, and Santee-Cooper's willingness to forego competition with SCE&G in exchange for participation in the Summer Plant.

The ominous nature of this fundamental change in Santee-Cooper's competitive role is demonstrated by Central's unsuccessful efforts to secure power exchange services and f acilities, Santec-Cooper's impleraentation of the dual rate contract, and Santee-Cooper's of fer to gain .

control over Central's bulk power supply function.

Thus, beginning in 1973, Santec-Cooper changed its competitive role in South Carolina and has now aligned itself with SCELG. Given the unwillingness of SCE&G and Santee-Cooper to provide power exchange services and f aciliti es to Central and Centra]'s dependence on Santee-Cooper for power supply, it is hardly surprising that Santee-Cooper made its merger proposal.

In summary, the following significant changes have occurred since the Attorney General's Advice Letter:

(a) SCE&G exercised its monopoly power in the power exchange market by conditioning Santee-Cooper's participa-tion in the Sunnmer Unit in exchange for an elimination of competition at retail and wholesale.

(b) Santee-Cooper has changed its competitive role and marketing policy and has thereby aligned .itself with SCE&G.

(c) SCE&G and Santec-Cooper do not compete for loads of 750 KW or greater outside of the three county .

area, although both of these utilities have agreed to compete with Central's members for these loads.

(d) Santee-Cooper has implemented a dual rate policy for large loads.

(e) Santee-Cooper has agreed to restrict its sales in the wholesale market.

(f)

Both SCE&G and Santee-Cooper have refused to provide power exchange services and facilities to Central, thereby preventing Central f rom constructing and operating bulk power facilities.

(g) Santee-Cooper has of fered to acquire control over Central's bulk power supply function.

Taken together, these acts indicate a desire to eliminate competition between SCE&G and Santee-Cooper, as well as an attempt to climinate Central as an actual or potential competitor in the relevant product markets.

In summary, Central has established that the signifi-cant change in the market structure does not flow from state legislation. The key change in the market structure is Santee-Cooper's realignment of its competitive role in South Carolina. This realignment was not caused by the State legislature but by private agreements reached between Santec-Cooper and SCE&G. The ominous nature of this change in Santee-Cooper's competitive role is exemplified by several private acts of SCE&G and Santee-Cooper occurring after the passage of the territorial law, and these acts do not even arguably flow from state legislation. Thus, even if it is assumed that the terri-torial agreements are shicided f rom antitrust scrutiny under Parker, a significant change in the market structure i has occurred as a result of Santee-Cooper's agreement to relinquish its competitive role in South Carolina, and to align itself with SCE&C in the competitive market.

The significance of this realignment to Central's future as a bulk power supplier is established by the attitude of SCE&G and Santee-Cooper on power exchange ser Ices, the implementation of the dual rate, contract, and Santee-Cooper's merger proposal.

IV. THE OPERATIVE DATE FOR DETERMINING "HE EXISTENCE OF SIGNIFICANT CHANGES IS THE DATE OF THE ATTORNEY GENERAL'S ADVICE LETTER.

The statutory language is clear on this point:

"Provided, however, that paragraph (1) shall not apply to an application for a license to operate a utilization or production f acility for which a construction permit was issued under section 103 unless the Commission determines such review is advisable on the grounds that significant changes have occurred subsequent to the previous review by the Attorney General..."

The Attorney General's Advice Letter was issued on March 31, 1972. All of the significant changes advanced by Central have occurred subsequent to this date. The Commission cannot vary the plain wording of the Act.

The legislative history of section 105(c) supports this conclusion. In the Report by the Joint Committee on Atomic Energy, the Committee stated unequivocably that the phrases "any license application," "an application for license" or "any application" refer to the initial e

application for operating license or for a construction permit. Any amendment to the construction permit or operating license does not trigger antitrust review.

After the filing of the initial application and concomi-tant review by the Attorney General, the Commission must make a finding oi significant changes occurring subsequent to the Attorney General's review of the initial application for operating license prior to triggering the provision of section 105(c)(1).

V. THE ATTORNEY GENERAL DID NOT CONTEMPLATE OR CONSIDER THE SIGNIFICANT CHANGES COMPLAINED OF BY CENTRAL.

The Attorney General's Adtice Letter was issued on March 31, 1972. The Advice Letter does indicate the Attorney General's awareness of Santee-Cooper's efforts to secure participation in the Summer Unit. However, the negotiations were still in progress on March 31, 1972, and the Attorney General was not notified of the successful completion of these negotiations until May 17, 1974 (See Memorandum in Support of SCE&G's Motion to Dismiss, at pp. 7-8).

It is apparent, therefore, that the Attorney General was not aware of SCE&G's execcise of monopoly power at the time of his Advice Letter.

With respect to the territorial restrictions, the Attorney Cencral does state that retail competition between SCE&G and the cooperatives will be seriously curtailed in the future, "but only as a result of the change in 4 South Carolina law". This change in South Carolina's law does not refer to the 1973 territorial bill, which was enacted 15 months after the Advice Letter, but to the 1969 territorial law that defined the retail service territories of SCE&G and Central's members.

This conclusion is buttressed by the fact that the Attorney General referred to retail competition between SCE&G and the cooperatives rather than retail competition between Santec-Cooper and.these systems. Further, acco rd ing to Mr. Davis' af ficiavit, Santec-Cooper's Board did not even authorize territorial negotiations with SCE&G until May 22, 1972, or two months after the Advice Letter.

Therefore, the Attorney General did not consider the antitrust implications of SCE&G's conditioning of Santee-Cooper's participation in the Summer Unit in exchange for the elimination of wholocale and retail competition.

The Attorney general could not have possibly been aware of the section governing competition for 750 KW loads, the implementation of the dual rate contract by Santec-Cooper, the negotiations since 1974 on power exchange services and facilities, and Santee-Cooper's merger proposal.

Further, the Attorney General has not considered the significance of the realignment in the market structure in South Carolina since 1973, and Santee-Cooper's new role as a competitor in the relevant market structure.

If the Commission has any doubts on whether the Attorney General anticipated these changes, it may consult wi th the Attorney General. The Joint Committee stated that it would expect the Commission to " consult with the Attorney General in regard to its determination respecting signiiicant changes." Id.

CONCLUSIOtt Central Electric Power Cooperative, Inc. respectfully requests that the Commission find that significant changes have occurred since the Attorney General's Advice Letter of Maren 31, 1972, and thereafter refer the matter to the Attorney General for bis advice.

Respectfully submitted, W b Wallace E. Brano "fdward E. Hall Attorneys for Central Electric Power Cooperative, Inc.

DATED: January 31, 1979

CERTIFICATE OF SCRVICE I, Wallace E. Brand, hereby certify that I have served a copy of the foregoing Amended Petition of Central Electric Power Cooperative, Inc. for a Finding of Significant Change and Opposition of Central Electric Power Cooperative to Motions of South Carolina Electric &

Gas and Santee-Cooper to Dismiss or for Summary Dis-position on the persons listed below by depositing a copy thereof, postage prepaid in the United States mail this 31st day of January, 1979.

Y#:-te Wallace E. Brand Mr. W. C. Mescher, President South Carolina Public Service Authority 2 2 3 t9 . Line Oak Drive ,, Q .J/'y f.y ,.N.s P.O. Box 398 d Moncks Corner, S.C. 29461 .' A El q #- ' 0 .\

U.S. Nuclear Regulatory Commi:.sion [4;Ih'k

.A Office of the Secretary '3 Attn: Docketing and Service 1, ranch f,,.?(#

'p+ 6 hashington, D.C. 20555 >

.s Troy B. Connor, Jr., Esquire .c .,$i.

Robert H. Rader, Esquire Conner, Moore and Corber 1747 Pennsylvania Avenue, N.W.

Washington. D.C. 20006 U.S. Nuclear Regulatory Commission Office of the Executive Legal Director Washington, D.C. 20555

Mr. P. T. Allen Execu tive V.P. and General Mgr.

Central Electric Power Cooperative, Inc.

P.O. Box 1455 Columbia, South Carolina 29202 C. Pinckney Roberts, Esquire Dial, Jennings, Windham, Thomas &

Roberts P.O. Box 1792 Columbia, South Carolina 29202 Eddie Roberts, Esquire South Carolina Electric & Gas Company 328 Main Street Columbia, South Carolina 29218 Hugh P. Morrison, Jr., Esquire Charles F. Leeper, Esquire Cahill, Gordon, Reindel 1819 11 Street, N.W.

Suite 900 Washington, D.C. 20006 Joseph J. Saunders, Esquire Antitrust Division U.S. Department of Justice Washington, D.C. 20530 4

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AFFIDAVIT PATRICK T. ALLE:1, being duly sworn, on personal knowledge, information and belief, deposes and says:

1. I am general manager of Central Electric Power Cooperative, Inc.

(hereinaf ter Central).

2. I succeeded Mr. E. V. (Brick) Lewis who died suddenly in September, 1976. Following his death, I acted as general manager and subsequently was officially ap;icinted general manager.

3. iir . Lewis had been general manager of Central for many years, and '

additionally supervised and personally conducted Central's state legislative activities. He became very familiar with the state legislative process and was consulted on legislative matters dealing with electric power.

4. In the period 1H0 to September,1976 I held the positions of Chief Engineer and flanager of Engineering and Construction for Central. During this period my of fice was near that of fir. Lewis and we frequently discussed n2ny ma tters of cnneern to Central, including the matter of the power marketing policies of the South Carolina Public Service Authority (hereinaf ter Santee Coo;'e r ) .

2 5.

Based on my discussions with Mr. Lewis and my own knowledge of the state legislative process, I am certain that the legislation restricting Santee Cooper's retail service area by and large to three counties, and our-porting also to restrict Santee Cooper's wholesale power marketing must have been carefully worked out in advance by agreement between Santee Cooper and other private utilities in South Carolina. The only alternative is that the impetus for the legislation came wholly from one or more state legislators, and I simply cannot conceive that this was the case. Further, that would be inconsistent with the information ! re.:cived from Mr. Lewis who also advised me that the Santee Cooper's agreement to the territorial and customar alloca-tion was obtained in exchange for a participation in SCE&G's Surr.er 'bclear Unit.

6.

By "aoree'nent", I do not mean there is necessarily a formally executed contract. I would not expect to find such a document. I do believe that fur-ther inquiry will show meetings between the parties to discuss and agree on principles of territorial and cu :.omer allocation, exchange of draf ts of pro-posed legislation to reduce those principles to writing, and final agreement '

n a single draf t to be jointly suomitted to the legislature and vigorously lobbied there until enacted, the intent of the parties being that state ap-proval of the agreement miijht protect then fro.? liability under the anti-trust laws.

7. Central opposed this legislation. Finally, Mr. Lewis came to tne conclusion tha t it would p.ise. even over Central's opposition ard attempted t e omeliorate i ts harmful impact by includinr: in the legisla tion an emerMnen .

re.: airing Santec Gwer to include nn it s i;n.ird of Directors a persen who i ,

f amil iar wi:': th .itf.iirs u . ec:ric cev:erni..m.

3 S. The new marketing policy of Santee Cooper, and the realignnant of intere.sts in South Carolina as a result of this agreerient gave Central great s.nn cen over the stabili ty and cost of its f uture po.zer supoly. At the pre-sent time Central relies almost entirely on Santee Cooper for its power supply which it obtains pursuant to a term contract subject to renegotiation as to price. Following the change in Santee Coeper's role Cee. tral deternined that it nust necessarily secure opportunities for bulk power suoply alter-natives apart from the continued purchase of firn power in bull from San *.ee Cooper. It should l'e noted that Santee Cooper's wholesale rates to Central are not subject to the approval of any reaulatory conmission. ,

9. The most feasible and proferable alternative would be for Central i tsel f to enter in the construction and operation of bulk power surnly faci-lities, it previously had constructed a large generating and transmission syste:' which it still owns, but it 'has leased these facilities to Santee Cooper for the most part at a time when Santee Cooper .ias pursuing a more competit ive role vis-a-vis the established erivate utilities. Ho.zever, the previous pa ttern of contracting t eLucen Central and Santee Cooper oave San-tc. Cooper exclusive control over al! generation and trans:nission in the a c:r:':ined Central-Santee Cooper l'ulk ;:ower supply system, even that large par-tion financed, constructed and still owned by Central. Furthernare, under

e. is ting contracting arrangement , ti tin to the existing thencal generatir.q and t ransmiss ion facilities owned by Central will vest in Santee Cooper at

?he tic'e the indebtedness in these' fdC ili tles i c. paid oft.

10. A t l ea e. t a s ea rl y it e, the Spring of IW1, we co::rencnd n > cot ia t ions with Santee Cooper to obtain the power exchange facilities or servicec we unuld reed to ent er the t u iness o f epera t i .g . ar o.-In bulk powar supalv vi,trn and hav ng . ure cont rol over our o,. i ( a t . Ou r neet i'".4 t h f ar .e,.

Cv!'e have ront ipuhl up io the tim nf the fi!icg af th s i pe'i:in ..

4

'In general we sought an ownership interest in thermal generation and in tranmission in proportion to our, respective loads. Currently, Central's load is about 501 of Santec Cooper's total load. If we were abic to obtain this ownership it;terest, or in some other uay to obtain the necessary power exchange services, we would no longer be subject to the discretion of Santee Cooper in our wholesale power costs unreviewable by any governmental body. As shown be-low, we have also attempted to secure power exchange services from South Caro-1ina Electric & Gas Company (hereinafter SCESG) with a similar lack of success.

The foregoing electric systems who are joint applicants in this proceeding con-trol almost all the high voltage transmission in the area in which we market electric power. Obtaining power exchange services from either or both of them is necessarily crucial to our obtaining any ;iower exchange services fror.

other power suppliers.

Santee Cooper flatly turned doun our rwnership interest in backbone trans-nission. It made a generally stated offer for our participation in the Surmer Nuclear Unit but further inquiries have never resulted in a definitive pro;csal uith ar.y numbers we could evaluate, and there has been the implication that Central would have to assume certain heavy financial penalities which might destroy any benefit to Central of such ownership. Of course the key to bulk ,

power supply independence by Central is ownership or use of backbone transeis-sion and our ef forts in this regard have been completely unsuccessful.

11. To put into prospective our power supply predicament, I note that our full requirements contract with Santec Cnoper, as construed by that Authority, cor.t inues only un til apprc,xi;:a tely 1987. Af ter that , our "C" pov.er cc.ntract ex;rires, and we have under our "f" power contract, as construed by Santee Cooper, a continuino enti t lement of only 600,000,003 Wii per year, less than 10 of our prnjected ;;11 requirement- for 1987 whic h is presently estimated at 7,419,000,000 m::1 Given t he long lead t ime needed to plan and construct generation, we have inc reasinn conc, r.: as we oe: further into 1970 and our lead tine decreases tviov, eich: yea s

5

12. I cannut recall ever receivingor learnin; abor

• a notice of a pro-posed operating 'icense apparently published in March or April of 1977 in the Federal Register. I do not as a matter of course read that publication.

My first knowledge of any matter at the fluclear Regulatory Cerar.ission came abcut sometime in 1977 when I received a telephone call frcm a f-r. Chanania, an attorney for the f RC <ho inquired about a proceeding before the Federal Power Cor:nission, now the F.E.R.C., in which we were an intervenor. I re-ferred him to our attorney in that proceeding, !!r. Crisp, who I presur.e gave him the information he needed. In June, 1978,itr. Chanania scheduled a visit to our offices in Columbia, South Carolina along with his associate, a Mr. Zelinsky. tle answered their inquiries as best we could but as a result of that meeting we became aware of the Dossibility that we might have some rights under the Atomic Energy Act and i.;;nediately retained an antitrust attorney to study the facts and deter.aine whether under that law we werbj be able te obtain the ;10wer exchan:)e services we had been un.a51e to otuin voluntarily, either from Santee Cooper cr from SCEf.G. as will be detailed a

below.  !!is study was completed late in ilovember,1978, about four or five months later, and shortly thereafter we authorized the filing of the ir.stant petition in this proceeding. If we hac "ealized at an earlier time that we h.:d rights under the Atomic Energy law we could assert in this preceejing, we unuld have filed this petition at an earlier time. Since our load is just as large as Santee Cooper's loads apart frem curs. we will suffer just as t ut h harn frvm undue delay in r:rantint: an operating licent.e as they .il?.

13. We did assert our rinhts in a proceeding befcre the Federal c..e-Co: mission involvina the relicensint: of tne Saluda hydroelectric projec.

o f SCEi.r.. In toit prect. ' pr: v.e ee . <. A ir..: i positicn of lice- se c.?ndi -

t iens un is h v.o ; r, .. . i r. KE % tc c- . m ;e..cc e>charv:. t ransac t ic ;

6 with other utilities who requested such services. The particular conditions we reques ted were modeled af ter those previously imposed on electric utili-ties by the fluclear Regulatery Commission. Shortly a fter our intervention in that proceeding in February,1977, our attorney, Mr. r-isp, and our engineer, fir. David Springs, rcet with representatives of SCE!.G ta present a prcposal for a voluntary undertaking on power exchange ser .c J m;,eled af ter the undertakings of utilities in ?!RC proceedings. There was a second meeting on fiarch 22, 1977 which I attended. SCESG was represented by f fr. tiarry Path, f tr. George Fisher and other'.. Our request was rejected.

SCE!.G did raake an of fer to wheel discrete a::ounts of po.;er between discrete points on a case by case basis. This would not r.ect our needs since a policy of wheeling where alt?rnate transmission was feasible and not wheeling where altarnate transmission was infeasible, would frustrate our ability to supply bulk power. ficuever, we made further inquiries in one case where point to point uhteling night prove helpful to see whether there was anything to their

ropesa l . To date we have not received any definitive response to our request.

14 Central is a comparatively larqc bulk cower suoplier with current l n d of about 700,000 kilowatts. It and its ne.-ber distribution systems can play an im,.ortant cmpetitive role in the State e' South Carolina in keeping ret.T il re te; dos . but it can only do so if it can maintain a stable, la.-i-cost

mer supply which we have great concern it can da in the fu are if it cannot secure ,tccoss to T tieti tive al ternativet to porchases frcm f.antee Cooper.

In de 50 in tod6y's mark.t, i t mus t ha ve .1.v:' <. t o t ho ' c pn.. r e.. change ser-

. ic .'s necessa ry frir :l' tnt the ver< larqos; eit;tric ut.iiitie . wnc in the'-

. r ves c fern e ;i.,....e . en uu;r

7 15.

1:e are in a particularly bad situation so far as c:' .'eting for large loads , wh ich is perrai t ted under Sta te law. SCE5G .md other private utilities may compete in our viembers' service territory but we and our embers are not permitted to compete in theirs. With Santee Cooper's new dual rate policy to us on large loads, our co : petition for tnese loads will be badly restricted whether our coripeti tion is SCEF.G or Santee Cooper.

16. At the present time, Santee Cooper has interconnections with both SCE?.G and CP&L Co., but in in73 and prior years it had intercar.nections usef.:1 for two-wr/ interchange only with SCE!.G Accordingly, if it w2nted to obtain nuclear participation power, it would have had to c'eal with SCE!.G or with so; e '

other utility it could reach only throach SCEF.G's transmissic lines.

17. On information and belief, Santee Cooper uses the tic-line-bias cetnad of area control, operating as a separate control area, givino to and receivir.g non.' tic pool assistance from many other control areas of utilities ir.ter-connected by hiah voltage transmission lines in sp. ace extendica north to Canada, south to the Gul f of flex ico .ind wes t to the Rocky Mountaias.

13. On October 5,1978, Santee Coopor sent to us a proposed agenda (atteched hereto as Exhibit "A") and meircrandum recarding a forthco'.ing meeting at which '

Santee Cooper desi ed to discuss the merger of Central into SS : tee Cooper. If we are unable to make adequate porter supply arrangements for the years following 19P,7, the two logical candidates for acelui',it ion of Central are Santee Cooper and SC E F.G , the two applicants for license in this tereceeding.

19. In and about 1963 defendants, tonethw with CP$t ard Dat e Peuer Cocpany Co:.hined ta make and made a ,ioint of fer in i.archasepetitiener !entral GC and als.a cach and ever, indepentent ru' al dist ri! at ion electrf r

• 30ernive in the en t i re s ta te o f Sou t h Carol in.i; a conv O f .us.n :'f fer is beinc. :t tac'ted heret- e E Afl i b i ! "ii

8 further, deponent saith rot. __

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PhtrickPT. A' Ten.~Cxecutive Vice Presi-dent and Ger.eral ttanager Central Electric Power Cooperative, Inc.

Subscribed and sworn to before '

me this 2_Q_ day. of January, 1979.

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f:otas y Public t!y Co.mni s s ion , Ex pi res11_T:><o I

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, ,. page 1 of 5 William C. Mescher President and Chief Eaccutive offecer i

October 5, 1978 9 'J1-

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Mr. P. T. Allen Executive Vice President h5 g

and General Manager g.;, j '

Central Electric Power Cooperative, Inc. /.Y'" k '

Post Office Box 1455 Columbia, SC 29202

Subject:

Proposed Agenda for Central-Santee Cuoper Meeting October 30, 1978, at Hampee Enclosed is a proposed agenda of items we wish to discuss at our October 30 meeting. Please add any items Central wishes to discuss.

Also enclosed is a three page listing of merger related items I prepared for Mr. Davis. The merger route is, to my way of thinking, the only obvious solution to the problems facing Central and Santee Cooper if one cuts through all the fancy words regarding an " organization's idealogical,, ethical and socio-economic-political views and standards which underlie, and are consis-tent with, the organization's policies, goals, and objectives" and takes a cold professional look at the reasons Central, the REA Coope:ratives, and Santee Cooper were created, now exist, and should or should not continue to exist. .

It is my understand 1ag from discussions during our last meeting that the goal of our October 30 meeting is to agree on proposed actions to be taken to our respective Boards for serious consideration. Since we will, therefore, be dealing with policy, ano not detail, Mr. Davis and I, without staff or con-sul tants, will represent "We Cooper.

Sincerely, William C. Mescher

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. s Proposed Agenda Central-Santee Cooper Meeting October 30, 1978, 9:30 A. M. , Hampee I, Merger of Central-Santee Cooper A. Precedent B. Required approvals C. Advantages D. Disadvantages E. Organization structure after merger II. Shared Ownership, Nuclear A. Cost considerations

1. Construction

2. Operating

3. Priority Bond Supplemental Indenture requirements B. Central rate based on Cost of Service C. Reserve requirements D. Wheeling E. Ownership percentage III. Shared Danership, Fossil A. Cost considerations

1. Property

2. Construction

3. Opera ting 4

B. Central rate based on Cost of Service C. Reserve requirements D. Wheeling E. Ownership percentage

page 3 of 5 Merger of Central-Santee Cocoer Organizations Central-Santee Cooper October 30, 1978, Meeting Discussion Item V. Mescher 9-28-78

1. Precedent A.

Eastern Nebraska Public Power District (a Central type organization) voluntarily petitioned Omaha Public Pcwer District to merge their organization into OPPD. Verger occurred January I,1965.

B.

Norris Public Pmser District (a Central type organization) voluntarily petitioned OPPD to merge their organizations into OPPD. OPPD declined request.

C. Desert Electric Cooperative (a distribution co-op) merSed into Southern California Edison in the mid-1960's.

II. Outside Approvals Necessary A. South Carolina General Assembly .

B. United States through REA as the holder of Central Notes Ill. Possible Reorganization Actions A. Central keeps its corporate identity and function but as a subsidiary of Santee Cooper.

B. Central loses its identity and function by beceming a Cooperative Relations Division of Santec Cooper. The Division could be staffed by existing Central employees located at Central's existing Coluchia headquarters building. .

C. Central employees transferred to Santee Cooper payroll at same or higher level of responsibility, benefits, and compensation.

D. Santee Cooper Board expanded to include additional directors with cooperative background.

E. Central Board could become Advisory Board to Santee Cooper Board.

F. Santee Cooper assumes responsibility for Central contracts, notes, mortgages, and other obligations.

G. Santee Cooper add a rider to all Central member-coop contracts restating:

page 4 of 5

1. Co-ops exclusive rights to all present and future distribution voltage plant, customers, etc. in their territory.

2. Co-ops exclusive rights to all future electrical loads under 750 KVA in their territory.

3. Co-ops rights, at the customers' option, to future loads in excess of 750 KVA in their territory.

IV. Merger Advantaces A. Reduce Central member-coop wholesale power cost by the .4.Junt of Central add-on charges.

B.

Eliraina te the increased cost of wholesale power to Central member-coops if Central acquires an ownership share in generation.

C.

Eliminate Central-Santee Cooper duplication of effort; Accounting, Administration, Engineering,Line Cons truction, etc.

D.

Strengthen Santee Cooper's position in the mney market by removing the growing concern of the Rating Agencies and Investors regarding Central-Santec Cooper future long-term relationships; "All requirements" to 1987, 600 million KWH minimum af ter 1987.

E.

Eliminate the inherent problems associated with proposed joint our.ership of fossil or nuclear generation:

1. Cost accounting

2. Wheeling

3. Reserves F. Eliminate the early call penalty on the Priority Bonds and the A-B Loan Central would have to pay to acquire an ownership share of the Summer fluclear Station (above and beyond the station construction and operating 4 costs) to satisfy the requirements of Santee Cooper's Supplemental Inden-ture dated July 1. 1949. Sections 10.01 and 12.01 state, in part, that monies obtained from the sale of property suitable for operation of the System must be deposited in the Cond Fund and used for the redemption of the Bonds and acceleration of the !qstallment payments on the A-B Loan.

Assuming Central acquires an ownership interest in excess of $50 million, the following conditions would exist:

1. The Priority Bonds would have to be called and possibly the A-B Loan paid in full. There are 572.2 million of Priority Bonds and the $2.6 million /-B Loan outstanding.

The Priority Bonds are prescotly selling at about $70 but would be called at $101.50 for a penalty of S31.50 per

$100 for a total call penalty of S22.7 millien. The S2.6 million A-B Loan at 2'. is equivalent to about S700.000 at 7? or an early payment penalty of 51.9 r illion. The gross penalty of S?4.6 million war d riqhtly be an obligation of Central since Santee Cooper rate payers should not be code to pay a penalty for Central to acquire ownership.

page 5 of 5

2. Since the Suniner sale nonies would be used for Priority obliga tion payments and not to construct future plant -

and thereby reduce the size of future bond issues, Santee Cooper would have, as it turns out, sold bonds to pay of f the Priority obligations.

G.

Strengthen Santec Cooper nanagement and professional organization by addition of Central employees to Santee Cooper staff.

11 .

Improve promotion and compensation opportunities of Central employees.

V. Merger Disadvantages as Possibly "iewed by the Various Involved Parties A. Santee Cooper viewpoint -

Santee Cooper-Coop relationships are conplicated by increasing number of contact points from one (Central) to fifteen (individual co-ops).

B. Central viewpoint

1. Loss of corporate identity

2. Loss of monetsry compensation and status by doard Directors C. Individual Cooperative May view the merger as a lessening of their control over their future power supply and wholesale rate.

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CENTRAL ELECTRIC Mr. D. M. Grainger, President POWER COOPERATIVE Central Electric Power Cooperative, Inc. (NC.

R:-3 Nichols, Scath Carolina

Dear l'.r. Grain;;or:

Last spring the South Carolina electric cooperatives recuested the South Carolina Tax Study Co==ission to datorsine what taxes electric cccperatives ahuuld pay. In a hearing before that Com:sission on August 00, 106,3, tne three major electrical utilities serving in South Carciina, as a =easure of the t.nes which the cooperatives would pay if they sore ta.xed o.. the sa=e basis as investor-owned uti.itics, stated that they would be willing to purchase any or all of tua electric cooperatives in South Caro-lina and pay taxes on thcsc ,roporties and electric pcwer on the sano basis as t axes are now ;, id by these utilities. Of fers sere then mado to purchase each eicctric cooperatite operating in ' his State. For your infor=ation, a copy of a letter succtantially similar to that sont to each cooperative is attacted.

Eccause Central's facilities exist in areas served by each of the three electrical utilities, this of fer is being :zade 4 jointly by them to Central.

Carolina Power L I.ight Cc=pany, Duke Power Co=pany and South Carolina Electric i Gas Cccpany herewith offer to purchase all of the facilities of Central Electric Cooperattve, Inc., and there-a fter to fulfill all of Central's obligations for the purchase ir.d salo of power as wall as obli.;ations related tc the construction, operation and saintenance of its trina:sissica f acilities.

The utilities agree , further, to ecploy all employees of Central Elcetric. These employees vill receive credit toward retire-cent for all of the years of their servico with Cantral.

This plan w-ill result in:

1) No higher ratos to Central Electric's custc=ers ,

0) Substantial benefit to Central's employees , in-cluding retirement, =cdical and life insura.ce.

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